Incredible! What I've Been Waiting For! Zeits On Global Crude Oil Re-Balancing -- April 2, 2018

I have a pretty good feeling for the crude oil inventory story here in the states. I have no idea with regard to global inventories. My hunch: we're being sold a bogus story, similar to the bogus story we're being sold in the US.

So, now, Richard Zeits comes to the rescue. I haven't read it. Here is the link. I'll read it and come back with comments, if the spirit moves me.

Zeits' summary: 

• OPEC's latest report suggests that the market for crude will be undersupplied by ~0.4 million barrels per day in 2018
• However, the forecast appears based on the assumption of anemic production growth in the U.S.
• OPEC's forecast appears to be in strong disagreement with the EIA's forecast

My summary:

• OPEC: talking its book -- Saudi Aramco -- global supply will be undersupplied
• OPEC: underestimating EIA's numbers and "forecast"

The question: what leads OPEC to underestimate the EIA"s numbers? 

• OPEC is correct -- global supply will be undersupplied
• OPEC is wrong
• OPEC is knowingly misleading for their own benefit
• OPEC honestly doesn't understand US oil industry 

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Comments.

This is the bottom line, worst case scenario -- OPEC's estimate -- "the global market will be undersupplied by 0.4 million bbls per day in 2018." That's the best OPEC can do? LOL.

"Millions" seems like a huge number -- especially on a "per day" basis.

But the "number" is not "millions." It is a paltry 400,000 bbls/day. That's against 100 million bbls of production daily. 400,000 / 100,000,000 = 4/1,000 = 0.4%.

Not only is that a rounding error, but if anyone thinks anyone can calculate the amount of oil sloshing around in tankers, pipelines, rail cars to that degree of accuracy ... is, well ... should I say, nuts?

Let's just take the Bakken alone. Currently producing 1.1 million bbls/day. "Everyone" predicts that the Bakken will set new production records this summer. New records mean that the Bakken (North Dakota) will produce in excess of 1.2 million bbls/day. North Dakota alone will add 100,000 bbls/day without breaking a sweat.

I've dropped the bubble for the Permian, but I'll let readers correct me. The Permian currently produces about 2.5 million bbls/day and will easily ramp to 3 million bopd by the end of the year (2018).  And that's just the Permian.

Let's add in Kashagan. Mexico's Gulf of Mexico. The US Gulf of Mexico. Let's add in Exxon's Guyana. Add in "Statoil's" new push off shore Norway. Subtract out Libya (inconsequential). Subtract out Venezuela (inconsequential). Both Libya and Venezuela will be offset by Canadian production if push comes to shove.

Bottom line: if the best OPEC can do is "threaten" a shortfall of 400,000 bbls/day this year -- this is great news for consumers, but not necessarily great news for oil bulls.

Other data points from the article:

• the OPEC "over-supply" number of 400,000 bopd, by the way, was reduced from its earlier month estimate, 600,000 bopd
• OPEC estimates 2018 crude oil demand growth will be equal to that of 2017: 1.6 million bopd
• OPEC: total oil demand will be 98.6 million bopd in 2018
• OPEC production for 2018:
• OPEC estimates: for 2018, now predicts supply to be 32.6 million bopd, down from 32.9 million bopd
• secondary sources: OPEC's crude oil production in February, 2018, declined to 32.19 million bopd from 32.26 million bopd in January, 2018, driven in great part by another big drop in Venezuela's volumes (32.26 - 32.19  = 70,000 bbls (seriously?  - these numbers are taken seriously?
• OPEC anticipates US crude oil production will grow by 0.52 million bopd from December, 2017, to December, 2018

My bottom line:

• the numbers don't matter
• what matters is perception
• OPEC needs to persuade analysts that there will be an imbalance, with demand exceeding supply
• nowhere in the article is current global supply mentioned
• in the US: crude oil supply sits at slightly less than 30 days
• globally: crude oil supply is approaching 70 days

Forecast for US crude oil production:

Venezuela imports (US), weekly, most recent data reported by EIA through the fourth week of March (about as current as one can get). Can someone please point out the huge drop in Venezuela  exports to the US? 

• 704,000 bopd most recently vs 439,000 bopd one month ago
• 704,000 bopd  most recently vs 506,000 bopd the previous week
• 704,000 bopd is the most since the second week in November, 2017
• Venezuela's exports to the US were down to 174,000 bopd in the third week of February, 2018, just a bit over a month ago

My two cents worth. The only case/hope for $75 Brent (currently $68 and falling) is

• increased global demand (fairly unlikely), AND;
• OPEC-Russia alliance remains intact (50-50 chance of succeeding through 2019), AND;
• Venezuela's case worsens (unlikely), AND;
• Canada shuts down its oil industry, AND ...
• ..... 

Wow, What A Treat -- The Myths Of Shale -- Richard Zeits -- March 22, 2018

One of the reasons I went into such depth on two Slawson wells was to eventually get to Part III: observations and comments regarding the myths of shale. So, what a treat to see Richard Zeits continue his series on the myths of shale oil.

Today, over at SeekingAlpha, the shale oil myth, "it is too light and no good." [The blog has talked about his often.]

