Buy Chesapeake: A Turnaround Energy Stock [View article]
Falling demand per IEA. Probably a short term trend. But here I go again on a tiresome tale from yesteryear. Late 1950's American households began to become two car families. Humble Oil (now Exxon) market analysis projected significant growth in gasoline demand as a result, so we jacked up our E & P budget accordingly. Demand actually dropped and we had to retrench. Post drop analysis showed there was less driving in two car families because it was no longer necessary to take hubby to work and pick him up that evening. (For what it is worth, I have as much confidence in market analyses as I do in the daily explanation of why the DOW went up or down.)
Buy Chesapeake: A Turnaround Energy Stock [View article]
Lot of potential for domestic energy and domestic energy companies, but keep your eye on a couple of worrisome trends:
(1) Unprecedented (at least in recent history) increase in worldwide oil production and capacity.
(2) Saudi drumbeat that oil prices are too high to permit worldwide economic recovery. (Perhaps a counterpunch to their Shia enemies in Iraq and Iran ?)
(3) Falling demand for oil, which may be exacerbated by continuing trend of deflation in other commodity prices.
(4) Loss of $40/barrel premium for Middle East turmoil should the region quiet down (not much of a possibility, it would seem).
Chesapeake (CHK -8.5%) hits lows of the day after admitting its target to reduce debt to $9.5B or less by year's end may be pushed into 2013 (conference call). Argus oil analyst Phil Weiss says CHK has promised a lot but has yet to deliver much: "They still say they are going to lower debt and they still need to complete asset sales. They just admitted they are having trouble."[View news story]
Just goes to show that "Full Cost Accounting" and a CEO's Letter To Stockholders can't hide the truth forever.
Why You Should Buy Chesapeake Energy Now [View article]
Auto 44:
"Buying natural gas when nobody wants it is how fortunes are made."
True enough, but over what time frame ? I told our investors the same thing for a couple of decades in the 20th Century, and it did happen for a few months from time to time. It depended a whole lot on what was going on in Washington back then (and maybe still does). I was throwing out some old files the other day and found a copy of a letter that Jimmy Carter wrote to several governors when he was running for President. His pitch was that we should be conserving out limited natural gas supplies by burning coal in our power plants. It has been long forgotten, but during his administration there was an actual a ban on firing generating plants with natural gas. Electrical utilities in Oklahoma had to switch some of their plants to coal back then and only recently retired those plants in order to meet current EPA standards. Fortunately, the Good Fairy picked up the tab for all this, sparing consumers higher utility bills.
But, of course, the wonks in Washington have learned a lot since then and we shouldn't let their lack of success in the past cause us to be skeptical of their ability to make our decisions for us now.
However you slice it, the Bakken is good news for North Dakota and will be ultimately for drivers in the other 49 States. A handful of bold explorers (maybe just one, followed by those not so bold) have done what a 30 billion dollar a year Department of Energy hasn't been able to do in the 40-plus years since its creation.
Betting On The Biggest Producer In The Bakken [View article]
Sure. Sandridge gives their play in the Mississippi Lime 90,000 BOE. At $100/barrel that's $9,000,000. An average well costs $3.2 million (some considerably more; very few materially less), plus it is necessary to drill one SW disposal well for every four producers. A PI of a little more than 3 to 1. When the dust settled in 1982, after the short lived boom that resulted from the 73 embargo and the 79 hostage crisis, oil bounced around $10 to $20 a barrel for the next 15 years; gas from $1.50 to $3.00 per Mcf. Average well cost dropped almost every year as drilling companies slashed bids in a race to see who could go out of business first. Average well costs probably started the era around $400,000, but dropped to about $300,000 by the early 90's. So, for a well that was about 50% gas and 50% oil, at $300,000 with upper end prices, the PI was 3 to 1. At $400,000, with prices dropping to the lower end of the spectrum, the PI was 1.5 to 1.
Then there is the huge difference in the acquisition cost of leases. Mississippi lime leases command signing bonuses that are about 30 times greater than those of 80's and 90's, which probably brings the PI for the new stuff down even further. Add to that the higher operating cost for wells that make 90% saltwater and an ultimate PI of 2 to 1 isn't out of the question. And all of those numbers are before royalty payments. Moreover, they reflect the oil operator's position, so the PI of an investor in a so-called royalty trust could be far lower than anticipated.
Obviously, these are broad brush numbers. The point is, investors should keep,in mind the following:
1. Although it looks like there will be exceptions in some of the shale plays, the history of unconventional reservoirs is one of wide variances in results from well to well, making exploitation of such hydrocarbon deposits a game of averages.
2. It is easy for an oil producer to get stars in his eyes when he hits a sweet spot, when he believes oil prices will never again be lower than those at present, when he thinks he is going where no oilman has gone before, when he honestly believes that the futures market won't bushwhack him at some point, etc, etc. Investors who share these illusions will put their capital in harms way.
