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Fracking – the hydraulic fracturing of the deep earth and its cousin, horizontal drilling – is the new buzz word in energy today. It has been spread by journalists and correspondents and NGOs to the general public. What is this strange word's impact on our own lives?

A simple, four stage answer would include: 

  • jobs
  • energy
  • imports
  • environment



January 16, 1362, is the date when die grote mandrenke devastated much of Europe. Thousands perished in a massive winter storm that destroyed much of the continental coastline. This economic and social horror is the direct precursor to much of the rebirth of Europe, the Enlightenment. While Fibonacci is importing the zero from the Muslim world and Marco Polo’s Chinese adventures are opening Venice to The Levant and beyond for trade, this devastation opens the interior of the Netherlands – the Zuiderzee. This lake becomes a shallow sea. Small villages along its banks can now thrive with more coastal commerce. Fish lead to salt, to lace and to flax. The smallest of these villages , Amsterdam, becomes a global powerhouse by the 1600s, ruling the seas and inventing international commerce in the 17th and 18th centuries. England follows suit, as the global terrorist organization, Spain, having reduced much of the New World to slavery and death, self destructs after trying to conquer Holland and England in its own disgraceful Holy War.

What’s the point of this historical study? Disaster often leads to opportunity. Do we face such challenges today?

For the past few months we have all suffered at the hands of OPEC. The price of crude oil has been cut in half. They are trying to preserve their share of the energy market by refusing to reduce production, even as global demand drops. Whether this is a war against the US, Russia or Iran is less important than knowing it is a battle. We who are shareholders in the U S Energy Revolution are figures on the battlefield. Our loss, the blood on the field, is our wealth being destroyed. Share prices drop with oil prices. It has been a trying winter for all of us.

At the same time, we are also winners in this battle. Each time we fill up, we pay less at the pump. Companies who depend upon transportation are enjoying the same respite. Firms with lowering energy costs will see lower production costs soon. These lower costs usually translate into higher share prices, higher employment and better tax revenues. The U S economy should continue to lead the world economically. As long as the drumbeat for higher fuel taxes is ignored (a difficulty, certainly), we should weather this storm and win this battle. Private capital is preferred to government spending . Your wealth increases as taxes decline – a very simple equation.

2014 was a hard year for portfolio management. 86% of mutual funds managers underperformed the S&P 500, as did I. Four significant market drops preceded the oil decline in late November. Much of your portfolio has been ‘rebalanced’ away from energy to preferred stock and transportation. As happened in 2000 and 2008, I await the passing of the storm. New opportunities are always present once the sky clears. No one knows when this will occur, for none of us have any idea of the future. You have suffered through these times before – and you have been well rewarded by our subsequent actions.

They call it fall, here in the East, for a reason. The leaves fall like rain for weeks on end. The sky drops clouds as winter drags them across the barren treetops. Cold alternates with colder and we await the first serious snow of winter. We live deep in the Carolina arboreal forest, surrounded by elm, birch, oak, pine and hemlock. Deer tend to the acorns as squirrels bury their favorite seeds.

In the capital markets, we anticipate the growing U S to provide leadership to a faltering global economy. Jobs creation, low cost capital, technology efficiencies are coupling with this drastic fuel price reduction to enable the next revolution, the American Manufacturing revolution. U S manufacturing is coming on strong. Natural gas powered utilities provide low cost energy. Technology allows plant level scaling efficiencies to increase productivity. Demand drives production. Jobs follow. Taxes are paid to support local communities.

Isn’t it amazing how capitalism works? Adam Smith trumps Maynard Keynes every hand.

Many energy based portfolios suffered during 2014. Four downdrafts in the market and OPEC’s disastrous decision to maintain production in the face of weakened demand were real challenges. After five years of stellar growth and excellent income, 2014 set new bounds for expectations. We are adjusting to these realities.

As I have met with each of you over the year, two questions were universal:

How is North Carolina?

What will the future bring?

North Carolina folk are friendly, warm, open, hospitable, helpful and charming. Everyone goes to church on Sunday – the roads are empty before noon; most stores are closed. The weather changes with a defined regularity. It rains, nearly every week. Green is the predominant color. The city of Raleigh is built into the forest: every developer may use only 30% of the land, with 70% left in its natural state. The cost of living is 1/3 lower than Southern California. State income tax is a flat 5% for all citizens (after deductions). The ethnic mix is 65% Caucasian, 24% African- American, 8% Latino and 3% Asian. While the state is strongly Republican, the urban areas of Raleigh and Charlotte are quite Democratic. As much as 35% of the state are newbies such as ourselves – the city of Cary stands for ‘corral all retired Yankees’ or some such silliness. The food is amazingly good, with ‘farm to table’ nearly a requirement for the Raleigh urbane elite.