Summary by Zeits:

• shale oil skeptics claim that the global crude supply is turning alarmingly light due to the growth of shale production
• the world is facing acute shortages of heavy and medium grades, the argument goes, and shale oil is of little help in meeting that demand
• market data indicate that the claim is without merit
• shale growth has been perfectly well accommodated by the global refining system
• shale oil is fully "sold out" and trades at premiums to heavy grades

Hubbert and Peak Oil folks never saw this graphic coming:

Observations from Richard Zeits:

Is the shortage of heavier crude grades acute? We would argue, not more so than the shortage of all other grades. While global demand for distillates has been on the rise, demand growth for lighter products - gasoline and naphtha - has also been quite strong. Light crudes have been sold out just as much as heavier crudes.

The global refining industry has proven very capable of using all available crude grades to meet demand for products and we do not see this changing anytime soon.

Amazingly, and coincidentally, Zeits has a great graph on the very day that John Kemp noted over on twitter that the delta between WTI and Brent was narrowing, almost nil.

I'll post that graph elsewhere.

More from Zeits:

On a per degree of gravity basis, the narrowing is ~$1/barrel per 10 degrees API for the Middle East and West Africa baskets. For the Gulf of Mexico example, the narrowing was more pronounced, roughly twice as great.

In percentage terms, the differentials narrowed by ~20% for the Middle East basket and ~30% for the Gulf of Mexico basket.

This is the measure of Mr. Market's reaction to what one might think of as a "perfect storm" for the global light/heavy supply mix. In other words, the impact of the lighter global supply slate on prices has been minimal.

In our interpretation, this market data disprove the claim that the global supply mix is significantly out of balance and the world is facing acute shortages of heavier crudes.

Much, much more at the link.

If there is a shortcoming in his essay today (and far be it for me to come up with anything negative with regard to Zeits, a "shale demi-god") it would have to be that he did not mention the reason behind and the importance of the Keystone XL. Although not treasonous to have stopped it, but ... I consider "killing" the Keystone XL right up there with the Continental Congress refusing to fund George Washington's troops so they afford parkas and water-proof boots.

Shale Oil Still Defeating Its Skeptics -- Richard Zeits -- March 8, 2018

Well done, Mr Zeits. Over at SeekingAlpha:

• macro models are finally catching up with unconventional oil realities: U.S. shales are competitive at low oil prices and volumes grew much faster in 2017 than many skeptics had anticipated
• in recognition of the operational trends, in the last three months alone, the EIA's STEO forecast for U.S. production was revised higher three times
• the production estimate for Q4 2018 was increased by a staggering 1.0 million barrels per day
• 2hile the agency's 2018 estimates for U.S. production are now not unreasonable, the 2019 projections are puzzling and face the risk of major upward revisions

With regard to the last bullet (the 2019 projections are puzzling and face the risk of major upward revisions), two comments:

• bureaucracies are by their very nature, very conservative; they would rather be wrong on the low side than the high side
• shale production is very, very sensitive to price swings and consumer demand

Archived.

Chesapeake Update -- Zeits -- February 13, 2018 -- For Newbies, Note The 2.6 BCF/D; The Importance Of DUCs -- Money In The Bank

Summary, link over at SeekingAlpha:

• Chesapeake guided to sequentially lower production volumes in Q1 2018, following a very strong Q4 2017
• spending within cash flow in 2018 means activity levels will be reduced as compared to the second half of 2017
• however, even with this consideration in mind, the full-year production outlook is underwhelming.
• with total debt again approaching $10 billion, Chesapeake cannot "drill its way out" of the leverage problem - significant asset sales is the only path to stability.

Then this:

For Q4 2017, Chesapeake Energy achieved its production goal of 100,000 barrels of crude oil per day, in-line with previous guidance. Natural gas and NGL production for the quarter were 2.6 Bcf/d and 59,500 b/d, respectively, above previous guidance.

These volumes represent a 10% sequential increase on a BOE basis, after adjusting for asset sales.

As a reminder, in the last six months Chesapeake significantly accelerated the pace of completions to monetize the company’s significant inventory of drilled but uncompleted wells.

During Q3 2017, Chesapeake emphasized completions in the Marcellus, Utica and Haynesville to position itself for winter demand for natural gas.

In Q4 2017, the company nearly tripled the pace of completions in the Eagle Ford, as compared to the preceding two quarters.

The “surge” in the number of new wells being brought online yielded an impressive ramp-up in production volumes during the second half of 2017.

The advantage of DUCs -- take note:

In retrospect, Chesapeake's decision to accelerate DUC conversions was well timed. Cash flows have benefitted from greater crude volumes sold into an attractive price environment that prevailed during the last several months. On the natural gas side, Chesapeake took advantage of the strong heating demand this winter for natural gas and NGLs.

Bottom line:

Chesapeake remains one of the most over-levered stocks in its peer group. If one were to plot the stock's trajectory versus several other high-leverage peers, the big decline since early January does not stand out as differential.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, or relationship-related decisions based on anything you read here or think you may have read here.

By the way, for newbies, note Chesapeake's natural gas production: 2.6 Bcf/d. This seems to be a number that resonates across the global energy sector. 

They Must Be Reading The Blog -- We Talked About This Five Days Ago -- The Huge (Unexpected) US Crude Oil Build -- Zeits -- February 12, 2018

Updates

Later, 11:28 a.m. Central Time: from Bloomberg's gadly -- OPEC's oil price nightmare is coming true. US shale production is surging on higher crude, now the fear is waning demand growth.

