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, November 15, 2015

oil prices crash again, more oil companies report 3rd quarter losses, et al

oil prices took a major hit this week, while natural gas prices came close to 3 year lows before recovering and closing higher...the recent drop in oil prices really began in the middle of last week, when oil prices fell from $47.68 a barrel to close at $45.55 on Wednesday, after EIA stats showed an ongoing buildup of oil inventories and a continuing increase in US crude oil production; prices for oil then slid both Thursday and Friday to close last week at $44.29  a barrel...Tuesday of this week saw the only increase, as oil prices rose from Monday's close of $43.87 a barrel to $44.21, but they then dropped steadily the rest of the week, culminating in a 5.2% drop to $40.74 a barrel over Thursday and Friday, in the fastest 8 day slide in oil prices since December...to help you visualize how that relates to the other oil price changes we've seen, we'll include a graph that tracks the daily closing price of the current US oil contract on the NY Mercantile Exchange over the past year:.

November 14 2015 oil prices

the above graph shows the past year's track of the December contract price per barrel of the US benchmark oil, West Texas Intermediate (WTI), when it's stored at or contracted to be delivered to the oil depot in Cushing Oklahoma...this week's closing prices of $40.74 a barrel is now near the 6 year lows hit at the end of August, when oil prices briefly dipped below $40 a barrel for 3 days...this one year chart also captures the collapse of oil prices following the Thanksgiving OPEC meeting, when the cartel decided to continue their level of oil production in the face of a global glut, and the couple months this summer when oil prices flirted with rising above $60 a barrel, and US drillers restarted a small number of their idled rigs...other than the brief drop to $35 a barrel during the darkest days of the 2009 global financial crisis, we'd have to go back a dozen years to find a time when oil prices were regularly below this level..

although it's virtually impossible to say for sure what caused oil prices to drop without interviewing every major trader who sold oil at a lower price, one factor that seemed to weigh heavily all week were reports of loaded oil tankers queuing outside of major global oil ports, waiting for space to unload...first reports early this past week of more than 50 commercial vessels anchored outside of Houston identified 41 oil tankers waiting to discharge their loads, double the normal volume of traffic for the ports in that area of the Gulf...as of this writing, most of those tankers are still there; this live marine traffic interactive map shows oil tankers anchored in the area outside of Galveston and Port Author as red rectangles, and oil tankers that are underway are indicated as ship shaped icons; i count 26 that are anchored...next, in the middle of the week, news broke of a two mile long caravan of ten oil tankers carrying 19 million barrel of oil which had been loaded in Iraq and were headed for the same oversupplied US Gulf ports, apparently filled with a heavier grade of oil which the Iraqis had offered at a discount of $5.85 a barrel from the corresponding benchmark...lastly, a major report from the Financial Times that examined satellite data indicated more than 100 million barrels of crude oil and heavy fuels are being held on ships at sea, including around 35 million barrels on tankers outside of ports in Indonesia, Malaysia and Singapore, another five heavy VLCCs, each carrying more than 2m barrels of oil, anchored offshore China, where they've run out of land based oil storage space, and around 40 million barrels of light oil on Iran's fleet of supertankers near the Strait of Hormuz, waiting to be shipped...

More 3rd Quarter Reports

two weeks ago, we looked at 3rd quarter results from several oil & gas frackers, including most of the large vertically integrated oil companies, whose exposure to low prices is tempered by their so-called "downstream" operations of refining and marketing, which may be profitable even when the exploration and exploitation end of their business is not...over the past two weeks, we got the results from most of the independent frackers, who don't have that cushion of a profitable business to fall back on when their drilling goes south...since a long string of 3rd quarter earnings and losses numbers such as we looked at previously doesn't tell us a lot without some context, we try to compare them to last year's numbers, when oil prices were near $100 a barrel and frackers were profitable, and we'll also often show revenues if they're easily available, since a company like Eagle Ford driller Murphy oil, who reported a net loss of $1,595 million on revenues of just $715 million, is clearly in financial trouble...

