Energy Politics

The IPAA and Energy In Depth are not amused with a new documentary making its rounds on HBO titled “GasLand.” An indie darling of the Sundance Film Festival, the movie is essentially a hit piece on the unconventional gas drilling industry.

The organizations report: “After months of researching the movie and following its screenings nationwide, IPAA and Energy In Depth have launched a major communications campaign to expose the film’s inaccuracies. One tactic in this campaign is a truth vs. fiction fact sheet that has been broadly distributed to congressional offices, state legislatures, industry, allied groups, interested parties and news media. I’d like to thank the companies and industry groups that are using this material and crediting this effort.”

Energy In Depth seeks to correct any misconceptions the documentary creates with the GasLand Debunked flyer. The organizations’ Energy in Depth website also provides info on this.

I do have the question the timing of this documentary. Natural gas is for the first time in years being considered as possible viable candidate to replace gasoline as a transportation fuel, and then this comes along? I suggest people follow the money on this one.

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

Yahoo reports that U.S. Secretary of the Interior Ken Salazar says those responsible for a massive oil spill in the Gulf of Mexico will be held accountable.

This follows President Obama’s announcement Wednesday that the U.S. is putting a hold on the expansion of offshore drilling he suggested in a speech last month while the government investigates the spill, which occurred this week following the explosion on the Deepwater Horizon oil rig on April 20. The cause of the explosion remains unknown, though some sources such as FBR Capital speculate it could be due to failure of the blowout preventers due to mistakes in the cementing process.

At the time Obama’s speech, proponents of offshore drilling said the ruling didn’t go far enough. Now, at least three key senators opposed to expanded offshore drilling– Florida’s Bill Nelson along with Robert Menendez and Frank Lautenberg of New Jersey–now are calling on Obama to drop the plan.

Which means for the oil industry, this disaster couldn’t have come at a worse time. The well is spewing up to 5,000 barrels of oil per day into the Gulf, and the oil has now reached the Louisiana coastline, with just the beginnings of its effects on seabirds being realized.  Still, proponents of drilling feel the incident, while tragic, should not discourage further offshore exploration.

In an interview with the National Journal, Alaska Senator Lisa Murkowski said:

“I think what people need to be reminded is that for decades we have been drilling in the Gulf with very little incident, and this is a terrible tragedy and we need to get to the bottom of it and find out what happened and ensure that we don’t get ourselves in a similar situation.”

The long-term effects of this disaster are yet to be seen, both in the environment and U.S. energy policy. One thing’s for sure though: we’re all stuck in it.

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

The owners of a customized 1966 Pontiac GTO converted to run on natural gas will be driving from Santa Monica to Chicago along the famed Route 66.

Mark McConville and Keith Barfield have converted the GTO to run on natural gas, and hope a revitalization of Route 66 as an alternative fuel-friendly thoroughfare will attract drivers back to the classic American highway.

Route 66 was originally created in 1926 as a semi-intercontinental highway designed to bring travelers out West and provide a feasible travel for a section of the country that was still vastly unpopulated and unpaved. With the advent of the U.S. Highway system in the 1950s and ’60s, the route eventually faded in use, being decertified by the United States Highway System in 1985.

McConville and Barfield hope that Route 66 will before a tourist route for drivers with CNG vehicles, and hope to bring attention to this fading piece of Americana.

And I say, right on! So check out their site, check out their car and cheer them on as they plan to embark along the mythic road that helped shape this country.

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

It’s the big industry buzz word right now, unconventional oil. But just what is it?

Well, with conventional oil, you drill a hole in the ground and pump the oil out of it. Time-tested principle, works really well. But oil isn’t always available in traditional formations, and if you want to get it out, you have to put some extra effort into it.

According to the International Energy Agency, there are five types of unconventional oil. However, two of them come about from non-E&P formats, namely biofuels and the creation of liquids from gas processing, so let’s just stick to the three types of unconventional oils found in nature.

The first, and so far the big one at the moment, is oil shales. Like unconventional gas shales, oil from these formations are extracted from sedimentary rock structures. The oil contains a chemical compound called kerogen, which itself can also be converted to oil shale. Oil shale must be converted to oil refinery quality crude through either pyrolysis, hydrogenation, or thermal dissolution.

Just so you know, this isn’t a new process. Oil shale has been being converted to oil ever since the Middle Ages.

The second and more well-known is oil sands recovery, very popular in the Canadian Athabasca Sands in Alberta. In this case, instead of being drilled, oil is dug out of the ground, not unlike a surface coal-mining operation. Once the oil-soaked sand is extracted, it’s taken to a special facility called an “upgrader” that separates the oil from the sand. Like with oil shale, the oil is then ready for the refinery.

