Masters Of War

Come you masters of war You that build all the guns You that build the death planes You that build all the bombs You that hide behind walls You that hide behind desks I just want you to know I can see through your masks. You that never done nothin' But build to destroy You play with my world Like it's your little toy You put a gun in my hand And you hide from my eyes And you turn and run farther When the fast bullets fly. Like Judas of old You lie and deceive A world war can be won You want me to believe But I see through your eyes And I see through your brain Like I see through the water That runs down my drain. You fasten all the triggers For the others to fire Then you set back and watch When the death count gets higher You hide in your mansion' As young people's blood Flows out of their bodies And is buried in the mud. You've thrown the worst fear That can ever be hurled Fear to bring children Into the world For threatening my baby Unborn and unnamed You ain't worth the blood That runs in your veins. How much do I know To talk out of turn You might say that I'm young You might say I'm unlearned But there's one thing I know Though I'm younger than you That even Jesus would never Forgive what you do. Let me ask you one question Is your money that good Will it buy you forgiveness Do you think that it could I think you will find When your death takes its toll All the money you made Will never buy back your soul. And I hope that you die And your death'll come soon I will follow your casket In the pale afternoon And I'll watch while you're lowered Down to your deathbed And I'll stand over your grave 'Til I'm sure that you're dead.------- Bob Dylan 1963

Sunday, August 9, 2015

Chesapeake putting Ohio production "on hold"; US refineries refining at a record pace...

the ongoing drop in the price of oil had to have been the most important fracking related story this week, not because it fell by that much, but because the price of oil has been unable to find an equilibrium for much more than a day or two at a time since late June...this week the price deterioration continued with very little volatility, suggesting that even at these low levels, there aren't many speculators looking at oil as a bargain, even at today's low prices...after closing last week at a price of $47.12 a barrel, the near term contract for WTI, the US crude oil benchmark, headed down on Monday on news that Saudi Arabia and Iraq continued to pump near record levels and closed Monday at $45.17 a barrel; it was then up a bit on Tuesday, but went back in the tank on Wednesday when weekly oil production data was released, showing elevated gasoline inventories and another rebound in US output...prices then continued to fall the rest of the week, and closed down 79c at $43.87 a barrel on Friday, after Baker Hughes data showed US drillers were still adding oil rigs...

as a lot has happened with the price of oil since the last time we discussed it, we'll include a graph of US oil prices over the past year, so you can all see what has been happening...the graph below shows the past year's track of the near term contract price per barrel of the US benchmark oil, West Texas Intermediate (WTI), sitting at or to be delivered to the oil depot in Cushing Oklahoma...we can see that oil had been falling most of last summer, even as drillers were still adding rigs and expanding production....and we know that oil drilling continued into the fall, with the rig count peaking in October, even as oil prices slipped below $80 while the global surplus was developing...we can then see the first collapse of prices beginning in the last week of November, when the price of oil fell from $78 to $65 in the days immediately following the OPEC decision to continue their level of production...oil prices then fell below $45 a barrel in intra-day trading in mid January, a level at which 97% of US shale wells became unprofitable, before climbing back up above $58 again in February...they touched the January lows again in March before moving back up to near $60, in a range where they stayed for most of the second quarter...but even at those prices, most independent drillers reported losses during that period, and now they've fallen another 28% from the $61.01 price of June 23rd...

August 7 2015 clssing oil prices

in addition to the companies that reported lower 2nd quarter earnings or losses last week, a handful of companies also reported their 2nd quarter results this week; Marathon Oil posted a $386 million loss for the second quarter. even after "dramatic reductions in production costs and across-the-board spending cuts", more than reversing the $360 million profit they posted during the same time period last year; Rice Energy, who drills for oil and gas in the Marcellus in southwestern Pennsylvania and in the Utica in Ohio, reported a loss of $69.7 million in the 2nd quarter, worse than the $7.9 million, or 6 cents per share loss they reported in the 2nd quarter of 2014; Rex Energy, another Pennsylvania and Ohio driller, recorded a loss of  $155.2 million, or $2.87 per share, for the second quarter, as their revenues fells 37% from the same period last year, even though their production rose by 6%; Continental Resources Inc, the second-largest oil producer in the Bakken shale, reported their net income dropped 99%, from $103.5 million last year to $403 thousand this year, even as their average daily production increased 35%, and Gulfport Energy reported a net loss of $31.3 million even as their production increased by 196% compared to the second quarter of 2014...and remember, all those losses were incurred when oil was within a few dollars of $60 a barrel..

in covering the fracker's 2nd quarter earnings and losses last week, we noted that Chesapeake Energy, the 2nd largest natural gas producer in the US and operator of more than half of Ohio's wells, had suspended paying their dividend, even after they had paid one through the last 14 years of their mostly cash flow negative history; on Wednesday they reported a loss of $4.15 billion, or $6.27 per share, for the 2nd quarter, in contrast to the profit of $145 million they made in the 2nd quarter last year...much of their 2nd quarter loss resulted from a $4.02 billion write-down on several gas & oil properties that they'd overpaid for during the McClendon era, but even excluding the write off, they still showed losses of $83 million in the quarter on revenues of $3.03 billion, which were 41.1% lower than a year earlier...

