Matt Simmons, the chief advocate of Peak Oil, died of an apparent heart attack last night. The original theory was developed by M. Hubbert King. Has the theory held up?
For some background on Peak Oil, it can be reviewed by clicking this recent piece: http://markostake.blogspot.com/2010/05/peak-oil-update.html.
Recent statistics from the International Energy Agency (IEA) bear out Hubbert's predictions. Growth in worldwide oil demand has slowed but continues to grow. Currently, the planet uses approximately 86 million barrels per day (mbd). This is projected to grow to 88 mbd by late 2011. Of course, an intensifying downturn in the global economy is likely to ensure that this forecast will not be met.
Peak Oil, however, refers to the production side. It anticipates a growing shortage as existing oil fields commence an inevitable and accelerating decline, while the alternatives are still very slow in being developed. According to the IEA, world production averaged 86.6 mbd in 2008 and fell to 85 mbd in 2009. It has rebounded in 2010, but has fallen in the 2nd quarter.
OPEC, which produces just less than 40% of global supply, averaged 28.9 mbd in June, down by 65 kbd from May. A lull in OPEC crude capacity expansion is expected between now and year-end 2011. Non-OPEC supply is expected to rise by a modest 0.4 mbd in 2011 to 52.8 mbd, following a 0.8 mbd growth in 2010. Increases from Brazil, global biofuels, Azerbaijan, Colombia, Ghana and Oman are expected to offset declines from Mexico and the North Sea during 2011.
The imminent "Double Dip" will undoubtedly have a major bearing on future production, especially if prices decline to possibly much lower levels in the intermediate term.
Peak Oil is significant for a variety of reasons. For one, it undoubtedly was a major factor in the invasion of Iraq. It has a bearing on future potential military actions against Iran. Was there a connection to British Petroleum and the infamous oil spill and U.S. policy on offshore drilling? They don't call it "Black Gold" for nothing.
Another "Windfall Profits Tax" seems a virtual certainty in light of the out-of-control budget deficit. Our roads are paid for by Gasoline taxes. Virtually every industry is affected by oil prices. The automobile industry, the transportation industry, the mining industry and the military are all affected by oil. So is foreign policy. Global Warming? Cap and Trade? Yeah, I'd say "Peak Oil" is important.
Unfortunately, profiting from a knowledge of "Peak Oil" is most difficult. The chief beneficiaries, shareholders of ExxonMobil, Chevron, British Petroleum and Conoco-Phillips will not be allowed to enjoy the profits which are politically unpopular. So, the only way to invest is in alternatives, or to own royalty trusts whose cash flows rise and fall with oil prices. That is, assuming they will be exempted from future legislation.
The most viable response for the average American is conservation. If one can afford a hybrid or install solar panels, great. But, most people can't. All most of us can do is turn down our thermostats and burn wood in the fireplace. I hope I never see another line at the gasoline pump again. But, unfortunately, I suspect that vestige of the 1970's will return.
Marko's Take
Showing posts with label British Petroleum. Show all posts
Showing posts with label British Petroleum. Show all posts
Monday, August 9, 2010
Monday, July 26, 2010
Obama Fires Another CEO
News reports of British Petroleum's (BP) CEO Tony Hayward being fired circulated the newswires over the weekend. As of this writing, BP has not yet made it official.
I've been wondering under what authority our President believes he has this power or moral authority.
Hayward is the latest in a pretty high level list of CEO's and executives to cross the increasingly authoritative Obama Administration. If Hayward is truly out, he joins General Motors's (GM) Rick Waggoner and Lehman Brothers' Richard Fuld. Fuld was not technically fired, but Lehman was allowed to go bankrupt, which eliminated Fuld's existance.
Of course, our president has spared EVERYONE at his pet firm, Goldman Sachs (GS), aka "Government Sachs". So what if they were central to the ruination of the global economy? They admitted no wrongdoing. Why jump to conclusions?
Let's not forget the "shotgun wedding" of Bank of America and Merrill Lynch. Was Kenneth Lewis pressured to acquire Merrill? Nah! Lewis clearly WANTED to overpay.
