Open Choke

Tax "Loopholes" on Oil Simply Explained...

If you're not dead, you have been blasted lately with all sorts of bombast about "oil industry" tax loopholes and subsidies and the gallant efforts underway to do away with them.  I thought it might be a good idea to simply explain what these "loopholes" are, how they came into existence, and what happens when we get rid of them.  

One important fact to remember is that up until recently, everyone agreed that energy security was important and that domestically-sourced energy preferable to foreign-sourced energy. That is apparently no longer the case. 

First, lets establish who this is targeted at and what kind of product it is meant to discourage.  If you, like most Americans, think it is targeted at "Big Oil", you would be, lets see if there is a nice way to say this, Dead Wrong.  First, Big Oil... the big integrated American Oil Companies that produce less than 12% of the world's Oil (REAL Big Oil is the National Oil Companies owned by the countries that contain the supergiant oil fields), left the US in the late 1970's and early 1980's.  Today, they produce only 35% of domestic oil and 20% of domestic natural gas, and drill less than 10% of the wells in the US. 

Next, if you are like most Americans, you think that Dirty Oil is the commodity being targeted by this tax proposal, right? Again... DEAD WRONG.  80% of the wells drilled in the US today target Natural Gas.  Yep, the "Clean Burning Natural Gas" that Nancy Pelosi enthusiastically endorsed when she jumped on the Pickens Plan.

By now, you are probably thinking "What the Hell?  This isn't what I was told at all!"  Unfortunately, we seem to be living in a world where truth often takes a back seat to politics and agenda.  In any case, now that we have that settled (and, by the way, these aren't "spins" from "an anonymous oil executive", these are basic objective facts), lets go understand Taxes.  I have to be crazy to write on something this dry!

Intangible Drilling Costs- First, lets start with capital investing in general.  If you want to build a commercial building, you buy the land and you build the structure.  The structure has a fixed life and a salvagable value that goes down every year, thus its treated as an item that is capitalized and written off over the lifespan of the building, ideally at the rate the building rots.  Also ideally, the investor in that building reinvests the dollars s(he) is depreciating into capital investments in that building so that the building has an indeterminate lifespan, or that the investor can buy a new one when the old one falls down.

This commercial building will fluctuate in value somewhat with market conditions, but, in general, will generate income on a flat line basis in current dollars.  Also, unless you are a complete bonehead (ie a member of congress anytime during the last decade), you won't build this building where you can't rent it out.  This is why, at least historically, you could borrow up to 80% of the cost of building to leverage your investment.  It only took $0.20 to buy a dollars worth of building... the building paid the rest.  You can borrow this money because the risk of loss is pretty small.

An oil or gas well, on the other hand, has a finite life span, and is, by definition, a depreciating asset.  It loses value every day it is in existence, and, unlike a commercial building,  it has very little salvage value associated with it.  No amount of reinvestment in that well can make it "good as new".

Combine this fact with the low likelihood of profitability on a one on one basis (only 30% of the wells make money, but they make enough to cover the cost of those that lose money), and the fluctuations in cash flow based from oil or gas wells from highly volatile oil and gas prices, no banker in their right mind would lend significant amounts to you to drill new wells, so investment leverage is much less than in commercial real estate or other industries.  Oil and Gas bankers make rational lending decisions in OUR industry because they are "unregulated"...  ie no greasy Fanny Mae or Freddie Macs for oil and gas lending that decouple people from making rational lending decisions. 

The relative lack of salvage value of an oil or gas well versus other capital investments along with the high amount of risk associated with drilling an individual well is similar in scale and risk to R&D investments by US industry in general, which, incidentally, is allowed to be wholly expensed for the same reasons.  This is why we treat Intangible Drilling Costs as an expensable item rather than a capital item.  

Clearly, although one can disagree with oil and gas drilling in general, this treatment of drilling costs has a clearly defined and rational basis, and is no more a special interest give away than expensing R&D is a corporate give away.  Recall once again... Independents and Natural Gas are the ones targeted to pay this change... not Big Oil and Oil.  The attached is a nice synopsis on this issue. http://www.heritage.org/research/energyandenvironment/IB86.cfm

Depletion Allowance- The next item that is currently being attacked is the Percentage Depletion Allowance.  Since this is called an "allowance", it is easy to see why people think "corporate welfare" by name alone.  I can hear you now.   "By Golly, how can you defend a "depletion allowance, 'choke?"  

