Category Archives: Drilling For Oil

6 Saudi Officials Supported Terrror Attack: 9/11 Commission Member

9.11Memorial

9/11 Memorial

One more reason to support domestic oil and gas production…Six Saudi officials are believed to have actively supported al-Qaida members in the run-up to the 9/11 attacks on America, former 9/11 Commission member and investigator John Lehman has disclosed.

Lehman, who was a member of the 9/11 Commission between 2003 and 2004, said there is documented evidence against employees of the Saudi Ministry of Islamic Affairs, and specifically against individuals who worked for the Saudi Embassy in the U.S., Saudi charities and the Saudi government-funded King Fahd Mosque in California.

“There was an awful lot of participation by Saudi individuals in supporting the hijackers, and some of those people worked in the Saudi government,” said Lehman, stressing that these individuals had strong ties with the Saudi government in Riyadh.

The issue is resurfacing now as pressure builds to release the 38 pages of the 9/11 Commission investigation that had been redacted. Lehman’s disclosure of this information to the media is expected to increase this pressure.

Lehman’s disclosures also come at a time when the long-standing relationship between the U.S. and Saudi Arabia is being questioned and re-evaluated.

The Commission member’s disclosures contradict previous statements from other Commission members.

The Commission’s chair and vice chairs, former Republican New Jersey Gov. Tom Kean and former Democratic Rep. Lee Hamilton of Indiana, released a statement in April saying that “only one employee of the Saudi government was implicated in the plot investigation.”

Still, Lehman—former Navy secretary under Ronald Reagan–stressed that “we have found no evidence that the Saudi government as an institution or senior Saudi officials individually funded the organization.”

In summary...Lehman also implored the pubic to remember that 15 of the 19 9/11 attackers were from Saudi Arabia. He is now calling for a new, thorough investigation into the extent of Saudi involvement. But more immediately, Lehman is calling for the remaining 28 pages of the redacted 9/11 Commission report to be declassified—a move that could spur along the already partial break in U.S.-Saudi relations.

The Mood At The Meeting Was In A Word…Gloomy

oil-workers Oil Field Workers Testing Red Wing Boots

The mood at the Fort Worth Oilfield Christian Fellowship is normally upbeat.  They generally have speakers who have something uplifting to share.

However, on Monday the mood at the meeting was in a word… gloomy.

In looking for something positive to share I found a technical analysis chart that says crude oil price – next stop $80 or $130.  I did not put much stock in the chart as it ended on April 23, 2014.

There is a divergence of opinon whether or not the market has factored in Iran’s re-entry into the market already.  No one agrees what impact Iran will have in the short term.

In my opinion (you are free to get your own opinion if you don’t like mine), the factors moving the market are supply, demand, and speculation.  Twenty years ago, 21% of the oil contracts were purchased by speculators.  Today, oil speculators purchase 66% (or more) of all oil futures contracts.  

In looking for some good news on oil pricing, I did find one item of interest.  

Energy analysts Wood MacKenzie said last week that low oil prices have now caused the delay of 68 planned petroleum projects worldwide.  This represents $380 billion in frozen capital expenditures.

What is interesting is that this is not just represented by private sector shutting future projects.  Governments are also holding off on developing new projects.  Brazil said it will discontinue offering new offshore projects in a target area the yielded several of the biggest multi-billion barrel finds.

That should help.  But, not anytime too soon.

Crude Oil Pricing Cycles

humanforecastingmodel  H.S. Dent’s Hunan Model of Forecasting

No matter how many economic cycles we live through; the tendency is to assume where we are will continue as pointed out by H.S. Dent above.

Economic Cycle is defined as:  The natural fluctuation of the economy between periods of expansion (growth) and contraction (recession). Factors such as gross domestic product (GDP), interest rates, levels of employment and consumer spending can help to determine the current stage of the economic cycle.

We are definitely in a contraction, i.e. recession for the oil and gas industry.  This is well displayed by the Crude Oil Price History Chart from Macrotrentds.  The chart starts from January 1946 going to the present day pricing.

Crude Oil Price History Chart

It’s interesting to note that it was March of 1980 before the pricing topped $100 a barrel.  Then the pricing trended downward to below $20 by November 1998.

The price then proceeded to bounce around $100 from October 2007 to June 2014.  Since then the trend had been primarily down.  This week oil is trading at less than $40.

In conclusion…History shows us that our Human Model of Forecasting is normally incorrect.  Do, I expect oil pricing to increase as the supply decreases.  Yes, I do.  When?  I’d be wrong if I predicted when.  The good news is the cycle hasn’t been broken for seventy years.  So, there is no apparent reason it should stop now.

Oil Markets Remain Oversupplied

Let’s look at  last week’s key figures for the oil & gas industry.  U.S. oil production is slightly up, whereas oil futures have been trading lower. Gasoline prices continue their trend downwards.

