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  • SandRidge's Mississippian Wells Are Improving [View article]
    Few operators play games with the statistics. They retire none performing well which boost the EUR of all the wells and even spick the EUR since the new wells, the IP wells, are part of the statistics. I believe SD has used this deceiving practice. On the face of it, it make sense to retire these none performing wells, but these wells have a cost of development. These costs are associated in different accounting ledger. SD old CEO, Ward, was guilty of manipulating the books. He is out, good thing for SD. The new CEO sound much more up and up?
    Dec 25 01:08 PM | 5 Likes Like |Link to Comment
  • SandRidge's Mississippian Wells Are Improving [View article]
    SD was probably one of the first operators to be involved with fracking. Production from shale play has nothing paralleled with standard reservoir production.
    The first few month of production of a shale play well is high; this high production is called Initial Production or IP. The general consensus is that the IP level will lose 20% of its production in the first 2 year. There are many possible reasons for this loss of production. The kind and size of propend has to come in play.
    I believe that SD over time has learned the applicable fracking technology specific to the formation in play. The IP is in no way the applicable production value to use. I favor the Estimated Ultimate Recovery (EUR). 2 years a not long enough to get a good handle on the EUR, 5 years appears to be the good length of time.
    Dec 24 02:04 PM | 1 Like Like |Link to Comment
  • Shrinking spreads put refiners at risk, Cowen says [View news story]
    Not so, WTI is discounted versus the LLS. The Brent is not competitive on the GOM. West and East coast have a different situation. The Brent competes with the ANS because the differential margin is close. The ANS transport is by Jones vessel, therefore expensive. The Bakken R&R transport is competitive on the west and east coast.
    The oversupply of WTI on the GOM will be 4MMb/d by the end of 2014. The GOM over supply will move the bottle neck to Houston. The WTI will be discounted particularly in the inland refineries. This will be good for the refiners especially for the inland refiners. The producers with a WTI discounted will see the profit margin squeeze. Crude producers have fix production cost that cannot be stretched so less profit. This is especially true for the fracking producers. To keep a descent EUR they have to keep on drilling. The IP is the cash flow that pays the drilling.
    The producers will have a hard time to keep their profits up. The refiners will have a descent crack, but nothing like in early 2013. The inland refiners will see their crack based on the saving due to the transportation, plus a small WTI discount. In the past month the 3.2.1 crack is been between $4.60 and $13.27. We are far from the $30 crack. The WTS is in demand more so than WTI, this is the reason LLS price is high, it produces more diesel. Gasoline demand is down nationwide, so WTI will be discounted. As to why VLO is doing well, VLO has invested $3 billion in hydrocrackers in the Louisiana and Port Arthur refineries, to produce more diesel, which is exported. Not every refiner can absorb that kind of money and make a profit. ALDW will invest in hydrocracker so they can use WTI more efficiently.
    Dec 22 03:19 PM | Likes Like |Link to Comment
  • Shrinking spreads put refiners at risk, Cowen says [View news story]
    The producers cannot lower the production expense. The price of WTI going lower, is a squeeze, therefore less profits. The refiners make their profit on the crack. Lower the WTI bigger the crack. Naturally the gasoline and the diesel go down as well. In 2014 the crack will most likely be the transportation cost saving for the inland refineries.
    Dec 21 09:23 PM | Likes Like |Link to Comment
  • Shrinking spreads put refiners at risk, Cowen says [View news story]
    absolutely not. There are two Brent the North Sea Brent and the CME Brent. The North Sea Brent price is set 30 days prior delivery and must be loaded on time or the price is attached to a penalty. The CME is the Middle East Brent which is set every day in Chicago. That is the Brent that is generally quoted internationally. It is set by traders that speculate.
    Aside from the west and east coast, the CME Brent is not the US reference any longer, the LLS is and the WTI price is adjusted for the demand on the GOM and the transport fee.
    The consensus is for the WTI to drop to low $80s in 2014-Q4. The production of WTI will provide an over supply, on the GOM, of 4MMb/d crude. No one as yet knows where this over supply will go. Several idea are on the table, the most intriguing is to export it to Canada! This would be in addition to Railbit and Dilbit diluent.
