SHALE PLAYS

The Haynesville shale play of Northwestern Louisiana is the darling of the gas industry. To some, it is the savior of the energy future of America and will lead the energy industry into the next generation.
The measuring stick of a successful well in this play is as follows:

Bad well = 2 BCFG

Good well = 6 BCFG

Are you kidding me? Are they really paying $8 million to $9 million for a well that has reserves of up to 6 BCF and may be as low as 2 BCF?

I am not going to go into the merits of frac stages and the amount of water used and waste created. Not going to mention the hazards of fracing into the shallow fresh water aquifers.

The frac thing I want to talk about is this - just what are you fracing? My belief is that you are fracing, and thereby, interconnecting the small stringers of sand that are interbedded in the shale. This may be why the "sweet spots" of the various shale plays are getting smaller the more they are drilled. It ain't just about shale - it's about the sand. It has always been about the sand. (Sorry limestone, I never really liked you anyway).

Could the future bring us the incredibly shrinking shale play?

Jack

Over

MORATORIUM ON STUPIDITY

Let's call a moratorium on all the stupid things we have been hearing since the BP disaster.

Here are a few of the things that need to be held up to the light of day as incredibly stupid:

1) This is the worst environmental disaster in the history of the world.

This well has been flowing gas and condensate/oil at rates up to 100 mmcf and 50,000 bbls per day. That's a lot of gas and a lot of condensate/oil. The condensate/oil appears to be high gravity, with little or no asphaltenes - basically paraffin based high gravity fluid much like diesel. Exxon's Alaska tanker spill was of heavy asphaltic bunker-like crude that hit very cold water and paved the rocky shoreline with a thick black soup that would not go away. The BP spill is dissipating at contact with the air and a residual orange sludge is making its way to some shores and will be gone in a year.


2) The pristine marsh and wetlands are being destroyed.

The marsh grass has been stained by the residual sludge from the spill and the first few feet of grass is brown and thick with the sludge - in a very few places. This sludged-up grass is acting as mother nature's boom and is preventing further oil from going deeper into the marsh. This oil is decayed organic material - altered by extreme temperatures and pressures - but still organic. Other organisms will eat it and it will be gone in a year.



3) BP finally got a "cap" on the well that is working.

This is not a cap. It is simply a blowout preventer bolted on top of the original seafloor blowout preventer. I have talked to some deepwater engineers, and they all said on day four of this disaster that the way to go was to "bolt on another blowout preventer" and shut the well in. BP has known that this is the way to go from the beginning. The concern was the integrity of the casing and the possibility of an underground or seafloor uncontrolled blowout.



What has now changed that enabled BP to go ahead with the new blowout preventer bolt on? Could it be that the Federal Government has kept them from doing this until now? If so, I hope BP has documentation to that effect - in that case, the bulk of this spill could be on the Feds.



4) How stupid is it to name a bunch of anti-drilling, environmental activists to the president's commission on deep water drilling?

Ok, it as if our president had to fire the military commander of our Afghan war and he chose a bunch of antiwar activists to run the war in his place. Stupid. Or, maybe since he had bomb making experience, our president names Bill Ayers to command the Afghan war instead of Petreaus. This is a drilling safety issue and the commission needs to be heavy on deep water drilling experience.



5) The award for stupid goes to former president Clinton for advocating "blowing up the well" or "nuking the well" as the only solution.

Stupid.



There's more, but this will do for a start.



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Let's hope that the new "cap" holds until the relief wells do the job.



Let's hope that all displaced workers get to go back to making a living - fishermen, restaurant owners and workers, rig hands, etc........................



Finally, now that the gas/condensate/oil is not flowing into the Gulf, let's not forget the men who lost their lives in the rig explosion. Eleven men died working as American Oilmen. They lay at rest in the Deepwater Horizon rig on the Gulf floor some 1500' away from the well. That is the real tragedy. May God bless their souls. May God bless those they left behind.





Over

WEAKNESS

Since the beginning of his campaign for president up to and including his BP speech this week, Obama has blamed Bush for all the country's problems. I could not put my finger on just why this bothered me so much. Sure, there are partisan reasons for this to bother me, but it was deeper. I finally know what really bugs me. It is weakness. It shows incredible weakness for a leader to constantly blame his predecessor.