Friday, December 6, 2015 WTI closed at $39.97, down $1.11 for the week.

U.S. Oil Production

Friday OPEC’s meeting in Vienna did not give oil markets any relief. There was little expectation of an agreement on production cuts, despite the majority of OPEC members pleading with Saudi Arabia to reverse course and cut back the cartel’s output target level, which stood at 30 million barrels per day (mb/d) heading into the meeting.

In summary, here we are a year after Saudi Arabia decided to keep market share rather than cutting production to support pricing.  That decision combined with the U.S. shale industry keeping production levels up has precipitated in a nearly 50% drop in oil prices from a year ago.

Source: OPEC Won’t Cut, Markets Remain Oversupplied, OilPrice.com by Evan Kelly, December 4, 2015

The Chinese Are Coming To Buy Texas Oil Fields

ChineseBuyTexasOilFields Beijing (AP) A Chinese investment holding company said it has signed a letter of intent to purchase Texas oil fields in Howard and Borden Counties. for 8.3 billion yuan ($1.3  billion.)

In a disclosure to Shagnhai Stock exchange, Yantai Industry, Co, Ltd said the oil fields would be bought from Tall City Exploration and Plymouth Petroleum.

Does this mean the Chinese are just bottom fishing or are they just repatriating dollars that WalMart sent to China?

Do you think this is good or bad for Texas Oil business?  Seems to me the industry is experiencing a liquidity shortage, so bring it.

The Water Contamination By Fracking Myth

YaleStudy

The Myth Has Been Disproved

Yale researchers have confirmed that hydraulic fracturing – also known as “fracking” – does not contaminate drinking water.

The process of extracting natural gas from deep underground wells using water has been given a bad reputation when it comes to the impact it has on water resources but Yale researchers recently disproved this myth in a new study that confirms a previous report by the Environmental Protection Agency (EPA) conducted earlier this year.

After analyzing 64 samples of groundwater collected from private residences in northeastern Pennsylvania, researchers determined that groundwater contamination was more closely related to surface toxins seeping down into the water than from fracking operations seeping upwards. Their findings were recently published in the journal Proceedings of the National Academy of Science.

Researchers from Duke University also recently gave people a reason to trust fracking companies. In a study published in Environmental Science & Technology Letters, scientists explained that hydraulic fracturing accounts for less than one percent of water used nationwide for industrial purposes. This suggested that the natural gas extraction processes are far less water-intensive than we previously thought.

It’s hoped that these studies will help people better understand the safety of fracking.

In conclusion, underground drinking water contamination myth has been disproved by the Yale researchers which confirmed a previous report by the Environmental Protection Agency.

It’s Not A Matter If Oil Prices Will Head Upwards, But When

US Shale Oil Boom…

Looking solely at US Shale Oil production since 2007, it is no wonder that OPEC was caught off-guard by the pace of Shale Oil production growth. Production grew from just over a million barrels per day in 2007 to around 5.5 mmbbls/day at its peak earlier in April this year.

U.S. Shale Oil Production

US Shale Supply To Decline…

Shale production decline is a reality. Overall decline rates in the Bakken Shale are around 50%, Eagleford Shale 55% and the Permian is around 25% and the US rig-count has now fallen by over a half. So why have we not witnessed anything yet?

Well the answer to that is a mixed and somewhat cloudy one. Delays in completing some wells are clouding the decline picture as are delays in actual hard production data. The answer to the delays in both cases is around 4 months. We have to wait around 4 months to get the actual data for what is happening now, and quite often wells are not completed until some 4 months after they have been spudded.

Some have asked why oil companies in the US have not colluded to shut-in production and wait for higher prices. The simple answer, many smaller oil companies must continue producing to keep paying-off the loans that financed the well in the first place. A fact that the banks and bond-holders that have financed some of the more risky ventures are about to find out to their cost.

Iranian Crude Supply Fears Are Misdirected…

Despite the worries of extra supply coming back onto the table from Iran, perhaps as early as November, the expectations are perhaps a little exaggerated. Indeed Iran may have millions of barrels in storage ready to supply the market. However, as for immediate production abilities, that will take a little longer. Any production that Iran has shut-in over a long-period of time will take perhaps as much as 18 months to get back to full-swing. Beyond this, it is unlikely Iran will be able to increase its oil production much higher than 3.5 mmbbls/day without the aid of Western technology and know-how.

Worldwide Demand Trend Upwards…

Oil demand has resurged anew with the oil price currently below $50/bbl for both WTI and Brent. The IEA has had to revise its demand figures upwards again for this year and next with its forecast of 1.6 mmbbls/day growth this year. In fact, the underlying rate of demand growth is at just over 1.4 mmbbls/day year on year.

