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World Class Strategies For Business Growth

CEO Insights

Introduction...Monday & Tuesday, May 22 & 23 Julie and I attended the C-Suite Network national conference in Dallas.  C-Suite Network is the world’s most trusted network of C-Suite Leaders. Here is my summary of the most important items shared.

Click here to watch World Class Strategies For Businss Growth.

If better, faster disposal proeject that plays faster intrigures you, drop me a note and we can discuss further.  Bill@billmoist.net

 

Saudi Arabia Oil Riches Decline Force Social Change

Saudi Arabia Amid Change- 95th Issue

Introduction…This blog has been documenting the shift in economic power from OPEC and its partners, to the frackers in the United States.  Even at a $50 per barrel price, plus or minus, U.S. producers have cut production cost nearly in half and billions of dollars are pouring into new production.

But, in Saudi Arabia, the low energy prices have forced painful change even in what may be the world’s most conservative.  Woman are joining the workforce and music can be found in the streets.  Even in what may be the world’s most conservative country. The government has stripped the notorious religious police of their power and the more than 3,000 guardians of morality, who terrorized women for wearing makeup and arrested unmarried couples for walking next to each other on the street, are a rare sight these days.

But what does it mean that Saudi King, the guardian of the holy cities of Mecca and Medina, has reined in the feared moral police?  And why have the fundamentalists gone silent rather than lament the loss of values?

Is the fairy tale ending?…The primary reason is the disappearance of Saudi Arabia’s fairy-tale riches. The kingdom is experiencing the deepest crisis since oil first produced in 1938.  The current low prices have led to a 50% drop in revenue.  In 2015, the government budget deficit ballooned to 90 million euros, and the country’s borrowing began.

In conclusion…Saudi Arabia was the pillar in the Middle Eastern order that no longer exists.  This order was destroyed by the Arab Spring, and the wars in Iraq, Syria, and Yemen (neighboring states.)  Now, Iran and Saudi Arabia are fighting over power in the region.  These events are threatening stability in the kingdom.

Source: Susanne Koelbl, “Tasting Freedom.  Saudi Arabia Experiments with Reform Amid Economic Downturn,” Spiegel Online International, 17 May 2017

Shale Expansion Dominates Competition

U.S Shale oil drilling rig

Introduction…U.S. Shale drilling budgets increases ten times faster than the rise of international oil companies’ budgets. This as OPEC is meeting May 25th to decide to continue production cuts.

U.S. shale producers are taking advantage of the production cut that OPEC and 11 non-OPEC nations struck in mid-November.

The comparison…Drillers in North America plan a combined capital expenditure of US$84 billion this year, an increase of 32 percent compared to last year, according to Barclays analysts, quoted by Bloomberg.

By comparison, the budget programs for international projects are seen up just 3 percent in 2017, Barclays reckons. Among the five supermajors, it’s only Exxon that is planning higher capital spending this year, of US$22 billion, up by 16 percent from 2016. The other four are either keeping investment budgets flat, or as in Chevron’s case, are reducing the expenditure.

“The level of capital budget increases really surprised us,” Wood Mackenzie research analyst in Houston, Roy Martin, told Bloomberg in a phone interview.

“The specter of American supply is real,” he noted.

In summary…The U.S. shale spending plans and growing production highlight the difficult position in which OPEC is caught – while the cartel is cutting production and trying to talk oil prices up, the shale drillers are reaping profits from the most profitable plays (hey, Permian) and reinvesting them in increased capital programs to pump more.

Reference:  Tsvetana Paraskova, “U.S. Shale Spending Dwarfs Competition: Grows 10 Times Faster,” OilPrice.com, 11 May 2017

Past Energy Independence To Global Dominance

 Trump Signs Order To Expand Offshore Driling

Introduction…May 1, 2017 President Trump signs order to expand offshore drilling.  That day the President said, “Our country is blessed incredible natural resources including abundant offshore oil and gas reserves.  But the Federal Government has kept 94% of these reserves closed to exploration. This deprives our country of thousands of jobs and billions of dollars in wealth…This executive order begins the process of opening offshore areas to energy exploration.  It reverses the previous administrations Artic leasing ban…This helps create a much brighter future for our country…This is a very important day.”

