Energy Politics

Looks like extreme times call for extreme actions! The House Democrats have voted to allowed the offshore drilling ban expire.

House Appropriations Committee Chairman David Obey said that that a $600 billion stopgap funding bill slated for a House vote on Wednesday will not include any language on drilling. This will effectively lift the ban on October 1. Let me commend the House for taking this historic first step. Of course, the Senate needs to approve it was well, but this is at least some very good news.

It’s a shame that it took an extreme situation like $150 oil for people to realize we depend too much on foreign energy supplies. But before prices exploded in 2003, people really did take for granted that we were the only major buyer of oil in the world, and that our suppliers were all rational, reasonable people. But once others started dipping their beaks into the world oil supply, it was only a matter of time before many anti-American oil producing countries, who begrudgingly sold us fuel at our desired rates because they had no other choice, decided to stick it to us.

Those are things we can’t control. But what we could control was decades of lax incentive to go out and seek new reserves. As long as oil was cheap, Iran and Iraq were keeping their mouths shut and the death of the Soviet Union meant the world was going to be a perfect place, no one thought there would be any negative actions that could affect worldwide oil and gas supplies. But reality slapped us in the fact this year, and I’ll take any national volte-face that comes.

So, we’ve got the juice, we’ve got the political backing, we’ve got the momentum.  Let’s keep the gravy train rolling and get those offshore blocks producing. It won’t solve all of our problems, but at the very least we won’t be subject to extreme market swings as we’ve found ourselves to be this year.

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

“Who watches the watchmen?” A classic line by ancient Roman satirist Juvenal, which begs the question of just who is in charge of making sure our appointed sentinels do not abuse their powers. This past week has seen a the worst shaking of the U.S. economy since the start of the Great Depression. The U.S government is now scrambling to give $700 billion to bail out financial institutions who have dug their own grave through faulty financing.

But just where is the accountability? I’m a supporter of a free market. I believe in having a economy that is open to risk, to giving people a shot to offer new services and products. But a free market swings both ways. A faulty business must face the full effects of its actions, which could ultimately lead to its failure.

Let me give you a real life example. In 12th grade, we had a Economics Fair as part of my Economics class. People teamed up, two to three in a group, and everybody had to create some product. We were given a small amount of fake money, and told that we were free to wander around the room and visit each merchant table. Ideally, at least one member of your team was at your table at all times in case someone came over to buy one of your products. But I digress.

In any case, we were selling a product called Vladimir’s Bears. Basically, they were gummi bears impaled by a toothpick. My friend had a twisted sense of humor that I myself shared with him, so we thought sheer morbid curiosity would bring people over. It turns out that while Vladimir’s Bears were indeed a hit, we were not able to sell them for enough money to make a profit. People would buy them only as long as they were cheap. Teams that did not sell out all their items still managed to make more money than us simply because the equilibrium price for our good wasn’t high enough to encourage us to stay in business. In a word, we failed at the business, and that’s the reason why you good citizens can’t buy Vladimir’s Bears in fine stores today.

But when our business failed, we didn’t go running to the teacher demanding that she subsidize our failure. We took it as a learning experience. Besides, I’m now a journalist and my friend is an electrical engineer, so obviously business wasn’t our forte anyway.

My point is this. Businesses are responsible for their own actions. This means they profit when they do well, and fail when they don’t. Any corporate executive worth his salt would know that their business needs constant minding, constant oversight and constant feeding. But when one of those breaks down the system does as well. If the company has become so complacent that it’s no longer checking its own actions, maybe it deserves to fail.

But the cost of that failure should be bore by society as a whole. Lehman Brothers, Merrill Lynch, Bear Stearns and AIG failed because of bad loans policies. They never should have accepted these loans. They never should have offered these loans. They got greedy, and in a free market they should be held accountable for their actions.

That’s why I’m against this government bail-out. It’s not the American taxpayers job to subsidize failure. Nor should we have to cought up the money needed to fix this problem. But mostly, they should have a say in this situation.