    Dec 21 09:16 PM | 1 Like Like |Link to Comment
  • Shrinking spreads put refiners at risk, Cowen says [View news story]
    There is two ways to analyses the refiner situation for 2014:
    1. The Crack Spread will be lower because: Less Brent will be imported in the GOM. Brent will still be imported on the West and East coast. The competition will be Bakken on both coast and ANS on the West Coast. The reference price will be LLS and WTI. By late 2014 the WTI will be approaching low $90 to high $80. The Crack Spread will suffer, and will be the pipeline transport saving.
    2. If the belief is that WTI will be flooding the GOM, discount has to be assumed. Many, if not all crude producer have production expenses that cannot be erase. Their profit margin will be under attack, the lower WTI price will reduce the profit margin substantially. If the Senator Baucus tax law passes, it has not as yet, producer will not be able to write off the annual drilling cost, but will have to spread it over 5 or more years. More capital will have to be found. This is not good for producers.
    The profit margin of producer may very well be less than the refiners Crack Spread. All this will be played out by the Q2-2014. Interesting times.
    Dec 20 04:31 PM | Likes Like |Link to Comment
  • SandRidge Mississippian Trust I: A Forecast Of Future Distributions [View article]
    US Royal Trust assets cannot be modified. MLP assets can!
    Dec 12 09:04 AM | Likes Like |Link to Comment
  • SandRidge Mississippian Trust I: A Forecast Of Future Distributions [View article]
    This analysis is well thought of. The value of any US Royal Trust is the volume of oil or/and gas to be produced and the index price at the IPO date. The production infrastructures to by amortize efficiently must take place in 3 steps: 1. installation. 2. Max design rate of production. 3. Declining production. The IPO can only take place once production begins, and with the IPO capital installation is pursued. The infrastructure is designed to run at 90% of design specs for the maintenance free life of the equipment, or 30% of the life expectancy of the trust. The last 30% mitigate equipment brake down by not pushing the equipment to its high performance. Brake down cost more because no production takes place. During the first third of the life of the equipment, production will rise, more volume sold means higher distribution. During the second third high performance of the equipment, the volume produced will even out and distribution will vary with the oil or gas index price. The last third the production on average will be less not only because the equipment is older but the reservoir pressure will go down and more times than not will affect production therefore distribution.
    The shale fracking situation is the same but different. Drilling as to encompass the entire geological formation surface. Drilling take place over a long period of time, same as the first third. The drilling continues and sustains a level of production the second third. Once the drilling stops the production will drop the last third. Regarding the case of fracking, the well IP will drop quickly after 1 to 2 years around 30%. The following 2 years the production will drop another 20%. The production drop will continue and drop 10% per year. The EUR is the value to watch, it looks at the production over 5 years at list.
    SDT trust drilling program has maxed the efficient number of wells possible, the production will decrees substantially over time, probably faster than in a conventional situation. The index oil or gas will not compensate for the lost production. This can be applied to all US Royale Trust.
    Dec 11 10:32 AM | Likes Like |Link to Comment
  • MLPs General Partnership's Will Be Hot Buys In 2014 [View article]
    The business model of the inland refiners will be under serious stress starting mid-2014. The total US crude production will exceed the total throughput of the US refining capacity. The price of crude WTI in particular will retreat to the high $80s by late 2014, especially in the GOM.
    Looking at the US crude production and the gasoline versus diesel markets, US production of crude is too light per API degrees. API 45 crude does not produce enough diesels, where the demand is, especially the export demand. The US gasoline demand is down and will continue to retreat as Americans drive less miles per year. US refineries having too much light crude have started to modify their process by adding hydrocrackers, which increase diesel production, an expensive proposition forced upon them by the market conditions.
    The oversupply of gasoline will find ways to compete with the inland refiners. The crack spread will suffer as GOM produced gasoline will be discounted in the inland market. ALDW which is in close proximity of the GOM as well as the Western Refiners asset in San Antonio will suffer particularly. Overall the refiners market is moving and great care should be the norm in investing in this inland refiners market.