Don't get me wrong. All of these executives had a lot to answer for. However, these matters were best addressed by the companies' respective board of directors and shareholders, not by presidential dictum.
My question concerns exactly what gives our President either legal authority, moral authority or the basic qualifications to be making these uni-lateral decisions.
President Obama has NEVER held a private sector job. President Obama despises capitalism. President Obama has NEVER run a company, nor created a single job except at government expense. What makes him qualified to stuff his political views down corporate America's throat?
It's easy to demonize these companies. NO company in the America exists to benefit either consumers or environmentals or regulators. Their mission is to benefit shareholders. The interest of shareholders may be at odds with a political agenda. If you want social responsibility, better you turn to the many 501c3s.
If we extrapolate, we can conclude that NO CEO has any job security. If you run a company involved in tobacco, alcohol, fast foods, munitions, gaming, pharmaceuticals, finance, banking, or just about anything else, you are at grave risk. If you kowtow to Obama, your shareholders will be upset. If you protect your shareholders, Obama will be upset. Sounds like a pretty bad recipe to me.
Of course, if you're a racist, like Sherry Sherrod, you get an apology. Last Wednesday, White House Press Secretary Robert Gibbs apologized to Shirley Sherrod, fired the day before from her job as Georgia Director of Rural Development for the Department of Agriculture. Ms. Sherrod's blatantly racist comments would have gotten virtually anyone else run out of town. Trust our President. He can separate right and wrong.
You get Obamacare whether you want it or not. Never mind that he exempted Congress and himself from the legislation that was touted as so good for America. Oh, and you're not paying enough in taxes. Just because your small business is the only driver of the economy. Pay more in taxes and let Uncle Sam spend the money that they believe was never yours in the first place. Only by their good graces do they allow you to keep any of it. Be grateful.
The press told us that Richard Nixon was an imperial president. I don't recall Nixon firing CEO's. Nor Reagan, nor Kennedy, nor Johnson, nor Ford, nor Carter nor Clinton nor either Bush. In fact, has ANY CEO being fired by a sitting president? Isn't the private sector supposed to be PRIVATE?
Obama has a legal background. Has he read the Constiution?
Marko's Take
I've been wondering under what authority our President believes he has this power or moral authority.
Hayward is the latest in a pretty high level list of CEO's and executives to cross the increasingly authoritative Obama Administration. If Hayward is truly out, he joins General Motors's (GM) Rick Waggoner and Lehman Brothers' Richard Fuld. Fuld was not technically fired, but Lehman was allowed to go bankrupt, which eliminated Fuld's existance.
Of course, our president has spared EVERYONE at his pet firm, Goldman Sachs (GS), aka "Government Sachs". So what if they were central to the ruination of the global economy? They admitted no wrongdoing. Why jump to conclusions?
Let's not forget the "shotgun wedding" of Bank of America and Merrill Lynch. Was Kenneth Lewis pressured to acquire Merrill? Nah! Lewis clearly WANTED to overpay.
Don't get me wrong. All of these executives had a lot to answer for. However, these matters were best addressed by the companies' respective board of directors and shareholders, not by presidential dictum.
My question concerns exactly what gives our President either legal authority, moral authority or the basic qualifications to be making these uni-lateral decisions.
President Obama has NEVER held a private sector job. President Obama despises capitalism. President Obama has NEVER run a company, nor created a single job except at government expense. What makes him qualified to stuff his political views down corporate America's throat?
It's easy to demonize these companies. NO company in the America exists to benefit either consumers or environmentals or regulators. Their mission is to benefit shareholders. The interest of shareholders may be at odds with a political agenda. If you want social responsibility, better you turn to the many 501c3s.
If we extrapolate, we can conclude that NO CEO has any job security. If you run a company involved in tobacco, alcohol, fast foods, munitions, gaming, pharmaceuticals, finance, banking, or just about anything else, you are at grave risk. If you kowtow to Obama, your shareholders will be upset. If you protect your shareholders, Obama will be upset. Sounds like a pretty bad recipe to me.