I now have a crystal ball on my desk. It is opaque. No One Knows The Future. Tea leaves, the stars and pundits all share a common trait: taking advantage of the gullible. If you want to know what will happen tomorrow, go to sleep. When you wake up, you will know. It really is that simple. I can make the most rational arguments for a strong economy, knowing full well that rational behavior is as rare as a bird’s nest on a wind turbine, as snow in San Diego. It happens but rarely. Irrational thinking, emotional responses, chaos, fear, greed, antipathy, graciousness, faith and lack thereof are far more prevalent.

My only prognostication is this: you will be led like a sheep to slaughter each time you listen to forecasters. None of us has a clue. The more I work with the tools of my profession, the more I understand how much I have to learn. I suspect this is the beginning of wisdom. A shame it takes so long to learn! I am glad that I have another 30 years to continue the lessons…yes, I celebrated 30 years as a professional in December.

Opportunities abound here in America. If the wild men of the Left and Right simply quiet down, the Middle can do what we do best – listen, debate, understand, agree to disagree. Compromise. It is the quintessential American way. States are meant to be the laboratories of political science – lets get back to this Constitutional idea. Federalism rather than federal leadership. As we keep more of what we earn through lower fuel costs and taxes, we can devote more time, energy and resource to the well being of our families, our home and our community. Those of us who are business leaders can lead by example; we fail often, as expected. We succeed enough to be pioneers: crawling across the desert with arrows in our back, still seeking the Promised Land.

Technology and applied science have an ever  increasing impact upon our economy, our culture and our society. The Voice, Tesla, Fracking and Amazon demonstrate these applications of science to technology. On the surface there is little difference between the Voice and the Roman Colosseum. Bread and blood. Yet look deeper – the entire audience has expanded; it participates directly and the blood has been removed. Tesla replaces the chariot, by six degrees of separation. Oil and gas have replaced slaves (except for Daerth, or IS). Electrons have replaced papyrus scrolls and billions now read vs. a few hundred. The rate of increase is increasing. This is velocity in physics. Applied to momentum it converts energy to efficiencies unknown. Do this enough times to overcome the mistakes and you have progress.

My point is: worry less. Life is getting better. Globally, fewer than 700 million now live in abject poverty. This is less than 10% of the human population. The figure was 90% a century ago. Health, human rights, legal and property rights are the norm today. Their absence is obvious. Women, children and minorities are equals in much of the world. The environment improves with wealth creation. We have ‘certain inalienable rights. Among them life, liberty and the pursuit of happiness.’ What a concept!

Sleep well. Eat wisely. Love with abandon!

‘I can think of six impossible things before breakfast’ says the Red Queen from Alice In Wonderland.

Looking at the financial media over the past six months, you would think she runs the presses.

“Lower oil prices will stimulate deflation.” Oh? Your cost to fill your gas tank has dropped by $10-$20 per tank. Are you more worried about you spending habits now?

“Stock prices are at all time highs.” Yes, as they were in 1944, 1951, 1968, 1970, 1989, 1999, 2007. Where are they today – higher or lower? What’s your point?

“Global unrest threatens the world”. Fewer people die from murder – in war or on their streets  – than at any time in the past.

“Civil unrest threatens our social fabric.” Arrest rates are lower than ever recorded by the FBI; prison populations are dropping fast; the police are far more honored than attacked.

“Energy prices are destroying my portfolio.” Yes, energy stocks have declined. They will stabilize as supply matches demand. This cycle is one of the few that regularly repeats itself every decade or so. Opportunities abound!

“We are destroying ourselves by harming the planet.” Actually, She is doing rather well, thank you. Every pollution measurement in the US has declined, particularly the new evil, carbon. As the New Year approaches, and as we have so much for which to be grateful, let us think of six possible things during today’s breakfast.

“Inflation is low.” Even gas prices have dropped. Food, clothing and most ‘consumer discretionary spending’ will follow suit. You will have more discretionary income in 2015.

“Debt is declining.” At least for most consumers, that is. While governmental debt remains a concern, many consumers, especially Boomers, have reduced or eliminated debt after the 2008-09 recession.     “Politics is about Compromise.” Despite the bleatings of the lambs on the left and right, most of us work the center and respect Representatives who do the same.

“Global events are interesting but far less disturbing.” IS, Syria, Russia: ‘whack a mole’ is the game for media contestants. For us, let’s just do our family and our community well.

“The people of the world are becoming wealthier.” You may not see this headline often; yet it is undeniably true. Health, wealth, family, education and rights are each and all improving for the majority of the global population.