The Depletion Allowance was a result of the Revenue Act of 1913 and applied to timber, mining, and oil and gas extraction.  The Revenue Act istelf  was enacted to deal with the taxation issues surrounding revenues derived from selling these "depleting assets" because the 16th Amendement of the US Constitution allows the Federal Government to tax income but NOT property.  

Since the revenue derived from our hypothetical office building is just revenue derived from a non-declining asset base, the "golden eggs" produced by our building goose, it is appropriately taxed as income.  However, if I were to sell my building, the income I receive would be taxed as Capital Gains, which has historically been taxed at a lower rate than income, because you are now selling the goose rather than each of the eggs.  The "goose" can no longer provide you ongoing income.  

Since oil and gas income is REALLY the sale of property, ie each barrel or MCFG produced depletes the original amount of property, how do you constitutionally tax the income derived from selling pieces of this declining property? 

For virtually all other properties, this is done via a Capital Gains tax.  The Depletion Allowance essentially "splits the baby" by treating this incremental sale of assets by recognizing that some part of the revenue is a sale of property, and thus subject to a lower rate than pure income... somewhere between Cap Gains and income.  

For major integrated oil companies (Big Oil), this is can only be done statutorily on a cost basis... ie they can deduct the cost of acquiring the asset. For smaller independents, it can be done on a percentage of sales basis. Lets look at an analogy.

For you homeowners out there, "percentage depletion" would be the equivalent of  taxing you at your income tax rate after you deducted 15% of the sales price of  your house, instead of straight capital gains on the difference between your original cost and sales price.  So, if you bought your house for $25k and sold it 20 years later for $200k, you would pay 15% of $175k, or $26.5k to the Feds under current law.  

The independent oilman equivalent would be that the house was taxed at 35% of 85% of the net profit, or a tax of $52.05k, nearly twice the capital gains rate.  The Major Oil Co. would pay 35% of the whole $175k, or $61.25.  

In essence, under the current schema, oil and gas companies pay twice the tax burden of a guy flipping houses!  See how we PROMOTED people to speculate in buying homes with our tax policy? Too many did, and we had a crash.  Eventually people built many more homes than there were people to live in them.  This oversupply is bad because people that already have homes are faced with a value collapse because of the glut.  With Oil or Gas, we don't have that same problem, since we don't horde oil or gas, but rather burn it for fuel and energy.  We need as much as we can get because we currently import over 60% of our oil, which means we send our dollars to non-American sellers and remove them from our economy.  Unlike with houses, if we overproduce domestically and the market collapses for oil and/or gas, the consumer is happy! Ecstatic, even! Even better, domestic production hugely benefits our trade balance, in that every dollar of domestic production is a dollar not sent overseas!  But, alas, instead we are in the process of choosing to penalize domestic oil and gas.  Remember, these proposed taxes don't apply AT ALL to foreign imported oil and gas!

Major Oil had this treatment removed, perhaps not so coincidentally, around the time they abandoned the US.  Is it any wonder why Major Oil is NOTa substantive player in US oil and gas production today? 

So, do you still think of percentage depletion as a subsidy or give-away, or merely an effort to correct slightly the differential between Income, as its treated, and Capital Gains, which it really is?  Ironically, removing Percentage Depletion, as President Obama has proposed, does not affect Big Oil at all, it only further penalizes Independent Oil.  A good read on this is included here.  http://www.answers.com/topic/depletion-allowance

As I described above, it is very difficult to borrow money to drill oil and gas wells.  Independent oil and gas companies have historically invested 100% of their cash flow back into drilling new wells.  New capital comes into the business when prices are high, and flees when prices are low.  For idependent oil companies,  the cash flow of existing operations dictates how many wells can be drilled and how many Americans can continue to be employed in this business.

The Obama Administration's proposed tax regime would raise the US Independent Oil and Gas industry's all in tax rate from 37% to 45%, compared with the average of all other US industries of 33%.  Again, the target is painted squarely on the backs of Mom and Pop independents that produce Domestic Oil and Gas, and not Big Oil one iota!

So what does this mean over a few years of a well's life?  Essentially, it takes the majority of its cut from the first year of production.  Importantly, this means it directly reduces the number of new wells drilled in year two onwards, because, remember, we operate out of cash flow.  The chart below shows that over a 6 year period, over 20% fewer wells would be drilled due to cash flow limitations.

This, overall, is a case in point about taxes in general.  Some industries horde cash.  Some industries have access to lots of credit.  Big Oil itself hordes cash due to issues of scale.  Industries with the ability to horde cash or with access to big credit are strongly buffered from the negative consequences of taxation.  