responding to their poor cash flow position and the steep drop in oil & gas prices, Chesapeake has now announced that they'll be selling some of the million acres of Ohio Utica shale land that they have under lease, which have the potential for thousands of shale wells...although they haven't specified which land they'll be selling, the Columbus Business First’s article on the asset sale quotes their top Utica executive citing 300,000 acres of dry-gas heavy Belmont and Jefferson county land as the part of their portfolio that's "a bit asset-long"...this isn't the first time that Chesapeake been so squeezed as to need to divest themselves of potentially profitable properties; in October, we reported they were forced to sell 413,000 acres with 1,500 wells in West Virginia and southwest Pennsylvania to their rival Southwestern Energy Corp for $5.38 billion, in order to raise enough cash to keep their Ohio operations running...

in another sign that they're still in deep trouble, they also announced they'll be putting their Ohio natural gas production on hold until such time as the Ohio Pipeline Energy Network is completed, a project that will allow them to ship Ohio gas to the Gulf Coast, where there are several LNG export terminals under construction on existing regasification sites already in operation, and many more in the planning stages...that Chesapeake is waiting for the pipelines before they sell their gas should give us an idea of how bad the gas glut has become in these parts, and how important it is to the frackers that they get that pipeline infrastructure in place in order to move their products out of our area...as we've pointed out previously, Marcellus frackers have been netting less than $2 per mmBTU at the wellhead for their natural gas; without pipelines, Utica gas can't be yielding much more...

the push to put those pipelines in place was underscored this week when the developers of the Nexus Pipeline filed suit against 91 residents of Summit county seeking a restraining order that would allow pipeline surveyors, who have been accompanied by off-duty cops, on their property to complete surveys for their 1.5 billion cubic feet per day pipeline; how they think they can force that through when they have yet to get FERC approval for the pipeline that will impact 3479 Ohio properties is beyond me, but that's what they're trying to do...this would seem to be an issue area politicians should be interested in intervening in; this week Columbia Gas of Ohio announced that their typical budget-billing customer would see nearly a 20% cut in their gas bill this winter, and it's almost certain that industrial customers and utilities such as AEP and First Energy, who are mandated by Obama's energy plan to switch away from coal, will be getting similar discounts on the natural gas that they'll use..so keeping that underpriced gas in our area instead of sending to the Gulf to be exported to Europe and Asia should be in everyone's interest; the out of state pipeline companies should have little political pull..

as we noted earlier, US field production of crude oil rose in this week's report, from 9,413,000 barrels per day in the week ending July 24 to 9,465,000 barrels per day in the week ending July 31st; while that's still almost 1 1/2% off the early June peak, it's still 12.0% higher than our output during the same week last year...meanwhile, our imports of crude oil also fell for the 2nd week in a row, from 7,545,000 barrels per day the prior week to 7,180,000 barrels per day in the week ending July 31st, still, over the last four weeks, crude oil imports averaged 7.5 million barrels per day, just 0.4% less than the same period last year...in addition, last week saw another drop in crude oil crude oil inventories in storage, from 459,682,000 barrels on January 24th to 455,275,000 barrels as of July 31st...that's still more than 24.5% higher than the amount of crude we had stored in the same week last year, and as you should all know by now, the highest for this time of years in the 80 years that such records have been kept....so, with imports and inventories down and production up just a bit, where did that oil go?  through our refineries; in the week ending July 31st, U.S. crude oil refinery inputs averaged a record 17,075,000 barrels a day, as the weekly Petroleum Status Report (62 pp pdf) reports our refineries were operating at a post recession record 96.1% of their capacity last week, as gasoline production averaged 10.0 million barrels per day...and we have a chart for that, too, since it is at a new record high…

August 2015 refinery inputs

the above chart was featured in the Today in Energy Report of August 7th from the US EIA, wherein i've accidentally included a clip of their opening lines, telling us that US refineries have been processing over 17 million barrels per day for the past 4 weeks, which has never happened before in the time they've kept those records...what the chart shows in the grey band is the range of crude processed by US refineries for any given date over the 5 year period from 2010 to 2014, with the dashed line indicating the average of that; then the dark blue line shows the daily refinery inputs for 2014, which obviously forms the top band of the 5 year range, and the red line indicates refinery inputs so far for 2015...so what the chart in effect shows is that every day in 2014 set a new 5 year record for refinery throughput, and so far every day in 2015 topped 2014...while there were a few weeks in the 2004 to 2006 period where refinery inputs topped 16 million barrels per day, the last month is the first time we've seen the 17 million barrel per day clip breached..

with the refineries running flat out as they have been, refined products supplied have also been above their average range...in the week ending July 31st, total products supplied averaged 20,338,000 barrels per day, up from 19,633,000 barrels per day in the same week a year ago...gasoline output has averaged 9.5 million barrels per day over the last 4 weeks, up by 5.4% from the same period last year...total motor gasoline inventories increased by 0.8 million barrels last week, although like stocks of crude oil, they've been trending lower in the summer driving season, and are only up 1.3% from a year ago...inventories of distillate fuel oil are up 15.9% from the same week last year, inventories of kerosene type jet fuel are 26.8% higher, and inventories of propane/propylene, a petrochemical feedstock, are 32.0% higher than they were on August 1st last year..and we're also consuming more; our consumption of gasoline was up 2.9% in the first 5 months of this year as cumulative travel for 2015 was up by 3.4% and vehicle miles driven in the US over the prior year topped 3 trillion at 3,080,600 million, up from 2,996,249 million in the year ending May 2014...we're also exporting more too; in the week ending July 31st, our total exports of crude oil and petroleum products was at a record 4,460,000 barrels per day, 17.2% higher than in the same week a year ago...


(the above was crossposted from Focus on Fracking, where there’s more )

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