“Breath deeply on a long contemplative walk.” Enjoy your home, yard, street, community, city, state and nation. You have earned the right to breath freely. Do so. Worry less, smile more. Yes, it has been a volatile year. Yes, you can easily forget the sunshine for the clouds. Both are necessary. None of us has any skill at predicting the future. Trash every commentary so doing. Ignore pundits. Over time, capitalism creates wealth. Healthy families result. Education and human rights follow. The environment improves. Adam Smith beats Maynard Keynes every time they sit down to a hand of cards… Lest we dispose ourselves to slothful repose in contemplating this earthly paradise, never forget our neighbors. Many are in need. We can give of our time, our experience, our wealth in so many ways. Help your neighbor. Tithe at church. Serve a meal at a veterans’ or homeless’ food line. Support your charities as you find best able to do. Think globally, act locally. In expectation of a Remarkable Year

Eat wisely.

Sleep well.

Love with abandon.


The most important holiday of the year for this great nation, Thanksgiving is like no other holiday in any other land.

We express a simple awareness of our gifts and express our heartfelt thanks.

We remember our families, friends, neighbors, service members and leaders of all walks in life.

We give a hearty Thank You to one and all.

We express, over a family meal, our gratitude.

With joy in our hearts and a bountiful table, we eat, talk and recall.

Many have less than we have. To them we offer an outreach of gifts, food, clothing.

We share our wealth – without recompense, without reward.

In our expression of goodwill, we acknowledge our partnership with those of whom we know nothing, other than their unknown need.

Work is our pastime, our reward and for many, our pleasure.

We give thanks for the sweat of our brow, from the bottom of our hearts.

We are honored with the task of earning our daily bread. While we may well earn far more than food, we earn a living from our efforts, we build our lives around our careers – and give thanks.

I recently received a note from a dear friend. In this time of Thanksgiving, I’d like to share it with each of you. His expression of thanks fits well into this Season and leads well into our Christmas Season.

We all come from humble beginnings. Many have achieved well being, success, happiness through work and good ethics. He shares this with us.

John, I just reread your 20:15:14 email for the third time. Each time I think I get a better feeling of comfort within my being. As you know I was born in 1932. Lived my first 16 years in seven different homes with two grand-parents, two parents and one sister. All with a very strong allegiance to the Democratic Party, Christian training, and hard working parents. For the most part I believed I was a very lucky boy living in a mid-blue collar world, with a strong desire to work, starting in the fifth grade with morning and evening paper routes. The bottom line is your writings are very helpful with my feelings of being reasonably comfortable for the rest of my life, hopefully with a little left over for our children and grand and great grand kids. Keep up the great writing.

My response to him is simple and direct: Your references to your youth are well received. Yes, work was an honor, well rewarded. We were glad to have a job – the opportunity to set forth in the world. Blue collar was a badge of respect and honor, or certainty. During this Thanksgiving Season, we are each well reminded of these simple facts of life: love, respect, patriotism, honor, hard work. Thank you!

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Liam Denning at WSJ reports on suspicious price fixing efforts by KSA (Kingdom of Saudi Arabia). Is it to pressure Iran, Russia and Canada to reduce production or simply to maintain market share?

Recent KSA price reductions on current and near future deliveries have destabilized Brent, with Iraq following suit on the shifiing sands of the rub al’ Khali. Lifetime break even production costs are closely guarded state secrets (90% of global reserves are state owned), but Russia’s may be $100, Iraq’s may be $90 and KSA’a may be $80.

In the US, the calculus is different. Each well’s production and completion costs are well known. Any well can be capped at any time to reduce output or opened to increase throughput. Returns are calculated based upon an assumed 10% p. a. against down hole capital. Generally speaking, given this intimate detailing, the Bakken costs range about $80/bbl, the Permian about $70/bbl  or lower depending upon the age of the well and its recompletion stage – and the Eagle Ford less than $60/bbl. Hedging further reduces market risk for the E&P firm as most will lock in prices as far as three years out.

Canada has a higher capital cost for both development and delivery. Sands are costly to deliver upon and the pipe distances are immense. Costs continue to rise; thus, Canadian crude trades at a discount to US crude, as much as 30%.

State owned enterprises (SOEs) tend towards higher costs. The multinational oil firms tend towards massive capital projects. Multi-billion USD projects are almost always over budget and under producing: witness Chevron’s debacle in NW AS, the Khashagan monster in the Caspian, Petrobras’ sub salt challenges and the recent Angola shutdown. These nations and firms value the entire operation over its lifetime of crude delivery rather than the piecemeal approach of U S independents. This significant accounting differential leads to enormous valuation preferences geared toward the Indies. Breakdowns, cost overruns and delivery debacles add to both capital cost and share price sensitivity.