The Independent Oil Business, with a demonstrable history of 100% reinvestment of its revenues in order to replace and grow a depleting resource base is particularly susceptible to tax increases, especially front-loaded tax increases, as our President currently proposes.  In other words, every dollar that is extracted from the independent oil and gas industry via taxation and tariffs comes directly and on a one to one basis from dollars NOT invested in private sector jobs, business to business investments, and new wealth creation (as opposed to moved around wealth) from domestic resources!  

Common sense dictates that if we want an economy that grows, we should keep the following standard... if government provides better returns, it should get the dollar, if private enterprise provides a better return IT should get the dollar.  Equally unambiguous and demonstrable is the answer to that previous rhetorical statement.  Yet today we see government taking dollars from the better stewards, and expanding its franchise beyond safety, defense, and regulation of commercial infrastructure into the intentionally poorly-served commercial banking and private equity investment realms of subsidizing private entities that a) don't make things anyone wants to buy or b) abject marketplace failures, such as troubled banks and General Motors!

We all hope that we can develop cost-effective alternative energies.  While we are getting there, we should be supporting domestic supplies, particularly natural gas, the MOST carbon neutral dependable energy supply.  Creating a tax schema that kneecaps our current capabilities to produce energy while promoting increasing trade imbalances and exporting even more US jobs overseas and that result in more and more foreign natural gas and oil imports cannot be in ANY American's best interest, can it?

Oh, for those that want the raw data and assumptions for the analysis above, here it is...

Current Tax Regime

Proposed Tax Regime

I hope this clarifies a complex and politically bombastic subject for you.

Aren't You Glad She Ain't YOUR Royalty Owner?

Or, in any case, aren't you glad you don't have to deal with these old facilities?  Just an example of what you can find yourself buried neck deep in when you participate in a divestment package from a major.  I wish that we, as an industry, chose to respect our royalty owner partners, even when they choose not to respect all we do for them.  We will pay dearly for our high-handed approach.  Worse, our country AND the royalty owner community will pay dearly for not hanging together.

In this example, the royalty owner rented a gas detector camera to check out ExxonMobil meters and facilities.  The sound track is excellent!

To check out more of her work, go to http://rancholosmalulos.com/

Pile O' (Biomass).

Austin Energy is striving to meet its commitments for "green" energy this decade.  30%.  Like all companies with similar mandates, it is having problems finding "on demand" green... the valuable stuff you need when it is cloudy or when the wind isn't blowing 200 miles away.  Again, like others in similiar situations, it has decided that "biomass" is the great saviour for its 'green' plans, and is funding a 1.2 billion dollar east Texas biomass plant.

Biomass.  Wood waste products.  Like what we burned before we found out that coal was a lot more energy efficient by mass and was less pollutive.  Yes.  Coal.  And not "clean coal".  How the hell is that green? you may ask yourself.  It is green because of a "reality excursion" allowed in defining green stating that anything "sustainable" is green.  So, burning poo or trees is green.  Long, gnarly chains of carbons with huge CO2 and particulate matter side effects.

Let's consider Natural Gas for a moment.  The most carbon efficient method of generating energy of any carbon (read 'bio') based fuels.  It is spontaneously generated in land fills.  Randall and Dewey gave an 80 BCFG recoverable reserves assessment to a land fill near DFW.  It is also generated in 'Basin-Centered Gas' plays.  Currently being generated AND produced.  It looks, acts, and quacks like a "sustainable" energy source.  But the fact that oil companies produce it makes it ineligible, I guess. 

Oh well.  More class warfare.  My local energy company gives me the opportunity to "buy green", by which they mean I can pay 20% more for indeterminate electrons so that I can "feel better" about myself.  I called and asked if I could "buy just the brown" at a lower price than average, since others were taking the green. Funny.  She wouldn't sell me just the brown.

Just For Grins...

I was playing around with per capita energy use by type, and reduced it all to an interesting relationship.

1 Windmill (1.5 Mw) = 0.88 BOPD = 5357 cfg/d = .2446 short tons coal = 16,070 sq ft of solar voltaic cells = overall energy consumption of 5.5. Americans per day.

Thus, we can be energy independent on a pure play with either

54,727,727 windmills (at $1.5 million per = 75 trillion)

26,500,000 stripper oil wells (at .5 million per = 13 trillion)

3,311,000 80 bopd wells (at 1.5 million per = 5 trillion)

29,300,000 100 mcfg/d gas wells (at .5 million per = 15 trillion)

Huge amounts of strip mining

2921 sq ft/person or nearly a trillion square feet of photovoltaic cells or 23 million acres (around 1% of US land mass) (at $50 per sq. ft = $50 trillion)

Talk Radio...