So America, call you’re Congressman. Contact your Senator. Let them know that you don’t want to foot the bill for Lehman Brothers’ bungle. You’re not keen on filling the golden parachute of Bear Stearns execs. They made money when times were good, now it’s time for them to face reality.

Who watches the watchmen? You do.

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

Well, Oil and Gas Investor is back up, and just in time for the world to come to an end. Okay, a bit of an exaggeration, but woo, what a week! Where do I begin?

Let’s start with Hugo Chavez, because he’s fun. The Latin American dictator democractically elected despot savior recently booted the U.S. Ambassador out of Venezuela for conspiring to have Chavez killed. To add insult to injury, he also kicked out two human rights activists from Human Rights Watch for making criticizing his country’s humn rights records. He accused them of being stooges of President Bush, which must have been a real shock to group since it’s routinely accussed of having an anti-Western nations bias.

After that, let’s talk economic nightmare. Lehman Brothers went belly-up, Merrill Lynch is being bought by Bank of America and insurance provider AIG having to collect on its own life insurance policy. Did you ge the number of that bus who hit our stock market? Talk about a hit-and-run.  And of course the U.S. government has swung in to protect the interests of companies that are “too big to fail,” much like they did earlier with Bear Stearns.

Let’s anaylze that for a second. “Too big to fail.” Now I’m not a socialist or anything, but methinks that if a company has been allowed to become “too big to fail,” then you’re just asking for economic trouble somewhere along the line. No, it doesn’t surprise me that these businesses are failing. Companies that become too big become too complacent in their policies and standards. A younger bank might turn away high-risk loans for fear that it could cause their undoing. But giant megacorporations like Lehman Brothers and Bear Stearns, who have been around the block a few times, think they’ve earned a right to subsidize garbage loans since their success can hide their failures in other areas. Such has proven not to be the case.

And finally, the oil prices. Wow,  $25 in a single day. I feel like the last three weeks were undone in a single day. It’s like the market refuses to correct itself. Insanity has been loosed upon Nymex. So I got to ask how long this will take to undo. Or has the market become so addicted to bad news that any excuse to raise prices will result in increases?

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

Just as the desire for offshore drilling is finally starting to catch on, a major scandal breaks involving kickbacks, sex and other favors to government agents in exchange for offshore licenses and royalties.

So what does this mean? Well, it means that we have a major league you-know-what kind of storm on our hands, just when American energy security is most needed. I don’t wish to sweep this under the carpet, mind you. If this is true, then all the guilty parties need to be jailed. There’s no excuse for this sort of misbehavior, and the last thing the energy industry needed was another major scandal on its hands.

But we *need* offshore drilling. If the country is lucky, at most this is only going to effect oversight for offshore acquisitions. But at worst, opponents of offshore drilling iniatives will use this to suggest a culture of corruption affecting the entire industry. This won’t be hard, given that a recent report is touting how speculators are responsible oil price manipulation. Hopefully this scandal is just seen as an anamoly, and we can move forward with our energy plans.

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

Senator Barack Obama appeared on “The O’Reilly Factor” earlier this week, where Bill O’Reilly grilled him on his tax plans. Obama used an analogy, when discussing his income redistribution policies, of how if you’re rich and you’re eating at a restaurant, and you see a waitress barely struggling to get by, you should assist in helping her financially. When O’Reilly accused Obama of basically having a socialist plan, Obama argued against this and said that it was just being neighborly.

Which, in theory, sounds nice and everything. But theories always operate in a consequence-free environment. And it always appeals to the have-nots who want what the haves, well, have.

Naturally, with Obama’s plans for increased taxation of oil companies to send money to alternative fuel reseach, one can only guess how this will effect both A&D and E&P for the next few years.  And O’Reilly himself certainly would be no help in this area, as he himself accusses oil companies of being monopolies and probably wouldn’t mind some increased regulation on that front.

