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  • U.S. Oil Export Ban: Are There Reasons Not To Repeal? [View article]
    Thank you for the analysis on this important topic. Some points:

    The ban on US crude exports benefits not only US refiners at the expense of the E&P firms, but also benefits OPEC, Russia, and other crude exporters (via less supply on global markets, resulting in higher global prices). The ban hurts, in addition to the E&P industry, the US consumer (higher pump prices from higher global crude prices) and the domestic economy (shale boom accounts for 30-40% of US growth since 2009). When looked at this way the benefits of lifting the ban for the vast majority far exceed the adverse effects on the refinery sector. The ban should be lifted.

    To incentivize consumption of North American crude by US refiners, there ought to be a significant tax imposed not on crude exports, but rather on any crude imported from sources outside North America. This will also eventually eliminate US dependence on OPEC and strengthen relationships with Canada and Mexico, improving national security and economic growth in all of N. America.

    Finally, the elephant in the room few are talking about is the potential role natgas can play in the transportation sector as a substitute for oil. The tax on non-NAM crude imports should fund incentives to expand the natgas transportation infrastructure and conversion of vehicles (especially diesel fueled and fleets) to natgas fuel. With over a century of US supplies (EIA), this cleaner, cheaper and US owned fuel could have a huge positive impact on the US economy, the environment and the global economy (cheaper global oil prices from less demand).

    Put all of the above in a package along with Jones Act reform, taxation equalization between diesel and natgas, elimination of all restrictions on cross-border pipelines--and call it a US Energy Independence Plan. It would be a first.
    Mar 23, 2015. 12:34 AM | 4 Likes Like |Link to Comment
  • Commodities Today: Energy Names Head Lower Even As D.C. Talks About Lifting Oil Export Ban [View article]
    The ban on US crude exports benefits the domestic refiners, OPEC, Russia and other crude exporters. The ban hurts the domestic energy industry (ex-refiners), the US consumer, the US economy and other crude importers. When put that succinctly, who in the US government would want to oppose lifting the ban?

    Refiners are an obvious opponent--they stand to lose some of their profit margins if WTI prices converge with global (Brent) crude prices, which is more likely if the ban is lifted.

    Environmental extremists--they don't want to help, in any way, the domestic fossil fuel industry or the 'fraccing' industry--both of which would be helped by lifting the ban.

    Opponents of energy 'profiteering'--these are the people who falsely claim that 'big oil' will find ways to gouge the consumer at the gas pump to make excessive profits. This is a confused and ill-informed group (or well paid to obfuscate by special interest donors). 'Big oil' is just another name for the major integrated energy firms and independent refiners--all of whom benefit from keeping the ban in place. 'Big oil' is actually profiting nicely while hurting the consumer with higher gasoline prices by keeping the ban in place--the exact opposite of what this group of opponents of lifting the ban are claiming.

    Lifting the ban will put domestically produced crude on the global market, in competition with other exporters. The greater supply of global crude will reduce global crude prices. Falling global crude prices will cause falling global gasoline prices, which is what the US consumer pays at the pump. Domestic WTI crude prices will sell at a smaller discount to Brent due to expanded market opportunities to sell crude against the higher priced competition. US refiners will see their margins squeezed with higher WTI input costs and lower global product prices. Domestic E&P firms will realize higher margins from higher WTI prices vs Brent. Midstream operators will benefit from secure production from stronger E&P firms. Lower gasoline prices and a stronger domestic energy industry will benefit the consumer and the US economy. For those with US interests at heart, there are far too many winners compared to the small number who will be adversely affected by lifting the ban. A serious effort needs to be made to educate politicians and the public about this important public interest issue. That, or raise enough funds to buy enough votes to lift the ban. Or both.
    Mar 20, 2015. 01:47 AM | 2 Likes Like |Link to Comment
  • U.S. Energy Policy: Time To Repeal Oil Export Ban, Build Keystone-XL, And Adopt Natural Gas Transportation [View article]
    Thanks Michael for keeping this topic in the minds of all of us. Agree with each of your policy proposals. As mentioned in the comments, Jones Act reform is also needed along with taxation equivalence between diesel, LNG and CNG.