KSA has the upper hand at the global output level. U S indies have the better hand in North America. They have the technology, experience, skills, land ownership rights and technology. Couple this to proximity of demand and ease of delivery.

October is the cruelest month. November may be MLPs warmest.

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Who Said It?

Four quotes today. You can guess who said each one. The theme is fear…

“The only thing we have to fear is fear itself.” OK, that’s an easy one. Said during The Depression and meant as an elixir to jolt people out of their unending trough of woe. 1932 was a time of troubles. For nearly three years the nation and the world were both dropping like stones into an abyss. Someone had to stop the fall – and he tried to do just that. Was he successful? Amity Schlaes would argue not in her book, The Forgotten Man. A reporter for the WSJ turned best selling author, I visited with her last week at the Civitas Forum atop the Wells Fargo building. She had a warm reflection to offer on Calvin Coolidge – Silent Cal. Seems her take is that government should be less about a birth of new  freedoms than about ensuring a fair start in life and a good race, a new birth of freedom, as Lincoln said.

“Enterprising, self-made citizens who have acquired whatever wealth they possess by patient and diligent labor.” This Whig hero of Lincoln’s young adulthood furthered federalism in Congress. This is the – currently unknown – political idea of each state pursuing its own rationale, developing its own laws and commerce as its citizens see fit. It viewed the nation as a federation among equal members, states, represented by each state’s voters’ choices. The national government had little impact – and wished less. Its task was protection and expansion of borders and promotion of trade. Lincoln evolved this concept of enterprise into The Emancipation Proclamation 20 years later. All men and women have a universal right to freedom. From this freedom flows enterprise, hard work and (relative) wealth.

“The whole aim is to keep the populace alarmed by menacing it with an endless series of hobgoblins, most of them imaginary.” Known for his acerbic wit and sharp tongue, he harangued the nation and its fearful leaders for three decades. We come now to the crux of our discussion.

We Americans live in the most peaceful times in human history. We are healthier than any previous generation. We live longer, more successful lives – at every level of society. The differences between the 1930s – as two of our statesmen above describe – could not be more stark. If you have a living family member who can tell you of life prior to and during World War II, ask them to tell the tale of their youth during those times. Compare his or her life to your own. It is remarkable.

Yet, we are beset all about with tales of fear, loathing and a treacherous, foreboding night. The hobgoblins are coming! Pick a subject and you should be afraid. If you dare to ignore the news for a few days, I suspect your sense of emotional relief will be palpable – you will feel better.

More people have died in the U S from allergic reaction to peanuts than from terrorism since 2002. Lightening strikes account for more deaths than globally transmitted jungle diseases. The crime rates for virtually every city and region in America are at all time lows, with declines of more than 50% in most major cities. The free press is certainly that. Our air, water, soil and food are in better condition than they have ever been – since recording began by the EPA certainly. Inflation is nonsense – deflation may be of more concern. Globally, fewer people die of infectious diseases or from acts of war than have ever been observed. More people live above the UN poverty level and fewer are dying of malnutrition than ever. The amount of wealth creation is staggering – and is filtering through corrupt regimes, outrageous taxation and egregious regulatory conscript to every level of the global society. Human rights have been extended far beyond the core issue of slavery in 1865 to virtually every known way of life, physical condition and social more, at least in the Western world. Education and healthcare are available to more people at lower cost and with better results, irrespective of your political views. Your political rights are stronger than during the Constitutional Convention in 1787, a meeting of a few dozen of the most brilliant minds ever to assemble.

Fear has no place in the forefront of our lives. We should be celebrating life, not in abhorrence of it. We are carbon based life forms! Our children will live in their world of our future. There is every reason to think that this will be a world of unimaginable wonder to us – far more than our world is to our grandparents. Why? More educated minds living in a healthier world of their own choosing and design.

Which brings forth the final quote. This is from the pit of hell: a laptop seized from al Qaeda in Pakistan in 2004. “Make use of that which is available…rather than waste valuable time becoming despondent over that which is not within your reach”. It references weapons use, to be clear. yet the concept has greater awareness than its primitive author could have imagined. Change ‘…not within your reach’ to ‘fearful’. Certainly the primitives who subscribe to this cultural vandalism are fearful that they do not have access to all weapons: that is the story this miscreant is preaching. Yet, are we not also subject to such a bromide?

The past few weeks have been fearful in the global stock markets. Media pour gasoline on this fire. It spreads, encouraging further infection.

The is baseless, it has a very low probability. We would have to see, simultaneously, a major recession in Europe, complete chaos in the Levant, an attack in Hong Kong by the PLA, a massive devaluation of the U S dollar, a crypto attack on a major banking system which voided all account balances – and an assassination or two. Perhaps a few aliens could appear, or a few million Living Dead.