In his oval office speech, the president used the BP spill for political gain by linking it to Cap and Tax legislation. Cap and Tax, $20 billion slush fund, blame Bush.

Weakness.



Over

THE HEROES IN THE GULF

The guys that lost their lives working on the BP well are true heroes of our business. They went to work for weeks at a time away from their families and did an all too dangerous job. God bless their souls, and may God bless their families. Only the military men and women of our country know how tough their job is.

The next-in-line heroes are the guys on the two relief wells, drilling to the same formation to stop the flow of oil. How come we have not heard anything about these brave guys? Maybe they should not be out there when it is so dangerous. I assure you not a single one of them gives it a second thought - they are there to do a job. We should ask our President - how do they fit into the six month moratorium on drilling in the deep water?

What are the most dangerous words in all business - especially the oil business? These five words: THE GOVERNMENT IS IN CHARGE
Good luck to you, BP. There are some of us that think you are doing a fantastic job under incredibly difficult circumstances.

Over

WORLD OIL SUPPLY OUTLOOK

The US Joint Forces Command recently issued a "Joint Operating Environment" report that includes a section on the surplus oil production capacity in the world.

The US Army is thought to be the biggest single user of liquid hydrocarbons in the world. So, they have a vested interest in predicting the future supply of oil.

The conclusion of the report was that surplus capacity could end as soon as 2012 - and supply shortages could start in 2015. The resulting economic and political results of shortages is discussed, with the clear understanding that the US Military would be involved in the resulting crisis.

We will follow the US Energy Information Administration (the US Energy Department) and see if they agree with the US Military study. For years, the EIA has stated that peak oil is decades away. Let's see if the EIA changes its tune. Which one of these reporting agencies would you put your faith in?
Please follow this link to review the section on Energy - starting on page 24.

http://www.fas.org/man/eprint/joe2010.pdf

And by the way, this is an incredibly well written report. It is refreshing that a part of our tax dollars goes to the preparation of a pdf file like this. Extremely well done on all fronts - not just on the energy section. Our political leaders, from the top on down, should be required to read this report. I just wish the Department of Defense would have written the legislation on health care reform. Do you think we would have gotten a multi-thousand page bill?

Jack

Over

THE GENIE IN THE BOTTLE

There is a bit of deflation going on right now. Price deflation-not so much monetary deflation. The cost of many items is going down right now, but this will not last too long. It will just make the coming inflation seem that much stronger.

The Federal Reserve has pumped a great deal of money into the "too big to fail" banks. They printed the money to buy toxic assets held by the banks so that there would not be a systemic failure of the banking system. Good job, they saved the world. They bought toxic, worthless assets at full face value. TheY BOUGHT the assets, so the money is not a loan to be repaid. It belongs to the banks.

OK, so they "bought" these toxic assets (like worthless mortgage paper, credit default swaps, etc.) and now the banks have that cash. Free cash. Almost a TRILLION DOLLARS. In bank lingo, this free, spendable cash is called "excess reserve balances: (ERB-more on that below). The banks have money that they do not now have to hold in reserve - they can spend it on anything. What they are supposed to spend ito on is LOANS. They are supposed to lend the money to private businesses. Stimulate the economy through investment in private business, things like that. They are not lending.

Why are the banks not lending? Because they can make a better, low risk return elsewhere. That elsewhere is actually the Fed - right back where they got the money in the first place. How is the Fed able to pay interest to the banks that is so much better than what is available on the open market? Well, the Fed just prints more money and pays the interest. The Fed makes the banks a better deal because it doesn't really cost the Fed anything.

Why would the Fed do this - give the banks money and then PAY them interest on it? Because, the Fed wanted to save the banks and bankers - the Fed works for these bankers. But that's not all. If the banks went ahead and started lending the money out - there would be an extra TRILLION DOLLARS in the economy. Massive inflation. Inflation is a monetary thing-too many dollars chasing too few goods and services.

The Fed wants to control this money, like a genie in a bottle. This is a temporary fix. The extra TRILLION DOLLARS will not be kept locked up forever. When the bottle is opened-when the money is set free - there will be massive inflation.

Then you will want to own hard assets. Like oil, oil companies, metals, metal companies, etc.