    Dec 5 05:27 PM | 2 Likes Like |Link to Comment
  • Northern Tier Energy: An Attractive High-Yield Play [View article]
    The definition, as it applies to refineries, of crack spread is the differential between the cost of buying the feed stock, in this case crude oil, and the wholesale of the finished products, gasoline or diesel.
    What is the advantage an inland refinery has versus the GOM, east and west coast refineries? The primary advantage is the refinery location versus the origin of the feed stock. Second: the local market and the access to its market.
    The case of NTI and ALDW are similar. Both have rural market and limited refinery production. Rural market requires more diesel than gasoline. API 45 or less crude oil produces more diesel than gasoline. On the other hand, the large GOM refineries were designed to produces more gasoline than diesel. The US auto fleet has been, by enlarge, gasoline powered. Since the standard WTI, API 45 was the designed feed stock, the WTS less than API 45, was not welcome on the GOM. These inland refineries were able to use this WTS to their advantage at a discount. To maximize diesel production from API 45 and higher crude, several majors are modifying their refineries by adding hydrocrackers.
    The pipelines have only recently been able to handle the shale crude bonanza. Crude producers wanting to get their crude to market were willing to discount rather than pay for storage to access pipeline throughput. The second advantage of the inland refineries.
    The crude oil market has changed and is changing to the disadvantage of the inland refineries. The gasoline market is down, and will continue to go down. Americans drive less, living style changes shopping patterns. The export of diesel is where profit point to even though the US trucking industry is, slowly, converting to LPG or CNG.
    The conclusion is that gasoline prices at the pump will go down because too much gasoline will be produced; accordingly the crude prices will go down as well. Soon the US production of crude oil will be more than the total refineries crude feed stock demand. This unbalance will soon be 5 MMb/d just for the GOM.
    Will inland refineries see a crack spread again? Yes, for a short time? Most likely the excess gasoline production will be “dumped” in the inland market at a discount. Inland refineries will lose the crack spread again. The diesel market will bear a better outcome, because of the export market. The transportation of crude oil and gasoline to inland market will be the only crack spread available to inland refineries.
    Nov 25 12:15 PM | Likes Like |Link to Comment
  • Icahn's Activism Prompts Transocean To Raise Dividend, But There Are Other Contract Drillers In The Sea [View article]
    Transocean used to be SEDCO and I used to work for SEDCO and was employed in the new built shipyard team. I also worked for ENSCO same kind of job.
    It takes 3 years for a new built to clear shipyard sea test. So, new built contract are passed with shipyards before they have a drilling contract. To facilitate contract and financing, new built were partnership between a client (Oil Company) and SEDCO. The client put up the money and SEDCO took care of all the construction and just charged for the crew cost and consumable during a set length of time. After which the rig was owned by SEDCO. In other words, no leasing fees for the duration of the first contract. The rig was a subsidiary of SEDCO, with all its accounting benefices.
    Most oil companies have specific drilling policies that require specific equipment vendors or equipment. The rig leasing contract has a least of equipment that are at the “company” burden. The BOP is one of those. The BOP must meet a minimum industry standard, none the less the “company” has preferences. The number of rams and sheer rams, and the order they are set is specified by the “company”. The cement pump, high pressure piping Kill & Choke set up is specified by the “company” but at the driller’s burden. Many others are stipulated in the leasing contract.
    The driller must provide the room necessary to accommodate the maintenance of this equipment. So every time the rig is assigned to a new customer it has to go, more times than not, to a shipyard for contract compliance. The driller and “company” will negotiate which cost will be at whose burden.
    Before the oil bust of the 80s, a drilling rig could be amortized in 3 years or 5 years. That changed and, unless it changed, a US drilling company new built can be amortized in 30 years. The cost of a US flag new built is uneconomic. This is why most rigs are under flag of conveniences. This is also why ENSCO, Transocean, amount others, have moved their international operation overseas where taxes are more favorable, and rigs are subject to less government regulations. I would not be surprised if Transocean MLP it US rigs which have to be US flags and controlled by US government regulation. One could argue that foreign flag rigs cannot be under US regulation using SEC connections. This has to be investigated.