Of course, if you're a racist, like Sherry Sherrod, you get an apology. Last Wednesday, White House Press Secretary Robert Gibbs apologized to Shirley Sherrod, fired the day before from her job as Georgia Director of Rural Development for the Department of Agriculture. Ms. Sherrod's blatantly racist comments would have gotten virtually anyone else run out of town. Trust our President. He can separate right and wrong.
You get Obamacare whether you want it or not. Never mind that he exempted Congress and himself from the legislation that was touted as so good for America. Oh, and you're not paying enough in taxes. Just because your small business is the only driver of the economy. Pay more in taxes and let Uncle Sam spend the money that they believe was never yours in the first place. Only by their good graces do they allow you to keep any of it. Be grateful.
The press told us that Richard Nixon was an imperial president. I don't recall Nixon firing CEO's. Nor Reagan, nor Kennedy, nor Johnson, nor Ford, nor Carter nor Clinton nor either Bush. In fact, has ANY CEO being fired by a sitting president? Isn't the private sector supposed to be PRIVATE?
Obama has a legal background. Has he read the Constiution?
Marko's Take
Thursday, July 15, 2010
SEC No Match For Government Sachs
Now let me get this straight. Goldman Sachs (GS), aka "Government Sachs", has just received the largest penalty ever imposed on a financial firm. Yes, a whopping $550 million.
Relative to Goldman's 2009 net income of roughly $12 billion, this represents less than 5%, or about two weeks worth of earnings. In the case of British Petroleum (BP), they were arm-twisted into establishing a $20 billion escrow fund, or about 15 MONTHS of 2009 income. BP's escrow fund is to compensate victims.
For Goldman's victims, they were assessed $300 million, payable to 2 European Banks. Forgive me, weren't there a whole lot of other victims? So, BP is paying about 70 times that of GS. Seems reasonable to me.
BP's market capitalization has fallen by about half from peak to trough, a wipe-out on the order of $100 billion. BP's shareholders are the public. Goldman's market capitalization is down only 20%. It's shareholders are very largely Government Sachs alumni in senior policymaking positions. And, of course, management.
Are you beginning to see the problem here?
BP may still have stiff penalties imposed on it. The investigation is far from over.
Ok, so one company's alleged negligence led to economic disaster and the other's to ecological disaster? Is one that many times worse than the other?
Could the difference have anything to do with the rather sizable number of GS alumni in the government? Lloyd Blankfein walks away unscathed. Tony Hayward is driven out of Dodge.
Goldman's settlement permits it to walk away, while admitting virtually NO wrongdoing. Do you think that BP will be so lucky?
One can assume that investigators and senior officials of the SEC knew what they were doing. After all, why would they EVER want to bring down their future bosses?
Goldman officials praised the settlement. Yes, you read that correctly. Goldman officials praised the settlement! Doesn't that, in and of itself, say something? Do you think for one minute that the remaining BP officials will be thinking what a great deal they got?
But, Goldman had another huge reason to celebrate: the passage of the financial reform bill. Not only are Goldman's business interests protected, but the bill establishes new regulatory bodies. A full employment act for Government Sachs at government expense!
Marko's Take
Relative to Goldman's 2009 net income of roughly $12 billion, this represents less than 5%, or about two weeks worth of earnings. In the case of British Petroleum (BP), they were arm-twisted into establishing a $20 billion escrow fund, or about 15 MONTHS of 2009 income. BP's escrow fund is to compensate victims.
For Goldman's victims, they were assessed $300 million, payable to 2 European Banks. Forgive me, weren't there a whole lot of other victims? So, BP is paying about 70 times that of GS. Seems reasonable to me.
BP's market capitalization has fallen by about half from peak to trough, a wipe-out on the order of $100 billion. BP's shareholders are the public. Goldman's market capitalization is down only 20%. It's shareholders are very largely Government Sachs alumni in senior policymaking positions. And, of course, management.
Are you beginning to see the problem here?
BP may still have stiff penalties imposed on it. The investigation is far from over.
Ok, so one company's alleged negligence led to economic disaster and the other's to ecological disaster? Is one that many times worse than the other?