The latest surge in U.S. oil output will probably hasten the country's rise to the top of the producer pile. More important, it's starting to look as though at least half of OPEC's nightmare scenario for 2018 -- a surge in shale output and slowdown in demand growth -- is coming true.

Last week's avalanche of releases from the U.S. Department of Energy showed daily oil production above 10 million barrels a day for the first time since 1970.

A massive week-on-week jump of 332,000 barrels a day must be treated with caution, though. U.S. drillers didn't have a sudden rush of enthusiasm as WTI prices broke through a psychological $65 ceiling. Rather, the weekly data, which aren't revised retrospectively, are catching up with monthly estimates that give a more accurate picture of output.

For much of last summer, the weekly data were heavily criticized for over-estimating U.S. output growth. Now, the reverse is true.

Later, 11:17 a.m. Central Time: from the WSJ, OPEC revises crude supply forecasts on higher US production. Traders have grown increasingly concerned that burgeoning US production could once again flood the market.

In its closely watched monthly oil market report, the Organization of the Petroleum Exporting Countries said supply from producers outside the cartel should increase by 1.4 million barrels a day this year. Almost all of it comes from the U.S., where growth is expected to be 1.3 million barrels a day. 

• Brent closed at $62.79 on Friday. 
• Bakken: $50.86 
• reminder: one can find pricing for Bakken at this site

Original Post

 

We talked about this five days ago. 

Link to SeekingAlpha: a big build in petroleum inventories sends a warning signal. From Richard Zeits - the summary --

• last Wednesday the EIA reported a 1.9 million barrels increase in U.S. commercial crude inventories
• on the surface, the headline build in crude might appear modest
• however, the report in its entirety raises some concerns with regard to how tight the market for crude oil and petroleum products currently is. 

"The headline build in crude might appear modest." But this is the problem: the goal has been to decrease the inventory glut. This is going the wrong way. The time to "re-balance" has been extended by another two weeks, and now the tea leaves suggest US crude oil production will increase with WTI solidly above $55.

From the linked article:

The build in crude inventories reported last week must be taken in the context of refiner demand.

Refiner utilization jumped unexpectedly last week. Crude inputs into refineries were 0.8 million barrels higher week-on-week, resulting in a 5.6 million barrels ("MMb") increase in demand for crude, as compared to the previous week.

In the meantime, exports of crude oil and imports of crude oil were in-line with their respective two-month averages.

Even in this context, the build in crude inventories last week does not raise any major red flags. If anything, the data point shows a healthy balance between refiner demand and crude supply.

However, the big combined inventory build in crude and key refined product categories - which added up to 10.7 million barrels last week - is difficult to ignore.

Much, much more at the link including the rest of the story:

• Commercial crude oil: +1.9 MMb
• SPR crude oil: +0.5 MMb
• Gasoline: +3.4 MMb
• Distillate fueld oil: +3.9 MMb
• Kerosene/Jet Fuel: +1.0 MMb

This note:

The magnitude of the recalibration is quite remarkable and illustrates the fact that many forecasts for U.S. crude production - including the STEO - were caught behind the curve and now have to undergo significant adjustment. Market perception with regard to U.S. production growth trajectory is in the process of changing.

And then look at the graph:

From natural natural / wiki: Condensate produced from oil wells is often referred to as lease condensate. 

From the EIA, at natural gas / wiki -- a footnote:

A final point to consider involves the distinction between the very light grades of lease condensate (which are included in EIA's oil production data) and hydrocarbon gas liquids (HGL) that are produced from the wellhead as gas but are converted to liquids when separated from methane at a natural gas processing plant. These hydrocarbons include ethane, propane, butanes, and hydrocarbons with five or more carbon atoms – referred to as pentanes plus, naptha, or plant condensate. Plant condensate can also be blended with crude oil, which would change both the distribution and total volume of oil received by refineries.

Chesapeake Energy Exits Mississippi Lime -- Richard Zeits -- February 12, 2018

Link here to SeekingAlpha.

Summary:

• Chesapeake received an estimated $1,000 per acre for its Miss Lime acreage, excluding production
• the price received is reasonable and the transaction as a positive, albeit hardly material, development for the stock
• given the improvement in oil prices, Chesapeake is likely to put additional asset packages in the Mid-Continent on the auction block
• Chesapeake Energy announced last week its exit from the Mississippian Lime, the play that the company helped to pioneer several years ago
• we interpret the $0.5 billion price received for the properties as a success for Chesapeake

From the article:

Why are the buyers willing to pay half a billion dollars for properties that are producing less than 5,000 barrels of oil per day, have been extensively drilled and have a high operating cost?

Several factors could be the reason:

• A large portion of production is obviously quite mature and is characterized by a relatively low decline rate - which makes it more valuable.
• The buyer may find some promise in other zones on this stacked-pay acreage, which is held by production and represents a long-term exploration option in the event oil prices move significantly higher.
• The acquirer may be betting on achieving a meaningful increase in production volumes via workovers (which, arguably, were not the top capital allocation priority for Chesapeake).
• The sale includes production infrastructure that was originally configured for larger volumes and may have some value.