Incidentally, the depth of the Mississippi in some of the new play is as shallow as 5,000 feet; however, the old play was from about 7,000 to 8,500 feet. And proration (i.e. - government restrictions on the amount of oil one could produce) evaporated with the 1973 oil embargo.
This Oil & Gas Stock Should Surprise You In 2013 [View article]
All true Stock Croc, but as I have said before (probably too many times), it would be helpful to know some things like....
(1) What is CHK's acreage position net of outright sales, JVs, royalty trusts, and VPPs ?
(2) How much of the $12 Billion in asset sales was used to pay down the debt that was incurred to purchase those assets.
(3) Is CHK close to balancing expenditures against available cash flow or will the Company continue the past practice of selling assets, resting their bank lines for a month or two, making some token payments on LTD and then continuing with deficit spending.
I hope CHK proves to be a great stock purchase at this level, but I worry that it will not happen unless the Company does a better job of cost control. As with the federal government, the ability to spend freely and cover all bets at the loan window doesn't engender very much fiscal responsibility.
Betting On The Biggest Producer In The Bakken [View article]
Perhaps the reason CLR is not a player in the "low cost, high rate of return" Mississippi Lime area is because Hamm drilled hundreds of vertical wells in the Mississippi Lime in the 70's and 80's. The figures released by the "new" Mississippi Lime players don't portend any better economics than the old vertical wells, and those weren't anything to write home about.
Betting On The Biggest Producer In The Bakken [View article]
ChuckXX
Give them time. With the growth CLR has experienced, they have been pretty busy with things that are somewhat more important. It may be that Hamm believes analysts should do their own homework. Since there was a time, he once said, that if one of his trucks had a flat tire it was a financial crisis, he probably still keeps a tight reign on discretionary spending.
Bakken Update: The Red Queen Is Just A Fairy Tale [View article]
There is a lot of science involved in making a continuing success of the shale plays, but it might also be accurate to say that this is a game of averages. There will be sweet spots going in that turn out not to be and results from dog eared acreage that surprise even the keenest minds. My experience with unconventional reservoirs (which admittedly is now outdated) almost always showed that wells with a low IP declined more slowly than those with a high IP. Moreover, the cumulative production from the low IP wells eventually caught up with the high IP wells.
Incidentally, unless I have slipped a decimal someplace, an 85,000 barrel first year recovery coupled with a 40% decline rate doesn't seem to equal a $90/barrel breakeven. At $90, a $12 Million well will pay out in two years. Of course at a 40% decline rate the well will only be kicking out about $100,000/year by the fifth year and that doesn't look so red hot for a return on a $12 Million investment. On the other hand, any well that produces a positive cash flow after the total cost has been recovered can't be bad news.
Chesapeake (CHK +0.6%) hires James Webb as its new, full-time legal counsel as it tries to recover from damaging reports about controversial land deals in Michigan and CEO Aubrey McClendon's personal loans. Webb has been a longtime partner in Oklahoma's largest law firm; maybe he'll know how to tell Aubrey "no." [View news story]
Landmen, geologists and engineers can create problems in a loosely managed company, but it takes a good general counsel to really screw things up.
Drilling advances are putting the U.S. on course to emerge “from under OPEC dominance," but the Obama administration is stalling development with excessive rules, Continental Resources (CLR) CEO Harold Hamm tells a House panel. U.S. regulations hinder development by delaying work permits, Hamm says, so his company avoids drilling on federal lands. [View news story]
Maybe what you are missing is the inescapable fact that the world is inhabited by a great many people who are either uninformed or misinformed (or is stupid a more descriptive term).
Why Quantitative Easing Is Clearly Working [View article]
Haven't seen a lucid explanation yet for how adding $40 billion more a month to the two trillion dollars of excess bank reserves will do anything for the overall economy. About the only visible results of QE1 and QE2 are inflated stock and commodity prices. All those math courses I took years ago probably blind me to the merits of zero returns to people who used to be consumers, who put their savings into instruments originally designed to produce income.
Buy Chesapeake: A Turnaround Energy Stock [View article]
Buy Chesapeake: A Turnaround Energy Stock [View article]
(1) Unprecedented (at least in recent history) increase in worldwide oil production and capacity.
(2) Saudi drumbeat that oil prices are too high to permit worldwide economic recovery. (Perhaps a counterpunch to their Shia enemies in Iraq and Iran ?)
(3) Falling demand for oil, which may be exacerbated by continuing trend of deflation in other commodity prices.
(4) Loss of $40/barrel premium for Middle East turmoil should the region quiet down (not much of a possibility, it would seem).
Chesapeake (CHK -8.5%) hits lows of the day after admitting its target to reduce debt to $9.5B or less by year's end may be pushed into 2013 (conference call). Argus oil analyst Phil Weiss says CHK has promised a lot but has yet to deliver much: "They still say they are going to lower debt and they still need to complete asset sales. They just admitted they are having trouble." [View news story]
Why You Should Buy Chesapeake Energy Now [View article]
"Buying natural gas when nobody wants it is how fortunes are made."