Could the difference have anything to do with the rather sizable number of GS alumni in the government? Lloyd Blankfein walks away unscathed. Tony Hayward is driven out of Dodge.
Goldman's settlement permits it to walk away, while admitting virtually NO wrongdoing. Do you think that BP will be so lucky?
One can assume that investigators and senior officials of the SEC knew what they were doing. After all, why would they EVER want to bring down their future bosses?
Goldman officials praised the settlement. Yes, you read that correctly. Goldman officials praised the settlement! Doesn't that, in and of itself, say something? Do you think for one minute that the remaining BP officials will be thinking what a great deal they got?
But, Goldman had another huge reason to celebrate: the passage of the financial reform bill. Not only are Goldman's business interests protected, but the bill establishes new regulatory bodies. A full employment act for Government Sachs at government expense!
Marko's Take
Wednesday, June 23, 2010
New British Petroleum Bond Issue Very Interesting
After being strongly "encouraged" by the Obama Administration to pledge $20 billion into an escrow fund, British Petroleum (BP) is now looking to raise new capital through an upcoming bond issue. The debt is expected to yield 8-9%. BP should be happy, Tony Soprano charges 2 points a week.
BP has rapidly descended to the 2nd company "America loves to hate". And yes, the 1st, "Government Sachs" is participating in the underwriting.
The obvious question is how well the proposed yield compensates investors for BP's very uncertain credit risk and future liabilities. The less obvious answer is that it does.
One need not do a comprehensive analysis to determine the attractiveness of these bonds.
Despite a loss of 50% of its market capitalization in 2 short months, BP is still worth nearly $100 billion. The current value already takes into account expected liabilities from the oil spill. There are no more than a handful of companies in the world with market capitalizations of that magnitude.
BP's total debt at the end of the 1st quarter of 2010 stood at $32 billion, giving it a very comfortable debt/market cap ratio of about 0.35. The company's leverage is consistent with an investment grade borrower.
The company earned $16 billion in 2009 with much lower oil prices, and another $6 billion in the 1st quarter from operations. The recently enacted dividend cut provides another $2 billion in cash flow. At the current earnings rate, the total debt issue is less than annualized earnings. BP's price/earnings ratio is now less than 5.
But what about the future unknown liability from shareholder lawsuits? Tobacco companies have faced them for decades, but none have defaulted. Remember 20% plus yields on Phillip Morris (MO)?
Drug companies have faced them for years, but none have defaulted. The auto companies DID default, but not from litigation. Instead, it was from poor operations and mounting pension and health care liabilities.
In the 1970's, Texaco, then rated Triple A, filed Chapter 11 to restructure onerous pipeline contracts. No one lost any money.
At 8-9%, BP's bonds would yield more than approximately 40% of the entire junk bond universe, and more than troubled sovereign credits Portugal, Ireland and Spain. Only Greek debt is higher.
Highly charged incidents like oil spills tend to swing investor sentiment to un-justifiable extremes. Those who can ignore the market noise from all the hand-wringing stand to make great profits.
Marko's Take
BP has rapidly descended to the 2nd company "America loves to hate". And yes, the 1st, "Government Sachs" is participating in the underwriting.
The obvious question is how well the proposed yield compensates investors for BP's very uncertain credit risk and future liabilities. The less obvious answer is that it does.
One need not do a comprehensive analysis to determine the attractiveness of these bonds.
Despite a loss of 50% of its market capitalization in 2 short months, BP is still worth nearly $100 billion. The current value already takes into account expected liabilities from the oil spill. There are no more than a handful of companies in the world with market capitalizations of that magnitude.
BP's total debt at the end of the 1st quarter of 2010 stood at $32 billion, giving it a very comfortable debt/market cap ratio of about 0.35. The company's leverage is consistent with an investment grade borrower.
The company earned $16 billion in 2009 with much lower oil prices, and another $6 billion in the 1st quarter from operations. The recently enacted dividend cut provides another $2 billion in cash flow. At the current earnings rate, the total debt issue is less than annualized earnings. BP's price/earnings ratio is now less than 5.
