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Chesapeake Energy Finally Succumbs With Chapter 11 Filing

One of the longest-running dramas in corporate oil and gas history finally came to a climax on Sunday when management for Chesapeake Energy announced it would seek Chapter 11 protection under the U.S. bankruptcy code. The company has traveled a long and winding road to reach this point.

Rumors about the company’s pending bankruptcy have run rampant over the past year as it teetered on the financial brink. But in reality, Chesapeake’s financial troubles go back much further, to the early years of this century, when founder and former CEO Aubrey McClendon famously made a bet on natural gas continuing to be a scarce resource in high demand whose price would remain strong for decades. Based on that market view, the company then went on a buying spree for the next several years, buying up natural gas assets and companies at very high prices. In one acquisition in which the company I worked for – Burlington Resources – was the second high bidder, Chesapeake’s winning bid was $3 per MMBTU equivalent higher. That’s a lot of excess capital deployment.

None of his assumptions about the future for natural gas turned out to be accurate, of course, but it must be pointed out that McClendon certainly was not alone in making them. For example, I personally played a leadership role in a 2003 National Petroleum Council study which attempted to project natural gas supply, demand and prices through the year 2025. The study was led by ExxonMobil and Anadarko Petroleum (acquired last year by Oxy), and included participants from many other industry companies, the Energy Department, the Department of Interior and environmental NGOs.

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The fundamental conclusions and projections of that study basically supported McClendon’s view of natural gas remaining a scarce resource with pretty high commodity prices as far as the statistical models we used could project. It was in fact the prevailing common wisdom in the industry at that time.

The NPC study projected that imports of Liquefied Natural Gas (LNG) would in fact have to make up an increasingly high percentage of U.S. natural gas supply. That incredibly wrong projection led to the building of a series of LNG import facilities in the U.S. and helped compel ExxonMobil to invest billions in its own fleet of new LNG tankers to help supply America’s coming needs.

While other operators held similar views about the future for U.S. natural gas, Chesapeake was without doubt the most aggressive in terms of pursuing new reserves. In addition to arguably over-paying for acquisitions of other companies or their assets, Chesapeake became infamous for radically driving up lease bonus prices in every new shale play, in the process running up a prodigious level of corporate debt. At one point, Chesapeake’s corporate debt exceeded that held by ExxonMobil, a company many times its size.

As natural gas prices collapsed in the late ‘00s, McClendon next turned to sales of his own company’s assets or portions of working interests in big play areas as a means of continuing to finance and pay down that debt. He sold shares of the company’s working interests in the Barnett, the Eagle Ford, the Marcellus and the Haynesville to various other players, like BP and CNOOC, but every sale also meant less and less cash flow coming into the company itself. Many in the business during that time joked about it being a sort of a pyramid scheme in which the debts would ultimately end up outstripping the company’s income and ability to pay.

 

 

 

 

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That is all.

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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Some Stunning New Facts About Texas and its Oil Industry

Today’s Energy Update
(Because Energy Fuels Our Lives)

#GodBlessTexas. – Last week at Shale Magazine, I put up a piece detailing some “Fun Facts” about the state of the oil and gas industry in Texas. That piece began with the following statement:

“Here’s a fun fact: If Texas were an independent country, it would now stand as the 5th-largest oil-producing nation on Planet Earth, behind only the rest of the U.S., Russia, Saudi Arabia and Iraq. According to projections by the U.S. Energy Information Administration (EIA), Texas will pass Iraq in this measure of economic might later this year.”

Boy, things sure do escalate quickly in the oil industry. Here we are, barely a week later, and the truth about that little factoid has already changed again, at least if the U.S. Energy Information Administration (EIA) has its numbers right.  EIA now says that the U.S. averaged 12 million barrels of oil per day (bopd) in January, the first time it has ever reached level. The agency further projects that the Permian Basin alone will produce 4 million bopd in March, roughly 1/3rd of total U.S. production.

So, before we get to some new amazing facts about all of this, let’s do a little math.  First, roughly 85% of total Permian Basin production comes from Texas, which in March would come to about 3.4 million bopd. Next, add in EIA’s estimate that the other behemoth Texas shale play, the Eagle Ford, will produce about 1.3 million bopd, and you are at a stunning 4.7 million. Oh, and there’s also all that oil coming out of deep south Texas, east Texas and the Texas panhandle, and all of a sudden you find Texas producing in excess of 5 million bopd.

All of which means that as of today, the great State of Texas, all by itself, would now rank 4th globally in crude oil production if it were an independent country, having now blown past Iraq.  Oh, and if the EIA’s projected trend for Permian production growth holds true, Texas will in all likelihood surpass the rest of the United States in total production at some point in either late 2021 or early 2022, and become the third-largest producer in the world.

But that’s not all.

EIA’s March projection of 4 million bopd coming out of the Permian Basin alone means that single basin, were it to secede from the union, would suddenly rank as the 5th-largest oil producing nation on earth, behind Iraq as well as the other countries mentioned above. The other amazing but little known fact about the Permian is that it ranks as one of the largest natural gas plays on earth, second in the U.S. only to the mammoth Marcellus Shale play in the northeast.

