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Richard Zeits  

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  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Richard,

    As you know, the decision was made to privatize Elk Hills. OXY has owned the field for years now. If the job of operating a physical oil field was so simple, there would be no issue with the government owning it, right?
    Jun 10, 2015. 09:47 AM | 1 Like Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Richard B,

    "I think you are attempting to make a distinction without a difference."

    Actually, I see a difference - in deliverability, risk and operational complexity.

    Here is an analogy.

    The U.S. government owns a tremendous land position in this country. One alternative, it could create a GIANT GOVERNMENT OIL COMPANY - delineate reserves, predrill wells, and stand by to increase production.

    Another alternative would be to build and operate a low-cost, high-deliverability GOVERNMENT STORAGE, with all the field exploitation transferred over to the private sector.
    Jun 10, 2015. 08:45 AM | 1 Like Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Gggl,

    You just moved the market with your comment - oil is up $1.50 per barrel.
    Jun 10, 2015. 08:16 AM | 1 Like Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Richard,

    You mentioned the Naval Petroleum Reserve at Elk Hills (also known as Naval Petroleum Reserve No. 1). Do you realize that in its nature it is very different from the SPR? Elk Hills is a field whereas SPR is storage.

    For those readers who may not be familiar with details, these are some of the facts. In 1976, Congress passed the Naval Petroleum Reserves Production Act authorizing full commercial development of the Naval Petroleum and Shale Reserves. The crude oil, natural gas, and liquid products produced from the Reserves were sold by DOE at market rates (Richard, I could not understand what you meant by your comment). Revenues were deposited to the U.S. Treasury.

    One of the largest of the Federal properties, the Elk Hills field in California, opened for production in 1976 and became the largest (in terms of production) oil and natural gas field in the lower 48 states at one point in its history. In September 1992, the field produced its one billionth barrel of oil and was only the thirteenth field in the Nation's history to reach that milestone. While managed by DOE, Elk Hills generated over $17 billion in profits for the U.S. Treasury.

    Richard, if you do that math, one billion barrels was delivered over 16 years in the course of a physical exploitation of the field. The sole difference from any other big field is that it was owned and operated by the government. I do not see much relevance to the SPR. Do you?
    Jun 10, 2015. 08:10 AM | 1 Like Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Texcritic,

    The SPR cannot deliver 19 million barrels of oil per day. The maximum deliverability is one-fifth of that. But even if a much higher amount could be delivered, what happens after the first 70 days?
    Jun 10, 2015. 07:52 AM | 1 Like Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Richard,

    Great comment, thank you.

    I guess you may have missed my key point - a much larger combined SPR by importing nations is a deterrent. At minimum, the construct could be powerful enough to render an unfriendly "energy as weapon" strategy ineffective - and do it at a fraction of the cost that would be required if the same objective were to be achieved via defense spending. At maximum, a massive SPR would lower the price of oil for consumers.

    Right now the only headache the market has is the risk of supply disruption. With a large SPR in place, the market would have to also worry about the risk of oil being off-loaded on the market.
    Jun 10, 2015. 07:48 AM | 1 Like Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Robert,

    Again, you are missing the macro picture. The purpose of the SPR is to protect the U.S. economy from being paralyzed by an unexpected supply disruption. If 15 MMbd of global oil supply goes offline all of a sudden, how does an exorbitant futures position help? I can see a financial crisis added on top of still dysfunctional economy, as some financial intermediaries would go bankrupt. The U.S. government would have to do a lot of collection work, that's for sure. But does it help the economy overall? Does it make the people better off on average?

    Also, you still did not answer, what is the cost of rolling a half a billion barrel hedge position over, let's say, 20 years? Here's a hint: USO and UNG.

    Given your vast consulting experience, what percentage of Exxon's production is hedged? Chevron's? BP's? Oxy's? How much of Valero's margin is hedged?
    Jun 10, 2015. 07:32 AM | 1 Like Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Robert,

    The idea to use the futures market is interesting but it has obvious limitations:

    - it does not solve the problem of physical shortage

    - a futures position has a term structure: rolling a half-a-billion barrel position would result in major recurring costs to the government.

    - the futures market is not deep enough to hedge half a billion barrels

    I am sure you know very well, Oil Majors - such as Exxon and Chevron - do not hedge much. The reason - it would be hardly possible, given their production volumes.

    I don't think financial hedging can be a solution to the problem that the SPR is designed to address.
    Jun 9, 2015. 11:12 PM | 1 Like Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Fliper2058,

    Interesting point. One could also argue, commodities provide inflation protection.
    Jun 9, 2015. 03:46 PM | 2 Likes Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    David,

    Drawback: immediate budget outlay. Benefits: reduce oil prices in the long run; assist defense goals (i.e., reduce defense budget); sleep better (this is akin to medical insurance - even if nothing happens, it is nice to have). Finally, it feels good to be in control of your own destiny.
    Jun 9, 2015. 03:38 PM | 1 Like Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Karchlg,

    There are probably no reasons why other countries should keep their SPR oil in the U.S. Many countries have SPRs and could simply expand their facilities and reserves.
    Jun 9, 2015. 03:31 PM | Likes Like |Link to Comment
  • Now Is The Time To Double The Strategic Petroleum Reserve [View article]
    Ephud,
    My apologies. A fix is on its way. Thank you for pointing out.
    Best regards,
    Richard
    Jun 9, 2015. 03:03 PM | Likes Like |Link to Comment
  • Halcón Resources: Taking Stock In The Eagle Ford [View article]
    JackSiemasz,

    Please note that the data in the article are actual oil volumes (not Boe) and are not normalized for off-line time.

    200 MBoe in year one would be a very strong result. One needs to see how the tails perform, but 200 MBoe in year one would appear to imply an EUR much higher than 450 MBoe.
    Jun 9, 2015. 12:29 PM | 1 Like Like |Link to Comment
  • U.S. Energy Independence: You May Have Missed The News - It Has Already Happened [View article]
    Aricool,

    You are making an interesting point. The problem, however, is that one needs a much bigger SPR for it to be a viable counter-threat. Shale oil is an SPR of a sort (assuming one has enough equipment and qualified engineers and workers standing by).

    By the way, the price of maintaining a large SPR may be lower than the related benefits to the defense budget.
    Jun 9, 2015. 08:39 AM | Likes Like |Link to Comment
  • Halcón Resources: Taking Stock In The Eagle Ford [View article]
    lol wut,

    I am not sure I would necessarily agree - the decline appears to be hot shale-like (as opposed to, for example, some fractured carbonates or "dead oil" shales where tail production collapses). Personally, I would need to see one more year of production history, particularly from more recent wells. It is also interesting to see how wells perform depending on their location in various regimes.

    It would be interesting to hear your more detailed observations on the issue. It is indeed an important one.
    Jun 8, 2015. 05:55 PM | 3 Likes Like |Link to Comment
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