Category Archives: Homeland Energy

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.

Oil Pricing Heads To Bear Market?

Screenshot 2015-07-26 13.19.42Crude oil slipped back into a bear market Thursday, disappointing U.S. shale drillers that pinned their hopes on higher prices.

West Texas Intermediate, the benchmark U.S. contract, tumbled 22 per cent since June 10 to US$48.14 a barrel on Friday, erasing more than US$100 billion in market value from the companies in the Bloomberg Intelligence North America Independent Explorers and Producers Index.

Crude oil pricing are down roughly 55% from their peak of nearly $107 in June of last year and have lost about 27% from the $66.15 low in November, which at the time was the lowest settlement in 5 years

Crude’s recovery fizzled amid a worldwide glut that shows little sign of abating. U.S. production remains near the highest level in four decades, output from Saudi Arabia and Iraq surged to record levels, and Iran is focused on resuming exports after reaching a nuclear agreement with world powers.

“Just when you thought it was safe to go back into the oil patch.”   Phil Flynn, senior market analyst for Price Futures Group Inc., said by phone from Chicago.   “The bear market is definitely putting another round of fear into the shale patch and the bankers of the shale patch.”

Source: “Oil reverts back to bear market, erasing more than US$100 billion for shale drillers,” Financial Post, Asjylyn Loder and Dan Murtaugh, Bloomberg News | July 24, 2015; “It’s bad-news bear market for crude oil,”  Market Watch by Myra P. Saefong, July 24, 2015; “Sudden Drop in Crude-Oil Prices Roils U.S. Energy Firms, Major job cuts, asset sales are expected: layoffs texted to engineers and scientists,” Wall Street Journal by Lynn Cook, July 26. 2015

Wanted: SWD Wells

swd3Salt Water Disposal

While salt water disposal isn’t a sexy part of the oil and gas industry, it is very necessary.  According to the Texas Railroad Commission, there are 7,500 active SWD wells in Texas as of 2013, the last year reported.

You probably remember the story of the 1849 California Gold Rush.  By 1852, 100,000 people had moved to California to find gold.  A total of $2 billion worth of precious metal was extracted from the area during the Gold Rush, which peaked in 1852.

But, very few actually found gold.  However, Levi Strauss found his gold mine that is still producing today.  Mr. Strauss sold what the 49ers needed.  Blue jeans to wear.  In 2014, Levi Strauss’s sales were $4.75 billion worldwide.

So, we have capital to purchase that oil and gas infrastructure called Salt Water Disposal Wells.  Send me a note if you have access to any that are for sale.

U.S. Oil Production At 45-Year High

Screen Shot 2015-07-13 at 5.38.12 PMBig Dog Drilling Rig

U.S. oil production has peaked…at least for now.

“Even if production growth comes to a halt, it comes in at higher level than analysts expected earlier this year,”  said Jim Burkhard, head of global market research for IHS.

Despite the slowdown in U.S. oil patch, producers are expected to pump more oil in 2015 than in 45 years.  Expected average production is 9.5 million barrels per this year.  This equals about 40,000 more barrels per day than the EIA projected last month.

The domestic benchmark is expected to average $55 per barrel the rest of the year, which still allows the Bakken, Eagle Ford, Niobara, and Permian Basins to remain economically viable to support development and drilling.  The rigs and wells are becoming more efficient and productive, and the cost to drill and complete continue to fall allowing onshore drilling to grow again in 2016.

The EIA expects oil prices at $62 per barrel next year.

Sources: “EIA Confirms: Oil Production Peaked,” By Nick Cunningham, Oil Price.com, July 12, 2015; “U.S. oil output still barreling toward 45-year record,” by Rhiannon Meyers, Houston Chronicle, July 7, 2015;

Shale Producers Not Bowing To OPEC

Gualalupe Pass Drilling Rig

Introduction…Even though our President has chosen to bow to foreign dignitaries, so far our U.S. shale producers have not bowed to OPEC.

Saudi Arabia’s attack… When Saudi Arabia launched a global oil-price war last year, many assumed that America’s high-cost shale producers would be the first to retreat.

American companies were quick to idle drilling rigs and lay off workers, but U.S. onshore oil production has gone up since last fall, not down.

As oil minister from OPEC counties met last week, they were grappling with the fact that the world’s new swing producer is different animal from traditional competition.

The new swing producers…Shale producers have more in common with technology start-ups in Silicon Valley than big, often state-controlled, integrated oil companies that dominate the global oil markets.  They are much smaller, more nimble, take more risks and are more tied to the ebb and flow of the capital markets.

One consultant who often speaks with Saudi officials says, “they were surprised at how fast oil prices fell and how resilient shale producers were.”

U.S. Producers are different…In an industry dominated by behemoths, the U.S. oil industry stands out due to fragmentation.  It takes 77 companies to generate 77% of the American crude oil and related liquids.  Combined, this is more production than the world’s 20 largest producers, according to Rystad Energy, a consulting firm.  Only Canada and the U.K. are similarly fragmented.

In contrast, in Russia there are four companies, China three, Brazil one.  In Saudi Arabia, Iran, Mexico, and Kuwait, one state owned company controls 100% of total output.

In conclusion...If you think big government controlled companies are the best way to produce crude oil, then most of the Middle East, Russia,  and China agree.  On the other hand, if you think free enterprise and the American Spirit is the best way to produce crude oil, then Texas, U.S., Canada, and U.K. would agree with you.

If you are inclined to venture into projects that produce current cash flow as compared to future capital gains, drop me a note.
Sources: “Shale Upends OPEC Bloc Party,” Wall Street Journal by Greg Ip. Saefong, June 4, 2015

Big Oil’s Fear: A Price Shock After $114 Billion of Cuts

USrigcountUS Oil Rig Count Continues To Drop

Introduction…The oil industry is get accustomed to the new pricing of $50 to $60 per barrel of oil. However, the industry is looking forward to a bigger challenge.

Price to rise further…Oil companies are warning there will be a much higher price to pay in the future for all the new drilling projects that are being cancelled due to the price collapse.  Big projects that would start pumping oil and natural gas five to ten years out are being canceled or put on hold as the price crash forced spending cuts amounting to $115 billion. But wait, there’s more!

Will Future Wars Be Fought Over Water Rather Than Oil?

HamaltonPoolTX2 Hamilton Falls & Pool Preserve, Texas

Introduction...Let’s admit it.  The two Iraq wars were to assure the free flow of oil to the United States and its allies. Oil is the lifeblood of any modern economy.  Check for yourself.  Can you find anything in your house that isn’t made of petroleum, grown with petroleum, manufactured with petroleum, or shipped by petroleum products? I couldn’t find one single thing.

United States History of protecting Middle East oil supplies… The U.S. military has used force or the threat of force to protect energy interests primarily in the Middle East for more than five decades.  The cost the American taxpayer in the Persian Gulf just between 1976 and 2007 was $7.3 trillion.  This policy was formulated during World War II when the U.S. battled with Japan over the shipping choke points in the Pacific.

But wait, there’s more!