But what about the future unknown liability from shareholder lawsuits? Tobacco companies have faced them for decades, but none have defaulted. Remember 20% plus yields on Phillip Morris (MO)?
Drug companies have faced them for years, but none have defaulted. The auto companies DID default, but not from litigation. Instead, it was from poor operations and mounting pension and health care liabilities.
In the 1970's, Texaco, then rated Triple A, filed Chapter 11 to restructure onerous pipeline contracts. No one lost any money.
At 8-9%, BP's bonds would yield more than approximately 40% of the entire junk bond universe, and more than troubled sovereign credits Portugal, Ireland and Spain. Only Greek debt is higher.
Highly charged incidents like oil spills tend to swing investor sentiment to un-justifiable extremes. Those who can ignore the market noise from all the hand-wringing stand to make great profits.
Marko's Take
Thursday, June 3, 2010
Oil Spill Exploited For Political Gains
The tragedy in the Gulf of Mexico is bad enough. The reaction, or OVER-reaction by the political community, is the real crime.
Let's take an objective look at the situation. The worst oil spill in history has been nothing short of an ecological disaster. First, was the death of the 11 platform workers when the well exploded. Then came the destruction of wildlife, whose cost is immeasurable. What should the Obama Adminstration do?
Punish British Petroleum (BP)? The marketplace has already taken care of it. Currently trading at $38 per share, BP has lost nearly $100 billion dollars in market capitalization since news broke of the spill in just a few weeks. The stock has lost more than 40% of its value. Could any penalties imposed by Washington do anything more than merely pandering to all the constituents calling for BP's death?
Add to that the tremendous public relations hit that BP is taking, and, for that matter, the entire oil industry. It's easy to hate oil companies. In the view of the public, oil companies make obscene profits, manipulate energy prices, block the creation of alternative fuels and enter into deals with governments that sponsor terrorism.
Oil companies are owned by shareholders like you and me. So, punishing them just places economic costs on a different set of constituents. Of course they are after profits. So, are the shareholders. So am I. So are you. They have never claimed to be altruistic any more than Big-Pharma, the auto companies or the financial sector.
The other response has been to call for severe restrictions on offshore drilling. What would that accomplish? Higher energy prices and higher profits for all the OTHER oil companies! Less supply for Americans. More dependence on the Middle East. Bad approach.
But, we have to do SOMETHING! Really? Why? Uncle Sam can't cap the well. Uncle Sam has been a miserable failure when it comes to interfering in the energy business. Remember the "Windfall Profits Tax"? That was an unmitigated policy disaster which only drove oil prices higher and led to the famous gasoline lines in the 1970's.
Politicians everywhere are using the public outcry to gain political footing by creating a policy issue where none exists. It's politically popular to wring your hands and claim that things should have been handled differently. How would you have prevented this, Mr. Senator? Mr. President? Mr. Candidate?
The liability for the damage, which will easily run into the tens of billions, clearly belongs primarily to BP and Transocean Ltd. (RIG). Since the explosion on Transocean's platform on April 20, the company has lost nearly HALF its value, or $15 billion.
Undoubtedly, each of these companies carries insurance which will be employed to cover some portion or the majority of the costs.
Regulate future oil drilling activity? Not necessary. The entire oil industry has taken a hit. Even stalwarts such as ExxonMobil (XOM) have suffered massive losses in value in anticipation of a much less friendly business environment. XOM's market value has dropped by 10% or about $30 billion. If one were to factor in the entire oil industry including drillers, the losses would certainly exceed an additional $100 billion.
Clearly, any company NOT involved is working overtime to make sure a similar disaster does not occur in one of their wells. The last thing any oil company wants right now is to be responsible for some other disaster while the world's microscope is analyzing every step they take.
There is no place for public policy here, despite the cry for penalties, regulations and restrictions. The marketplace has imposed HUGE penalties, as has the forum of public opinion. We can either choose, as a society, to encourage more oil supplies at the cost of an occasional disaster, or we can reduce the probability of this kind of problem by imposing massive costs on society. Oil is highly combustible, therefore, we can not possibly eliminate the risk in this industry any more than we can eliminate traffic deaths by imposing more penalties on the automobile manufacturers.