What we have is a global economy that has staggered back to its feet after the worst financial and social crisis since 1932. Each of us may find fault with the system and its failures. The system continues to work. It is a Complex System. This means its has no controlling factor, no Wizard behind the curtain, no Satan or Angel. It stumbles and gets back into the ring. Its fight is against poverty, ignorance, hatred and fools.

The American economy is virile, ever virulent. Fewer than 2,000 people renounced their citizenship last year. Untold millions continue to try to get in to the country. Crude oil prices have dropped by 24% this year. Portfolios reflect this decline. It also shows at the gas pump and the grocery store. If primary power is cheaper, then everything else will reflect that cost, some sooner than others.

Portfolios will reflect stock market declines. That is the other side of risk taking: you assume risk in expectation of a greater reward. When you get the reward with higher account balances, you ignore the good news! Sometimes you don’t receive the reward. Account balances decline. As long as you don’t mess with your portfolio, the ‘loss’ is only on paper. It means nothing: quite literally, nothing. In a week, a month a year, you will reflect upon it as you have reflected upon this year’s two previous sharp declines, in February and in May: you will ‘fogetabotit’.

Having done what I do for 30 years, I have seen these perturbations. Most are a result of fear, nothing more. They soon dissipate. A few are reality based. Then we run for cover. Today it is fear based. Ignore it.

Go for a walk. Enjoy a fall afternoon. Turn off the news. Don’t read the paper or the web. I shall seek opportunities in this disheveled market. They are always just beneath the surface, diamonds in the rough.

Eat wisely.
Sleep well.
Love with Abandon!

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The bond markets will be disrupted over the next few weeks as the departure from PIMCO of it founder, Bill Gross, creates turmoil. The fund company has had significant withdrawals over the past several months as rumors have circulated about its management. It is the largest mutual fund firm in the bond market. The fund company’s Board welcomed the departure and looks forward to its future success. The markets are roiled by the acrimonious divorce and ongoing massive redemptions. These redemptions will impact the bond market over the short term.

As investors withdraw capital, funds have to sell bonds to create liquidity for the redemptions – which were $10B on Friday. These sales may disrupt the bond markets for some time, until a new equilibrium is reached. During this time, the price of individual bonds in a portfolio may reflect this disruption. Recall that bonds are issued at face value and are redeemed at the same price. The price fluctuates during the bond’s lifetime, as markets and perceptions change. Holding a bond to maturity ensures receipt of the six month interest payment and return of principal at redemption. Unlike stocks, bonds are redeemed at a future date at a specific price, as long as the company remains in business.

This management decision at a large mutual fund company indicates the untoward impact such funds can have upon a change in leadership, the fees these funds charge for their services and the risks an investor takes when placing assets in such an arena. The turmoil will also create buying opportunities as all disruptions do.

Elder Abuse

Just this week I received a call from a client. She called because her mother said she had received a notice of a lottery winning. They asked her to send $39.95 from her bank account in a check to verify – then, stole everything from all the bank accounts. Immediately alarmed, I told her to call the bunko squad at the local police. They came and took a report. The money was lost from the bank accounts, but by acting fast, we protected the other assets.

I contacted her other investment accounts to put elder abuse holds on each. One had already received and was processing a request for full surrender of a half million dollar account. We conferenced the client in, she told the firm that she had made no such request. We were fortunate enough to have caught the check in process – it was in the mail room already to go out. We asked compliance to investigate and report back as soon as possible. Another piece of her portfolio was attacked the following day, but the fraud alert stopped the redemption request process.

We set up a Lifelock account for her, installed password protection on all accounts, notified the FBI and requested the compliance departments for the firms in her portfolio to investigate these breeches. She is safe for now.

This is the lesson for all: NEVER give personal data to a stranger. Don’t do so over the phone, in person or through a website. If someone solicits you regarding any personal information, either hang up or demand further verification of valid identification. Assure yourself, and your family if necessary, that the firm is legitimate, is licensed and bonded and can provide references. BE WARY!

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The summer is full. Beaches and mountains are crowded, as are malls and stores. School begins soon for many , very soon for some. Vacations are family times, hopefully fun times. The world continues, our lives revolve around each day’s gifts and challenges. We are blessed with our families, our lives, our abundance, our nation.

Yet, there is much concern on the airwaves, in print, at BBQs and dinner parties. Many in our nation remain ignored by the economic recovery. Many are just getting by – and have been just getting by for a decade or more. Many are worried about the direction our nation is facing, much less moving towards.

Despite the largesse of many programs, both governmental and charitable, millions seem to fall through the designed safety nets.

Inequality has become a new worry. We seem to forget that it is equality of opportunity – rather than outcome – that was designed into our country’s system.