How incredible is that? Look at it this way:  Just a decade ago, the Permian Basin was considered to be a “dead” oil play. Downtown Midland was basically a ghost town, and the only real oil business going on out there was a bunch of small companies buying up old, depleted oil fields and going in to rework the wells in order to squeeze a few more barrels per day out of them.

Today, just 10 year later, it is the focal point of the global oil industry, the driver of booming economies of Texas and New Mexico, the main driver of the country’s burgeoning oil and LNG exports businesses. Because industries like chemicals, plastics, fertilizers and many, many more use petroleum products and natural gas as feedstocks, the Permian is also one of the the major facilitators of our country’s manufacturing renaissance over the last few years.

Stunning. And a real blessing.

God Bless Texas, indeed.

That is all.

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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Was 2018 Really the ‘Worst Year Ever’? Uh, no.

Today’s Campaign Update

(Because The Campaign Never Ends)

Andrew Cuomo’s Russia Collusion manifests yet again. – On Thursday, Bloomberg reported on the arrival in Boston Harbor of a tanker filled with liquefied natural gas (LNG) that was produced in … wait for it … RUSSIA! I swear I don’t make this stuff up.

Yes, friends, the New England states have, for the second straight winter, been reduced to having to import natural gas from the Russian Bear despite their close proximity to our nation’s largest natural gas field, the massive Marcellus/Utica Shale basin. This is not only for home heating purposes, but for electric power generation as well, as most electricity in the Northeast is generated by natural gas-fired power plants.

Now, think about how utterly ridiculous this is. Our country is literally awash in natural gas. The U.S. is in fact the world’s largest producer of the commodity, and possesses by far the world’s largest reserves, with many centuries of proven supply beneath our soil.

We have so much natural gas, in fact, that the U.S. price for the commodity is far below the price that other countries lacking such reserves pay for imports of LNG. Where the U.S. NYMEX price for natural gas sits this morning at $3.30, America’s producers export large quantities of their own gas to countries like Japan and China, where they can command prices more than double that.

So, why is New England having to bring in LNG from Russia, you ask? Two words: Andrew Cuomo. Despite the fact that his state of New York obtains the overwhelming majority of its home heating and electricity needs from natural gas, Cuomo decided several years ago to take demagogic positions against the production of the commodity and the building of new pipelines to transport it in and through his state in order to enhance his prospects for being re-elected to a second term.

It is a simple geographic reality that, in order to build new pipelines from the Marcellus/Utica Basin to carry enough gas to the New England states to fill winter demands there, the pipelines must pass through the state of New York.  You don’t have to believe me – just look at a map.

Thus, for the second straight winter, tankers carrying LNG produced in Russia will now be landing in Boston Harbor.

Insanity.

The ‘worst year ever’? Seriously? – No kidding, I heard some liberal nitwit on the radio this week wail that 2018 has been the worst year ever for Americans. You can see similar sentiments coming from those on the radical left expressed all over social media at any given moment of any given day.

Look, I can understand why anyone who gets their news from CNN, MSNBC or the three major TV networks might feel that way, given the unending barrage of doom and gloom emanating from the newsfakers working at those fake news outlets every hour of every day. But the expression of this belief shows a mind-numbing lack of situational awareness and historical context.

Let’s start with some situational awareness:

  • Current unemployment rate – 3.7%, the lowest rate recorded since the 1960s, and 2% below the average rate recorded from 1948 through 2018. In 2009-10, there were months this rate reached 10%. Black unemployment, Hispanic unemployment and female unemployment all are at all-time lows.
  • Economic Growth – we’ve averaged 3% GDP growth this year, the highest this century.
  • Consumer spending – over the holidays, consumer spending – always a sign of a growing, healthy economy – reached all-time record levels.
  • Gasoline prices – in most states, the price for regular unleaded gas is below $2.00 per gallon.  Yes, there are exceptions, like the states of New York and California, but those are due to the high-tax policies of years of Democrat rule in state governments.
  • Jobs – as I predicted would be the case two years ago, the biggest problem in our economy today is that we have too few qualified workers to fill all the job openings out there right now. It’s a great problem to have.
  • Stocks – Yes, the stock market has gone all wobbly since October, but as we sit here this morning, the Dow is about 23% above where it sat two years ago. I’d take an 11.5% return each year in my IRA – wouldn’t you?

Now, let’s talk about historical context.  Compared to most of the past half century, the United States is at relative peace in the world. The biggest problem there is that the opposition to President Trump – the liberals and neo-cons who got us into 7 different civil wars in and around the Middle East during the Bush and Obama years – cannot stand that to be the case. Which explains why they’ve reacted so furiously to Trump’s proposals to end U.S. involvement in the civil wars in Syria and Afghanistan.

You want to know what all the furor among our media/warmonger establishment regarding Jamal Khashoggi was really about? It was about trying to destroy the Trump Administration’s strong relationship with Saudi Arabia, a relationship that the President is now leveraging in order to enable him to bring our American troops home from the Syrian hell-hole that Obama got us into 7 long years ago. You might also want to note that, since the Washington Post admitted that Khashoggi was in fact a shill for the Qatari government last week, the fake news media has basically quit talking about him.  Funny how that works.