More recently, evidence of what exactly the low-oil-price-scenario has done for the world economy can be seen in the latest GDP releases. US GDP was reported at 3.7% last week, much higher than analysts were expecting. World GDP is likely to be above 3% this year and is forecast above 3% next year and into 2018, according to the World Bank group.

World Oil Supply vs. Demand

In conclusion…

As the commodities expert, Jim Rogers said last week, “The cure for low prices is low prices.” The decline in supply and the rise in demand is happening right now. It’s not a matter of if the oil price will head back upwards, but when?

Sources: Opinion: Why The Crude Oil Doom-Merchants Have Got It All Wrong, Oil Pro by Andy Douglas, September 3, 2015: Oil To Drop Again Before Sanity Can Return, Oil & Energy Insider by Evan Kelly, September 4, 2015

Robots To The Rescue!

  • Predicting the future based on the past often proves to be treacherous.
  • Like in  the movie Jurassic Park where it was impossible for the dinosaurs to mate, but yet they did.  The scientist said, “Life finds a way.”
  • It is also true when an industry is under pressure as the Oil and Gas Industry is today.
  • Today the industry is changing for the current market condition.

Articles from the past newsletters…

  1. In May we reported that big oil had cut $115 Billion in future development of mega projects that would have begun pumping five to ten years out.
  2. We reported that drilling rig count was dropping and that we had 684 fewer rigs on March 13 than the same day a year prior.
  3. In April we reported that as the Frackers battle OPEC they have also increased efficiency.
  4. Now watch  “Robots To The Rescue.”

Robots To The Rescue Video

Source: Forbes, “The Robot Roughnecks,” by Christopher Helman, August 19, 2015.

A Race To The Bottom?

PumpingRigWTexas

Pumping Rig In West Texas

Friday, August 21 the Dow Jones Industrial Average dropped 530.94 points, down 1012 points for the week or a 5.8% decline.   This as WTI oil closed at $40.45 down $2.55 or a 6% decline for the week.

The news media made a big deal about oil dropping temporarily below  $40.  The big picture is that oil has dropped 55% in the last year, to a six-year low.

The oil price decline has led Saudi Arabia to borrow $4 billion in July and to burn almost $62 billion in foreign reserves this year.  Analyst suggest the Saudis could issue bonds around $5 billion a month through the rest of the year to foreign investors.  Its budget deficit is expected to reach 20% of GDP in 2015.

Saudi Arabia’s aggressive fight to defend OPEC’s share of the global market has contributed to the massive oil glut.

Some suggest Riyadh refusing to cut oil output in hope to drive other producers, such as U.S. shale companies, out of business.

Professionals in the oil sector keep cutting the price of oil futures in their projections.  The financial sectors exposure to energy could be the next shoe to drop.  One big bank said 72 out of 74 energy producers requested modification of their loan covenants.

Conclusion…With OPEC, Russia, and the United States pumping record oil production, the current six-year low in pricing may be  with us for the rest of year until some production comes off line.

Sources: “What’s Really Going On With International Production,” CNBC August 20, 2015 interview with Dr. Ken Moors; “Riyadh is refusing to cut output,” CNN Money-London by Ivana Kottasova and John Defterios, August 6, 2015,

Have You Considered Land Banking?

landbankland-bank-ing is the practice of buying land as an investment, holding it for future use, and making no specific plans for development, says Google.

This is only a partial definition.  I have experience in acquiring over 70 land parcels.  Sometimes the play was to aggregate several parcels to increase value.  However, many times the play was to subdivide into smaller parcels.  We would often work with a land planner before the purchase to know what our exit strategy would be.

Now I have a new definition for land banking.  Purchasing property or mineral interests at today’s low oil and gas prices (WTI $44.66, gas $2.783,) then holding the land or lease with today’s production to get a ROI.  Then when we have future oil price increases sell or develop additional production.

If you don’t think we’ll have oil price increases in the future, the  EIA has confirmed U.S. oil production has peaked…at least for now.

EIA affirms peak production in the second quarter of 2015, the fall in output over the next few quarters should bring supply and demand back into balance, or at least close to it. Supply exceeded demand by more than 2.5 mb/d in the second quarter of this year, but that gap will narrow to 1.6 mb/d in the third quarter and just 500,000 barrels per day in 2016.

The oil majors have cancelled or delayed a combined $200 billion in new projects as they seek to rein in costs, according to Wood Mackenzie of the Wall Street Journal.

So, here is a strategy.  Buy oil properties based on today’s low prices that has sufficient production currently or can be inexpensive to increase production.  Then when prices rebound, develop or sell additional acreage.

This strategy has worked for land investing and developing for decades.  Why not apply it to oil and gas production where we get a current return on our investment.