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, September 20, 2015

Ohio Supreme Court rulings; frackers debt service now exceeds their cash flow, et al

in a decision on Wednesday, the Ohio supreme court ruled the charter county ballot initiatives of Athens, Fulton and Medina counties off the November ballot in those counties....yet in a ruling the next day, they unanimously ruled a fracking ban initiative back on to the November ballot in Youngstown, overturning the Mahoning County Board of Elections...while those two decisions may seem incongruent, their explanations for both seemed fairly rational, so we'll start today by taking a look at how they were arrived at...

in the case of Walker et al vs Husted (pdf) on Wednesday, the Ohio Supremes ruled 6-1 against complainants in Athens, Fulton and Medina county who wanted their county charter/community bill of rights amendments returned to their November ballots...you should recall that in mid-August, the oil industry funded Ohio Secretary of State Jon Husted ruled that charter government proposals in Athens, Fulton and Medina counties could not appear on the November ballot, citing the common refrain that regulation of fracking is the sole province of the ODNR...shortly after that ruling, citizens from those 3 counties sued Husted in his official capacity as secretary of state, charging that he couldn't invalidate legitimate petitions residents had signed because of his personal quibbles over their content....that dispute headed to the Supreme Court, and is what was decided in this ruling, which in some ways was decided for both sides....in paragraph {¶ 15} of the ruling the Court held that "authority to determine whether a ballot measure falls within the scope of the constitutional power of referendum (or initiative) does not permit election officials to sit as arbiters of the legality or constitutionality of a ballot measure’s substantive terms." meaning that Husted's authority as Secretary of State was to rule on the form of the ballot initiatives, and that he had overstepped his authority in ruling on the substance of them...but the court ruled in favor of Husted's other objection, that the county referendums "did not set forth the form of (alternate) government, which is the sine qua non (necessary requirement) of a valid charter initiative.” or, as noted in paragraph {¶ 22} "the charters do not satisfy the threshold requirements that define a charter initiative. Specifically, Article X, Section 3 of the Ohio Constitution requires that every county charter “shall provide the form of government of the county and shall determine which of its officers shall be elected and the manner of their election.” .{and}..“shall include either an elective county executive or an appointive county executive.”

so it's pretty clear from a reading of the Justice's opinion that the initiatives were ruled off the ballot because they didn't go into the proper degree of detail on what new form of county government that would result should they pass, and not because of Husted's objection that they were designed to circumvent state laws regarding fracking...it seems clear that the Justices felt Husted overstepped his authority on that part of his ruling, and that had the county referendums followed the letter of the law on changing the county's form of government, they would have been allowed to go before the voters...

then, in the second fracking related decision on Thursday, the Ohio Supreme Court decided by a 7-0 vote that a Youngstown fracking ban referendum that the Mahoning County Board of Elections had ruled off the ballot should be reinstated...we had not discussed this case, but what had happened there was that FrackFree Mahoning Valley had circulated a petition to amend Youngstown's charter to prohibit any kind of oil and gas activity, just as they had 3 times previously in the past 2 years, got the required signatures, only to have the Mahoning County Board of Elections vote unanimously not to certify their petition, again citing the previous rulings that fracking regulation was the sole of the ODNR, and complaining that the same initiative had been defeated in both 2013 and 2014...in this case, it was Youngstown officials who filed the complaint to get the anti-fracking referendum back on the ballot, apparently not so much because they favored the initiative, but because they felt the Board of Elections had acted illegally against an otherwise legal petition...the Supreme Court logic that put the Youngstown initiative back on the ballot was quite similar to the ruling against Husted in the county charter initiatives; again, neither the state nor the county election officials are allowed to rule whether a referendum is legal or constitutional; that kind of decision rests solely with the courts...in effect, the court is saying that only if the Youngstown anti-fracking initiative should pass could it then be challenged on legal or constitutional grounds...

Current EIA Reports

the Wednesday reports from the Energy Information Administration showed that both crude production and oil imports fell in the week ending September 11th, and refineries runs increased, so the industry had to pull oil out of storage for the first time in 3 weeks to meet that demand....our field production of crude oil fell from 9,135,000 barrels per day in the week ending September 4th to 9,117,000 barrels per day in the week ending September 11th; that now leaves us almost 5.1% below the modern production record of 9,610,000 barrels per day in the first week of June this year, and only 3.2% higher than our 8,838,000 barrels per day production during the 2nd week of September last year, when the growing global glut of oil had already started driving down oil prices...our imports of crude oil also fell, from 7,439,000 barrels per day in the week ending September 4th to 7,189,000 barrels per day in this week's report, enough to bring the 4 week average of imports carried in the weekly Petroleum Status Report (62 pp pdf) down to 7.4 million barrels per day, 4.3% below the same four-week period last year... 

while this week's supply of crude oil was thus lower, the amount of oil required by refineries rose, as crude oil refinery inputs averaged 16,513,000 barrels per day in the 2nd week of September, in contrast to refinery inputs of 16,110,000 barrels per day in the prior week...with the Whiting refinery back online, our refinery utilization rate rose from a 5 month low of 90.9% of operable capacity in the 1st week of September to 93.1% in the current week....while it's still down from 96.1% utilization and 17,075,000 barrels a day record pace of 6 weeks ago, refinery operations are now back above the summer average and heading into the time of year when demand and refinery output typically decline anyhow...so with this week's demand for oil exceeding supply, users took oil out of storage, and hence our commercial inventories of crude oil fell by almost half a percent, from 457,998,000 barrels in the 1st week of September to 455,894,000 barrels this week...that left us with still more than 25.8% crude in storage at the end of the week than the amount of crude we had stored in the same week last year, and as you know, the highest for this time of years in the 80 years that such records have been kept...however, while we imported less crude, our imports of refined products rose, and hence motor gasoline inventories increased by roughly 2.8 million barrels and distillate fuel inventories increased by 3.1 million barrels in the current reporting week...