Education reform seems to lead to worse rather than better schools and teaching. CA led the world in the 1960s. Today it doesn’t even show up on the radar of education excellence.

Politics is a disruptive discourse – it has been so since Washington’s 2nd term in the 1790s. The word mudslinging was first used more than 130 years ago. It’s just the way democracy works – although decency would be nice.

Health is our most important asset. With it, we can enjoy life; without it, like Steve Jobs, we are at life’s mercy. Obesity, Ebola, you name it, we are encouraged to worry about it.

International news remains full of war and retribution. Despite the fact that far fewer people die in shorter, fewer wars than ever in recorded history, we see horrific images daily.

The markets are in turmoil. Having been a ‘deep participant’ in the markets for nearly 30 years, this is the oddest worry of all. They have been in turmoil since 1796, when a few men traded ‘shares’ beneath a tree in New York. We have seen outrageous disasters impact our economy – just since I graduated from High School in 1966. Yet long term investors with the courage, skill and moxie to survive have done so.

We are aging. Those of us who are the Boomers – born between 1946 and 1964 – are greying and slowing; we are spending and seeking help. Our ears and paunches are giving out, while our wallets and eyesight are diminishing. When will this decrepitude, this demise finally stop? When shall we ‘loosen these mortal coils’?

Well, I have chosen a different pathway today. I will always love Bing Crosby’s song, ‘Accentuate the Positive’

You’ve got to accentuate the positive
Eliminate the negative
Latch on to the affirmative
Don’t mess with Mister In-Between

You’ve got to spread joy up to the maximum
Bring gloom down to the minimum
Have faith or pandemonium
Liable to walk upon the scene

Dated? Yes. The 1930s were far harder times than anything we have experienced.

Religious? Yes. The nation was then (and remains) a religious nation.

Improper in its deflection towards the slang of the poor, the South and blacks? Yes. It celebrates the difference between races, locales and people by diminishing it – and accentuatin’ the positive!

My point here is simple. We have our health, our wealth, our nation and our abilities.

Applied science has given us everything we use today. If you have visited parts of the world surviving in absolute poverty (as I have, repeatedly), you will appreciate simple, invisible events: fresh, clean tap water; electricity; books; paved streets; medicine; clothing; autos; sewers; hospitals – the list goes on.

These are simply our basics. We also enjoy property rights; direct and transferable asset ownership; voting rights; education and health rights; clean air, water, land, cities and beaches. While we may disagree with the relative definitions of ‘clean’, ‘rights’ and ‘ownership’, we do all enjoy these. I have been to a dozen countries where everything on these lists is absent. Where death stalks the day and the night.

We also live in the second decade of the 21st Century. The computer I write this on, the one you read it on and the manner in which the electrons travel between these two pieces of plastic are far younger than most of us. The brains inside these pieces of plastic are far more powerful than their cousins of just a decade ago – do you recall typewriters, slide rules or pencil and paper? These simple devices, that cost us perhaps one week’s wages, have the intelligence equivalence of a mouse today. In a decade they will have the ‘IE’ of a dog. A decade hence and they will be on a par with dogs.

Your car today is far lighter and more fuel efficient than your first car – more so than even your previous car. The nation is consuming far less hydrocarbons today because of these two factors. Add in the increasing presence of computers in every component of cars (as well as in their manufacture) and you have a vehicle that emits less than 9% of what your 1966 Thunderbird, Chevelle, or Galaxy emitted.

We eat far better (perhaps too much) than we did in 1976 or 1986. We are more aware of healthy choices and are buying what we can afford – to enjoy our healthy lifestyle. We may workout, play, walk or enjoy our children and grandchildren. We sleep better, on excellent mattresses and nicer sheets, washed in more efficient machines using less detergent than has far less impact on the water and environment.

Clothing is made better, lasts longer and is less costly. The workers who make it around the world are both glad to have the work and are better paid for their efforts. While different from our work world, theirs is far safer and cleaner. They can afford electricity rather than wood or dung for fuel, heating and light.

At the cutting edge of today (wasn’t there a TV show in the fifties called, The Edge of Tomorrow – a soap?), genomics, molecular biology, nano-science and quantum mechanics are leading, very quickly, to efficiencies well beyond our imagination. New resins, ceramics and ‘silicos’ will move the design and manufacturing process in post-industrial society farther and faster than steel and plastics did in the 1880s and 1950s. Ever heard of graphenes? You will, soon. Genetic modification (whatever your views towards GMO) has been with humans since we learned to plant seed. The newest forms will greatly reduce water and fertilizer use while further enhancing crop yields – particularly for those living beyond the edges of poverty.