U.S. Energy-dominant…The U.S. is in the position to be energy-dominant, not just independent, thanks to fracking and plans to loosen drilling regulations, Interior Secretary Ryan Zinke said (last) Monday.

Oil production across the U.S. may increase by 17 percent to a record 10.24 million barrels a day by the end of next year as companies cut costs and become more efficient in drilling, especially in areas such as West Texas and North Dakota. Domestic output hasn’t surpassed 10 million barrels a day since 1970. At a time when OPEC and other producers are cutting output, U.S. exports surged above 1 million barrels a day for the first time.

In conclusion…“In 1983, I was told we’re going be out of oil and fossil fuels definitively in 2003. That’s not true,” Zinke said at the Offshore Technology Conference in Houston. “And, you know, I always say God’s got a sense of humor — he gave us fracking. And fracking is a game-changer — certainly a global game-changer.”

Source: Laura Blewitt, “Trump’s U.S. Looks Past Energy Independence to Global Dominance,” Blomberg, 1 May 2017

No Longer Dependent On OPEC?

Results Of 1973 OPEC Oil Embargo

Introduction…The 1973-1974 OPEC Oil Embargo on the United States caused the price of oil to nearly double, high inflation, high unemployment, and shortage of gasoline resulting in long lines at the service station.  The pledge of nearly every U.S. President since President Richard Nixon has been U.S. energy independence.

Click here to watch the video that demonstrates this shift in economic dependence.

Let’s briefly review a few of the oilandgasinsider.com articles that demonstrates this shift in economic dependence.

  1. Texas Oil & Gas Production in Expansion Cycle
  2. Why Billions Are Pouring Into U.S. Shale
  3. Private equity funds raised $19.8 Billion for US oil ventures first quarter
  4. Even though price is still around $50 per barrel because producers have slashed up to ½ the cost of pumping oil from 2 years ago, making new production profitable
  5. OPEC On The Brink of Collapse
  6. Russia Cutting Production as U.S. Shale Escalates
  7. Dumping Billions in Canadian Assets For Permian Basin
  8. Marathon acquired 70,000 acres in Permian and 51,500 acres for $1.1 Billion
  9. Why Major Oil Company Goes Big On US Shale- ExxonMobile –major oil companies all but abandoned new US production several decades ago.
  10. Texas Fifth Straight Double Digit Jump in oil rig count on February 7, 2017
  11. Nearly $1 Trillion Worth Of Oil Found In Texas, Largest Deposit Ever Discovered In US.
  12. Permian Basin producing oil and gas since 1920 so infrastructure is well developed reducing production costs. And some are still claiming the largest deposit ever discovered in the US

Conclusion…The United States did oust Saudi Arabia as the world’s largest oil producer May 2016.  However, Saudi Arabia regained that title four months later. But, just as important, the United States holds 264 billion barrels of oil of which one-half is in shale.  This total exceeds both Russia and Saudi Arabia.

To conclude the U.S. is “No Longer Dependent on OPEC” may be true finally after 45 years of Presidents pledging to make the United States energy independent.  This is Bill Moist, MS, CPA

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Texas Oil & Gas Expansion Cycle

Texas Oil & Gas Expansion

Introduction…Crude oil and natural gas drilling and development in Texas has embarked upon a new cycle of expansion, according to the latest Texas Petro Index (TPI), which improved to 160.4 in March to post its fourth straight monthly increase.

Expansion is here…Driving the TPI upward during first quarter 2017 were crude oil and natural gas prices, drilling activity, the number of drilling permits issued, and the value of statewide oil and gas production, which were all higher compared to year-ago levels. However, the TPI is only about half the value of the record TPI of 313.5 in November 2014, and it still has not caught up in some other economic arenas.