The last natural form of unconventional oil is coal liquification. In this case, the product starts out as coal and is then converted to a synthetic fuel by going through a low-pressure carbonization process that heats coal and collects the oily liquids and gas that seeps out.

Hope that helps you on your way! Class dismissed!

For Worldwide Geochemistry LLC founder and visiting scientist at Institut Francais de Petrole in France Dan Jarvie’s thoughts on unconventional oil, click for the complimentary webinar Oil-Prone Shales: Their Nature, Location, Production Potential now available on demand.

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

A Texas college student is currently driving from Austin to Boston in a natural gas-powered vehicle to bring attention to CNG cars.

Castlen Kennedy, a University of Texas student, is currently driving a converted 2009 Chevy Tahoe during the trek, and reporting his experience in a blog titled “The Green American Road Trip.”

Yesterday, Kennedy arrived in Houston to gas up (heh, that expression has new meaning here) at a natural gas station on Washington Avenue.  She demonstrates the way a NG pump differs from a regular gasoline pump. Well, at least you don’t have to worry about spills.

Currently, only Honda’s Civic GX comes from the factory with a natural gas kit. Other cars require an EPA-approved conversion kit. So why did Kenney go with a Tahoe? Well, I’ll let her tell her own story.

First and foremost, I’m a Texan y’all. Its one thing to show people you can run your car on natural gas but its another to show them you can do it with a variety of vehicle types - and there’s probably one that will suit your preferences. If you’re from Texas and you like big cars, or you have five kids and you need a big car, CNG will still work for you. You don’t have to all pack into a clown car to feel like you are making a good choice.

Second, I need the extra space for tank capacity. Remember 6th grade science class when we learned that gas molecules like to be farther apart than liquid molecules? Well apply that here - CNG takes up more room than gasoline so I need the physical space for the tanks. I’ll do a post just on the tanks soon.

Third, I’ll be using a domestic fuel, so why not a domestic car. Please don’t send me Honda hate mail, I know some are manufactured here but you get my point. I like Hondas, in fact I have an Accord, but for this Great American Road Trip, the Chevrolet is a great fit. This collection of Chevy commercials I found on YouTube helps sum up the “American” - Chevrolet connection pretty well. (At least according to Chevrolet!)

And finally, the good people at Apache Corporation who are letting me borrow the car for my trip wanted a Tahoe. They will put it to good use after my trip, and that’s the most practical vehicle for their needs. So there you have it. Its been ordered and is being ‘converted’ as we speak. When its ready, I’ll post pics here. Stay tuned.

So that’s it for now. I’ll stay tuned in, and you should too.

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

I’m starting a new running service on my blog, beginning today. From time to time, I will define different terms used in both the oil and gas and financial industries. Just consider me a humble public servant.

For the first entry, let’s discuss the differences between oil and gas reserves and resources. If you’re like me (smart, debonair and a connoisseur of fine pizza) you have probably come across these terms in energy companies’ press releases. At first glance, they seem pretty interchangeable, so just what at the differences?

Reserves According to the Society of Petroleum Engineers, reserves are “those quantities of petroleum claimed to be commercially recoverable by application of development projects to known accumulations under defined conditions.”

Well, that clears things up, right? No? Well, to clarify, the SPE says petroleum quantities must fit four criteria to be classified as reserves. They must be (1) discovered through one or more exploratory wells, (2) recoverable using existing technology, (3) commercially viable, and finally (4) remaining in the ground.

Sound okay? Good, because it gets more tricky from there. There are currently three classifications for reserves: proved, probably and possible. Here’s how they break down:

Proved reserves are those with a “reasonable certainty” (a minimum 90% confidence) of being recoverable under existing economic and political conditions. We can discussed the differences between proved developed, proved undeveloped, etc. with a later post. However, it should be pointed out that proved reserves are the only reserves recognized by the U.S. SEC. This is why energy companies strive to get the latest technology and recovery methods recognized by the government, therefore increasing the chance of “reasonably” recovering oil and gas assets and therefore raising their reserves as well.

Probable reserves are petroleum and gas quantities with a 50% confidence level of recovery. Basically, you may be able to get some, you may not.

Possible reserves are quantities with a minimum 10% certainty of being produced. Basically, your long shot discoveries.  Only gamble on these types of assets if your Magic 8-Ball tells you to.

All right! That takes care of reserves! But what about resources?

Resources

For those of you who have looked at on the market ads, you’ll spot this term a lot in the literature. So what is resources? Again, we turn to the SPE.

There are two categories of resources: contingent and prospective.