True enough, but over what time frame ? I told our investors the same thing for a couple of decades in the 20th Century, and it did happen for a few months from time to time. It depended a whole lot on what was going on in Washington back then (and maybe still does). I was throwing out some old files the other day and found a copy of a letter that Jimmy Carter wrote to several governors when he was running for President. His pitch was that we should be conserving out limited natural gas supplies by burning coal in our power plants. It has been long forgotten, but during his administration there was an actual a ban on firing generating plants with natural gas. Electrical utilities in Oklahoma had to switch some of their plants to coal back then and only recently retired those plants in order to meet current EPA standards. Fortunately, the Good Fairy picked up the tab for all this, sparing consumers higher utility bills.
But, of course, the wonks in Washington have learned a lot since then and we shouldn't let their lack of success in the past cause us to be skeptical of their ability to make our decisions for us now.
Bakken: Getting Thicker And Denser [View article]
This Oil & Gas Stock Should Surprise You In 2013 [View article]
Betting On The Biggest Producer In The Bakken [View article]
Then there is the huge difference in the acquisition cost of leases. Mississippi lime leases command signing bonuses that are about 30 times greater than those of 80's and 90's, which probably brings the PI for the new stuff down even further. Add to that the higher operating cost for wells that make 90% saltwater and an ultimate PI of 2 to 1 isn't out of the question. And all of those numbers are before royalty payments. Moreover, they reflect the oil operator's position, so the PI of an investor in a so-called royalty trust could be far lower than anticipated.
Obviously, these are broad brush numbers. The point is, investors should keep,in mind the following:
1. Although it looks like there will be exceptions in some of the shale plays, the history of unconventional reservoirs is one of wide variances in results from well to well, making exploitation of such hydrocarbon deposits a game of averages.
2. It is easy for an oil producer to get stars in his eyes when he hits a sweet spot, when he believes oil prices will never again be lower than those at present, when he thinks he is going where no oilman has gone before, when he honestly believes that the futures market won't bushwhack him at some point, etc, etc. Investors who share these illusions will put their capital in harms way.
Incidentally, the depth of the Mississippi in some of the new play is as shallow as 5,000 feet; however, the old play was from about 7,000 to 8,500 feet. And proration (i.e. - government restrictions on the amount of oil one could produce) evaporated with the 1973 oil embargo.
This Oil & Gas Stock Should Surprise You In 2013 [View article]
(1) What is CHK's acreage position net of outright sales, JVs, royalty trusts, and VPPs ?
(2) How much of the $12 Billion in asset sales was used to pay down the debt that was incurred to purchase those assets.
(3) Is CHK close to balancing expenditures against available cash flow or will the Company continue the past practice of selling assets, resting their bank lines for a month or two, making some token payments on LTD and then continuing with deficit spending.
I hope CHK proves to be a great stock purchase at this level, but I worry that it will not happen unless the Company does a better job of cost control. As with the federal government, the ability to spend freely and cover all bets at the loan window doesn't engender very much fiscal responsibility.
Betting On The Biggest Producer In The Bakken [View article]
Betting On The Biggest Producer In The Bakken [View article]
Give them time. With the growth CLR has experienced, they have been pretty busy with things that are somewhat more important. It may be that Hamm believes analysts should do their own homework. Since there was a time, he once said, that if one of his trucks had a flat tire it was a financial crisis, he probably still keeps a tight reign on discretionary spending.
Bakken Update: The Red Queen Is Just A Fairy Tale [View article]
Incidentally, unless I have slipped a decimal someplace, an 85,000 barrel first year recovery coupled with a 40% decline rate doesn't seem to equal a $90/barrel breakeven. At $90, a $12 Million well will pay out in two years. Of course at a 40% decline rate the well will only be kicking out about $100,000/year by the fifth year and that doesn't look so red hot for a return on a $12 Million investment. On the other hand, any well that produces a positive cash flow after the total cost has been recovered can't be bad news.
Chesapeake (CHK +0.6%) hires James Webb as its new, full-time legal counsel as it tries to recover from damaging reports about controversial land deals in Michigan and CEO Aubrey McClendon's personal loans. Webb has been a longtime partner in Oklahoma's largest law firm; maybe he'll know how to tell Aubrey "no." [View news story]
Drilling advances are putting the U.S. on course to emerge “from under OPEC dominance," but the Obama administration is stalling development with excessive rules, Continental Resources (CLR) CEO Harold Hamm tells a House panel. U.S. regulations hinder development by delaying work permits, Hamm says, so his company avoids drilling on federal lands. [View news story]
Why Quantitative Easing Is Clearly Working [View article]
Financial Oligarchy anyone ?
Chesapeake: Don't Fall For The Price Trap [View article]