Open Choke

Been Away Too Long...

It's been an interesting ride these last few weeks. Here is what I have learned.

1. Colombia is a great place to drill for oil and gas. The Llanos Basin has awesome reserve potential and infrastructure. Royalty rates range from 8% and linearly increase to 25% once you are making over 600,000 barrels of oil per day. 33% corporate tax rate and easy repatriation. Ex PDVESA folks and Canadians are getting rich there, and US independent players largely absent.

2. China making inroads in Argentina oil and gas. Why would they work in a shitty fiscal environment? I think they have learned from brother Hugo. Play to the despot's weaknesses. They loaned billions to him secured by future delivery of hydrocarbons, then sent in field techs and engineers to "help" them operate the fields as they get nationalized. Do you think China actually expects to get repaid on their debt? Hell no. They want the hydrocarbon. Guess what? No taxes or takings on debt repayment. Fiscal regime be damned. Are they thinking the Kirchener tag team has similar traits in Argentina?

3. Real potential winner in the Russia/US/China triangle is India. They emerge as the easy folks to do business with. Too much business between Russia and Iran and China and Iran to teeth up any UN sanctions. UN oversight is trumped if countries are doing billions of dollars of business with one another.

4. I heard a great talk from an unnamed GOM jack up operator. They are no longer going to be a GOM jack up operator. They are going to be a Global jack up operator. Previously happy with the GOM, they perceive the political risk of drilling in the US GOM as much to high today to expose their whole business. When asked when, in the global history of the oilpatch, an accident was met with such a devastating response as the moratorium, the answer was "Never. Which is why the US GOM is now considered politically unstable". Rational view from someone exposing 40-60k per day these days.

5. Frac costs have tripled in the last few months. God Damn It!

6. Spammers take over when I am away.

7. The latest Unconventional Heat Index shows the Eagle Ford still in the lead, with Niobrara and Granite Wash following closely behind.

Hottest Unconventional Oil and Gas Plays- September 2010

I was visiting Drillinginfo yesterday and they have a series of blogs published by their engineering/geological team about various resource plays. It turns out that they monitor the hits on these public blogs and keep an ongoing "heat index" from those hits. I get the privilege of publishing them!

September 2010 Unconventional Play Heat Index.... drumroll, please...

Big Oil Must Pay!!!

In 2006, when I wrote this, and culled directly from their 10K, ExxonMobil paid $30.7 billion in excise taxes, $41.6 billion in other "taxes and duties", and $59.4 billion in income taxes… or, in other words, $131 billion in taxes on $359 billion in Revenue and $36 billion in Net Income.  

Thus, taxes were 364% of Net Income and 36.5% of Revenue, while Net Income was 10% of Revenue.  In other words,  taxing entities of all sorts made $3.65 per every $1.00 of profit booked by ExxonMobil shareholders.  

Isn't this a 78.5% effective overall tax rate?

It wasn’t just ExxonMobil.  All large oil companies pay this level of tax burden.  When Obama talks about the horribly unfair tax benefits enjoyed by Big Oil, he forgets to mention the myriad of other special tax burdens placed solely upon that industry.  

Imagine a foot race, where you make one of the runners wear 50 lb weights, tie his hands together, wear horse hair underwear and superglue his thighs.  Then you feel bad, and tell him he can wear he can eat an extra helping at breakfast because he is so burdened otherwise.  Then say, Nahhh, that wouldn’t be fair to the other runners that only get one serving.  But…but… what about my weights, thighs, hands and scratchy gonads, God Damn it?  No one else gets those!

I guess a "Windfall Profit" is ANY profit left after the greedy tax pigs so forcefully shoulder their way to the very front of the line to stick their wet snouts, quivering with greedy anticipation, so deeply into the trough of warm, savory largesse provided by private enterprise. As the Beatles wrote…  "Its one for you 19 for me... 'cause I'm the taxman... oh yeah, I'm the taxman”. 

Arizona and Godwin's Law...

