Got some insight yesterday

I was in a private placement meeting yesterday on gas and oil. This was my take away for gas:

1. Because of the large amount of money invested to lease land, drillers ran out of capital. They tapped all of their investors to get the money to lease land. Now they can't drill.

2. Drillers use the profit from a well-site to raise capital to drill the next well-site. 

3. Only top tier drillers (i.e. Shell) can drill and make money at $4.00 a CFM. It costs them about $1.79 a CFM to produce. Lower tiered companies can't drill. If you signed with a little guy you probably have no hope to be drilled unless they sell you to a large tier driller. 

4. Come second bonus payment time I would expect that a lot of people will not get much since the lower tiers have no money. Unless you are in an active area I would not count on getting a second payment (remember, it is only an option), or expect significantly lower re-negociated payments. 

5. The USA has a lot of gas, unfortunately, the USA can't use gas. Nor can the USA export the gas. The only things in the USA that use gas is heating and power plants. The push for natural gas cars is stalled because there are no natural gas stations and people won't build natural gas stations because there are no natural gas cars. The USA operates natural gas re-gasing plants (takes liquid gas that we imported and turns it back into a gas) but we do not have any liquidfication plants because we never had gas to export. Liquidfication plants apparently are extremely expensive to build and won't happen anytime soon in any large volume.

6. With the perfection of fracking and horizontal drilling, drillers can now get oil the same way. Drillers get about 4X more profit from oil than gas. (BTU conversion for price would be driller gets $24 for gas and $91 for oil for the same energy unit). In a world where wells generate the capital to drill the next well, drillers are concentrating on drilling for oil now.

7. Gas is expected to creep up a little, but not much. Regardless, you do not want your land to be drilled now because the bulk of your gas will be extracted at very bad prices. It is better that your land is drilled later when the cost per CFM is higher. Not that we can control this though.

Eventually the USA will be able to use our gas but it sounded like 20-30 years from now. The estimate is that it will require $15T in capital to get to all of the frackable gas.

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Permalink Reply by Joseph-Ohio on May 17, 2013 at 6:46am
Answer :
Subsidize Nat. Gas E & P (technology, exploration & production, infrastructure,
Fueling Stations, conversion equipment (including installation) and use incentives.
Do not subsidize renewables so heavily.
Do not sell to non-allied foreign states.
Do not import from non-allied foreign states.
Save our petroleum fuels for strategic/military use only.
Do it now.
Do it yesterday.
Do it last year.
Do it two years ago.
That sounds like a solid domestic energy plan to me.
Permalink Reply by wyalusing jim on May 17, 2013 at 7:59am

joe, subsidies are not necessary. just have the government get off the backs of energy producers and let them do what they do best...provide us with the energy we need to survive.

we should sell to the highest bidder no matter whether they are friendly or not, just be prepared to cut them off if they act up. what better way to keep a country inline than to threaten them with no fuel?...and maybe no food!

if you want to punish other countries for their unfriendliness, cut off their foreign aid. did you know that we still give foreign aid to communist china?

whether transportation refueling infrastructure is incentivized or not, the switch to natural gas as a transportation fuel is gonna take quite a while and will never gain a significant market share due to its' limitations. it just aint gonna happen...ever. what will happen is that in some niche markets, city busses, short distance carpooling and short run dedicated route trucking, natural gas will eventually excel. but those aren't huge markets, and will not consume large quantities of gas in the end.

ya gotta be patient and give the markets time to sort these things out is all, it's never a good idea to start throwing money around to jumpstart a limited concept.

wj

Permalink Reply by Dan on May 18, 2013 at 10:33am

Joseph and some,

There are conversions from $3000 to $20,000. Aside from all the obvious reasons not to subsidize conversions and most other things. If we subsidized conversions, say at $7500. What do you think the range of cost for conversions would be. Answer, $7500 to $20,000+.

