NY Times Writer: Nominee For The 2016 Geico Rock Award -- July 19, 2016

From The New York Times. If necessary, google: how renewable energy is blowing climate change efforts off course. The article begins:

Is the global effort to combat climate change, painstakingly agreed to in Paris seven months ago, already going off the rails?

Germany, Europe’s champion for renewable energy, seems to be having second thoughts about its ambitious push to ramp up its use of renewable fuels for power generation.

Hoping to slow the burst of new renewable energy on its grid, the country eliminated an open-ended subsidy for solar and wind power and put a ceiling on additional renewable capacity.

Germany may also drop a timetable to end coal-fired generation, which still accounts for over 40 percent of its electricity, according to a report leaked from the country’s environment ministry. Instead, the government will pay billions to keep coal generators in reserve, to provide emergency power at times when the wind doesn’t blow or the sun doesn’t shine.

Renewables have hit a snag beyond Germany, too. Renewable sources are producing temporary power gluts from Australia to California, driving out other energy sources that are still necessary to maintain a stable supply of power.

In Southern Australia, where wind supplies more than a quarter of the region’s power, the spiking prices of electricity when the wind wasn’t blowing full-bore pushed the state government to ask the power company Engie to switch back on a gas-fired plant that had been shut down.

But in what may be the most worrisome development in the combat against climate change, renewables are helping to push nuclear power, the main source of zero-carbon electricity in the United States, into bankruptcy.

It's a great article but you will have to go to the link for the whole story.

The next president of the US will determine the direction the US takes with regard to unreliable, non-dispatchable, costly energy.

The writer of this article is a nominee for the Geico Rock Award -- anyone paying attention has known about this problem for at least the past decade. This writer and proponents of wind/solar have finally come from under their rock. What a great article.

My hunch is the US Congress is starting to see the mess we've gotten ourselves into.

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Happy Belly

This is most interesting.

I just received two bags of incredibly good trail mix from Amazon. For free.

Each bag is 16 ounces. I have finished one bag, but will probably save the second bag for a special occasion.

I went to Amazon.com to order more Happy Belly Trail Mix but was unable to find the product.

I googled: did Amazon discontinue Happy Belly trail mix.

Just the opposite.

This is a really, really interesting marketing "ploy." Amazon, apparently, is "carpet-bombing" the market with new products but making them available only to their Prime customers. I assume, Jeff Bezos hopes this will get the buzz going and induce more folks to sign up for Prime. A two-fer.

I was aware of the scheme but had not paid attention to the details. After being unable to find Happy Belly Trail Mix at Amazon, googling brought me to the explanation over at The Wall Street Journal:

Amazon.com Inc. in the coming weeks is set to roll out new lines of private-label brands that will include its first broad push into perishable foods, according to people familiar with the matter.

The new brands with names like Happy Belly, Wickedly Prime and Mama Bear will include nuts, spices, tea, coffee, baby food and vitamins, as well as household items such as diapers and laundry detergents.

The first of the brands could begin appearing on Amazon’s namesake site as soon as the end of the month or early June.

Consumers have warmed to private-label brands since the days of generically named products sold in plain white packaging. Today, retailers from Wal-Mart Stores Inc. to Sephora to Dean & DeLuca sell a range of in-house brands that some may even view as higher quality.

Amazon’s latest lineup is aimed at winning sales in niches with generally higher profit margins, as well as giving the Seattle retailer a potential edge in crafting new products ahead of its own vendors.

“Amazon is ‘carpet-bombing’ the market with new products,” said Bill Bishop, chief architect of brand consultancy Brick Meets Click. “Private label allows them to test out new prices and distinctive flavors with less risk.”

Mr. Bishop said private-label goods boast higher profit margins than name brands because companies save costs on marketing and brand development. And with Amazon’s rich trove of data, it may better predict which products will sell well to its customers.

Amazon will only offer the private-label products to members of its $99-per-year Prime membership, this person said, potentially giving the program a boost.

More at the link.

Healthy? Lots of nuts -- lots of nuts -- and unsalted. All types of nuts (including almonds and cashews), raisins, and a few M & Ms.

The Tesla Sweet Spot -- July 19, 2016

Comments later.

This graphic should be viewed in conjunction with this post: soccer moms, SUVs, and CAFE standards.

The new standards (2022 - 2025) will be hammered out starting in 2018.