Employment is increasing, but it still lags behind last year after the loss of well over 100,000 upstream jobs, said Ingham. An estimated 9,000 jobs have been added back since reaching the low point in September 2016.

Conclusion…”We still have a long way to go,” Ingham said, “but 2017 is going to be a year of recovery and expansion in the Texas statewide oil and gas exploration and production economy. “Activity levels will continue to expand, jobs will continue to be added, and the industry will support the broader state economy again, rather than acting as a drag on growth as it has for the prior two years.”

Source: “Oil and gas economy in Texas enters expansion cycle,” Oil & Gas Journal, 20 April 2017

Why Billions Are Pouring Into U.S. Shale

U.S. Shale Oil Boom

Introduction…Private equity funds raised $19.8 billion for oil ventures in the first quarter.  That is nearly three times the total raised the same period last year.

The accelerating pace of oil private equity, along with hedge funds and investment banks, arrives even as the recovery in oil prices from 8-year low has stalled at $50 per barrel due to stubborn oil glut.

Why the increase investment now?  The shale sector has become increasingly attractive to investors not because of rising oil prices, but rather because producers have achieved startling cost reductions – slashing up to half the cost of pumping a barrel in the past two years. Investors also believe the glut will dissipate as demand for oil steadily rises.

The financiers are confident that they can squeeze increasing returns from shale fields – without price gains – as technology continues to cut costs.  In addition, “Demand for oil has been more robust than anyone imagined three years ago,” said Mark Papa, chief executive of Centennial Resource Development Inc. (CDEV.O).

What now…This year’s drilling rush could be tested if global supplies grow too fast or if demand cools. The U.S. drilling rig count is rising at its fastest pace in six years and U.S. crude stockpile are close to 533 million barrels – near an all-time high and enough to supply the United States for 25 days.

In summary...”Shale funders look at the economics today and see a lot of projects that work in the $40 to $55 range” per barrel of oil, said Howard Newman, head of private equity fund Pine Brook Road Partners, which last month committed to invest $300 million in startup Admiral Permian Resources LLC to drill in West Texas.

Source: Earnest Scheyder, “Undaunted by oil bust, financiers pour billions into U.S. shale, Reuters, 17 April 2017

Is OPEC On Brink Of Collapse?

 OPEC Meeting

Introduction...The end of OPEC has been predicted on many occasions.  The average life of cartels in the 20th century is 3.7 to 7.5 years.  OPEC was founded September 1960.  So, that makes it one of the very longest running cartels at 57 years.

Cracks have been developing…Though cracks have been developing in the cartel since the start of the current oil crisis, the group has managed to stay together so far. Nevertheless, the success of the current OPEC deal for production cuts will decide its future as a cartel.

OPEC’s success in boosting oil prices…Since its inception, OPEC has been fairly successful in boosting prices by various means. A few of the price increases, however, were due to reasons other than direct OPEC action, nevertheless benefitting their members.

Though the 1973 oil embargo was brought on by political reasons, OPEC used the production cuts of the embargo to boost oil prices from $3 a barrel in 1973 to $12 a barrel in 1974.

The 1979 energy crisis was not a brainchild of OPEC. The production dropped due to the Iran-Iraq war, and the price of oil doubled in about 12 months, again benefitting OPEC members.

OPEC was able to boost prices using production quotas and production cuts following the Asian Financial Crisis in 1997.

What has OPEC done to support oil prices in the current oil crisis?

OPEC, as any cartel would, has used two strategies to influence oil prices. However, both have been unsuccessful in achieving their objectives.

In 2014, Saudi Arabia, the de facto leader of OPEC, attempted to stifle the competition of the shale oil drillers by keeping their production intact. As a result, oil prices plummeted to multi-year lows of about $27 a barrel in February 2016. The drop in oil prices saw 119 North American oil and gas producers file for bankruptcy from the beginning of 2015, according to Haynes and Boone, LLP.