Assuming that the market value of the existing production is $250 million, the price received for the acreage is $1,000 per acre. We note again that the acreage has been significantly exploited. While several new play concepts have been advertised by Chesapeake and its peers, the success of those new plays is yet to be demonstrated. In this context, the price per acre received is quite reasonable.

Wednesday Morning Note -- February 7, 2018

Zeits: a paradigm shift in shale, over SeekingAlpha. The 2019 EIA US crude oil growth estimate is too low.

Active rigs:

$63.64↑	2/7/2018	02/07/2017	02/07/2016	02/07/2015	02/07/2014
Active Rigs	58	40	42	136	192

RBN Energy: implications of the mercurial 2017 Asian butane market.

The Outlook For US Condensate Looks Brighter -- Richard Zeits -- February 5, 2018

Continuing his discussion of the lights and the ultra-lights, Richard Zeits has a new essay on US condensates over at SeekingAlpha:

• condensate for delivery in Asia are commanding strong premiums over crude benchmarks
• U.S. condensate producers are well positioned to grow volumes in 2018, notwithstanding fundamental uncertainties in natural gas
• U.S. super-rich gas plays have seen activity declines in the last three years but may experience a revival in 2018

• Bakken oil: approximately 50° API
• ultra-lights: 55.1°+ API

Condensates are typically low-sulphur crudes and are characterized by a low cost to process. Naphtha yields are obviously high (naphtha is used as gasoline blending components and petrochemical feedstocks). However, it is important to remember that heavier condensates also have significant middle distillate yields.
Naphtha-based ethylene margins in northeast Asia and middle distillate margins have been excellent in the last few months. At the same time, the supply of light sweet crude to Asia tightened a month ago due to the unforeseen interruption on the Forties Pipeline. As a result, demand for condensate has not been fully satisfied.

Another great introduction to condensates. Archived. 

I Have To Call It A Day For Now -- Leave You With This -- Off The Net For Awhile -- Zeits On US Light Oil / Condensate Production -- January 24, 2018

Link here over at SeekingAlpha.

Summary:

• claims that U.S. crude growth is dominated by super-light and ultra-light grades is a misconception
• in fact, production data show the opposite trend
• she super/ultra-light component of the U.S. crude stream has shrunk significantly in the last three years
• a recovery in these categories is in progress. In our expectation, future volumes will surprise to the upside 

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Tammany Hall Redux

I have two books on my nightstand that I really enjoy: one I have had quite some time and it often ends up back on the shelf only to be pulled down and placed back on the nightstand, and then a more recent one. Neither of them are "about" Tammany Hall (NYC) but both of them have devoted a considerable amount of space to Tammany Hall.

When I read about Tammany Hall, I immediately think of Barack Obama. He came close to re-establishing his version of Tammany Hall. If Hillary Clinton had been his successor, without a doubt, Tammany Hall would have been re-created. It would have just gone by a different name.

Monday, January 16, 2018

Zeits: US production of NGLs is skyrocketing. 

• U.S. production of NGLs and fuel ethanol exceeded 5 million barrels per day in October
• NGL production growth is likely to remain very strong in the next five years
• The abundant supply of low-price NGLs is a strategic advantage and powerful growth stimulus for the U.S. petrochemical complex

Filloon: on Anadarko.

The Delaware Basin has seen the greatest increase [in production]. It is deeper than in Midland, and the best results have been located on the border of the oil and gas windows. Depth and higher natural gas percentages work in concert to produce better well pressures. We are seeing excellent results across multiple counties. Multiple intervals provide an number of optional targets, and marked upside for operators. 

Delaware costs are also decreasing as infrastructure increases and operators get more comfortable with the geology. 

EOG Resources has had the best results.

This isn't just in the Delaware, as it has produced new records in several plays across the US. Matador has also done well. It has acreage in the Delaware core. Concho may be the best way to play the Delaware. It has the best overall footprint of any Delaware operator.

Anadarko has two main areas of focus in the L48. The Delaware Basin is its flagship and it has a very large leasehold in the DJ Basin. We pulled 99 horizontals completed by APC since January of 2016. Forty-one locations have laterals longer than 7,000 feet. APC is starting to see some excellent results out of Loving County. It has been using laterals between 7,000 and 8,000 feet. These results are a large improvement over recent years [not quite as long as "standard" length in the Bakken].

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Back to the Bakken

Active rigs:

$64.05↓↓	1/16/2018	01/16/2017	01/16/2016	01/16/2015	01/16/2014
Active Rigs	55	36	49	157	187

RBN Energy: tracking the effects of Energy Transfer's Rover pipeline on gas flows, production.

October, 2017, US Crude Oil Production Data To Be Released Later This Week -- Richard Zeits -- December 26, 2017

EIA to report US crude oil production for October, 2017, at the end of the week. Richard Zeits forecast and my comments:

• 9.45 million bopd; above the 9.28million bbls/day implied by the EIA's weekly estimates
• Zeits reminds us that October, 2017, production was strongly impacted by Hurricane Nate
• Zeits again wades into the controversy regarding EIA forecasts
• oil peak folks think the EIA is overly bullish
• Zeits thinks EIA may be under-estimating the oil industry
• the best "news": unless I missed it, Zeits did not mention rig count; CNBC was still emphasizing rig count as the best way to measure/forecast US crude oil productivity

The Bakken Strikes Back! -- Richard Zeits -- December 20, 2017

Let's see if Mr Zeits mentions the new record set by North Dakota.