Believe it or not, I am trying to figure out where I stand on the whole immigration brouhaha spotlighted by Arizona's recent legislative efforts.  While researching the many facts of this issue, I was exposed to something called "Godwin's Law",http://en.wikipedia.org/wiki/Godwin's_law, which states that "The first person in a debate to associate the opposite position to (Nazi/Hitler/Fascism) automatically loses the debate".

I thought, and still think, this is both funny and a good rule of thumb, albeit one I break from time to time.

Here are some facts of the Immigration/Arizona debate:

1.  Arizona's law mimics Federal law, and the conditions by which law enforcement can "ask for papers" are in the case of a "legitimate arrest, questioning, or detainment" for the enforcement of laws other than immigration laws.  Opponents say that the law gives law enforcement authorities the capability of questioning people for "walking around while brown", as our President so eloquently stated last week.  Proponents state that this KEEPS law enforcement from improperly questioning for "walking around while brown".  Thus, diametrically opposite conclusions from the same fact set. Clearly, the intent of the wording was to prevent questioning of people merely because of their ethnicity, otherwise it wouldn't have been addressed at all in the law, so apparently the difference between the two conclusions merely reflect ones opinion on how well the existing language protects against illegitimate questioning of Hispanic-looking individuals.

2.  The Arizona law, in substance,  only mimics the Federal law already on the books.  If one is legitimately opposed to the substance of the Arizona law, then one must be opposed to the Federal law.  The potential hippocrites, then, are the Senators and congress people that voted FOR the Federal law and protest AGAINST the Arizona law.

3.  The Feds have said they are not obligated to prosecute people under turned over to them by state officials for violations of Federal law in Immigration cases.  http://www.foxnews.com/politics/2010/05/21/official-says-feds-process-illegals-referred-arizona/.  Also, the Feds are apparently not obligated to prosecute or repatriate undocumented aliens, even if detained by Federal officials.  This allows the Feds to do, essentially, whatever they want, ie the law as written allows the Feds to either detain, arrest, and deport undocumented immigrants or NOT detain, arrest, and deport undocumented immigrants, depending upon how they feel that day, week, month, or administration.  This means the law was intentionally written in a way to NOT be law.  The concept of "Rule of Law" is meaningless if laws are written in a way that they are entirely subjective and arbitrary.  I don't think this concept of law can be supported by any left or right ideology, can it?  Was the passage of this Federal law nothing more than venal political theater? If so, who is responsible for that?

4.  Undocumented immigrants presumably come here for jobs.  We are told that the jobs they take are low wage jobs that no US citizen would want.  The obvious benefit of this is that these workers keep our society's cost of living low, and, depending on industry, without them, these costs would rise up to 30% or more.  The benefits are primarily in construction, maintenance, and hospitality. In other words, by taking low wage jobs (perhaps lower than minimum wage in many cases), they keep our cost of living down, which serves exactly the same effect as increasing income for the rest of us.

5.  Another benefit is that they pay money into dummy social security accounts from which they they will not recover benefits, thus enabling our currently unstable social security system to be further supported from the "fruits of labor" of our undocumented brethren.

6.  If these are the primary cases for non-enforcement, what reason would we have to want to "legalize" these jobs?  Would "legalizing" these folks entail mandatory minimum wage?  Union representation? If that is the result, don't the "benefits" disappear?

7. Or is the defining argument a Human Rights argument due to our current constitutional interpretation that if you are born in the US, you are automatically a US citizen.  Thus, when an undocumented parent is deported, the family can be potentially split.  Of course, the splitting of the family is only one of two potential outcomes, the other being the family going back with the deported member.  Although I think I understand why a US citizen or legal worker would not want to return with their undocumented spouse or parent, the individual choices made typically appear to support that being in the USA is more important to them than family cohesion.

8.  Undocumented immigrants are apparently very much over-represented in our prisons as violent criminals.  Why is that?  What does that mean for those that fit the stereotype of "looking for a better future"?  What is the relative percentage of each end-member demographic? What can we do to reduce the criminal component?  This is a hard issue to dismiss, if true.