    One policy issue not mentioned is funding. The Natgas Act (or something similar to incentivise the buildout of natgas distribution locations and conversion to natgas fuel from diesel/gas) is going to need funding for it to accelerate adoption. To address this issue (and several others) I've proposed previously the need for the imposition of a significant tax on crude oil imported from any production source outside of N. America. In addition to using these funds to accelerate a meaningful movement in natgas transportation, it would have the added benefit of incentivising domestic refiners to use US, Canadian and Mexican crude at the expense of any other crude sources. Along with lifting the export ban, WTI and WCS crudes would trade more equally to Brent--perhaps even back to historical premiums consistent with superior crude quality. OPEC crude would no longer be needed in N. America. The massive flow of US dollars to OPEC nations would stop. The 'petro-dollar' would circulate within N. American economies and the multiplier effects would help us and our immediate neighbors immensely--all of which will recirculate to the mutual benefit of each N. American nation. The trade deficit would be reduced or eliminated. National security (due to safer energy supplies) would increase and the cost of providing it would drop (let others--China, etc--do more to police the middle east since it is not critical for US energy needs).

    N. American energy independence is a worthwhile goal and certainly can be achieved due to the enormous domestic natgas resources available. There is bi-partisan support for it. Unfortunately we have a system where vested interests can pay for enough politicians (on both sides) to stop this from happening.
    Feb 22, 2015. 12:24 PM | 1 Like Like |Link to Comment
  • Unconventional Fracking: Changing The Future Of Drilling [View article]
    There is plenty of free CO2 (main molecule of greenhouse gas) being released each day, virtually everywhere. The cost factor involved is mainly composed of capturing and transporting it. Pipeline companies like KMI are heavily involved in the transport of CO2, as it is currently used in flooding conventional oil fields as an EOR method. Fraccing shale fields is likely to be far less efficient than CO2 floods of conventional resource pools. To generate more widespread use in fraccing, the CO2 capture technology will need to become significantly more efficient and/or water costs will need to rise. Of course, if efficient carbon capture technology is developed it would be of immense help to the environment. Finding a place to store all of that captured CO2 might be a natural fit for EOR and eventually CO2 fraccing.
    Feb 21, 2015. 10:05 AM | 3 Likes Like |Link to Comment
  • Why Saudi Arabia Doesn't Care If Oil Hits $20 [View article]
    The US still imports 40% of crude oil it consumes, half of which comes from OPEC. Canada is our largest import source and would grow under this proposal at the expense of OPEC. More robust domestic production would also replace OPEC oil, but the US will still be a major importer of crude in 5 years (from Canada and Mexico) unless natgas replaces some oil in the transportation system. The easiest and most productive place to start is trucking, fleets, buses, construction vehicles, railroad engines and jet fuel (using GTL tech, the military is already doing this for planes). Consumer vehicles will take longer and conversions to natgas are not needed there to free the US from OPEC oil (and most imports), even though there will undoubtedly be movement to convert in that group as well.
    Jan 3, 2015. 12:25 PM | 1 Like Like |Link to Comment
  • Why Saudi Arabia Doesn't Care If Oil Hits $20 [View article]
    The Saudi's are targeting lower prices (whatever they fall to) to hurt higher cost producers (including shale, oil sands, offshore, Russia and other OPEC members) that are producing more oil than needed at the moment. They don't want to cut deliveries to their customers in order to keep prices up only to lose customer business to others who are not cutting back in the same way. If producers won't cooperate to jointly reduce production when it is not needed, the Saudi's are letting the crude oil market price do the production reductions to balance supply with demand. Of course, the Saudi's know very well that this strategy hurts everyone including themselves, but being the lowest cost producer with vast bank reserves they will be able to outlast everyone else until production is brought into balance with need.

    Still, your point about the US imposing a tariff is one I advocate. The US should impose a significant import tax on all crude from sources outside of N. America. This will encourage US refiners to use domestic, Canadian and Mexican crude and will raise the price of these crude sources--improving the margins of NAM crude producers who now labor under the penalty of a discount to global prices, a serious competitive disadvantage to domestic producers.