Contingent resources are quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations, but the projects are not yet considered mature enough for commercial development due to one or more contingencies.

In other words, there’s a good idea of how much oil and gas is in the reservoir, but issues such as political and social events or even a lack of market prevent production. There can be a major oil discovery in the Congo right now. You want to risk getting shot to get to it?

Prospective resources are quantities of petroleum estimated to be potentially recoverable from undiscovered accumulations by application of future development projects.

These sorts of resources basically exist in the minds of marketing people. That’s not to say that they don’t exist in the real world as well, it just means that E&Ps are thinking of future oil and gas discoveries in new areas, based on upcoming technology and the discoveries made in similar formations worldwide.

Okay! I hope that helps! Until next time, may the resource be with you. Live long and prospect.

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

To his credit, president Barack Obama did pay lip service to the notion that we need to open up more of the U.S. to oil and gas projects during his State of the Union speech last week.

“But to create more of these clean energy jobs, we need more production, more efficiency, more incentives. And that means building a new generation of safe, clean nuclear power plants in this country. It means making tough decisions about opening new offshore areas for oil and gas development. It means continued investment in advanced biofuels and clean coal technologies. And, yes, it means passing a comprehensive energy and climate bill with incentives that will finally make clean energy the profitable kind of energy in America.”

But while its admirable to hear him say it, the main crux of the speech’s energy policy was more concerned with clean energy technologies. Now it’s all fine and good to invest in the future, only a fool wouldn’t. But until we get to the point that we can feasibly sustain a carbon-neutral footprint, we need more oil and gas.

Obama spoke of opening up new oil and gas development as a “tough decision,” which seems to suggest appealing to states that traditionally have been opposed to oil and gas drilling. And that’s going to be a tough sale, because let’s face it, the states that are really opposed to drilling due so for two reasons: they don’t like the ideas of offshore rigs within sight of their beaches, or they just like the sense of moral superiority they feel about not allowing such an “evil” business as oil companies to operate on their turf.

Keep in mind, people who live in these states still drive cars and use natural gas heaters. They still live off of oil and gas production, they just don’t want it in their backyard. The old adage seems appropriate: everyone wants to eat stake, but know one wants to date the butcher.

Get over it people. You are a part of this cycle, whether you want to admit it or not. Disguising your part in it by hiding behind the empty gesture of not allowing oil refineries or drilling rigs in your state doesn’t alter that fact. The fact is, we need to have more homegrown energy sources. Every dollar we spend here in the U.S. for oil is one less that ends up in Iran’s treasury.

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

A bunch of funny stories to report on this Friday.

First, some Hugo Chavez nonsense. Now, Hugo has said some kooky things in his time, including accusing Colombia of planning to invade his country (after a Colombian raid on a FARC base found the group was receiving funding from Venezuela, of course), threatening to arrest people who disagree with his policies and the usual anti-American ranting.

But this week, the man took the cake. I mean he has really, really lost it. Chavez has accused the U.S. of using a seismic weapon to cause the Haitian earthquake. No, seriously. Between having to fight two wars, bailing out Wall Street and dealing with a fragile economy, President Barack Obama found the time to detonate a subsurface weapon and cause a 7.1-scale earthquake, killing 200,000 people for the fun of it, I suppose. You heard it from Chavez first folks: the U.S. controls the tectonic plates! Darn, why didn’t George W. Bush employ this technology in California and knock Berkeley off the map?

I for one am in favor of the U.S. controlling seismic activity. I always felt there wasn’t enough Hawaiian Islands. A few good blast from the Earthquake gun and Obama can double the size of his home state! It’s win-win!

Thank goodness we have Hugo Chavez to liberate the truth from the hands of the evil imperialist journalists and scientist! Without his brave speeches, we might have to rely on things like facts and logic to determine how earthquakes happen.

Next up, some schadenfreude for yours truly. Air America will be going off the air. Oh boo-hoo! Lefties like Al Franken and Janeane Garofalo complained for years that the right had a stranglehold on AM talk radio. You know, the format that gave birth to stringent conservatives like Howard Stern. In any case, the success of people like Rush Limbaugh and Michael Savage had Franken and his ilk upset that there was no place for liberals to have their voices heard in popular culture.

Without radio, they would be stuck having to get their progressive messages out in movies, newspapers, television, CNN, MSNBC, Saturday Night Live, The Daily Show, David Letterman, Keith Olbermann, think tanks, Huffington Post, Daily Kos, Time Magazine, Newsweek, Vanity Fair, Mother Jones, editorial comics, cartoons, stand-up comedians, college professors, rock singers, rap artists, political demonstrations… I mean, they were practically being silenced by the Man! How dare the right have people on the radio, talking about stuff that wasn’t approved by Noam Chomsky!