    Nov 22 10:35 AM | 1 Like Like |Link to Comment
  • Northern Tier Energy: An Attractive High-Yield Play [View article]
    NTI, ALDW and CVRR are attractives investments. The investment grow is practically none existent, the only interest is the distribution. The distribution rest entirely on the 3.2.1 crack spread. The crack spread is set on the unbalance crude oil flow to where the refineries are, and they are close to major metropolitan’s area.
    The short term is that the crack spread is gone, gone temporarily only. The US shale boom will cause a deluge of crude to over burden the pipelines throughputs. These pipelines are really north south; the primary destination is the GOM. The crude going to the GOM, meaning from Corpus Christy TX the Saint James LO, will soon exceed the refineries production capability.
    On the face of it, this will be good for inland refineries, but this time the crack spread will not respond like the last bottleneck. The WTI is not producing what the demand need. WTI or 45 API and higher API grade produces more gasoline than the US market needs. What the market wants is diesel, and API 45 and lower produce more diesel.
    To conclude, yes the crack spread will be back by mid-2014, but expect gasoline to be cheap. It will be cheap because GOM refineries will be dumping gasoline where ever takers can be found. This means the inland metropolitan’s area will get cheap gasoline. All the advantage of the inland refineries will be under a competitive war of sorts. I believe inland MLPs will still have descent distribution, but $0.88 may be high. The Bakken crude will be railed to the East and West coast where Brent may still have a foot on the US market. So NTI may be the MLP with the best Crack Spread.
    Nov 22 08:59 AM | 1 Like Like |Link to Comment
  • The Worst Case Scenario Just Came True For Alon USA Partners [View article]
    ALDW without a crack spread is to be avoided. The present situation is that the crack spread is coming back. The inland hold up of crude has moved to Houston. The anticipated new deluge of crude going to Houston by the end of 2015 is 2MMb/d, which would total around 4MMb/d if you add the present crude going to Houston. The total refining capacity of the Houston/Port Arthur refineries is 3.7MMb/d. Therefore the inland refineries will benefit. Further Big Spring refinery will add a hydrocrack in its next turnaround. This will increase the WTI processing for more diesel. Buying WTS will not be so imperative. I believe that we should avoid ALDW until Q2 or Q3 2014.
    Nov 20 08:41 AM | 1 Like Like |Link to Comment
  • Updated Outlook For Crude Oil [View article]
    The oil market, in the US, will see an off balance supply with the US refineries. The diesel market is very strong as export. This diesel market on one hand will grow in the US. Auto makers are trying to sell the passage diesel powered car. On the other hand, the trucking industry is slowly switching to LNG or its cousins. A substantial amount of the US gasoline imports comes from Europe. The European passage car market has been, for some time, powered with diesel. European refineries are old and produce gasoline mostly. The economics of modifying these refineries to produce more diesel does not work. The Europeans import diesel from Russia. The ecology lobby is against diesel; therefore the diesel tax advantage versus gasoline is on its way out. Europe wants electric passage car.
    I believe that the US production of liquid hydrocarbon will approach $70 per barrel within 5 years. Americans drive less and passage car will be electric. Naturally the electricity will be NG produced. On the other hand NG which is $3.60 today will approach $8 or $10 in 5 years. It took 7 years for the trucking industry to switch from gasoline to diesel. We are in year 2 of this development.
    Volvo and Peterbilt are making LPG powered engine for sale. In Thailand 60% of the Thai trucking fleet is powered with LPG or CNG. The Bangkok taxi fleet is CNG powered by enlarge. Same in Singapore.
    I strongly believe that the oil market and NG market are getting much more interrelated than we believe. The momentum is with NG, it is the beginning, but it will surge faster than we think.
    Nov 17 01:15 PM | Likes Like |Link to Comment
  • SandRidge Energy Tanks On Earnings Beat - What Now? [View article]
    I agree IP is to be used with caution. None the less IP must pay off the drilling cost of that specific well. If not that cost has to be written off by all the other wells. You can of have to put the well in production if only for a short time.
    Nov 17 09:02 AM | Likes Like |Link to Comment