What ever happened to patience?  Sometimes it seems some of you folks want to cash in all of our energy today.  Quit relying on voodoo economics and the belief that some new magical energy is in the near future.  Please leave some NG in the ground for our Gran kids.  Forcing things to happen usually causes many more problems than the one you want to fix.  And, don't forget the roomful of Govt workers you are committing to pay to work the program you wish for and then our kids in 30 years say “Hey, what the h@!! are we paying these outrageous pensions to these Govt workers for” and take it off them.  Supply and demand, yin-yang, religious determinism, the force of nature, or what ever floats your great lakes boat will take care of the NG cycle to market. 

I enjoy many of your discussions and posts, but quit trying to spend my tax dollars.

Permalink Reply by Joseph-Ohio on May 18, 2013 at 10:54am

Great observations Dan.

Plenty of inefficiency and outright waste and creative accounting going on in government - I'll say right along with you.

But, those tax dollars are mine too and right now I for one don't like the way they're being spent just the way it is !

Right now our money goes to pay for and includes debt on 3rd world oil wars or protecting the world's oil supply or whatever the reason the wars are being waged for.

I don't like that.

I don't like paying for the professional politician's  'entitlements' either - probably even more than they don't like paying for the working man's Medicaid, Medicare, Social Security, etc..

I don't like paying all the taxes for gasoline or the price for the oil that the gasoline comes from; which the world market (the so-called world 'free-market') pegs at whatever OPEC decides it ought to be to cover their debt / standards of living / Dubai / etc., etc., etc.

I'm advocating not spending our tax money on the above and other bottomless pits and / or flushing our children's and grandchildren's, etc. standard of living down the tubes and begin a domestic economy that fosters / nurtures our growth - not the growth of 3rd world nations.

Subsidize us instead of them - that's all I'm saying.

Permalink Reply by Dan on May 18, 2013 at 11:49am

I agree with your assessment of all the subsidies you mention, I feel the same about subsidizing the conversion and/or use of any energy.  If energy companies get incentives to harvest, get rid of those first.  Less production is needed to keep price stable and a bit higer now anyway.  Subsidies, wether grants, credits etc. , gives govt ( a few ) more power to direct the course of things and re-distrubute wealth.  With every extra hand in the pie, govt swells, progress slows, costs rise, fraud and theft increases and wealth is unnaturaly redistributed. 

I beleive our country needs to mend our social splinters before we can ever be as great again.  I would welcome spending some of my tax dollars on one time grants to devolope research and devolepment centers that industry, civic and enviromental leaders, sciences, and yes even the liberal educators that Fang accuses of trying to spread truth as they see it, to work together on our problems and goals.  "Seed Money"  you know "reap what you sow"  Some of these R&D educational centers are reaping fantastic rewards economically around them.  Technology has been greatly eccelerated,  Industry and Universities are winning.

You can't negate a bad subsidy by implementy another subsidy.  Taxes and credits can be much more powerful than regulation when used unfairly.

Permalink Reply by Joseph-Ohio on May 19, 2013 at 4:19am

Dan, I think we agree more than we disagree.

I'm saying eliminate the subsidies that nurture the economies of foreign states.

Defense is Defense - any nation that wants to take us on / decide we are enemies / attacks us will always be dealt with and we will always prevail.

Pre-emptive wars - no.

Nation building expenses - no.

Defense - yes.

Take the bad subsidy money saved and subsidize our domestic growth.

Not saying more subsidy - just saying subsidize differently - pro-domestically.

Thanks for the good discussion.

J-O

Permalink Reply by fracking good on May 17, 2013 at 7:13am
Permalink Reply by Joseph-Ohio on May 17, 2013 at 7:43am
Its an ugly picture if you ask me.
Permalink Reply by dingojoe on May 17, 2013 at 7:19am

They didn't talk about NGLs?  With all the processing capacity coming on line in Houville you'd think that's all they care about right now.

Permalink Reply by fracking good on May 17, 2013 at 7:37am
Permalink Reply by Joseph-Ohio on May 17, 2013 at 7:49am
That's better.
Permalink Reply by fracking good on May 17, 2013 at 7:44am

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