The hosts of the Walton & Johnson radio show were discussing and ridiculing Obama’s plan. Walton was likening the plan to stealing, with hard-working people being relieved of their money to pay for not-so-hard-working people. This wasn’t neighborliness but instead Marxism according to the hosts.

But the key point they made was this, and I found this very funny. Walton said that the next time you’re in Barack’s neighborhood, just invite yourself into his house and help yourself to a few things that you want. Johnson added that if Michelle starts complaining about this, just say “Hey! I don’t understand what the big deal is! I’m just being neighborly! It’s not like I’m taking everything, just a few things. It’s not like you can’t afford to buy more!”

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

Haynesville. Just say it out loud and say it with a smile. Haynesville. It’s like a stress-relieving word. For the past five months or so, the Haynesville shale has been the industry buzzword, and not without good reason. Chesapeake’s technological breakthroughs in the shale are commendable, and it looks enticing.

But looks can be deceiving.

Now, I hate to be a naysayer, but blogging custom dictates that I stick my head up and say, “Okay, let’s look at the big picture here.”

The Haynesville’s potentional has not been proven yet. Let me say that again. THE HAYNESVILLE HAS NOT BEEN PROVEN. All of these exciting press releases are just hype at the moment. Like all hype, it either lives up to its potential, or it doesn’t. Now, I’m not accusing these companies of lying or anything. It’s in their best interest (and their shareholders best interest) to create value for their companies. But let’s not lose sight of things and act like addicts here.

If the Haynesville does prove to be a bust, it not only could hurt share value but ruin shareholder trust for future finds, too. Remember the story of the boy who cried wolf? How many bum Haynesville-like claims before unconventional plays become taboo?

It was around this time last year that MLPs were all the rage. Every company wanted one. People were certain than having one was the right idea. But when push came to shove, a lot of planned MLPs went by the wayside. Try telling what we know now to the feeding-frenzy mentality that was going strong last year.

So I urge companies and investors to be ready to be disappointed in a worst case scenario. Until we have long-term reserves data, the Haynesville is a lottery ticket, not a gold mine. You either win, break even or lose.

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

Apparently God has a sense of humor and had decided to unleash Hurricane Gustav on the first day of the GOP conventional, according to political gadfly, conspiracy-tossing filmmaker and all-around live-action cartoon character Michael Moore.

Moore, in his letter, accuses the GOP of trying to politicize the Gustav media coverage for political gain.

“The possibility of a storm (a storm that never hit New Orleans, and was no longer a hurricane by last night) was enough for McCain to essentially cancel most of the first day of the convention. Cut and run? The AP reported yesterday that conventions have always been held when the nation was facing perilous moments. Right smack in the middle of World War II, the Republicans and the Democrats both held full conventions. Thousands of Americans were being killed every week. The Republicans held their convention in Chicago less than two weeks after D-Day. No one faulted them for that. In fact, it made Americans feel good that, no matter what happens, NOTHING stops Democracy. No retreat, no surrender…”

Did you get that? I mean, seriously now. Moore is badmouthing the Republicans for leaving their convention and showing some concern for the Gulf Coast residents. Now the thing that’s most insulting about this is, Moore has spent the last eight years trying to depict Republicans as ineffectual people who sit on their hands when disaster strikes. Now, after playing that song for nearly a decade, he has the audacity to change his tactics and virtually DEMAND the GOP just stay at their convention and  do nothing.

What a stupid argument for Moore to make, seriously. Of course, you can tell what he’s really saying. He secretly wishes that they HAD stayed at the convention so that he could make the argument he really wanted to: namely, that McCain and his pals are insensitive to the plight of people on the Gulf Coast and would rather make money at the convention than help people. But he can’t make that argument. It’s been stolen from him. So he’s grasping at straws with this pathetic tamper tantrum of an argument, desperately trying to create controversy where there is not any.