During my morning "drive time", I heard a talk radio caller explain how it wasn't really fair to compare oil company profit margins to Dell profit margins, because the oil companies didn't "do anything" to deserve their profits, whereas Dell had to "market and advertise better" and "sell it's stuff more cheaply".  Of course, the hosts, being talk show hosts and not experts at anything per se,  sputtere in rebut, but really didn't answer the caller's assertions.  So here is my shot.

The oil business today is moderately profitable as far as industrials go (see some of the comparsions of corporate profitabilities made in this blog and others).  The "bidness" is not nearly as profitable as service or tech businesses...  with the commodity price at the highest point in real dollars in our lifetime.  Moderately Profitable = Best Prices Ever.  This is NOT a good relationship.  We should be Wildly Profitable = Best Prices Ever.  When we are only Moderately Profitable, we know that all good politicians start sharpening the tax knives and begin blowing rhetorical about Windfalls. We also know that we can survive this sort of retributive taxation only when we are Wildly Profitable, becase we also know that when prices leave the plateau of Best Ever, the tax knives starts slicing heart and lung.  It was EXACTLY this that caused a period of two decades of unprofitable or marginally profitable US oil and gas that caused a job loss of over 500,000 people and the unconsionable loss of infrastructure and investment that caused the outsourcing of oil business overseas.

Why would Dell cut the cost of a computer?  They would do it gain market share... ie they have the capacity to make more computers and will act on that capacity.  Would Dell lower their prices if they had NO further production capacity, and were able to sell all their current capacity at what HP sells their computers, if not more?  Of course not.

When a commodity has much more demand than it has deliverability, price goes up until demand is met.  Selling into a market at prices below demand-based prices is a senseless, perhaps criminal give-away of shareholder wealth, unless it can be shown to drive up long-term loyalty, etc. to an extent where the give away has a return higher than selling at market prices.  The only sure way to lower prices is to increase your overall deliverability until it becomes subststantive to the market.  The guy who builds computers in his garage and sells them for 50% of Dell's price is not going to affect Dell's price until he can deliver enough to take money away from Dell.  If he could sell them for 99% of Dell's price, he is a fool not to.

Deliverability in our industry increases when we have spare capacity at both the well head and at the refinery. Our environmental policy over the last decades has ensured that capacity in either arena were not a strategic concern, and could be met by valued trading partners like Iran, Venezuela, Russia, and Saudi Arabia.  In other words, we we outsourced it... to the most unreliable partners on Earth. The unhappy result is that we have no power to directly influence world wide crude supply anymore, and California, with its myriad Double Latte Moccachino gasoline blends is 20 days or more from the expresso refineries overseas that cater to their Venti blends.  Small price to pay for not having to look at a rig, producing well, or a refinery.

So, how could oil prices drop?  If any producer (Big Oil, or, more likely, National Oil Companies) has  significant excess capacity (and by significant, let's just say it moves when you can add 2% of world oil deliverability in the short run, so, 1.6 million barrels of oil per day), oil prices would drop by 20% or more because since the market is inelastic at its edges.  Better yet, the producer wouldn't have to take a 20-30% price drop by itself, it would spread that pain over all producers. 

Of course, we don't have this extra capacity.  We can't ramp it up quickly either. So, what now?  Well, now it is the turn of the Evil Speculators.  If we make discoveries that are going to make an impact 1, 3, 5 years from now, the speculators will begin forcing down the price today!  Of course, they can force the price up if they don't they don't buy our story about capacity increase, or, in the case of congress, congressional "fixes" to shortages.  Currently, the speculators have been calling Bullshit on Saudi Arabia's assertions that it can increase production and remediate Peak Oil.  Apparently, more people believe Saudi is full of crap than think they are telling the truth, and they are putting their money where their mouth is.  I think politicans hate speculators because they make an immediate "bullshit" call on political solutions, and believe it enough to bet their dollars on it, unlike the politicians, who just but OUR dollars on it.  There really isn't a great way for speculators to conspire, either.  It is a zero sum game.  One side loses and the other wins, with a middleman taking a cut.  It would be like one guy playing black and another red at the roullete wheel and agreeing to split their winnings.