Oil Industry Debt Service to Cash Flow Ratios

the most interesting report from the EIA this week came in their Friday release of "Today in Energy", which as the title suggests is a daily blog-like posting from the Energy Department which covers the whole gamut of energy related topics...the Friday report was titled "Debt service uses a rising share of U.S. onshore oil producers’ operating cash flow" and even without reading the report we could see from the first graph, which we'll include below, just how tight the situation had become for US oil producers...what the bar graph below shows is the annualized debt service of US oil producers as a percentage of their cash flow from operations stated quarterly, from the beginning of 2012 through the 2nd quarter of this year...what that means, stated more plainly, is that each bar represents the average oil producer's debt service to cash flow ratio over the preceding year, such that the bar for the 2nd quarter represents the average ratio over the year starting with the preceding 3rd quarter...so while we can see that for the industry as a whole, debt service has long been above 50% of their operating cash flow, once oil prices started collapsing in the 4th quarter of last year, that percentage quickly climbed to over 70%, and as of the 2nd quarter of 2015 it had reached 83% of cash flow, or as the EIA explains "from July 1, 2014 to June 30, 2015, 83% of these companies' operating cash was being devoted to debt repayments"...thus, that 83% figure includes an extended period of time when oil prices had averaged above $80 a barrel, and almost no time in the current price $44.68 per barrel range, almost a deliberate obfuscation...since this is an industry wide average, it includes the vertically integrated major oil companies with lower debt levels and greater than average cash flow from operations, which probably means that for a high percentage of independent exploitation companies, their debt service has exceeded their cash flow all year and will only get worse, illustrating the ponzi-scheme nature of the fracking business, where new suckers with fresh cash are continually being sought to pay off the original creditors...but it's now getting close to game over for the frackers; when their economically recoverable reserves are reevaluated by the banks in their semi-annual review on October 1st, the driller’s banks lines of credit will almost certainly get cut off...and since their cash flow wont pay the 11% interest now demanded for new energy bonds, we expect many more will be forced into bankruptcy by Thanksgiving, roughly one year after the Saudis declared war on their scheme...

September 18 2015 oil co debt service as percentage of cash flow

Latest Rig Counts

there was another modest reduction in rigs drilling for oil this week, while rigs drilling for gas increased by 2 to 198...Baker Hughes reported that their total rig count fell by 6 rigs to 842 in the week ending September 18th, with oil rigs down by 8 to 644 and down by 957 from last years 1,601, while the 198 gas rigs running this week are down 131 from the 329 gas rigs that were working in the same week last year..a net of 8 horizontal rigs were stacked, leaving 640, and two directional rigs were added, bring those to 83, while the count of vertical rigs remained unchanged at 119, down from 378 a year ago...

while the overall rig count didn't change as much as last week, there were quite a few more changes in where they were working this week...the Mississippian basin of northern Oklahoma and southern Kansas saw the largest rig reduction, as they stacked 5 rigs, leaving 14 now working there, down from 78 rigs a year ago...3 rigs were pulled from the Williston basin of North Dakota, which now has 68, down from 198 a year earlier...2 rigs were pulled from both the Eagle Ford shale of Texas and the Marcellus of Pennsylvania, leaving the former with 88, down from 205 a year ago, and the later with 49, down from last year's 81...on the other side of Texas, 3 additional rigs were set up in the Permian basin, which now has 253 rigs working there, down from 560 a year ago, while one rig was added in the north central Texas Barnett shale, which now has 7 rigs, down from 25 last year at this time...2 rigs were added in Oklahoma's Cana Woodford, which now has 40, up from 38 a year ago, while there was also a rig added in the Arkoma Woodford, which again now has 8, the same count as a year ago..in addition, a single additional rig was set up in the Utica shale, which now has 20 rigs working it, down from 44 a year ago..

statewise, Louisiana and North Dakota both got rid of three rigs, leaving 70 in Louisiana , down from 113 a year ago, and 67 in North Dakota, down from 189 a year ago...Pennsylvania was down by two to 33, and down from 58 last year, while Kansas was down by 1 to 9, and down from 25 a year ago...states adding one rig included Colorado, now with 33, down from 76 last year, New Mexico, now with 49, down from 99, Ohio with 19, down from 42 last year, and Utah with 5, down from 23 a year ago...finally, the Texas rig count was down by 1 to 365, down from 900 a year ago, but with state oil and gas district totals we can see that these aggregate totals obscure a lot of activity....to arrive at that one rig change, Texas drillers pulled 3 rigs out of district 1, added 3 rigs in district 3, pulled 2 rigs out of district 4, added a rig in district 5, added 2 rigs in district 7C, pulled 3 rigs out of district 10, and added one rig on an inland lake...we suspect other state totals would reveal the same level of activity if they were similarly divided...


(more here)

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