Author Archives: Bill Moist

About Bill Moist

Bill Moist, MS, CPA is Founder and President of Professional Equities, Inc., a funder of real estate; oil and gas; business projects; and trains others to take advantage of Crowdfunding. Mr. Moist is a lecturer at Graduate Business Schools and professional organizations. He is also a Texas Real Estate Broker, Certified Public Accountant (ret), Master of Science real estate tax expert, Co-founder of The Crowdfunding Training Institute, and Investor/Developer with 70+ successful projects. He can be reached on http://http://www.getcrowdfunding.ws and http://oilandgasinsider.com

How Will 2018 Oil Supply Growth Impact Pricing

Issue 133 – Shale oil boom

Introduction…OPEC said last Monday it sees a surge in oil supply driven by rising U.S. output. However, it also sees demand in 2018 to grow faster than expected.

Production growth…The cartel sees non-OPEC production growing by 1.4 million barrels per day, up 250,000 BPD from its earlier estimate.  The United States accounts for more than half of the revision increase.  The U.S. supply growth now expected to be 150,000 barrels per day.

Demand Growth…OPEC now expects the world’s oil demand to grow by 1.59 million barrels per day, up 60,000 BPD from last month.  The total global oil consumption would be 98.6 million BPD.

OPEC sees the drivers of this demand growth as the steady rising economic activity around the world.  This creates a strong demand for transportation fuels like gasoline and jet fuel.  Also, contributing is the growing petrochemical industry which turns byproducts from oil and natural gas into chemicals.

Conclusion… The global economic growth is creating more demand for oil and gas consumption.   If this demand growth will keep up with the supply growth is yet to be seen.  However, OPEC is painting a scenario where oil profits and pricing will remain high in 2018.

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Source: Tom Christopher, “OPEC hikes its 2018 forecast for oil supply growth on a flood of US crude,” USA Today, 12 Feb 2018

You’ll never guess who is buying U.S. oil and plastic?

Issue 132 – Damen Double Hull Oil Tanker

Introduction…Sharp drops in U.S. imports of crude oil destroyed the biggest market for OPEC producers.  Now, the surging U.S. oil exports banned just two years ago by Washington challenges the last region OPEC dominates…Asia.

U.S. oil shipments...U.S. oil shipments to China had a massive increase and in turn, have been helping Washington with reducing the nation’s huge deficit with China.

This seismic shift is reflected in the recent figures that show the U.S. now produces more oil than Saudi Arabia and will likely outproduce the no. 1 spot Russia holds by the end of the year.

Data in Thomson Reuters Eikon shows U.S. crude shipments to China went from nothing before 2016 to a record 400,000 barrels per day (bpd) in January, worth almost $1 billion. Additionally, half a million tonnes of U.S. liquefied natural gas (LNG) worth almost $300 million, headed to China from the U.S. in January.

And then there is plastic…In 2007 ExxonMobil expected the U.S. plastic industry to vanish due to the high cost of production.  Enter the Frackers who fill our pipelines with natural gas.  Now the Port of Hoston is undergoing significant upgrades to handle the wave of plastic resins that will add half a million tons annually in export volume.  Most of that volume is headed to China.

Conclusion…The frackers may have saved much of America’s manufacturing.  And as we see here today, the low cost of natural gas and other petroleum products once again makes America an attractive export manufacturing location.

Sources:  Peter Tirschwell, “More vessel capacity key to Houston’s resin export dominance,” JOC.com, 20 May 2017; Henning Gloystein, “How souring U.S. exports to China are transforming the global oil game,” Reuters, 9 Feb 2018.

Gasoline Exports Continue To Rise In 2018

  Issue 131 – Gasoline Exports On The Rise

Introduction…The increasing gasoline exports have been supporting, in part, the recent oil price increase.  And that increase is expected to continue throughout the remainder of 2018.

Gasoline exports…”[Gasoline exports have] been, really, I think, one of the most important fundamentals of the refining industry over the last five, six years,” Marathon Petroleum Corporation CEO, Gary Heminger told “Mad Money” host Jim Cramer in an interview. “We exported 314,000 barrels per day in the fourth quarter. Exported. That’s about 17 percent of what we make. So that is very important, to be able to hit the foreign markets.”