9.  Clearly the US CAN protect its borders and sovereignty.  The question is cost and will.  Given that we are adequately terrified of Islamic terrorists, and we guard our airports and immigration stations at airports to a degree considered ridiculous by many (including me), what is the logic behind making an entirely physical border porous otherwise?  Is the fear of Islamic terrorism hugely overstated and propagandized?  Alternatively, what is the logic behind the kabuki theatre of airport security?  The reality is that illegal immigration has evolved from the story book families looking for a better tomorrow to a very well organized international system of undocumented human transport into the US from all over the world, and where Mexicans are no longer the overwhelming  majority of those transported (see these previous posts for a 1st and 2nd hand perspective on this....)

http://openchoke.blogs.com/open_choke/2007/11/no-country-for.html

 http://openchoke.blogs.com/open_choke/2008/04/more-drug-runne.html

Does this image concern you at all?  Should we ignore this and the attendant crime?  

10.  Another conservative bogeyman is the Reconquista Movement.  Is there merit to this concern?  Who, exactly, constitutes this movement and how many are there?  Are they merely a radical fringe element in numbers like the KuKluxKlan or is this a real movement?  If it is, have any of these folks actually LIVED in Mexico?

11.  Given the very tough immigration laws that Mexico "enjoys", what reason, other than economic ($21 billion per year of US dollars wired to families in Mexico, the second largest legally recognized industry in Mexico next to petroleum and the third biggest real industry next to drugs and petroleum and bigger than tourism... interesting really, that Mexico depends on illegal immigrants and illegal drugs as the 1st and 3rd largest industries), could Calderon have for making the speech he did to the US Congress?  How can he claim Human Rights when Mexico's immigration and work laws are far more draconian to non-citizens than the US's?  It would be nice to have someone admit that yes, it is primarily an economic issue between the two countries rather than a clearly ludicrous Human Rights issue.

12.  Do legal residents and citizens of Hispanic heritage, many of which predated Anglos, and, indeed US and Mexico, in Texas, NM, Arizona, and California, relate more strongly to the plight of the illegal immigrants or to sovereignty and benefits of US citizenship?  For either answer, why?

If I have left anything out, please let me know.  Let's get a discussion going on this to help me decide what I think is the best solution....

It wasn't the Blowout Preventer, etc. at all... it was GREED!

According the Harry Reid, Nevada's contribution to us all, it wasn't drilling through gas hydrates, a bad cement job, a failed blow out preventer, and poor on-site engineering that caused the Transocean Horizon disaster.  It was Greed.  

http://www.realclearpolitics.com/video/2010/05/17/reid_bps_greed_caused_gulf_oil_spill_11_deaths.html

There is something galling about the Gentleman from Las Vegas lecturing the world about Greed. Fortunately for all of us, his career as a statesmen is about over.

Another genius, Ted Turner, who should have been hospitalized and put under psychiatric observation by his children when he donated a billion dollars to the United Nations (although he later welched because his net worth had been decimated by AOL), pondered that God was telling us that oil is bad.

http://religion.blogs.cnn.com/2010/05/17/ted-turner-wondering-if-god-is-speaking-in-gulf-coast-spill/

How he reconciles this position with his avowed atheism (remember he left wife Jane Fonda when she told him she had found God) is still unclear.  Perhaps he means it in the way he has always meant it... I think it is wrong, and thus God thinks it is wrong.  How very Catholic of the Mouth from the South.

NOAA "Corrects" NYT Article...

My last post concerned the vast difference between what was being reported in the New York Times and what was being reported elsewhere with regards to the amount of oil spilled and the underwater column, if any, of oil that was represented.

The National Oceanographic and Atmospheric Administration (NOAA) Administrator felt the news being reported by NYT and others was so misleading or incorrect that it warranted a clarification from the Administrator on behalf of the Deepwater Horizon Unified Command.

http://www.deepwaterhorizonresponse.com/go/doc/2931/552671/

Note how the hysteria level drops when adults report.  Also, note the slapdown of the Pelican researchers...

Oil Spill News Discrepancies...