Link here, over at SeekingAlpha. In case that link breaks, the story was re-printed by peakoil.com.

Summary:

• October production data for the Bakken validates operators' claims of strong early-time well performance in the play's core
• current prices provide a powerful growth stimulus not yet reflected in the volumes
• Continental Resources has advertised 15-month payouts for its wells in the Bakken Core in a $50 per barrel WTI environment, which implies exceptional returns

Data points:

• The preliminary data shows a ~76,000 barrel per day step up in October for production from the Bakken. This equates to ~7.2% growth - in one month. Previously posted.

This is so cool: I posted almost the same graph a month ago:

More, from the linked article:

The report gives fresh food for thought to those investors who have written the Bakken off as a play that is running out of prolific locations, is uneconomic at current oil prices and therefore is irrelevant as a contributor to supply growth unless oil prices rise significantly above the recent levels.

We assume the cost to drill, complete and connect a new well of $7.5 million. Such wells are likely to reach payout in less than three years. In our assessment, many new wells in the Bakken Core would fall within that category (excluding infill wells in existing drilling units on tight downspacing, which may fall short of this threshold).

No, I did not see it. No mention that North Dakota set an all-time BOE production record in October, 2017.

And, of course, no mention of "Peak Oil." "Peak Oil" doesn't work for individual wells in unconventional plays; doesn't work for oil fields; doesn't work for basins; doesn't work for nations; doesn't work globally.

Many, many graphs at the linked article. Will archive.

By the way, do you remember this headline article in Forbes: the beginning of the end for the Bakken shale play by Art Berman. Another doofus. The lede:

The decline in Bakken oil production that started in January 2015 is probably not reversible. New well performance has deteriorated, gas-oil ratios have increased and water cuts are rising. Much of the reservoir energy from gas expansion is depleted and decline rates should accelerate. More drilling may increase daily output for awhile but won't resolve the underlying problem of poorer well performance and declining per-well reserves.

Summary, Notes And Comments -- Monday, October 9, 2017

Crude Oil, Natural Gas and The Bakken

WTI closed below $50 again today; not much change from Friday. The fundamentals and the tea leaves suggest that $50 is about where we will be for the foreseeable future. The only "fly in the ointment" or "great unknown" is what Saudi Arabia will do with that possibility. Saudi Arabia simply cannot survive on $50-oil and they will have to resort to extreme measures, one would think, if they want oil to trend toward $60. But I'm not convinced that even $60-oil at this time would be of much help.

Richard Zeits has an article over at Seeking Alpha regarding the government's release of crude oil from the Strategic Petroleum Reserve. Most of the release was previously mandated and scheduled by Congress; a smaller amount has been/will be released following Hurricane Harvey, but that crude oil is expected to be replaced bbl-for-bbl by the refineries who "borrowed" that crude oil. It may or may not an interesting story, but for me the whole issue is immaterial.  Even Zeits said so:

From a long-term supply perspective, it would be correct to allocate these volumes over the entire year. When allocated, the impact of the net ~9 million barrels of extra supply on average global market, or ~25,000 b/d, is immaterial.

At best, the release of crude oil from the SPR might have a short-term impact on the price of WTI. As for me, I think the whole thing is a non-issue.

Somehow I can't get too excited about this Statoil discovery and announcement:

Norwegian oil giant Statoil has made the first fresh oil discovery in the UK North Sea this year, in a glimmer of hope for the declining basin. The discovery, made in the Moray Firth basin, could hold as much as 130 million barrels of oil, which would be worth around £5bn at current market prices.

A discovery here and a discovery there, and over time, it all adds up to a lot more crude oil, but in this case, 130 million bbls is about was North Dakota produces in less than six months, Statoil's 130 million bbls and £5 billion will be spread out over many years, I suppose. Maybe I'm just getting too cynical.

Tesla, EVs, and California

Over the past week there have been more and more stories regarding Tesla after it reported a huge miss in Model 3 deliveries. Those stories have been previously reported. Today, in which the Dow 30 and the NASDAQ were both essentially unchanged from Friday, TSLA was down almost $14 dollars (about 4%). Previously linked, the truth is catching up with Tesla -- The Wall Street Journal. Elon Musk says it delayed the "release" of its new truck because he (or the company) is now involved with "saving" Puerto Rico.

We've talked about this to some extent before but this is probably the best "analysis" of what it will "cost" if California bans conventional internal combustion engines as is presently being considered. Archived.

The Road to California

A reader writes that based on 76 cents / gallon  for federal and California state tax, then an additional $350 "highway use tax/fee" should be added to the annual registration of an EV. The reader's math: typical 10,000 mile at 20 mpg = 500 gal/yr = $350 gas tax per year. The owners of EVs will argue that "saving the world from global warming" is more important than paying for highway maintenance.

Global Warming

I don't know if folks remember that there were some reports a few months ago that President Trump was "reconsidering" his decision to have the US exit the Paris climate accords. From multiple sources including ABC News:

Speaking Monday in the coal-mining state of Kentucky, Environmental Protection Agency Administrator Scott Pruitt said he would be issuing a new set of rules overriding the Clean Power Plan, the centerpiece of President Barack Obama's drive to curb global climate change.