Air America was launched one fate full day in in March 2004. Less then six years later, it was finished. The backlash of “thinking” people who were just waiting for a left-wing news network to combat Clear Channel? It just never materialized. The network fought to stay on the air the entire time it existed. It’s last 10 financial quarters were pitiful. The company NEVER made any sort of profit. It was an embarrassment to news programming, and it had to be propped up with angel investors and begging for handouts.

It filed bankruptcy withing two years of being founded, was bought for a low price of $4 million dollars by New York real estate investor Stephen Green (he overpaid, if you ask me) and slowly died a quiet death as the stars of the flagship shows on the network, including Franken, Garofalo and later MSNBC darling Rachel Maddow all left to pursue other interests. Well, even rats know when to leave a sinking ship.

Today, Franken is a U.S. senator, Garofalo is making appearances on “safe” programs like “Real Time with Bill Maher” and “Countdown with Keith Olbermann” where her whack-job conspiracy theories are never challenged, Maddow enjoys her sad late prime-time slot, getting a decreasing number of viewers with each passing month.

Speaking of Rachel Maddow, was there no satisfying feeling that having to watch her fight back tears and supress her rage upon reporting that Scott Brown had won Ted Kennedy’s seat in the U.S. Senate? Oh, it’s hysterical! I wish I could use that look on her face for my computer desktop!

Browns’ victory… can it be that a mere one year after Obama’s election, people are already fed up with meaningless platforms of home and change? *shrug* I tell you what though, if you want a real laugh over this, go to Huffington Post and read all the complaining there. Don’t play any drinking games, though! If you promise to take a swig every time a poster says teabagger, racist, homophobe of Rethugs, you’ll drown in alcohol.

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

Hugo Chavez, hero to the perpetual lower class and general gadfly on the face of history, has continued his tradition of running his country into the ground spreading freedom to the masses. Just a few years ago, with oil at record levels and Venezuela’s coffers filled with evil American money that proves even a socialist like Chavez isn’t above capitalism when it suits his interests much needed funds to finance his Bolivarian revolution, he seemed like the future of South America. But a drop in oil prices put a damper on his once proud attempt to subvert the U.S. as the economic superpower of the Western Hemisphere.

Chavez can be fun of course, like when he accuses the U.S. of being an occupying force in Haiti while it’s trying to deliver aid (namely subverting Venezuela and Cuba’s own actions in the country) or getting mad at video games that present fantasy invasion scenarios of his country as being propaganda intended to encourage the real thing.

But he’s more dangerous then silly when it comes to economic policies. Here’s a few of his plans for 2010:

1. Virtual currency: Time to get out your Monopoly money, we’re playing capitalism! Chavez wants to introduce a currency for Venezuela and other South American countries for stock trading to avoid U.S. domination in the region. Nice to know the $20B a year we send that way is going to be converted into something that economic powerhouses like Antigua and Barbuda and Bolivia can trade amongst themselves.

2. Three-tiered currency: Speaking of “virtual” currency, get a load of this.  Never much of a history buff, Hugo Chavez has revitalized an economic policy from the 1980s that will not bode well for Venezuela.

He set a rate of 2.6 for imports of items such as food and medicine, a rate of 4.3 for “non-essential” products and committed to defend the bolivar in the unregulated market, where it traded today at 6.25.

Before you start screaming “sign me up!” for this genius plan, realize that Venezuela tried this previously during the last major recession in the 1980s. They called the day it went into effect as “Black Friday.” Doesn’t bode well. Ricardo Hausmann, who runs Harvard’s Center for International Development, said:

“Latin America learned in the 1980s that policies like this do not work. It’s too easy a game to steal money through a multi-tiered exchange rate. You make a bundle just on the exchange differential.”

3. That Kooky War With Colombia: Did you forget that Chavez is ramping up security along the Colombian border, sending his wind-up tanks to repel the coming invasion of his country by everyon’s favorite coffee-producing nation? I’m reminded of Michael Moore’s film [i]Canadian Bacon[/i], where an ineffectual U.S. president in the midst of a recession decides to concoct a fake Cold War with Canada in order to stimulate a weakening military and also to distract and pacify a population worried about unemployment and national security.

Welcome to [i]Canadian Bacon: The Reality Series[/i]. Every weak we tune in to see if Colombian president Álvaro Uribe will actual step across the border for fun and guns!

4. Power rationing: Take your hands off the thermostat, Junior! That’s treason! The Venezuelan electricity minister has begun a nationwide power-rationing plan to stop “irresponsible consumption” of energy. Namely, the concern is that Venezuelans’ actions are draining the water level at Guri Dam, which powers plants that generate 70% of Venezuela’s electricity and could cause serious problems by the end of February.