The Crazy Little Fat Guy in North Korea is contained. North Korea and South Korea have normalized diplomatic relations, an amazing event no one but Donald Trump thought possible just two years ago. Russia may be exporting LNG to Boston Harbor, but it is otherwise staying within its borders. The most violence Americans have seen on their TV screens in recent months has been video of the riots taking place in Paris, which is a reaction to leftist/socialist political policies.

The worst year ever? Even America’s poor are so much better off today than they have been in the past. The poor among us in America today live lifestyles similar to those lived by America’s middle class half a century ago.

The worst year ever? Go back and read a little bit about how screwed up America’s air and water were as recently as the 1970s. Despite all the alarmist messaging coming every day from the socialist “environmental” movement, our environment is exponentially cleaner than it was just 40 years ago.

The worst year ever? In the palms of our hands, most Americans hold more computing power each day than existed on earth just 70 years ago.

The worst year ever? A century ago, few Americans owned cars and there was no such thing as commercial air travel. 90 years ago, no penicillin. 80 years ago, television did not exist. 65 years ago, no polio vaccine or interstate highway system. 50 years ago, no high-speed copiers. 40 years ago, no fax machines. 30 years ago, there was no email. 20 years ago, no text messages. 12 years ago, no such thing as an I-phone.

The worst year ever?  Shut up, you hopelessly ignorant fools.

That is all.

Follow me on Twitter at @GDBlackmon

Today’s news moves at a faster pace than ever. Whatfinger.com is my go-to source for keeping up with all the latest events in real time.

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Everyone Chill Out, OK?

Just a little perspective on the current situation, and then I’ll shut up for the day:
 
  • The current effort by the fake media/Democrat Party ministry of disinformation to tar President Trump as a racist and run him out of office is just a repeat of the playbook they used against Ronald Reagan in 1981-84. Same tactics, same false claims, same inflammatory protests and rhetoric. We have, in other words, seen this movie before.
  • We should all remember that the ending to that movie in 1984 was the single greatest landslide re-election of any sitting president in the history of the American Republic. The average American is much more perceptive than Democrats believe they are.
  • We also need to remember this key difference between 1984 and today – The Democrat Party’s status has radically changed:

    • The Democrat Party in 1984 was a majority national party in almost every respect outside of the Oval Office.  It controlled both houses of congress, a majority of state governorships and a majority of state legislative houses.  It was the majority party in the West, the majority party in the Rust Belt, the majority party in the Midwest, and the majority party in the Northeast.  It had real leadership in congress, and a strong bench of younger, upcoming leaders.  What it didn’t have was a strong candidate to challenge Reagan, whose popularity boomed along with the national economy, which had come roaring back in response to his program of tax cuts.
    • By contrast, The Democrat Party today is in complete and utter disarray. It has no leadership that is attractive outside one fringe group or another.  It is now nothing more than a regional party comprised of an often-conflicting collection of single-issue grievance constituencies.  Its only unifying core philosophy is one of hate:  Hate Trump, hatred of white men, hatred of the police, hatred of the military, hatred of fossil fuels and pipelines.  It has no real leadership outside of the evil George Soros and the termed-out Barack Obama and the twice-failed presidential candidate Hillary Clinton.  It has no bench of young, upcoming stars to replace its current sclerotic leaders.  It is the majority party only on the West Coast and in some of the Northeast.  It controls neither house of congress, only 4 of 9 seats on the Supreme Court, only 15 of 50 governorships, and an even smaller number of state legislatures.  It is an utterly corrupt and dying entity.
    • Even better for the Republicans, the termed-out Barack Obama, whose feckless and corrupt rule from the radical left and deployment of Alinskyite tactics against his political enemies led directly to the fall of the Democrat Party, is promising to move back onto the political stage this fall.  This can only work to the GOP’s advantage.
  • So tonight, when you turn on CNN or MSNBC (for what reasons I can’t even fathom at this point other than self-abuse)  and see a panel made up of 4 squealing liberals, 2 pontificating fake Republican Trump-haters, and a token real Republican who is there for “balance”, realize that fewer than 1 out of 3000 other Americans are joining you in that inexplicable activity.  Most of them are hopelessly lost souls, but they do not a majority make.
  • Meanwhile, the U.S. economy continues to heat up; the FBI and Justice Department appear to be turning back into real, functioning law enforcement entities again; U.S. foreign policy is working again, even at the previously worthless United Nations; the swamp creatures who have infested and corrupted the State Department, the IRS, the Interior Department, the Energy Department, the EPA and the Department of (no) Education are being run off in droves; the rapidly rising production and exports of oil, coal and liquefied natural gas are turning the U.S. into an energy powerhouse on the international stage; and there have been more than 1 million new jobs created in our country during the first half of 2017.
  • As we sit here today, all of these factors and many more mean it is very likely, given good health, that Donald Trump will be a two-term president.  So do what I’m going to do this evening:  stop worrying and be happy.

That is all.

 

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