Ironically, it is because we DON'T have monopolistic practices at work that are causing high prices.  No "Major" is strong enough alone or with others to increasing production or refinery capacity to move markets.  ExxonMobil, the "biggest oil company on Earth" is 20% the size of Saudi Aramco in terms of profitability, and Saudi Aramco is now considered  unable to move markets.

Our current Economist Laureate, Nancy Pelosi, insists that speculators and oil companies are at fault via some invisible conspiracy that no one can actually articulate, and that her environmental policies play no role, where the quid pro quo is much more easily discernible. 

Whereas I don't disagree with her "use it or lose it" idea about Federal acreage in concept, I do have a REAL problem with the US government arbitrarily abrogatting its contracts.  On the other hand, when she and Rahm Emmanuel made the producibility comparison of land currently under current lease to those lands currently off limits to drilling they took a huge and knowing leap into prevarication, because those elected representatives making the statement are NOT that stupid, thus they chose to LIE.  Ain't no British or French Intelligence on hand to blame that one on!

Piggle-Nomics

I dropped by to see ol' Berle Piggle on my way back from southern New Mexico the other day.  I had heard that Fort Stockton was going to get a new Super K-Mart.

"That's good, isn't it, Berle?  More jobs and such." I asked.

"Nahh.  It'll only provide 1/100,000,000th of a day's worth of GDP and that over it's entire lifetime.  It clearly isn't the answer we are looking for", he said over a sip of Falstaff.

I admit I was taken aback.  "Uh, OK.  I don't get it, but... OK". I said.  "I heard tell that Bill Gates was gonna move all of Microsoft to Fort Stockton" I said, just to see what he would say.

"Big deal.  Microsoft only employs 30,000 people.  That's only 1/1000th of the size of Texas, and only 1/10,000th of the USA.  In fact, my working group of Concerned Citizens say we should compare everything to Global Numbers.  So, it is only 1/200,000th of the world population.  And at revenues of only 250 billion a year, it only accounts for 1/260th of the World GDP.  So a hunnert Microsoft's could show up in Pecos County and it still wouldn't solve the world's GDP problem", he mused.

"Ohhh.  I get it now!" I said.  "You have been reading those oil shale and ANWR articles put out by the Puppies and Cute Animals and certain Kinda Trees Defense Council that compare reserves, no matter how large, to some sort of 100% percentage consumption rate!  Berle, you gotta know better than that.  That is just a trick to minimize the importance of it.  Hell, atmospheric CO2 is a hundred times smaller than in terms of percentages to ANWR and look at all the effects you all ascribe to it!"

"Look, Choke.  It's my county and my people, and I'm gonna think for them how I DAMN well please". 

ExxonMobil Doing Something Right...

Although I am not a huge EM fan (having been a JV partner with them in my Major Oil Company days, having tried to obtain farmouts from them as an independent, and personally "benefitting", along with all of my industry brethren, with their clumsy PR surrounding Valdez... ie "This fine won't even be a blip on our earnings", thus creating oil as an enemy forever of the consuming public, makes it difficult to be kind, although I do own some stock), their new ad campaign is really excellent.

It is multipart, and highlights technology, their incredible stable of expertise, and can-do spirit and know how I have never encountered before in their farmout evaluations teams.  Of course, they haven't highlighted those teams yet. 

Additionally, it highlights how they use technology to minimize footprint and they show how little of the CO2 increase and energy usage is a first world issue... thus illustrating how this modern climate crusade can be seen as a "keep the 3rd world down" campaign.

I would suggest that ExxonMobil highlight how much money it spends on solving problems, how the 14,000 scientists (1,400 with PhD's) compare with universities, and compare and contrast how it spends money solving problems while the environmental movement still spends the vast majority of its money on propaganda campaigns and lawsuits.  Of course, this might not be in keeping with the kinder, gentler ExxonMobil.  Just let me know when the kinder gentler part trickles down into operations.

Pundits and Leges Solve Energy Problems!

In perhaps the most audacious and ground-breaking use of proposed legislation and punditry to solve REAL problems, the legisidiocracy and the pundidiocracy declared that all available federal lands contain the same amount of oil and gas! http://www.kentucky.com/589/story/443005.html.

Barak Obama is quoted as saying in Las Vegas last week "I want you to think about this.  The oil companies have already been given 68 million acres of Federal land, both onshore and offshore, to drill.  They're allowed to drill it, and yet they haven't touched it- 68 million acres that have the potential to nearly double America's oil production." http://online.wsj.com/article/SB121478199392114387.html?mod=googlenews_wsj

This viewpoint has been supported and parroted by Pelosi, Boxer, Kerry, Rahall, and others.  Rahall, on the radio and TV over the weekend, compared these acres to currently restricted offshore and onshore acreage.