Civil servants are already working just 5-hour days to cut down on energy use, but the government had to cave in when citizens complained about “restricted electricity consumption in shopping centres and forced establishments such as movie theaters to turn off their lights well before their usual closing time.”

5. Nationalization You guys didn’t think Chavez was through with the oil and gas companies, did you? After going after the tin industry and several of sectors, Chavez is now aiming his guns at retail stores and automobile plants. Ouch. In both cases, Chavez accused foreign-owned businesses of taking advantage of his citizens. He specifically demanded that Toyota share its technology with Venezuela or face expropriation of its assets (Toyota, like many foreign car companies, develops technology at its headquarters and then ships parts to be assembled worldwide). Ford is reportedly nervous as well.

So where does this leave us? Well, you can’t really talk sense with this man. Chavez got into office running on a revenge campaign, appealing to native Venezuelans to overthrow their European and American persecutors and whatnot.

My best bet: Foreign investors, pull out now. I can understand several companies with long-term contracts not wanting to abandon their claims in Venezuela in case the winds of change blow, but it does not look like Chavez will be going anywhere for a while. Look, the dude can conceivably run his country into the ground and get voted out of office, but still, no sense in holding onto that dream any time soon.

This whole currency trick is just a joke. Chavez is trying to bait-and-switch his population, distracting them from the fact that his new bolívar fuerte currency is a joke. Oh, also it’s illegal to publish reports telling that its exchange rate against the U.S. dollar is completely whack.

As for the war against Colombia and the power rationing? Rearranging deck chairs on the Titanic, my friend. Chavez can argue about invasions and evil capitalist behavior all he wants, but at the end of the day, he remains on a sinking ship, and you can only distract your audience for so long. Why do you think magicians keep their tricks under 5 minutes in duration. Even sleight-of-hand has its limits on our attention span.

I predict 2010 to be exactly like the last 8 years Chavez has been in office, but only now sadder and more desperate. Chavez overplayed his hand and now is stuck with threatening to nationalize foreign-owned department stores. Not exactly a strong hand to have at the negotiating table. Plus, he lost his favorite punching bag. He doesn’t score the same browning points going after Obama the way he did targeting Bush. This will all end not with a bang, but with a whimper. Question is, will it just be Chavez’s administration, or Venezuela as a whole?

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com

Jeff Spicoli has decided to surf some major waves down south of the border, meeting with Big Kahuna Hugo Chavez.

Yahoo! reports that Chavez said he met privately with actor Sean Penn on Wednesday, and that the Oscar-winning celebrity may film a movie in Venezuela .

Chavez also took another swipe at President Barack Obama, saying that he should earn his Noble Peace Prize by halting plans to increase U.S. troop numbers in Colombia.

Because, you know, stopping terrorists and drug kingpins is the antithesis of peace, I suppose.

Penn remains a strange creature. He seems to admire Chavez for doing the same stuff he hated former President Bush for doing. But I guess since Chavez is on the left end of the political spectrum, that covers all sins.

Now, I myself don’t think Obama has earned the Peace Prize. In fact, ever since Yassir Arafat was awarded one I started to serious question whether or not these things were actually rewared by by sane, rational people or if they were just randomly handed out as prizes in Cracker Jack boxes. But that’s apples and oranges here. Chavez is in no position to criticize someone else for interfering in Colombia, not after he got busted last year laundering money to FARC.

As to the secret meeting between the two. We can only speculate what discussions took place. Oh heck, let’s just speculate out loud!

Penn: “Hey bud, let’s party!”

Chavez: “Yes, yes! Let us party by shutting down some TV stations that don’t support my regime that are opposed to our glorious revolution!”

Penn: “You got to understand man, politics is about, like, making everyone happy and giving people stuff for free. Like good tunes and some tasty waves!”

Chavez: “The evil Americans don’t want there to be good tunes and tasty waves! That’s why they are secretly causing global warming! It’s an imperialist plot to make tropical countries unlivable!”

Penn: “Hey man, I just got a great idea! Let’s shoot a movie down here! We could make some righteous bucks!”

Chavez: “Yes, of course! We can use only government approved workers, just like the ones who run PDVSA!”

Penn: “Uh, thanks there Chavez, but it would be more gnarly if we had professionals who actually know what they’re doing. When’s that pizza getting here, I’ve got the munchies!”

-Stephen Payne, Editor, Oil and Gas Investor This Week; www.OilandGasInvestor.com; spayne@hartenergy.com