"The war on coal is over," Pruitt declared, adding that no federal agency should ever use its authority to "declare war on any sector of our economy."

It was not immediately clear if Pruitt would seek to issue a new rule without congressional approval, which Republicans had criticized the Obama administration for doing. Pruitt's rule wouldn't become final for months, and is then highly likely to face a raft of legal challenges.

And this is the biggest problem with executive orders and rule-making by various government agencies: policies that go back and forth, making it very difficult for companies to plan.

Politics

The tea leaves suggest President Trump's tax "reform" bill is dead. The tea leaves also suggest it won't be long before Congress will come under strong pressure to start hearings on "suitability" of Trump to remain as commander-in-chief.

The Market

Futures mean squat but all four major indices (Dow 30, NASDAQ, Russell 2000, and the S&P 500 are all positive .  

Richard Zeits' Analysis Of Carrizo's Recent Permian Acquisition -- July 1, 107

Link here to SeekingAlpha.

Summary:

• The Permian acquisition, while not inexpensive, improves the stock's risk/reward profile
• Divestitures will streamline the portfolio. The loss of the resource base will be compensated by the stacked-pay upside in the Permian
• Growth profile is unchanged in the near term and is more sustainable in the longer term.

Richard Zeits' observation regarding the price of the acquired property:

The acquired properties are of excellent quality but come at a high price, in-line with other comparable transaction in this specific area. Including the contingent payment, which I value for illustration at ~$75 million, the implied valuation is $33,000 per undeveloped acre.

My estimate is substantially higher than the $22,300 per acre metric provided by the company in its presentation (the company's estimate appears to exclude the contingent payment and is based on a somewhat arbitrary multiple of flowing production).

This is a great article to archive to see how one values the price paid for oil-producing assets. 

SM Energy Postpones Bakken Assets Sale; Exxon Mobil: Growing Dividends Mask A Shrinking Business -- Zeits -- May 16, 2017

Drawdown forecast: EIA forecasts a crude inventory drawdown of 2.2 million bbls -- Platts. At that rate, 2.2 million bbls/week, it will take 77 weeks for US crude oil inventory to get back to historical average: 350 million bbls in storage.

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Exxon Mobil: One Big Declining Utility

Link here over at Seeking Alpha:

• Historically, Exxon Mobil reinvested capital in its business at a much faster pace than in 2016 or 2017
• Still, historically, Exxon Mobil’s production volumes continued to decline
• Given the deep cuts in the current capex, few years from now the company will have even greater challenges stabilizing its production
• In this context, the recent dividend increase appears to take credit for accomplishments that are yet to happen

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SM Energy Postpones Divide County Asset Sales

Link here over at Bizjournals.

A Denver energy company has canceled plans to sell its assets in North Dakota, blaming the "uncertainty" of oil prices.

SM Energy Company earlier this year said it wanted to sell its Divide County area assets in the Williston Basin in northern North Dakota, and retained an investment bank to help make the sale.

But on Tuesday, SM Energy called off the sale.

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Process Vs Substance

With all the "stuff" coming out of Washington (DC) the last couple of days, one must remember to separate "process" from "substance." A quick scroll of the on-line edition of The Wall Street Journal will show readers what I mean. There were a couple of articles on Trump, Comey, secrets, and the Russians but then I was stunned to see this one: Moves to ease gun-carrying restrictions expand. A combination of federal and state legislation could free up limits on carrying concealed firearms. 

More states are giving their residents the right to carry a concealed handgun without permission from authorities—including two this year, bringing the total to 12—while Congress is considering legislation to make that right portable across state lines.

New Hampshire, for example, eliminated the need for permits this year, allowing anyone who can legally own a gun to carry it concealed in public.

If bills introduced by Rep. Richard Hudson (R., N.C.) and Sen. John Cornyn (R., Texas) become law, a New Hampshire resident could bring his or her concealed handgun to any other state, even those such as New York that require their own residents to undergo vetting and obtain approval from law-enforcement officials for the same right.

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The Literature Page

I just finished the biography of Bram Stoker, author of Dracula, by David J. Skal. At the end of the day, this biography becomes a reference book, perhaps important enough to be on one's bookshelf.

This review may be helpful. 

COP Update From Richard Zeits; COP On Path To Becoming A True Independent -- April 16, 2017

From SeekingAlpha:

• By selling natural gas assets in Canada and San Juan, COP has effectively become an oil-driven operator in North America
• Very few dry gas assets are left in the company's North American portfolio
• While a spike in natural gas prices could make the divestitures look under-priced, the divestitures appear to make financial and operational sense
• Without access to the industry's leading-edge sweet spots – which were scarce in COP's portfolio - competing in natural gas is a recipe for weak returns

Archived.

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Stetsons and Old Spice

From Jacquielynn Floyd's nice article in today's Dallas Morning News, "What's left behind":

At one time in my life my walk-in closet would have looked like that in the photo above. Not any more. My Stetsons (all two of them are elsewhere) and I have long quit using Old Spice.

Scorecard -- Top Ten Predictions For 2016 (Last Year) -- RBN Energy -- January 2, 2017

Natural gas: Arctic blast, huge draw, and prices falling. What gives? Richard Zeits over at SeekingAlpha. 

