Monday Links, News, and Commentary

Results of wells coming off the confidential list have been posted.



Updates

Later, 3:34 pm: Judge "slaps down" Mayor Bloomberg's "Big Gulp" ban; this is not a bit surprising. I would think there would be many ways to get around the law. That store owner who threw out $1,000 worth of 2-liter soft drink bottles and changed her menus acted a bit prematurely.

Original Post

Miscellaneous Links

Good for Starbucks: will defy Mayor Bloomberg's ban on the Big Gulp.

WSJ Links

Section R (Big Data):

Section C (Money & Investing):

• Commodities squeeze banks: could this be another reason the price of oil has dropped? It turns out that this is the lead story at Yahoo Finance, also, and reported by Reuters.
• Crude gets left out of latest rally: supply glut, slack demand overshadow other bullish forces
• The big challenge beneath Exxon Mobil's big buybacks from "Heard on the Street": 

If Exxon could have a do-over, it might have redirected more of that cash spent on buybacks toward capital expenditure and acquisitions. Instead, it seems Exxon didn't really buy into the notion of rising energy prices. Today, spending huge amounts, it is of necessity a believer. But it is paying the price for its earlier lack of faith. 

It also bet big on natural gas, as did COP. But they weren't the only ones. Just a few years ago, there were many, many stories of new natural gas import terminals along the Gulf Coast; now they are being converted to export terminals.

Section B (Marketplace):

• A toy maker leaves China, comes home to USA
• Drooping cable ratings pressure NBCU's cash cow
• US rules on ethanol squeeze oil refiners (the whole story reminds me of the stories I read of USSR central planning when I was in high school):

The sharp rise in ethanol-credit prices reflects broader problems with the 2007 law, which sought to drive increased use of renewable fuels. Another piece of the mandate, requiring industry to buy fuels made from nonedible plants, has run into trouble because there isn't enough supply to meet federal requirements.

The ethanol provisions require that the oil industry blend more of the corn-derived fuel with petroleum-based gasoline each year. The government required the use of about 13.2 billion gallons of ethanol last year. When an ethanol maker produces a gallon, the company receives a credit representing roughly that much ethanol. Such credits are subsequently bought by refineries to establish how much ethanol they have blended into fuel. If a refinery doesn't have enough credits, it can be fined.

Until now, refiners have been able to hit their quotas because about 10% of U.S. gasoline is ethanol. The U.S. consumed about 133 billion gallons of gasoline last year, according to the Energy Information Administration. That meant that about 13.3 billion gallons of ethanol was blended into gasoline, just above the requirement of roughly 13.2 billion gallons.

Section A:

• Telltale finding of heart disease: I wasn't going to post this story; I first saw it on Drudge yesterday; it was an old story (at least in my mind); a "dog-bites-man" story, but in the WSJ, so must be of interest to some:

Researchers who examined 137 mummies from four cultures spanning 4,000 years said Sunday they found robust evidence of atherosclerosis, or hardening of the arteries, challenging widely held assumptions that cardiovascular disease is largely a malady of current times.

• "King Coal" has a huge one-page ad sponsored by Peabody Energy, the World Coal Association, WorldCoal.org, and CoalCanDoThat.com: "On the contrary, Mayor Bloomberg: coal is the world's fastest growing major fuel. 

• Agency move hints at shift in China's one-child policy; huge story; one suggestion: allow two children and greatly expand adoption rules for childless couples overseas

• Op-ed: green cars have a dirty little secret (this might end up as a stand-alone post)

For proponents such as the actor and activist Leonardo DiCaprio, the main argument is that their electric cars—whether it's a $100,000 Fisker Karma (Mr. DiCaprio's ride) or a $28,000 Nissan Leaf—don't contribute to global warming. And, sure, electric cars don't emit carbon-dioxide on the road. But the energy used for their manufacture and continual battery charges certainly does—far more than most people realize.

A 2012 comprehensive life-cycle analysis in Journal of Industrial Ecology shows that almost half the lifetime carbon-dioxide emissions from an electric car come from the energy used to produce the car, especially the battery. The mining of lithium, for instance, is a less than green activity. By contrast, the manufacture of a gas-powered car accounts for 17% of its lifetime carbon-dioxide emissions. When an electric car rolls off the production line, it has already been responsible for 30,000 pounds of carbon-dioxide emission. The amount for making a conventional car: 14,000 pounds.

Leonardo DiCaprio has never impressed me as the sharpest knife in the drawer. Cue up Connie Francis.

ObamaCare -- This Is What It Has Come Down To -- Cut Jobs or Cut Hours? -- NBC

This is very, very interesting. The talk all day on CNBC has been about whether an increase in the minimum wage would hurt jobs. This is almost hysterical -- what a great way to change the discussion.

First, the minimum wage issue affects a very small percentage of all full-time workers in the US; ObamaCare affects all full-time workers, and will re-define "part-time" worker. Second, the minimum wage proposal is just that: a proposal. ObamaCare is here and now. Third, many states already have higher minimums. This discussion on the minimum wage has simply caused some folks to take their eye off the real job-killer: ObamaCare.