In one turn of the phrase, the politicos and punditos have created huge new reserves of oil and gas!  Not since the Indiana legislature tried to legislate the value of PI to be equal to 3.2 has the power of political effort been so meaningful.  This is huge news for me. See, I'm gonna be rich! 

First, I need to find out where I can get the free mineral leases that Barak says the government is 'giving' away.  I hope some is the in the Bakken Shale.  For some reason, I have been a chump all these years and had to go to an auction and bid actual "dollars" to get federal or state acreage and pay "royalties" on what I found, while all this time they were GIVING it away!  Probably to "Big Oil".  I have an email into Obama asking exactly who I talk to to get the free leases.  I hope it isn't Richard Daley!   I will pass this valuable info on to you after I have had my pick of 'em.

Second, I guess I don't really care if it is Bakken acreage since all acreage, or at least Federal acreage now contains the same amount of hydrocarbons, presumbaly at the same economics as ANWR or, better yet, offshore California, on an acre per acre basis.  Sweet.  If this mass-balance applies to all acreage, I am now a billionaire several times over due to some acreage I have in Runnels county... In fact, I am leasing heavily in El Paso County at 5 bucks an acre because the mineral owners haven't yet heard about the "new physics"...heh heh. 

Of course, I need to fire my geologists and geophysicists, because I don't need 'em if every acre is loaded to the brim.  I'll need to fire my engineers.  Too damn Republican.  "Sorry, it was a dry hole"! or "Nothing but salt water"!  Clearly, I need to hire some Obama-trained engineers that can extract all this national wealth on my behalf...

Mr. Rahall, in his report, "extrapolates that if you take historical production from offshore and onshore federal leases to the undrilled leases, we could double American Oil Production".  Brian Kennedy, of the Institute for Energy Research was even more enthusiastic.

"Using the same extrapolation, the 9.4 billion acres of the currently non-producing moon should yield 654 million barrels of oil per day!".

The House then passed the "Use It Or Lose It" bill 223-195.  This is HUGE news and a welcome expansion of Climate Change Government Science.  I am proud to be an American Scientist today.  I just needed to learn how to extrapolate!  Now I just need the Think Tank to come up with a way to make sewage into drill pipe, and I think we are set.

Sunday Thoughts From The Road...

As I was driving back from a location this afternoon, I had the radio tuned to Dr. Dean Odell, "America's Doctor".  I really like Odell... he is a facts based guy and he keeps up with his science.  He was talking about how insane it is for us to have "moral food choices"... ie this is bad for you, this is good for you... because nutrition is an incredibly complex subject where various components balance towards eating everything and in moderation.  For instance, Item X can cause pancreatic cancer, but prevent heart disease.

I then thought about a discussion I had with the guys that wrote the original Landmark interpretation system.  Like all sophisticated software programs, no one person knew how it all worked.  As they added a component or a feature, they would accidentally break or disable another, which in turn they would fix and hope the fix didn't damage another component.  This level of complexity leads towards fear of advancement or change... they system just gets stuck.  Landmark dealt with it by rewriting the whole think from scratch.

This is somewhat analagous to what is happening to us today.  The environmental movement has us so scared that any action we take will bring down all of mother nature in one fell swoop that we are increasingly choosing to do nothing.  Whereas our society and the interleavings and linkages have grown incredibly complex over the last 50 to 100 years, our impact on nature has not.  In fact, we have done a fantastic job of cleaning up our messes in the last 40 years.  What we haven't done is decreased the likelihood of catastrophic failure of the complex socio-economic system because it is out of sight and out of mind.  Instead we wail about global warming and some inane bird species not seen in the last 30 years.  We are looking in the wrong direction, folks.  I am MUCH more worried about economic collapse of China, or the sudden and catastrophic loss of trillions of dollars of wealth if a catastrophic earthquake hit Japan or California next week.  Real issues that we KNOW are very likely.

I guess nihilism is a natural response to a 2 million dollar dry hole... on a Sunday afternoon!

A Lower Risk Way of Drilling Wildcats...

Chesapeake is rumored to be drilling its New Mexico wells with as little as 50% of the minerals leased. If the well hits, they force pool the remainder.  If it's a dry hole, they reduced their risked land cost by half.  What are YOUR thoughts on this strategy?  What of you are a mineral owner?