Soccer Moms, Car-Based SUVs, Truck-Based SUVs, And CAFE Standards -- July 19, 2016

John Kemp posted this graphic today.

Idle comments regarding the graphic above:

• minivans are falling out of favor; gradually disappearing; folks who like minivans are probably transitioning to car-based SUVS
• car-based SUVs are increasing in sales whereas minivans are decreasing; the number of truck-based SUVs seems to have plateaued over the past five or six years
• pickups -- interestingly enough -- have actually been decreasing in sales in the past five years compared to the late 1990s / early 2000s
• if the US "manufacturing economy," housing, general economy picks up, we might see an increase in the sales of pickups, but it certainly looks like the soccer moms are calling the shots -- having moved to car-based SUVs over the past ten years

CAFE Standards:
 
Now, some thoughts on car-based SUVs, truck-based SUVs, and CAFE standards and how the federal government influences manufacturing patterns (and buying patterns).

Note that "car-based SUVs" and "truck-based SUVs" are differentiated. Hold that thought.

Back on February 21, 2015, I posted:

Pick-Up Trucks

I don't know if folks have noticed -- it's hard not to notice: pick-ups are getting bigger and bigger. In Texas they are really getting big. I never understood it; with the CAFE standards I thought automobile and light truck manufacturers would have been forced out of the "big pick-up" business. It turns out that, in fact, things changed. The change must have been seen by no one except the light truck manufacturers. BloombergBusinessweek has a huge story on why pickup trucks are getting bigger and bigger. The fact that BBW did a story on this suggests to me that a lot of folks were caught unaware. The link to the story is here. 

Many, many story lines. It has to do with CAFE standards which some doctorate student figured out in 2011:

Kate Whitefoot, a researcher at the National Academy of Engineering, came to believe that the new CAFE rules were tilted in favor of large pickup trucks while working on her doctorate in design science at the University of Michigan. In a 2011 article in the journal Energy Policy, Whitefoot and a mechanical engineering professor, Steven Skerlos, concluded on the basis of computer simulations that it would be cheaper to meet the new standards for big pickups than for small pickups, SUVs, or cars. “The goal of the policy was that vehicle size wouldn’t change at all,” Whitefoot says. Instead, “We’re seeing that it clearly is going up for trucks.”

Light truck manufacturers are reaping huge benefits from the new CAFE standards and their goal is to put every American in a pickup truck (although that's a bridge too far in Boston).

If you're read this far, then consider this, some dots to connect. Regular readers know that there will be a relative shortage of oil in 2017, possibly as early as 2016, as the majors shut down / delay / cancel "big cap" projects in 2014/2015 due to the slump in the price of oil.

Now, add that to the fact that auto and light truck manufacturers are out to put every American in a big pick-up truck. Those big pick-up trucks are gas guzzlers.

So, a perfect storm for some folks in 2017, maybe in 2016, certainly by 2018.

But it gets even better for oil and gas investors (see disclaimer): the CAFE standards that favor big pickup trucks (and possible bigger SUVs) do not change until 2022.

The NHTSA says it will look at the rise of big pickup trucks as part of a review of the CAFE rules that will apply to model years 2022 to 2025. That review doesn’t have to be finished until 2018, but the skirmishing has already begun.

But regardless of the new rules, they don't come into effect until model years 2022. That's seven years from now. Seven more years during which light truck manufacturers will try to get every American into a pickup truck. With an Apple dashboard.

For those who survive the current slump in the oil and gas industry, 2017 - 2022 should be awesome. That's still within my investing lifetime.

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The post on January 26, 2016, also dealt with the "perfect storm."

An additional thought. My hunch is that a new SUV purchased today will be on the road for ten (10) years. Think about that when looking at the John Kemp graphic above.

The August, 2016, EIA US Drilling Productivity Report Has Been Posted -- July 19, 2016

Link here.

Note:

The Drilling Productivity Report uses recent data on the total number of drilling rigs in operation along with estimates of drilling productivity and estimated changes in production from existing oil and natural gas wells to provide estimated changes in oil and natural gas production for seven key regions.

EIA's approach does not distinguish between oil-directed rigs and gas-directed rigs because once a well is completed it may produce both oil and gas; more than half of the wells produce both.

While shale resources and production are found in many U.S. regions, at this time EIA is focusing on the seven most prolific areas, which are located in the Lower 48 states.