It is truly amazing how the mainstream media can be ... well ... in football it's called a head fake.

[On a completely different note, a bit of trivia on the minimum wage. There are exemptions even in minimum wage laws:

Many home health care aides are exempt from federal minimum wage and overtime laws, due to a little-known provision in the Fair Labor Standards Act passed in 1974, which puts them in the same category as casual babysitters. The Obama administration has been trying to change that over the past two years, but its efforts have been met fiercely with lobbying from the industry. 

I find that absolutely incredible. Minimum wage for McDonald's teenagers but not for home heath care aides. It certainly is obvious who has the lobbyists in Washington. Reported by CNNMoney, March 11, 2013.]

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

Having said that, at least one reporter kept her eye on the ball: a CNBC reporter is noting that large firms are deciding how they will pay for ObamaCare. She says it pretty much comes down to cutting jobs or cutting hours which is a pretty old story by now. But for those who are not "newsaholics" this may still be news.

Interestingly, the rules have not yet been set:

"There's going to be a lot of complexity," said Neil Trautwein, Employee Benefits Policy Counsel at the National Retail Federation (NRF).

The Obama administration is expected to finalize the new rules by spring. So far, Trautwein and others have said officials have been responsive to business concerns about the details.

"We've made some progress on the question of variable workers," he said. It's likely the final rules will include a one-year look back period of an employee's weekly hours to determine full-time status, so that the mandate isn't triggered for seasonal workers.

CNBC did not report this in the story: the government will determine the number of full-time workers, not the employer. The way ObamaCare is set up, a company that thinks it has 35 full-time employees and 15 part-time employees, may in fact hit the 50-employee threshold and be subject to the mandate.

This is why:

Part-time employees can count toward the 50 full-time-employee limit.

According to the Congressional Research Service: The hours worked by part-time employees (i.e., those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120.”

The CRS provides an example: “For example, a firm has 35 full-time employees (30+ hours). In addition, the firm has 20 part-time employees who all work 24 hours per week (96 hours per month). These part-time employees’ hours would be treated as equivalent to 16 full-time employees, based on the following calculation: 20 employees x 96 hours / 120 = 1920 / 120 = 16."

In the example above, this firm would be considered to have more than 50 full-time employees because of the way that part-time employees are counted.

Bottom line: CNBC is asking whether employers will have to cut jobs or cut hours. It looks like they will have to do both, especially those employers right on the cusp of 50 employees. 

Wells Coming Off Confidential List; Legacy With a Nice Spearfish Well; EOG With Two Nice Wells; Compare Three Murphy Creek Wells; Zenergy With A Nice Well; Hess With a Huge Well; Whiting With a Nice Red River Well

RBN Energy: Isobutane -- Part I in a series on pricing, production of isobutane

Montana oil production tax: Random update of the oil activity in eastern Montana and debate over raising oil production tax, The Missoulian. 

Wells coming off the confidential list over the weekend and Monday:

Monday, March 11, 2013

• 22133, 388, OXY USA, Mongoose 1-13-24H-142-95, Murphy Creek, t9/12; cum 15K 1/13;
• 22364, 138, Legacy, Legacy Etal Bernstein 5-17H, Red Rock, t10/12; cum 13K 1/13;
• 22962, 860, EOG, West Clark 5-2425H, Clarks Creek, t12/12; cum 37K 1/13;
• 22963, 1,908, EOG, West Clark 102-2413H, Clarks Creek, t10/12; cum 34K 1/13;
• 23107, 1,213, MRO, T D Steffan 21-27H, Murphy Creek, t11/12; cum 26K 1/13; compare with the OXY USA well above,
• 23400, drl, Crescent Point, CPEUSC Suitor 13-24-158N-101W, Little Muddy, minimal production to date

Sunday, March 10, 2013

• 23210, 923, Zenergy, Cayko 22-27H, Dore, t1/13; cum 16K 1/13; 
• 23273, 492, Whiting, Froehlich 24-9PH, Bell, on a gas line; t9/12; cum 21K 1/13;
• 23300, 941, Hess, SC-TR Slette 153-98-1819H-3, Truax, t12/12; cum 46K 1/13;
• 23433, 301, MRO, Ivan Hoff 31-28H, Strandahl, t11/12; cum 3K 1/13;
• 23525, drl, SM Energy, Ceynar 4X-18H, Poe, no production data;

Saturday, March 9, 2013

• 22884, drl, Hess, LK-Wing 146-97-2215H-2, Little Knife, no production data;
• 22889, drl, Hess, LK-Wing 146-97-2215H-7, Little Knife, no production data;
• 22915, drl, BEXP, Roger Sorenson 8-5 2TFH, Alger, no production data;
• 23291, drl, CLR, Topeka 3-12H, Brooklyn, no production yet;
• 23330, 195, Whiting, Samuelson 23-32, wildcat (Beach oil field); a Red River well; t12/12; cum 10K 1/13;
• 23425, drl, BEXP Roger Sorenson 8-5 6TFH, Alger, no production data;
• 23520, 585, CLR, Jack 3-9H, Murphy Creek, t1/13; cum 7K 1/13;
• 23526, drl, SM Energy, Ceynar 4-18HB, Poe,