so we'll start with Chesapeake Energy, the 2nd largest US natural gas producer and operator of more than half of Ohio's wells...last Thursday they reported losses of $4.7 billion on third quarter revenues of $2.89 billion, largely as the result of a $5.42 billion write down on some of the oil and gas assets they overpaid for during the oil bubble years...that's on the heels of a $4.02 billion writedown of their assets in the 2nd quarter, at which time they stopped paying dividends and put Ohio natural gas production on hold because of low prices...in the third quarter a year ago, they booked income of $169 million on revenues of $5.7 billion...the market has responded to their performance by making them the 7th most shorted company in the S&P 500, and their bonds are now selling at 50.38 cents on the dollar...

other major exploration and exploitation companies that took large writedowns on the value of their oil and gas properties in the 3rd quarter included Devon Energy and Apache Petroleum...Devon reported a loss of $3.51 billion, in contrast with profits of $1.02 billion a year earlier....Apache Petroleum reported a 3rd quarter loss of $5.56 billion on a $3.7 billion write down of assets, in contrast to their profits of $1.33 billion, or $3.50 per share, a year earlier..their 3rd quarter losses also included a $1.5 billion charge related to deferred tax assets...in addition, EOG Resources reported a third quarter loss of $4.1 billion, all of which was due to a $4.1 billion writeoff, compared to net income of $1.1 billion in the third quarter of 2014...

Pioneer Natural Resources, meanwhile, reported their net income rose to $646 million, compared with $374 million in last year’s third quarter, as they managed to sell off operations in the Eagle Ford Shale and implement aggressive cost-cutting measures in their drilling operations...on the other hand, Gulfport Energy reported a third quarter loss of $388.2 million, on revenue of $230.6 million in the period, compared to a net profit of $6.9 million in the same period last year...with 209 wells drilled in Ohio’s Utica Shale, they've announced they're voluntarily cutting production of oil and natural gas through early 2016 while they hope to wait out low commodity prices..

the 2nd largest Bakken shale operator, Continental Resources, reported a $82 million loss in third quarter, down from a profit of $534 million in the year-ago period, as their revenues fell to $683 million, down from $1.6 billion one year ago...Noble Energy, Colorado's second largest oil and gas producer, reported a $283 million third-quarter loss, compared to $419 million net income in the same period last year... Noble's third quarter revenues were $801 million, down from $1.27 billion a year ago...in addition, Stone Energy Corporation reported a net loss of $292.0 million for the third quarter, all but $8.4 million of which was due to a writedown of oil and gas properties, on oil and natural gas revenue of $128.4 million, compared to a smaller net loss of $29.4 million a year ago, on revenue of $175.0 million..

several other smaller independent drillers and oil service companies also reported 3rd quarter losses, most of whom were profitable a year ago...those included Denver-based SM Energy Company, PetroQuest Energy from Lafayette, Louisiana, C&J Energy Services of Houston, Parsley Energy Inc, based in Austin, Texas, Sandridge Energy of Oklahoma City, and PDC Energy Inc of Denver...

This Week's Oil Stats from the EIA

US Energy Information Administration data published Wednesday for the week ending November 6th showed a large jump in crude oil imports and another incremental increase in our field production of crude, the 4th in a row...so even though usage of crude oil by US refineries rose by the most that it had this fall, there was still another large increase in the amount of surplus oil that had to be stored...US imports of crude oil rose to 7,377,000 barrels per day for the week ending November 6th, an increase of 434,000 barrels per day over the 6,943,000 barrels per day we imported during the week ending October 31st...that was 7.3% more than the 6,877,000 barrels per day we imported during the first week of November a year ago, and now the 4 week average of our imports, which we find in the weekly Petroleum Status Report (62 pp pdf) has risen to 7.2 million barrels a day, 2.5% higher than the same 4 week period a year ago...that import increase came even as our field production of crude oil rose to 9,185,000 barrels per day in the first week of November, an increase of 25,000 barrels per day from the production of 9,160,000 barrels per day during the prior week, which was 1.3% greater than our production of 9,063,000 barrels per day during the same week last year...that was also our highest weekly production of crude oil since the last week of August, but it was still about 4.4% below the modern weekly record production of 9,610,000 barrels per day that was set in the first week of June this year...