    At the same time, the US should offer a significant tax incentive (with the funds received by this import tax) to vastly develop the natgas transportation infrastructure and convert diesel and fleet transportation to natgas. It is time for the US to flex its muscle and unleash the power of the unbelievably abundant natgas resources at our disposal. If done properly, within 5 years OPEC would be completely irrelevant to the US, the US economy would be booming, and everyone (except OPEC and Russia) would benefit from cheaper, cleaner, more secure transportation fuel.
    Jan 3, 2015. 12:54 AM | 5 Likes Like |Link to Comment
  • Saudi Arabia: Do The Math [View article]
    I agree with your take about the slow movement of alternatives to oil in the transportation sector. Nevertheless, the supply of natgas and the technology available to implement a major conversion to natgas transportation has to make oil producers around the world very concerned about longer-term oil prices if conversion to natgas transportation were to occur on a large scale, especially for diesel-powered and fleet vehicles. And GTL technology is real now. Natgas for jet fuel sounds crazy but it is in the works now by the military. The Saudis may just be concerned enough and reason, "Why wouldn't they develop natgas transportation. That is a no-brainer in this environment." The possible development of crude alternatives in the context of global environmentalism is a reality that the Saudis should be concerned about, even if it is only developing slowly at the moment. Pre-empting such a conversion, or slowing it down even more, would make sense from their perspective. This is another variable in the long-term profit-maximizing equation that must be considered and may be playing a role in the Saudi's seemingly 'irrational' policy change.
    Dec 14, 2014. 12:58 PM | Likes Like |Link to Comment
  • Saudi Arabia: Do The Math [View article]

    Thanks for another thought (and comment) provoking article. I'd like to add some ideas to this discussion that haven't been considered, but I think should. The Saudis have stated in the past that they don't want to over-produce in order to preserve their reserves for the future of their country. They also have stated it is preferential to keep oil prices relatively steady rather than have wildly swinging prices. In recent years they have behaved consistent with these views. What has changed to cause them to break from their established, seemingly rational behavior? This discussion has given full consideration to the rising strength of Saudi political enemies, internal OPEC member unwillingness to share cuts and unconventional crude production as primary reasons for their policy change. Each of these are valid. What has not been mentioned is the rise of global environmentalism and innovative technologies that can substitute natgas, solar and wind for crude as a transportation fuel through various mechanisms. Specifically for natgas, it is the source fuel for CNG/LNG and hydrogen fuel cell vehicles. Also, economically viable GTL technology is promising with the military using natgas to produce jet fuel for military aircraft and GTL plants of various capacities are in planning stages. The natgas resources of the US alone are staggering and they will be exploited for the benefit of consumers, the environment and national economic security/vitality. Crude will lose US market share in the future energy landscape if these technologies are developed. Perhaps the Saudis believe the long-term price of crude will not rise to levels they once thought due to expected competition from these new natgas technology threats (in addition to cost-reduced unconventional global crude resources) and are acting to maximize their long-term returns under this new paradigm.
    Dec 14, 2014. 02:35 AM | 1 Like Like |Link to Comment
  • Saudi Arabia: Do The Math [View article]
    Agree that the US should do all it can to promote US energy independence from OPEC. Start by organizing a 'strategic alliance' with Canada and Mexico for North American energy independence. Impose a significant import tax on all crude sourced outside North America (that would incentivise refiners to use NAM sourced crude instead of OPEC crude). Use the funds generated to build up the natgas transportation infrastructure and for roads, bridges, etc. Included would be tax incentives to convert all diesel and fleet vehicles to natgas power (this would eventually eliminate US demand for all OPEC oil and leave only Canada and Mexico as needed outside sources for US crude demand). Result: NAM energy independence, cleaner environment, cheaper fuel costs for consumers, reliable fuel sources, and a huge multiplier effect on the US (and Canadian) economies. Of course, eliminating the crude export ban and approving the XL pipeline (and future pipelines) are also essential steps to making all of this work.
    Dec 6, 2014. 08:34 PM | 3 Likes Like |Link to Comment
  • Kinder Morgan Inc.'s Mega-Deal: Lower Cost Of Capital And Maximum Optionality [View article]
    Doubtful MLP to C corp conversions will become popular. Some of the largest MLPs have combined their previously separate LP and GP structures, but remained an MLP. Kinder Morgan was a unique situation, in that there were 4 entities (2 C-corps and 2 MLPs) and an IDR structure payable to the KMI c-corp that became so large it was inhibiting investment opportunities. To combine them all was essential, just like other large MLPs have done, but the GP was a C-corp and the tax issues were complex. Kinder made the decision in the best interests of the whole complex of entities. I owned KMR in individual accounts instead of KMP to avoid some of those annual and long-term tax issues. KMR regularly traded at a slight discount to KMP so the effective 'yield' was higher for KMR as well.
    Aug 19, 2014. 10:24 PM | 2 Likes Like |Link to Comment
  • Triangle Petroleum: A Value-Enhancing Breakup On The Horizon [View article]
    Thanks for the write-up on this undervalued name. Your valuations are conservative but fair for an at-the-moment value. However each of the three segments are rapidly growing. Caliber will grow ebitda and be much more valuable by the time they sell it (sometime after the Rockpile sale). Moreover, the pure-play oil production company is growing oil production rapidly and should trade at a EV/ebitda ratio greater than 5. In a year's time the combined valuation could easily be 15-16, depending on market conditions. Finally, TPLM is likely to be acquired at some point in time by a larger player in the Bakken--which could price the shares even higher, depending on when it occurs. The stock is undervalued now, as you suggest, but if shareholders are patient they are likely to receive much higher values for the shares in the next 1-2 years than your current valuation.
    Aug 19, 2014. 07:55 AM | 1 Like Like |Link to Comment
  • PDC Energy: Significantly Undervalued And Ripe For A Takeover [View article]
    Thanks, Michael, for the great article on PDCE. This is my largest holding for the same reasons you have written. An APC takeout of PDCE is a no-brainer. APC has said that its current Wattenberg asset is the highest performing asset in their portfolio--which is saying plenty. They have announced plans to accelerate development there. Acquiring PDCE would give them a much grander scale for this development--improving opportunities for economies of scale and lower costs. Based on recent transactions, PDCE's Utica and Marcellus assets could possibly fetch around $1.5 billion (these would be a perfect fit for Antero Resources (AR) as both are very near to AR's existing assets)--enough to pay the takeover premium for PDCE. Now that the Tronox and BP Gulf disaster liabilities are settled, APC is in a fantastic position to acquire cheap assets that will enhance their portfolio in a strategic target area. Thanks again for sharing all of this.
    May 28, 2014. 09:43 PM | Likes Like |Link to Comment
  • Phillips 66 Unpredictably Supports Crude Oil Exports - Why? [View article]
    Analysts differ on the timing of reaching the capacity limit--not that it will be reached. GS says 2015. RJ, a bear on crude, recently revised estimates to $90 in 2014 but fall-off in 2015.