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22962, see above, EOG, West Clark 5-2425H, Clarks Creek, already on a gas line:

Date	Oil Runs	MCF Sold
1-2013	9352	6935
12-2012	27192	16142
11-2012	404	251
10-2012	26	101

22963, see above, EOG, West Clark 102-2413H, Clarks Creek, already on a gas line:

Date	Oil Runs	MCF Sold
1-2013	6529	12238
12-2012	12044	20782
11-2012	15063	25131

23210, see above, Zenergy, Cayko 22-27H, Dore, on a gas line:

Date	Oil Runs	MCF Sold
1-2013	13728	5877
12-2012	1944	0

23300, see above, Hess, SC-TR Slette 153-98-1819H-3, Truax, on a gas line:

Date	Oil Runs	MCF Sold
1-2013	17096	13340
12-2012	28888	6091

Received As A Comment To An Earlier Post

The following was a comment to an earlier post ("array" fracking). One cannot easily search comments, so I wanted to bring the comment forward where it could be more easily found.

I like your comparisons of the forward looking PE's. I too don't understand why the market values these Bakken growth companies similar to XOM from an earnings perspective. The only logical explanation that I can up with is the perceived risk that the market must see in these Bakken companies.

Going with that assumption, I don't see risk in the reserve estimates, in fact I see significant upside for all the reasons that you state. "Array" fracking only adds the potential for upside. Early data points from these companies, both what they have stated publicly along with the data that one can see from the NDIC site are certainly positive indicators that we'll see an increase in EUR's as knowledge around the correct spacing evolves.

And then you look at the Lynn Helms discussion around the "gusher" NW of Watford City. Whether that turns out to be a step function in EUR's or not, it illustrates to me that there is the very real potential that a step function could occur in the near future. Certainly a huge financial incentive for the oil companies as well as the service companies to innovate.

There certainly is the risk around regulatory interference in fracking, which should be considered. And there are the macro economic risks that the price of oil could collapse. Hedging helps in the near term, but if prices stay low for too long the hedging won't provide indefinite protection.

I've also read some analyst who worry that the 'break even' point for Bakken oil is quite high. In my view, those analysts have it wrong. They are looking at current returns against current expenditures and concluding that the cost to produce oil is very high. The companies IRR numbers are very strong. If I could get 50%-80% IRR on every dollar I invest, I think I'd be extremely happy.

And then consider cost improvements, differential improvements and additional efficiency gains,and you start to really drive the bottom line figures which only drive the PE down or the share price up.

Up until this past year (or so), some of the Bakken-centric companies (particularly KOG) had outlandish P/Es, but now they seem to have swung to the other end of the continuum.

We may be seeing low P/E's for three reasons:

• most agree the Bakken-centric companies are priced to "perfection." Any glitch (regulatory, global economy, falling oil price, etc) and share prices will fall precipitously (based on history);
• everyone agrees one needs deep pockets to pay for these very expensive Bakken wells; pad drilling makes each well less expensive, but each pad becomes much more expensive; and, 
• relatively unknown to mutual fund managers and retail investors.

Two other thoughts:

• for growth, there are much better opportunities; many feel the "easy" money has been made in the Bakken; considering that one could have bought KOG for 60 cents/share several years ago, and that was before share dilution when additional shares were issued; and, 
• for value, there has been a noticeable turn to dividend-paying companies, which does not include many Bakken-centric operators. 

At least that's my 2 cents worth.

Disclaimer: this is not an investment site; do not make any investment decisions based on what you read here. 

Another Pipeline Reversal? Northeastern United States, Canada's St Lawrence Seaway

This post will be up for a few minutes and then taken down, and placed in draft status.

I do that for the time-stamp, and then re-post if the information becomes relevant sometime in the future.

Read this story and then look at the map. 

In case the linked story is taken off the net, a quick summary: the last leg of the Canadian-US pipeline system necessary to move Canadian oil and/or Bakken oil to the east coast:

• pipeline from Sarnia, Ontario (60 miles NE of Detroit), to Montreal, Quebec (ENB Line 9)
• pipeline from Montreal, Quebec, to Portland, Maine (the Portland-Montreal Pipeline)
• the Portland, Maine, terminal

Once oil gets to the Port of Montreal, there may be some options for the Canadian oil shippers. Two options: a) pipeline through a corner of Vermont and New Hampshire to Portland, Maine, terminal (one of the largest oil import terminals in the US); b) oil tankers to the Atlantic via the St Lawrence Seaway.

US faux environmentalists/activists will do what they can to stop the reversal of the PMPL (pronounced "pimple"), and forcing decision to use the St Lawrence seaway.

One indication of how this goes will be watching for news stories of oil activity at the Portland, Maine, terminal.