U.S. oil production dropped about 883,000 barrels a day by August 2016, after topping out at 9.7 million barrels a day in April 2015. Nevertheless, the price decrease went well below OPEC’s expectations. Meanwhile, many shale oil drillers used a combination of better technology and hedging to continue pumping oil, despite the low prices.

As its first strategy failed to effect the U.S. shale oil production to the extent presumed, OPEC then adopted a second strategy of cutting production. On November 30, OPEC sealed a deal to cut production after months of difficult negotiation. Though prices bounced and broke out of the $52 levels – a strong resistance – they could not reach the $60 levels preferred by OPEC members.

However, this modest rally in crude oil prices rejuvenated the U.S. shale oil drillers, and U.S. oil production is now on the rise. As a result, crude oil has dipped again and is hovering near the $50 per barrel level.

The market believes that if crude oil prices remain above $50 per barrel, U.S. shale oil production will increase. For this reason, OPEC is finding itself in a catch-22 situation: It is losing market share to the U.S. shale oil drillers, but it is unable to propel prices considerably higher. It is losing its ability to influence prices above a certain level.

What happens if the Cartel fails in its objective?…A cartel is able to hold its members only when it fulfills their objective of higher prices, which has not been the case with OPEC. The member nations will now look to fulfill their objective by cheating and acting individually, according to their requirement.

Saudi Arabia, which was the leader of OPEC and the price setter of the world, is losing its clout in OPEC. Even in the current round of production cuts, most of the work is being done by Saudi Arabia, whereas the other members are shying away from their designated quotas.

In summary…OPEC has far outlived the average lifespan of a cartel, but if the OPEC members don’t regroup and act together, chances are that the cartel will come to an end very soon.

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Source: Rakesh Upadhyay, “The End Of OPEC Is Near,” Oilprice.com, 31 March 2017; “OPEC: Brief History, opec.org

Russia Cutting Oil Production As US Shale Escalates

Massive Oil Discoveries In Texas

Introduction…Russia plans to fulfill its obligations to cut oil output in line with the agreement between oil producing countries by the end of April, while more broadly assessing longer-term structural developments in the market, according to the country’s energy minister.

“Russia is reducing its oil production in stages, in accordance with the plans that we worked out voluntarily with our production companies,” Alexander Novak told CNBC during an exclusive interview in Arkhangelsk, Russia.

“The decrease in production in January and February were ahead of tempo with regards our initial plans. Currently, in March we have already reached a reduction level of 200,000 barrels a day. We anticipate complying with the figure set forth in the agreement by the end of April,” he revealed, noting this would constitute a reduction of 300,000 barrels of oil per day.

US Shale Escalates...The Russian energy minister’s comments come amid changes in U.S. policy under new President Donald Trump who has pushed forward the idea of energy independence for the country by executive order. This as recent months have seen a resurgence in activity by U.S. shale producers who have been encouraged to return to supplying the market given a rebound in the oil price.

“It’s clear that we are all assessing the situation in a sober fashion, we understand that there will be a rise in the production of shale oil” …Novak, “acknowledging that the rise in shale oil production could be up to 400,000 barrels a day this year.”

In summary…The oil producers are acknowledging that U.S. oil independence is not new.  Now President Donald Trump is pushing forward with executive order to that goal with his “America First Energy Plan.”

Source: Gemma Action, “Amid surging US shale, Russia is quietly cutting production and looking at bigger picture,” CNBC, 30 Mar 2017; “An America First Energy Plan,” WhiteHouse.gov.

Why President Trump’s Keystone XL Pipeline So Controversial

Keystone XL Pipeline Route

Introduction…After years of wrangling and what appeared to be a full stop by the Obama Administration in 2015, TransCanada Corp. has finally been granted approval from a U.S. president to build its Keystone XL pipeline across the Canada-United States border.