As we enter a weekend without further news as to whether BP's efforts to place a containment vessel over the oil leak in the subsurface, two news articles were published...

http://apnews.myway.com/article/20100514/D9FMI8SG1.html

Discusses that more than 35% of the spill has evaporated and 10% has been sopped up.  This because the crude is light, meaning it is dominated by short chain hydrocarbons, and thus much lighter than water with a strong propensity to float.  However, scientists disagree. Although I am sure there is a consensus somewhere that we will hear about shortly, especially if tied to massive research spending by the government or BP.

In any case, the New York Times reports massive 300' subsurface plumes of oil wrecking the biodiversity and flow rates an order of magnitude higher than reported.  

http://www.nytimes.com/2010/05/16/us/16oil.html?hp

No word yet on the exact mechanism on how light end hydrocarbons maintain subsurface thicknesses like this in much denser water for any amount of time.  Thermoclines can't explain it, since the density differences hotter/colder water are an order of magnitude different than water/oil. One interestting note, the NYT makes it appear, without really saying so, that BP is actively obfuscating the rates of flow, which it quotes its own experts, from something ill-defined in the article as the "Pelican Mission" and the researchers, all with doctorates, are not identified as to their expertise.  However, Google identifies one unnamed group as the University of Mississippi's Water and Wetland Research Institute, and it's head, Ray Highsmith, as someone whose specialty is "Community Ecology".  Dr. Samantha Joye has more impressive credentials as specializing in:

"Biogeochemical cycling of nutrients, metals, and organic materials in coastal environments; biogeochemistry of methane hydrate and chemosynthetic habitats; ecosystem and geochemical modeling; microbial ecology, metabolism and physiology; molecular biology; global nitrogen cycle, global methane cycle".

In any case, University Scientists, whose best interest is in finding catastrophe and the funding it will generate seem to be on the job, while those working for BP, whose best interest is in finding smaller impact, are also on the job, and the rest of us fed news written by folks with apparent agendas.  

Previously, I wrote that 5,000 BOPD was a reasonable rate.  It seems to me to be much more believable than the 100,000 BOPD rates quoted elsewhere.  As one reader stated, at 100,000 BOPD, you should be buying BP stock, not shorting it.  In any case, the containment dome, if successful, would give us real rates, not speculation.  

As an oilman, albeit it one that has only drilled dry holes offshore, and thus not likely to stroll back into that harsh environment, I know first hand that the manufacturing and industrial processes we have today are first rate and our H&SE track record amazing relative to our economic output.  I get queasy about further regulation because it is rarely thought out, is often punitive, and overseen by people that are not objective and neutral, but actually dogmatic and hostile to our industry from a values perspective, which seems absolutely ridiculous... like putting pedophiles in charge of an orphanage.  Perhaps counter-intuitively, the more we regulate and strangulate offshore drilling increases the value of my assets, which are onshore.  It also helps OPEC and other international producers who regularly laugh at our wrong-headed societal antipathy to our home industries, because, in the great American Way, we will still consume, whether we consume US oil or Iraqi oil. Big Oil is not affected much, because they can operate anywhere, but US laws on production are ACTUALLY targeted on independents, who drill 90+% of US wells and produce 80% of US oil and gas. 

The Best Ideas...

always come from goo ol' bwas in overalls.  Seriously.  These kinds of guys are the unsung American heroes.  Geniuses who work with their hands and can practically solve nearly any problem.  One of these guys is worth about a thousand investment bankers.  A solution to offshore oil spills...

Does Incompetence > Greed?

As the decibel count of shrill howl of industry hate gets louder from our Masters and Pundits, another seeming paradox has emerged.  BP, no longer "Beyond Petroleum" but rather, perhaps "Badly Pummeled" by the media frenzy, has responded pretty well thus far by preventing land fall of the slicks.  In the next day or two, we will see if the British giant's thunder dome experiment will capture the rest of the oil escaping and actually turn this into a revenue stream to partially offset its costs;  costs which Obama quickly set at $8 billion or more in an amazing feat of on-the-fly actuarial prestidigitization, without knowing any more information other than there WAS an oil spill.   AIG actuaries are bowing their head in admiration. 