These seven regions accounted for 92% of domestic oil production growth and all domestic natural gas production growth during 2011-14.

Of the seven, the Bakken is the only "almost" pure oil play. The Eagle Ford, with regard to oil comes next, but it also produces a significant amount of natural gas. The Permian produces both.

Interestingly, if you look at the regional map at the link, the EIA is not yet including the STACK/SCOOP in Oklahoma in their monthly productivity report.

By the way, for those interested, it is easy to go back and check EIA's predictions (at the link above) with the official monthly production provided by the NDIC. I have not done that and probably won't, but just noting that. However, just out of curiosity, April, 2016, production:

• official production per NDIC: 1,041,981 bopd
• EIA estimate released April 11, 2016: 1,047,000 bopd

The EIA estimates Bakken production to be:

• July, 2016: 998,000 bopd
• August, 2016: 966,000 bopd

The EIA Bakken estimate includes the Bakken in Montana in addition to North Dakota.

Devon Reports Its Record Meramec Well In STACK -- Oklahoma -- July 19, 2016

For newbies, this is an important story. Although it's in the STACK play in Oklahoma, there are similarities to the Bakken. First the story, then some comments:

Devon Energy Corp.’s Alma spacing pilot in the overpressured oil window of the Oklahoma STACK play tested five wells per section across a single interval in the Mississippian Upper Meramec, delivering 30-day production rates averaging 1,400 boe/d/well, of which 60% was light oil.

In addition to the strong initial production rates, early flow-back results from the Alma pilot indicate minimal interference between wells, suggesting potential for tighter spacing in the overpressured oil window, Devon says.

The Alma wells were drilled with 5,000-ft laterals. They were brought online on 12/64-in. chokes, gradually increased to 20/64-in.

In the overpressured oil window in southwest Kingfisher County, the Pony Express 27-1H well, drilled with a 5,000-ft lateral, recorded a 30-day average rate of 2,100 boe/d, 70% oil.

Devon says oil productivity from the Pony Express is the highest of any Meramec well drilled to date in the play on a per-lateral-foot basis.

After the Alma test, Devon says it has two successful spacing pilots in the core of the Meramec oil window. Production from the two-well Born Free pilot continues to perform well, achieving a 90-day average rate of 1,500 boe/d/well, of which 60% is oil. The Born Free pilot wells were 400 ft apart and landed in two intervals in the Upper Meramec.

Devon’s next pilot is the Pump House test in southwest Kingfisher County. The Pump House is testing seven wells per section in a single interval in the Upper Meramec. Initial flow rates are expected in the third quarter.

Some comments:

• I track the STACK here; many, many stories -- at that link; provides a nice time line of how this play was developed
• CLR STACK: defined as base of the Woodford to the top of Meramac, approximately 700 to 1,200 feet thick at depths of 9,000 to 17,000 feet (similar to depths of the Bakken to the Red River wells in North Dakota)
• note the percent oil: 60 - 70% compared to 90 - 96% oil in the Bakken
• five wells across a section in the test in Oklahoma; in the Bakken, in the better sections, across one formation, let's say the middle Bakken, at least 6 wells, maybe more; in the poorer sections, probably a minimum of four wells across one formation such as the middle Bakken or one of the three Three Forks benches
• knocking off about 500' at the edges of the section, leaves about 4,000 feet; divided by 5 wells = about 800 feet separation, I suppose. I think fracking is "effective" out to about 500 feet and it appears in the Bakken that's about the separation for the "halo effect" if it occurs
• the Devon wells above were short lateral (5,000-ft laterals); the standard length in the Bakken is now long laterals, at about 9,000 feet, hitting two sections
• 42,000 boe in the first month are great wells; the best areas in the Bakken right now seem to be running on average about 25,000 bbls oil in the first month, though we have seen much higher returns (I generally don't track boe in the Bakken)
• it will be interesting to see the decline rates in STACK compared to the Bakken; I would assume "over-pressured" suggests a high decline rate -- similar to the Bakken
• despite the oil glut, US shale industry continues to explore and produce
• every one of these wells confirms the incredible opportunities on-shore, mid-continent USA
• every one of these wells is another dagger in the heart of OPEC; Devon wouldn't be drilling these wells if they weren't going to make some money off this play evenutally