In a decade you will be able to buy wall paint that changes color, that reflects heat and knows when you are in the room. You may stop driving cars in less time. Health care is today being designed specifically to your body. Energy efficiencies are being built into the Grid today that will further reduce our energy consumption – and change our habits. Agricultural water use – far and away the greatest waste of water in post industrial society – will see the greatest improvements, but urban choices will be more directed, cost conscious and efficient too.

In my two specialties (money and energy), the changes are happening faster than many had expected. Management fees are going down as technology improves our abilities to service your financial planning needs in real time. Your choices for investment, efficiency of trading and ability to explore all the equities of the world are far greater than when I started with three decades ago. Energy production and distribution costs are rapidly declining too. These costs are passing on to consumers, indirectly today, but more direct as time rapidly passes. Gas prices at the pump are not reacting to the internecine warfare of the Middle East, nor did they react excessively to the y cold winters of the past few years.

On the environmental front, the nation’s CO2 emissions are today lower than at any time since measurements began by the EPA in 1992 – this is according to the EPA. Three reasons: the recession, greater vehicular efficiencies and hydraulic fracturing of oil and gas in the U S. The latter has allowed the substitution of natural gas (methane) for coal in electricity production across the country.

Natural gas is working its way into the truck world in a bigger way each year as new engines that burn CNG/LNG are used at airports, on city buses and by long and short haul truckers. The EPA has called the Honda Accord natural gas car ‘the most fuel efficient car with the lowest carbon footprint of any vehicle on the road today’. There are 15 models of personal cars and trucks in the 2014 lineup, with two dozen more in 2015. By 2025, 1/4 of the U S vehicle fleet may be natural gas powered. The figure for Brazil, Australia, Malaysia and Iran is greater than 80% – today.

Fear and loathing sell advertising in the media. Hope and change sell little, anywhere. We are deluged with fears. This is nonsense! I’d be glad to send you one or a dozen books, articles or web-links telling a far different tale. Just ask.

The economy and the markets are doing quite well, thank you. Investors – at least my clients – are living comfortably off their portfolios – at far lower fees. Energy stocks continue to lead the way forward. They pay lovely dividends, have low debt, are responsive to their communities and are very reasonably priced. Technology stocks may redefine the world of tomorrow – today. Information technology and medical technology are the leading edge of a storm of change.

Imagine you and I are talking in my office in 1997, just 17 years ago. Cell phones, internet TV and electric cars are science fiction. Russia is the new investment of choice for many. Politicians are getting the long term unemployed back to work. Environmental folks can’t decide whether cooling or warming is the real global threat. Food production and democracy advances leapfrog across the globe. Could we then imagine our world today? I think we would miss the mark.

Enjoy your summer days!

Eat wisely. Sleep well. Love with abandon!

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As a follow up to the previous comments on the NAPTP conference in DC, here are a few more newsworthy items.

China is building the world’s first CNG tanker for Indonesia. The vessel will transport CNG to remote islands in the archepelago. This is a new approach: the gas tankers on the ocean today are LNG. The gas is liquified, shipped, then regasified at the delivery terminal. These will be running from three terminals in LA and TX by the end of next year, exporting our massive surplus of natural gas.

The U S Commerce Dept. has allowed the export of condensate crude for two firms this year. Ten others are asking for the same permit. This is the opening of the U S crude market to global demand. Condensate means that the volatile gases have been removed , the same process that is, or should be, used for train shipments of crude from the Bakken and the Eagle Ford. Splitters and stabilizers remove the NGLs for safe shipment.

The condensate market should heat up as crude is easily made safer this way. This window on exports also allows us the ship the light crude produced in TX and ND to Europe, where refineries can process it, while importing from Canada the heavy crude our refineries were designed to process. Until we redesign local refineries to accept the lighter crude, condensate treatment and transhipment is an acceptable and simple solution to our excess crude production conundrum. In a few years, the new refineries will be able to handle light crude.

Whether our demand can keep pace with our production is another matter. Engines are more efficient and lighter. People are driving fewer miles. Natural gas is becoming a game changer in public transportation, waste management and long distance trucking. Industry is using more natural gas for electricity production, reducing the demand for coal, hydro and nuclear power generation. Utilities are finding it harder to pass on rate increases when their supply chain is less costly in many states (CA expected).

Meanwhile, our European friends continue to assume that the temperature is rising. Rather than urging industry to greater fuel efficiencies, an obvious solution to several concerns, they insist upon changing the entire structure of energy production. It is not for them to meet the rising global demand for plastics (based upon natural gas). They prefer a dither over who imports to them from where. So be it… Meanwhile, our plastics industry is entering yet another boom time as natural gas availability increases and prices decrease. $65B in new projects have been announced just for 2014 in the U S.