“We’re expecting 2018, globally, to be up about 1.5 million barrels per day,” the CEO said. “That’s going to require more and more exports from the U.S. And the U.S. Gulf Coast refineries, they’re the best engines in the world.”

In summary…Since much of the U.S. refineries are in the Gulf Coast, these increased gasoline exports are expected to drive additional infrastructure development which may benefit from President Trump’s push for deregulation.

Source: Jim Cramer, “With gasoline exports on the rise, refinery CEO sees global demand going higher in 2018,” CNBC, 1 Feb 2018

Don’t Make Your Next Investment Until You Read This

 Issue 130 – Read This

Introduction…We have been using this investment model for many years.  This has unwritten projects in various industries.  A few of the projects include large retail development, industrial development, residential development, Aloe Vera processing, and a charter airline.  These are diverse industries, but the process is the same.  So, whatever investment you are considering, this tool will help in your decision-making process.

How to underwrite an investment…These are the five financial questions to ask.  There are also legal and political issues, but that is beyond the scope of this article.

  1.  Human Resources…Do you have the best person in charge of the five points discussed here?  We prefer a prefer a trustworthy person who is trainable over a highly skilled person who is questionable.  Everyone has a seat on the bus, but are they sitting in the right seat.
  2. Market…What is our market?  Is it local, national, or international?  Do we have a competitive advantage over our competition?  Do we have a contract or lease to sell our product before we start spending money?  Warren Buffet buys companies that have a franchise in their industry.  The Berkshire Hathaway HomeServices franchise operates under HSF Affiliates, which owns the Prudential and Real Living real-estate networks.
  3. Captial…What are our initial capital requirements plus the capital required to grow the business?  And more importantly, once we know the capital requirements how we structure that capital is critical.  Do we use debt or equity, or a combination?   Two of my friends will only do all equity deals in the oil business.  When prices fall, as long as you are covering your operating costs, they can stay in business.  One of the unique skills we employ is creating equity in the project.  “Captial can be a serpent that turns and bites us when times get tough,” Joe Grisel.
  4. Raw materials…Many businesses turn a profit or loss on the proper sourcing, pricing, and delivery of raw materials.  In real estate we start with the land, add horizontal and sometimes vertical development.  In the self-storage developing, we are sourcing a construction material that will reduce both costs and construction time.  More about that later.
  5. Technology…Do we have the best technology available?  Technology permeates our business and investment world.  In self-storage, we use a lease management software that controls our gate access for current payments and tracks our leases called SiteLink.  Several other good programs are available, but we have chosen this brand for its stability and for its compatibility with tablets and our website.

In conclusion...Now you know what five areas under the financial corner to consider when making your next investment.  If you are interested in a discussion of the Legal and Political legs of this table, drop me a note and we’ll discuss in a future issue.

™ 2018 HMCRT, LLC

The Tax Cuts And Jobs Act Is Working

Issue 129 – The Tax Cuts And Jobs Act is working

Introduction…Apple anticipates reparation tax payments of $38 Billion in response to The Tax Cuts And Jobs Act.  The opposition said that the tax cuts would only benefit the rich.  Well, $38 billion sent to the U.S. Treasury benefits all Americans, working, poor, and well to do.

Apple’s contribution to U.S economy…Workers, shareholders, U.S. and local tax authorities will benefit greatly from Apple’s plan to contribute $350 billion over the next five years to the U.S. economy.  The company just finished a $5 billion renovation to its headquarters in Cupertino, California.  That is lots of workers getting great work.

New Apple campus location…”The company plans to establish a new location, which will initially house technical support for customers,” Apple said in a statement Wednesday.  “The location of this new facility will be announced later this year.”

Conclusion…Federal Income Tax laws are an important consideration in corporate investment decisions.  Apple showed that President Trump’s Tax Cuts And Jobs Act influenced its decision-making process in making additional investments in the United States.