RBN Energy:  RBN Energy takes a look at its 2016 "prognostications" and evaluates how well they did.

Active rigs:

	1/2/2017	01/02/2016	01/02/2015	01/02/2014	01/02/2013
Active Rigs	39	60	171	183	183

For those interested in the Bakken, nothing that follows has anything to do with the Bakken. 

I think it's time for waffles. And another pajama day here in north Texas. Cold, wet, dark, loud.

By the way, speaking of waffles, we were introduced to the Waffle House phenomenon when we returned to the United States following a 13-year tour of Europe and Asia, courtesy of the United States Air Force.

We thought moving back to the states after being gone for thirteen years was going to be a shock. We had lost a decade of US "culture." I am still catching up to all the music that hit the charts from 1984 to 1997. But our return was less than a shock than it could have been. Our first stateside assignment after two years in Turkey was Alabama. Our teenage daughters (and my wife, for that matter) noted a lot of similarities between Turkey (the country) and Alabama (one of the 57 states).

Our biggest shock, and I think that's the correct word, was Waffle House. If you northerners have not had the chance to experience the Waffle House experience you are in for quite a treat. Even the Coen brothers were taken aback by the experience (video clip not shown due to language).

Waffle House is ubiquitous in the Deep South, but not as many here in north Texas. I am aware of two (and I assume there are many, many more). One is north of Ft Worth, near the Texas Motor Speedway (which seems fitting). The other, I keep forgetting, except I noted it yesterday when bicycling, is just down the hill from our nearby Wal-Mart.

Speaking of Wal-Mart. A lot of folks, me included, have problems with some  refugees coming to America wearing their native dress, suggesting there is little interest by some to become part of the American culture (which might be understandable). After seeing some of the body shapes and "un-dress" in Wal-Mart, I'm beginning to think the US would be well served if a certain segment of the population would start wearing the abaya. Just saying.

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Too Big To Merge

Although the Washington Post slanted the story a different way, the fact is the merger between Blockbuster video and Hollywood Video was nixed by acknowledgement that the US government would probably not allow it based on anti-competition (monopoly) grounds.

I was always quite surprised that Cabela's thought it could buy Bass Pro Shops. Can anyone name any other national hunting and fishing mega-retail that can possibly come close to what Cabela's or Bass Pro Shops offer?

It turns out the FTC is taking a "second look."

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Last "Man" Standing

I sent this in an e-mail to a reader, with some slight editing. It's not ready for prime time, but I want to post it before I forget it:

It looks like the GOP House is serious about ObamaCare being first thing on their agenda.

It will be fascinating to watch. If they can kill it, regardless of what health insurance looks like in is place, the ONLY thing that Obama has for a legacy is gone. The textbooks will NOT have one PROGRAM that they can point to that Obama accomplished in his administration (that lasted).

I still think the GOP runs huge risks on this, but if they get this behind them within the first six months, the public might forget, but if this drags on and whatever replaces it is even worse, the media will have a field day. As it is, the media is going to be all over this.

The good news: I don't think anyone with any money or power supports ObamaCare. The health care industry does not support it; neither Trump nor 50%-plus of Congress supports it, and I doubt Schumer wants to stake his career on an Obama program. Pelosi may be the last "man" standing.

Analysis Of Recent Chesapeake Divestiture -- Zeits -- December 18, 2016

Updates

December 20, 2016: second Haynesville sale in last week or so by Chesapeake.  Data points:

• 41,500 nets acres; 326 operated and non-operated sites
• buyer: Dallas-based Covey Park Energy, LLC
• $465 million 
• $11,000 / acre
• Chesapeake says it has now exceeded its 2016 asset sales goal by $500 million, bringing total gross proceeds from divestitures signed or closed this year: $2.5 billion

Original Post 

I thought I had posted a short note on this. If I did, I can't find it -- whatever. I know I debated whether to post it. This is not an investment site and natural gas, Chesapeake, and divestiture analysis was getting a bit far afield of the purpose of the best non-commercial (no ads/no subscription) blog on the Bakken. I don't even have the Haynesville linked at the sidebar at the right. Whatever.

But my editor said, "go ahead and post it. What have you go to lose? It's not like you have any subscription base to worry about. Speaking of which, why aren't you posting ads? You could at least post a small 'gofundme' link. Think about it. Do it for Sophia."

Not tonight.

Here's the link to Richard Zeits' analysis: http://seekingalpha.com/article/4028484-chesapeake-energy-favorable-price-received-haynesville-divestiture. Key points:

• Zeits thought the deal was good for Chesapeake
• Chesapeake received an estimated $10,000+ per undeveloped core acre in Haynesville
• acreage is 100% HBP; 25% developed
• greater than 200% improvement in year-over-year gas production
• 78,000 net acres; 40,000 net acres considered "core"
• the map suggests that Chesapeake sold its less valuable acreage

Much more at the link.

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Zsa Zsa Is Dead At 99 

I assume the Kardashian of her age. I don't know much about Zsa Zsa. But I seldom missed an episode of Green Acres in which her sister starred. In another life, I suppose, Donald Trump would have played the part of Mr Douglas, played by Eddie Albert. Ted Cruz had a cameo. 