    EFS+shipping < Brent+shipping-->in... for Canadian refiners

    Heavy crude refiners can blend light and heavy grades in order to extend light crude capacity limits. That along with Canadian capacity likely extends the limit to 2015.
    Jan 11, 2014. 02:48 PM | Likes Like |Link to Comment
  • Phillips 66 Unpredictably Supports Crude Oil Exports - Why? [View article]
    There is another point to consider that may motivate PSX to support crude exports. Think of the alternative. If the crude ban is not lifted, eventually (probably in 2015) the domestic refiners will have reached their capacity limit to refine light sweet crude. At that point domestic producers will have no place to sell their new crude production. Producers cannot justify spending capex to grow in that situation. The shale boom then will stop--only producing enough to compensate for production declines. If the shale boom stops due to this artificial barrier many bad things can happen. Jobs will be lost, the economy (propped up by the shale boom) will weaken and demand for refined products will decrease below otherwise higher levels. That certainly does not help a refiner's profitability. Then there will be political fallout from slower economic growth, weaker jobs growth, higher trade deficits, greater dependence on OPEC, etc. The dream of energy independence gets harder to see. Who will get blamed for that? The refiners are the main beneficiary of the ban, not the consumer who already pays global prices for fuel. Refiners will take the brunt of the political fire. Too many land mines in this scenario. PSX is more enlightened than Valero about the longer term costs to keeping the ban.
    Jan 11, 2014. 11:43 AM | Likes Like |Link to Comment
  • Final 2013 Country Stock Market Performance Numbers [View article]
    Noted in your first sentence is that these returns are in local currencies. Useful for the locals in each country, since they trade in their own currency. For everyone else, particularly those who have the US dollar as their base currency, these returns need to be adjusted for the currency effects vs the US dollar during the same period for a more accurate comparison. For instance, I read that Venezuela's stock market rose 430% in 3013 in local currency, but since their currency depreciated against the US dollar around 75% the return for a US dollar-based investor was about the same as the US market. Thanks for posting the data.
    Jan 1, 2014. 10:40 AM | 1 Like Like |Link to Comment