Our other friends in Big Oil are finally learning the lessons from their smaller cousins, the independent oil and gas producers. These independents are at the core of the Energy Revolution in America. The Bigs are beginning to sell off assets and turn to more productive working sites. They are beginning to slow their spending on building reserves (investing in multibillion dollar megafields) deep below the sea or the desert. The Kashagan, Kearl and Pre-sals are under-performing – or not performing at all. ConocoPhillips and Oxy are hiving parts of themselves off as new entities or simple splitting into new firms. Leaner and meaner is the new tune, even at ExxonMobil and Chevron. While super fields will still be developed by the majors, as only they and the state owned firms can, downsizing seems to be the new mantra.

KISS – keep it simple, stupid – is one of the more intelligent sayings from the field of management. Sand is simple. Firms that develop sand mines are the big winners in the frack world today. Sand is used for silicon, solar panels and your cell phone. It is also the major component down-hole with hydraulic fracturing. 4-8 million gallons of water may carry 20-30 pounds of sand in each gallon. Northern white is the sand of choice and finding it, processing it, selling it and delivering it are the provinces of a few specialty firms. As demand increases, so do prices. Technology continues to dominate the sand castle.

The process of adding sand to water and pushing the slush down a drilling hole is constantly changing. The chemical additives are going green, the amount and type of water is changing. The process itself has gone full circle. The older way – slick water fracking – is now becoming popular again. As toolpushers (guys who run the rigs) and environmental field scientists learn more about the deep reservoirs they exploit, they have come round to realize that more saline water is better than pure water. Using the same amount of sand by weight in this flow reduces the volume of sand used. The water that returns to the surface can more easily be reused. The best sand is required to keep the low permeable rock 12,000 – 18,000′ down open for flow to the surface.

One of the best sand firms is run by a woman. Laura Fulton predicts a further 10% price increase in her simple product before the end of the year. Her long term contracts with the major service firms such as Halliburton  make for a profitable future for shareholders. “There really is no limit on the demand side”, says Ms. Fulton, CFO of the company Hi-Crush.

On the financial front, E&P firms have been using debt at a rapid rate. It is cheap and easy to service, as they spend less than $2 per barrel on debt coverage.  Most of this debt doesn’t come due until the middle of the next decade and virtually all of it is at a fixed rate, a very low rate. As technology allows E&P firms to capture more hydrocarbons from downhole, the ability to service debt should continue to be an easy burden to bear. Recall that these companies require an enormous amount of capital to continually flow new and existing wells.  Every hole is different, as Jake says in my book Fracking, America’s Alternative Energy Revolution.

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The past winter demonstrated two complex phenomena: weather is unpredictable and the Marcellus/Utica plays met increased natural gas demand for heating cleanly and effectively.

While the U.S. stockpile of natural gas dropped to a decade low, production and midstream delivery met the challenge of replacement and further production.

Utility demand for natural gas continues to grow. Transportation demand for commercial vehicles powered by methane increases. Manufacturing demand is just beginning to come on line as billions in new plants are in development.

If we can believe it, even public awareness is turning towards energy – positively. Pennsylvania leads the way in the Northeast in both tax revenues and regulatory oversight. Pittsburgh leads the new manufacturing revolution, as it has in the past. Gas replaces coal in power generation and manufacturing reliance. Ohio has doubled its natural gas and crude production in just one year. Marcellus production will grow by 87% for Consol in 2014.

Technology runs ahead of production. Well spacing reduction results in greater EUR. Laterals may run longer or shorter, depending upon the hydrocarbon and its concentration. Frac intervals are increasing in type and number as drillers get a better understanding of the geology of each basin. Pads have grown in size and number of wells. Frac stages are now running well beyond 150 on some pads.

Cabot has just completed the first 10 well pad, run entirely on bifuels. This reduces cost and environmental impact, replacing locally produced methane for diesel fuel. Engine efficiencies and run times increased substantially over pure diesel engines running the frac rigs and pumping stations. On site gas processing fractionated the NGLs from the methane, allowing the new engines to run at peak efficiency. The byproduct is a profit center for the drill site. The ten well pad ran entirely on bifuels at the planned 70% replacement rate. This reduced diesel use by 110,000 gallons and 16 tanker resupply runs, while increasing the safety factor for workers and the local environment.

It cut NOX emissions in half and eliminated carbon monoxide emissions entirely. Chemicals used during fracturing were all approved and screened for persistent organic pollutants as suggested by the UN globally Harmonized System for Chemicals. Cabot’s 170 stage 10 well pad was completed in 27 days. It is the greenest and cleanest frac site in North America today.

Stacked plays add enormously to productivity and to production. With three basins to work, a stacked play drills to and draws from each simultaneously. Well costs of $6-8M/well can be recovered in one year.

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