With Guest Star, Ted Cruz

California: Bovine Fart Backpacks -- December 12, 2016

Futures? WTI up over 4.4% overnight -- $53.77 right now. Dow futures up 20 points; S&P down 0.02%. At  opening: CVX surges; EOG surges; SRE, not so much; COP surges; even BRK-B is up a bit. 

Peak oil? This may be the most important story all week. From Bloomberg, China is cutting about 300,000 bopd this year, more than the combined cuts announced over the weekend by non-OPEC countries excluding Russia. China's decline in production will continue into 2017 (next year) at about 200,000 bopd. By the way, this was reported by The WSJ back on August 25, 2016:

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.”

I think this is why some analysts suggest there could actually be a "deficit" in global oil production in 2017.

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All that cash: judge rejects Pennsylvania recount. 

The JV Team update. ISIS re-takes Palmyra, Syria.

Filloon's oil update: the OPEC/non-OPEC deal and 2017 investment opportunities in the oil patch.  This was posted earlier; note the comments.

Saudi cutting more than expected: another contributor at SeekingAlpha. 

For those who like graphs: natural gas short sellers left in the cold. The headline is all you need to know. I can't imagine 1 out of 100 reading this. Seriously. From Richard Zeits over at SeekingAlpa.

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Climate change reality in California. From The Los Angeles Times, the state may have not thought this through very well (or not at all). The "state" has mandated a 40% cut in CO2 emissions from 1990 basis. No one really knows what that means. It will require the state to "go back" to sometime in the 1960s with regard to transportation and industry.

California will be the only state with such an ambitious agenda. They will go it alone. The 40% cut in emissions will have a 1% effect on global emissions. 

With regard to the dairy industry and cow farting:

At a heated meeting in June, dairy officials pleaded with the Air Resources Board that they already reduced methane emissions. Air board scientist Ryan McCarthy suggested that new technology could help, and the discussion turned to an experimental system from Argentina that would capture gas in a backpack on each cow through a hose inserted into their digestive system.

They will use space-suit technology from the US moon landings in the 1970s. Bovine fart backpacks.

I can't make this stuff up.

The article suggests that this was a shot across the bow, a warning shot, that the legislature's top priority this year and next: re-do their plan.

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Active rigs:

	12/12/2016	12/12/2015	12/12/2014	12/12/2013	12/12/2012
Active Rigs	40	65	181	191	184

RBN Energy: Mexico's increasing reliance on US motor gasoline and diesel.

Mexico’s consumption of motor fuels is rising, its production of gasoline and diesel continues to fall, and U.S. refineries and midstream companies are racing to fill the widening gap. The export volumes are impressive: deliveries of finished motor gasoline from the U.S. to Mexico averaged 328 Mb/d in the third quarter of 2016, up 41% from the same period last year, and exports of low-sulfur diesel were up 29% to 194 Mb/d. And there’s good reason to believe that U.S.-to-Mexico volumes will keep growing. Today we look at recent trends in gasoline and diesel production and consumption south of the border, and at ongoing efforts to enable more U.S.-sourced gasoline and diesel to reach key Mexican markets by rail and pipeline.

Mexico is still among the world’s largest energy producers, but its output of crude oil, natural gas and natural gas liquids (NGLs) has been falling for several years, as has the country’s ability to meet its own, internal need for key fuels: natural gas, liquefied petroleum gas (LPG), gasoline and diesel among them. This has caused a lot of angst for the Mexican government and for Petróleos Mexicanos (Pemex), the state-owned energy company, to the point that the country’s entire energy sector is being reformed, starting with a constitutional amendment in December 2013 to allow more foreign and private sector investment, and more competition. 

Most relevant to our discussion today is the fact that Pemex until April 2016 was the only entity that could import gasoline and diesel to Mexico, and that until early 2017 independent/third-party importers still cannot use Pemex’s existing pipeline distribution network (more on this in a bit). In other words, the Mexican motor fuels market is gradually opening up.

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The Market

Now that Trump has been elected president (well, maybe), the Fed is now free to "hike" the Fed rate.

Boeing seals $17 billion Iran deal; 80 jetliners. No link; story everywhere.

For the archives: a very, very bullish sign. 

Persia Rising -- Saturday, December 3, 2016

Active rigs:

	12/3/2016	12/03/2015	12/03/2014	12/03/2013	12/03/2012
Active Rigs	39	63	189	193	182

DAPL update: the one-two punch. Winter storm Blanche was a warning shot. The real storm hits this next week. And then we settle into twelve weeks of North Dakota winter. The AP, with a long story, has an update.

Heidi Heitkamp meets Trump: that pretty much sums it up.

OPEC: commentary by Richard Zeits. I don't know how I missed this one. The article is five days old. Fortunately Don caught it; sent it to me. The article itself doesn't say much, but that's in light of the fact that it's an old article. Maybe it read better the day it was posted. Whatever. Having said that, here are my thoughts, now, also five days late:

• at the end of the day, this is all about Saudi Arabia, not OPEC
• or maybe, at the end of the day, this is all about Saudi Arabia and Iran
• those two had to agree for the meeting to end on a positive note for OPEC
• Saudi Arabia gave "everything" to get this deal
• Iran gave up "almost nothing" to get this deal
• Persia rising
• the big story: the new Persian Empire
• Persia rising