President Trump’s Offshore Drilling Plan Unravels

 issue 128 – California Offshore Drilling

Introduction…Last week we reported the Interior Department released the draft proposal Thursday for leasing areas of the U.S. outer continental shelve for drilling for oil and gas.  The five-year proposal from 2019 to 2024 is aggressive expecting to lease 25 out of 26 planning areas.

One week later…Trump administration says no to oil drilling off the Florida coast.  The policy shift is being credited to Republican Gov. Rick Scott who is seeking to protect Florida’s natural resources and it’s multibillion-dollar tourism business. This business built on miles of white sandy beaches.

Other Republican governors oppose the plan including Maryland Gov. Larry Hogan, South Carolina Gov. Henry McMaster, and Massachusetts Gov. Charles Baker.

In California, the drilling plan revives longtime battle over coastal drilling.

The Interior’s tactic…Interior Secretary Ryan Zinke said, “Our tactic was to open everything up, then meet with the governors, meet with the stakeholders so that when we shaped it, it was right,” he told news conference last Tuesday night.  “The president made it very clear that local voices count.”

In conclusion…The plan follows Trump’s Executive order in April to encourage more drilling on federal waters to help the U.S. achieve “energy dominance” in global markets.

Sources: “President Trump’s Offshore Oil Drilling Plan Revives Longtime Battle Over California Coast,” Oil Industry News, 15 January 2018; “Trump administration says no oil drilling off Florida coast,” CNBC Energy, 9 January 2018

Will Money Flood American Offshore Drilling?

Issue 127 – 2015 Santa Barbara Channel Drilling

Introduction…The Interior Department released the draft proposal Thursday for leasing areas of the U.S. outer continental shelve for drilling for oil and gas.  The five-year proposal from 2019 to 2024 is aggressive expecting to lease 25 out of 26 planning areas.

Financial and political barriers…There are good prospects out there.  That would include Alaska and Gulf of Mexico are well-developed.  Sothern California and the Eastern Seaboard are attractive.

Much of the East and West Coasts are politically hostile.  For example, Florida Governor Rick Scott joined the other politicians in opposing the proposal to protect its beaches.  California has powerful legal tools to stymie offshore development.  The California Coastal Commission has the power to say “no” to federal actions that could harm the coast of California and coastal waters.

The first hurdle for the Interior’s plan is a period of public comment and extensive environmental review under federal law, which the opponents can use to challenge the proposal as ecologically harmful.

Any company bidding on the leases could expect it to take a decade before drilling could start.  The majors paid a high price for multi-year projects when prices fell, trashing returns and threatening their dividends.

In summary...As reported in this newsletter, U.S. Shale drilling budgets increased ten times faster than the rise of international oil companies’ budgets.  North American drilling budgets were up 32% last year compared to just 3% budget increase for international projects.  The shale is a faster safer payback when compared to the political, economic and time risk of offshore drilling.  Click here to continue reading “Shale Expansion Dominates Competition.

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Sources:  Bettina Boxall, “Trump’s plan to open California coastal waters to new oil and gas drilling probably won’t go very far,” Los Angeles Times, 6 Jan 2018; Liam Denning, “Will Oil Majors Really Sink Money Into America’s Waters?” Bloomberg, 5 Jan 2018.

2017: Oil Price Review

 Issue 126 – 2017 in review

Introduction…2017 produced a year of unpredictable oil pricing.  We saw a low of $43 to a high of $60 per barrel for WTI.  Brent traded in the range of $45 to a high of $65 per barrel.  It was a year of reducing oil inventory with Russia taking that lead among OPEC and other oil-producing states.  Global inventories did decline and now OECD inventories are very close to the OPEC target.  One interesting observation is the markets generally ignored geopolitical risks.