On Friday, Under Secretary of State for Political Affairs Thomas Shannon Jr. signed the permit. But to make its way across the country, individual states where the pipeline would be constructed still have to sign off. And that’s easier said than done.

“While presidential approval is a major step forward for the pipeline, the battle is far from over as the company still needs to secure some of the land rights with landowners, still needs a permit in Nebraska and is expected to be met with protestor opposition,” said analysts at Tudor, Pickering, Holt & Co. in Houston.

Still, this long-awaited announcement was received with general applause from industry supporters, but it still has some hurdles in its path. The U.S. Chamber of Commerce President and CEO Thomas J. Donohue said the permit is proof that things have changed in Washington

Why is it so controversial…According to the above map, the existing TransCanada pipline starts in Haristy, Alberta and terminates at Patoka, Illinois and Port Author, Texas.  Surely the short add to the Houston port is not a problem.  So, what is the issue being disputed?

The planned 1,179-mile (1,897km) pipeline running from the oil sands of Alberta, Canada, to Steele City, Nebraska, where it would join an existing pipe. It could carry 830,000 barrels of oil each day.

It would mirror an operational pipe, also called Keystone, but would take a more direct route, boosting the flow of oil from Canada.

A section running south from Cushing in Oklahoma to the Gulf opened in January 2014. At the coast there are additional refineries and ports from which the oil can be exported.

The pipeline would be privately financed, with the cost of construction shared between TransCanada, an energy company based in Calgary, Alberta, and other oil shippers. US-produced oil would also be transported by Keystone XL, albeit in smaller quantities than Canadian.

Why do the US and Canada want XL?

Canada already sends 550,000 barrels of oil per day to the US via the existing Keystone Pipeline. The oil fields in Alberta are landlocked and as they are further developed require means of access to international markets. Many of North America’s oil refineries are based in the Gulf Coast, and industry groups on both sides of the border want to benefit.

An increased supply of oil from Canada would mean a decreased dependency on Middle Eastern supplies. According to market principles, increased availability of oil means lower prices for consumers.

President Trump said the project would create 28,000 construction jobs.

Canadian Prime Minister Justin Trudeau has said he will work with the new US leader regarding the pipeline, and that he was “confident that the right decisions” would be taken.

Despite the recent push to find renewable sources of energy and move away from fossil fuels, the amount of oil produced in northern Alberta is projected to double by 2030.

It’s argued by some that by developing the oil sands, fossil fuels will be readily available and the trend toward warming of the atmosphere won’t be curbed.

The fate of the pipeline is therefore held up as symbolic of America’s energy future.

In the here and now, more energy is required to extract oil from the Alberta oil sands than in traditional drilling, and Environment Canada says it has found industry chemicals seeping into ground water and the Athabasca River.

This risk to local communities is one of the reasons many have opposed the project.

The ongoing protest over the Dakota Access Pipeline near Standing Rock Indian Reservation makes for some good theater, but the protesters have as yet been unable to demonstrate that the pipeline actually trespasses on Indian lands or that it will likely lead to groundwater pollution.

Both trespassing and water pollution are serious issues that would rightly open up the owners — in this case, Energy Transfer Partners — to crippling lawsuits.

In North Dakota, however, the pipeline passes through private property and a likelihood of groundwater pollution has not been established.

In summary…Two and one-half million miles of pipelines cross the United States.  There has been oil spills in the past.  It appears that better inspections of these pipelines could increase saftety.  As for the Keystone XL Pipeline, President Trump now passed the decison onto the states where pipeline would be constructed.

References:  Dean Daugherty, “Trump’s Keystone XL Approval Moves Fight to Individual States,” Rigzone.com, 24 Mar 2017; “Keystone XL Pipeline:  Why is it so disputed?”  BBC News, 24 January 2017; Lena Groeger, ” Pipelines Explained: How Safe are America’s 2.5 Million Milles of Pipelines?” ProPublica, 6 December 2016.