This event has been used to drum support for more government oversight, more industry regulation, and, to be sure, we will soon see some sort of tax or fee instituted in the name of this disaster.  

Never ones to let a good disaster go to waste, environmental groups are reaping the bonanza by cutting down trees and hustling their members and recruiting new ones with mailouts preying upon the fears that "corporations are destroying the Earth", despite all objective evidence to the contrary.  

Not one to be left behind in the lucrative pursuit of environmental, anti corporation hate mongering, The Democratic Party is also leveraging the disaster in order to increase donations and power, presumably to insure that they can buy enough jackboots to keep on the necks of all the citizenry that need it.  Having given money to folks from both political parties, I am the recipient of the steady diet of bullshit polarizing fear-mongering mail that passes for politics today from both pathetic sides of the aisle.

So, let's compare BP's "greed" in not having every type of blow out preventer on site and working to the Army Corp of Engineer's "incompetence" or "corruption" in having received hundreds of millions, if not billions of tax and tariff dollars throughout two decades to fortify New Orlean's levies. But they didn't get around to really doing it. And the money, though spent, really didn't get spent on that, although it was specifically earmarked for it.  Most unfortunately, though, this isn't a one off example of government competence, but rather, par for the course. 

But, unlike industry, they can't get sued them for incompetence, or negligence, or fraud.  

Insanely, those that decry "the evils brought about by of corporate greed" call for the oversight of it all by empowering UNACCOUNTABLE  entities  (and please, don't give me hooey about "our elected representatives"... we are run by job-protected bureaucrats that owe fealty to Unions and can interpret laws any Kafkaesque way they see fit) and PROVEN incompetents or at least substandard in virtually every endeavor they undertake!

Now THAT'S a tragedy!

Imagine Football with Activist Refs...

Governmental entities love vague laws, and our lawmakers serve the beasts what they want.  Why? Because vague laws = power.  Why?

Because the vaguer the law, the more subjective it is.  The more subjective it is, the more power is vested in the policing authorities.

An interesting alliance of the conservative Heritage Foundation and criminal trial attorneys recognize this and are doing something about it on the criminal law side...

http://news.yahoo.com/s/ap/20100504/ap_on_go_co/us_too_many_crimes

But the problem extends well past criminal laws.  In the suburban township I live in, there are laws that dictate how much impermeable cover I can have.  Fine.  However, they have interpreted "impermeable cover" to mean both compacted granite and loose riverstone, neither of which is impermeable from any objective point of view and the latter of which might be the most permeable covering on the planet.

This is the danger of government.  It seeks to destroy our Rules of Law.  Our Rules of Law dictate a playing field.  You can make good decisions knowing what the rules are.  When the rules can be arbitrarily changed, you are entirely at the mercy of those that interpret the rule.  Arguably, one can make the case that even very well written rules, over time and subject to Judicial Activism, lose their meaning as reasons are found to chip away at something as straightforward as "the sky is blue" to mean, eventually, "the sky is red".

Imagine the following football game with Activist Refs...

"It's first and down here in Soldier Field where the Chicago Bears are taking on defending Super Bowl champs the Houston Texans.  There's the snap... he looks, finds a receiver downfield, and completes a pass for a 20 yard gain and, what?  A change of possession?  It seems that the safety stumbled, opening up room for the receiver to get past him, so the ref has called it a "change of possession", presumably because the safety could have perhaps intercepted had he not stumbled! OK, and exciting game underway here that sees the ball change hands on the first down.  The Bears with the ball now on the 50 yard line.  Hand off the the Bears halfback, who is stopped on the line, but wait!  The refs are saying that the ball be placed halfway to the goal line, because the Bears running back is Native American and gay!  Good call, the Native American and gay fans in the stands are going wild, applauding this audacious call."

It is no longer about the game, it is about the refs.  Enjoy that game over a $9 beer at your bond-funded stadium...