Here are top ten events that impacted 2017 oil pricing:

  1. OPEC output cut agreement in late 2016 helped stabilize prices.
  2. Several large U.S. oil inventory buildups stimulated price declines.  This decline was compounded by the settling of traders long positions.
  3. Prices rise in March as supply-demand come in balance.
  4. Inventories rise world-wide during refinery maintenance.
  5. Crude inventories drop and prices balance.
  6. Expectations that OPEC will extend and deepen production cuts grows prices.
  7. Prices fall after OPEC cuts not increased and shale production costs decrease.
  8. Prices rise in early summer as refinery production increases.  Evidence that OPEC production cuts are still working.
  9. Hurricane Harvey hits Texas August 25th taking 3.5 MMbbl/d offline.  Even with the extensive damage, recovery of affected refiners is swift due to improved hurricane management.
  10. 2016 output cuts are extended through December 2018 supporting highest price levels for the year 2016.

In conclusion…2016 saw considerable oil price swings.  It is interesting to note that geopolitical concerns seemed not to impact pricing.  Rather, oil pricing was primarily impacted by the old law of supply versus demand.  Or at least the expectation of future supply and demand.

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References: “Crude Oil Price Index,” http://www.nasdaq.com/markets/crude-oil; Ashley Petersen, “What Affected Oil Prices: 2017 in Review,” Oil and Gas Investor, 29 Dec 2017

Forget New Year’s Resolutions!

Introduction…Every year Americans fail to keep their New Year’s Resolutions.

But, somehow we think if we just try harder, this year will be different.

There are scientific and spiritual reasons why we should “Forget New Year’s Resolutions and Instead Prepare Our Minds For Success.”

Click here to watch this powerful 5-minute video.

Click to get 9 Little Known Secrets For Steady Real Estate Income…Free

Happy New Year to you and your family!

Bill Moist, bill@billmoist.net

Click here to see this powerful 5-minute video

How GOP Tax Bill Will Impact Oil and Gas Industry

Issue 124 – Tax Bill Impact On Petroleum Industry

Introduction...Republicans were joyful Friday as they finalized their tax plan, bridging differences between the House and Senate bills and moving another step closer to getting legislation to President Trump by Christmas.

Tax Cuts…The Tax Cuts and Jobs Act represents the largest one-time corporate tax rate cut in history.  The top corporate rate will drop from the current rate of 35% to 21%.  The bill lowers the taxes for most Americans and small business owners.

The final GOP bill gets rid of the corporate alternative minimum tax (AMT) which is a big relief for the business community.  The AMT carries a massive unproductive\e accounting cost for all that are impacted.

The justification…The justification for the gigantic corporate tax rate cut is that over the last 30 years, the U.S. went from having the world’s lowest corporate tax rate, to have on of the highest rate.

Since corporate directors primary responsibility is to maximize shareholder value, i.e. reducing taxes, Tax Inversions became the popular way for multi-nationals to reduce US income taxes.

“Pass through” entities…The vast majority of American businesses “pass through” its income to the owners.  These entities include S corporations, LLCs, partnerships, and sole proprietors.  Under the tax bill, these companies get to deduct 20% of their income tax-free until 2025 when it is scheduled to expire.

The big surprise…The big surprise in the tax bill is the opening of the Arctic Wildlife Refuge (AMWR) to drilling.  The Republicans have pushed for years to opening ANWR to drilling but have been stopped by the Democrats.

Renewable energy…The final text of the tax bill made public Friday retains the key tax credits for wind, solar, and electric vehicles.  This reversed earlier language that could have slowed adoptions of renewable energy.  The lawmakers recognized renewable energy as the source of more than 7% of the nation’s electricity and a fast-growing energy source.

In conclusion... Pass through entities will increase in popularity under the tax bill going forward.  This is a brief discussion of the GOP Tax Bill’s impact on the petroleum industry. There are also massive changes that impact the individual taxpayer directly.  The author encourages you to contact your CPA as soon as possible to decide what changes in your business are necessary to maximize your income tax savings.

 

Bill Moist, MS, CPA

He can be reached at bill@billmoist.net

 

References: Nick Cunnigham, “The GOP tax bill is huge for US oil and gas industry,” Business Insider, 7 Dec 2017; Heather Long, “The final GOP tax bill is complete.  Here’s what is in it.” Washington Post, 15 Dec 2017; Brad Plumer, “Tax Bill Largely Preserves Incentives for Wind and Solar Power,” The New Yor Times, 165 Dec 2017.