meanwhile, the amount of crude oil used by US refineries jumped by 302,000 barrels per day for the week, rising to an average of 15,939,000 barrels per day during the first week of November, up from the 15,637,000 barrels per day that refineries took in during the week ending October 30th, and the largest one week increase in refinery inputs in 8 weeks...refinery utilization was back up to 89.5% of their operating capacity, up from 88.7% last week and as low as 86% during the second week of October, as the regular fall maintenance downtime seems to have concluded, although we can probably expect further increases, as December like July seem to be a seasonal peak...much of this week's refining increase went into gasoline production, which was up by 156,000 barrels per day to 9,693,000 barrels per day, while output of distillate fuels fell by 9,000 barrels per day to 4,873,000 barrels per day...and while our ending gasoline inventories fell by 2,012,000 barrels to 213,245,000 barrels as of November 6th, that was still 4.8% more than the 203,565,000 barrels of gasoline we had stored as of November 7th last year, and the most gasoline we had stored any week in November since the depth of the recession in 2009....so those gasoline supplies still remain above the upper limit of the average range for this time of year..

however, even with this week's large jump in refining, we were swamped by the incoming imports, which left us even more oil to put into storage than we had leftover last week...our stocks of crude oil in storage, not counting what's in the government's Strategic Petroleum Reserve, rose by 4,240,000 barrels to 487,034,000 barrels on November 6th, which means  we now have 28.7% more oil in storage than 378,470,000 barrels we had stored on November 7th a year ago....so we've now added roughly 43.0 million surplus barrels of oil to storage in just the past 7 weeks, leaving us with the most oil we ever had stored anytime in November in the 80 years of EIA record keeping, which had never seen more than 400 million barrels stored before this year...

The Latest Rig Counts

in a shift from recent weeks, the week ending Friday November 13th saw the first increase in rigs drilling for oil in 11 weeks, and the first cut in the number of rigs drilling for natural gas in 5 weeks....Baker Hughes reported that the total active rig count fell by 4 to 767, as their count of active oil rigs rose by 2 to 574 while their count of active gas rigs fell by 6 to 193; that's down from the 1578 oil rigs and 350 gas rigs that were in use on November 14th of 2014....rig changes this week included the addition of a rig in the Gulf of Mexico, where there are now 33, down from 50 a year earlier, and shutting down two rigs that were operating on inland lakes, where there are now just 3, all in southern Louisiana, down from 13 rigs set up on inland waters a year ago...

strangely, both horizontal and vertical rig counts increased, while directional rigs fell by 9 to 72, which was down from 205 directional rigs working November 14th of 2014...a net of 2 horizontal rigs were added this week, bringing their total up to 587, which is still well less than half of the 1369 horizontal rigs that were working in the US the same week a year ago...in addition, the week's vertical rig count rose by 3 to 108, which was still well down from the 354 vertical rigs that were in use a year ago....

of the major shale basins, the Permian of west Texas saw the largest cutback of 3 rigs, leaving them 229, which was down from 568 last year at this time...single rig reductions were seen in the Williston shale of North Dakota, the Mississippian lime of the Kansas Oklahoma border, and the Granite Wash of the Oklahoma-Texas panhandle region...the Williston now has 63 rigs, down from 193 a year ago, the Mississippian has 12, down from 77 a year earlier, and the Granite Wash shows 13 rigs, down from 58 a year earlier...meanwhile, 2 rigs were added in the Haynesville of the Texas-Louisiana border region, where they now have 27 running, which is down from 42 a year earlier...in addition, single rig additions were made in the Eagle Ford of South Texas, where the count is at 73, down from 208 last year, and the Barnett shale of the Dallas-Ft Worth area, where the count of 6 rigs is down from 23 a year earlier...

the state count tables show both California and Texas with 2 fewer rigs; the former is now down to 10 from 47 rigs a year ago, while the latter is now down to 338 from 902 a year earlier....there were also single rig reductions in Colorado, Louisiana, and North Dakota; Colorado now has 32 active rigs, down from last year's 75; Louisiana has 69 working (including 32 offshore) down from 110 a year earlier, and North Dakota has 62 rigs, down from 181 rigs last year at this time...states seeing increases were Oklahoma, where they were up to 85, but still down from 207 a year earlier, and New Mexico, where the addition of 1 rig brought them up to 38, which was still down from the 99 rigs they had in use at the end of the 2nd week of November last year...

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