This is putting aside the tastelessness he demonstrates in a previous message of his on his website, and was repeated on a recent appearence on Countdown with Keith Olbermann, where he actually was delighted the storm was coming at the start of the GOP convention.  Yes Moore, it’s nice to be greatful for the existence of a storm that so far has killed 107 people just so you can make half-hearted political joke. Look, why don’t you stick to making fictional propaganda tirades award-winning documentaries and leave the political forecasting to people who actually know what they’re talking about.

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

Republicans will be backing off their support for opening up Alaska drilling to show their support for presumed presidental candidate John McCain.

The GOP has been capitalizing on the growing U.S. support for energy independence and offshore drilling following the recent run-up in oil prices, trying to shift national support to overthrow bans on traditionally forbidden zones such as Alaska’s ANWAR province. However, McCain, who while supports increased offshore oil and gas development in most areas, opposes the opening of the Alaskan preserve for E&P.

With that in mind, many Republicans are taking a breather on their E&P ambitions and instead are throwing in their lot with McCain, seeing him as the candidate that will at least get the foot of the expanded offshore drilling issue in the door. Democratic presidential candidate Barack Obama as well as House Speaker Nancy Pelosi have both recently been vocal about opening offshore drilling, but the GOP remains firm that McCain’s policies are the better of the two.

So, it looks like ANWAR is going to dodge a bullet again, though who’s telling how long that may last if we get $150 oil again next summer.

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

Hey loyal readers, I’m writing to you live from Summer Nape at the George R. Brown Convention Center in Houston. We are rolling to make sure we are providing you with the finest of oil and gas headlines.

Mark Chiles is bravely maintaining order on the live-streaming video. And my fellow OGI members are bringing you the finest in interviews and up to date information.

Looking around the convention center, I’m pleased with the strange mix of quiet, blissful commerce in action as well as the occassional carnival atmosphere that only a group of dedicated buisnessmen can engage in. So I hope you can all watch this on the web, because we have some good info for you.

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

Time Magazine is claiming it has proof that the price of oil can be rigged. Just as prices are falling, Time has come out with an expose of what they claim to be clear signs of market manipulation.

While carefully couching their language to make sure they’re not on record as saying prices are in fact being manipulated, writers Ari Officer and Garrett Hayes all but point out the ways companies can control the market to raise prices when they so choose.

They claim: “The futures market that serves as a price discovery mechanism for the physical oil market is open only to the elite. We trust these elites to determine the prices, but who are they? Who are the so-called experts? Hedge funds, oil companies, OPEC — the very people who profit from massive, consistent increases in prices. Notice a conflict of interest?”

While I agree that seemingly little power is in the hands of oil consumers, the article sidesteps the issue that this whole situation is being created by the consumers as well. Just who would these “elites” be offering oil to if people didn’t want it?

Also: “It is in every oil supplier’s best interest for prices to go up. Oil is a finite commodity. The world will eventually become more efficient and develop alternative energy sources. In the meantime, suppliers want to squeeze out as much profit as possible from their limited resources. Even if they know that the price of oil is too high (to the point of reducing demand) it is not in their interest to correct it. By setting prices in the smaller but more “trusted” futures market, oil producers realize multiplied gains on their physical oil sales.”

Again, weird paranoid stuff, but it is true that oil suppliers, if by suppliers they mean oil producing countries, would want as much money as possible while they can still get it. But if “oil suppliers” is a code-word for big oil companies, they’re mistaken. Even ExxonMobil, which just posted record quarterly profits, would like to avoid out-of-control oil prices as this in turn raises their production costs.

“The American market system, purportedly a free market despite its flaws and gross inefficiencies, has opened this vulnerability. The oil suppliers may tighten the noose, but we tied it around our throats long ago. Hiding behind the wall of anonymity, the perpetrators profit and achieve their own ends, bringing down America in the process.”

Okay, the article DOES make room for allowing American consumer behavior for being the ultimate source of demand, but then they come out with this strange “bringing down America in the process” allegation. What is this, some James Bond movie?

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