No solution to this situation exists. You want more nuclear? Prepare for the occasional reactor radiation leak. You want less production of oil here? Prepare to be more beholden to Saudi Arabia and other nations that sponsor terrorism.
What we have to understand is that life comes with trade-offs. These can't be legislated away despite the self-serving proclamations of our elected officials and those that seek to be elected. Cry about it, but don't make it worse by over-reacting. Let the market take care of it.
Marko's Take
Our 7-Step solution to fixing the ponzi scheme called Social Security is now available on You Tube. Entitled "Social In-Security: The Solution", the video can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/7Rl6XtobFpE.
Let's take an objective look at the situation. The worst oil spill in history has been nothing short of an ecological disaster. First, was the death of the 11 platform workers when the well exploded. Then came the destruction of wildlife, whose cost is immeasurable. What should the Obama Adminstration do?
Punish British Petroleum (BP)? The marketplace has already taken care of it. Currently trading at $38 per share, BP has lost nearly $100 billion dollars in market capitalization since news broke of the spill in just a few weeks. The stock has lost more than 40% of its value. Could any penalties imposed by Washington do anything more than merely pandering to all the constituents calling for BP's death?
Add to that the tremendous public relations hit that BP is taking, and, for that matter, the entire oil industry. It's easy to hate oil companies. In the view of the public, oil companies make obscene profits, manipulate energy prices, block the creation of alternative fuels and enter into deals with governments that sponsor terrorism.
Oil companies are owned by shareholders like you and me. So, punishing them just places economic costs on a different set of constituents. Of course they are after profits. So, are the shareholders. So am I. So are you. They have never claimed to be altruistic any more than Big-Pharma, the auto companies or the financial sector.
The other response has been to call for severe restrictions on offshore drilling. What would that accomplish? Higher energy prices and higher profits for all the OTHER oil companies! Less supply for Americans. More dependence on the Middle East. Bad approach.
But, we have to do SOMETHING! Really? Why? Uncle Sam can't cap the well. Uncle Sam has been a miserable failure when it comes to interfering in the energy business. Remember the "Windfall Profits Tax"? That was an unmitigated policy disaster which only drove oil prices higher and led to the famous gasoline lines in the 1970's.
Politicians everywhere are using the public outcry to gain political footing by creating a policy issue where none exists. It's politically popular to wring your hands and claim that things should have been handled differently. How would you have prevented this, Mr. Senator? Mr. President? Mr. Candidate?
The liability for the damage, which will easily run into the tens of billions, clearly belongs primarily to BP and Transocean Ltd. (RIG). Since the explosion on Transocean's platform on April 20, the company has lost nearly HALF its value, or $15 billion.
Undoubtedly, each of these companies carries insurance which will be employed to cover some portion or the majority of the costs.
Regulate future oil drilling activity? Not necessary. The entire oil industry has taken a hit. Even stalwarts such as ExxonMobil (XOM) have suffered massive losses in value in anticipation of a much less friendly business environment. XOM's market value has dropped by 10% or about $30 billion. If one were to factor in the entire oil industry including drillers, the losses would certainly exceed an additional $100 billion.
Clearly, any company NOT involved is working overtime to make sure a similar disaster does not occur in one of their wells. The last thing any oil company wants right now is to be responsible for some other disaster while the world's microscope is analyzing every step they take.
There is no place for public policy here, despite the cry for penalties, regulations and restrictions. The marketplace has imposed HUGE penalties, as has the forum of public opinion. We can either choose, as a society, to encourage more oil supplies at the cost of an occasional disaster, or we can reduce the probability of this kind of problem by imposing massive costs on society. Oil is highly combustible, therefore, we can not possibly eliminate the risk in this industry any more than we can eliminate traffic deaths by imposing more penalties on the automobile manufacturers.
No solution to this situation exists. You want more nuclear? Prepare for the occasional reactor radiation leak. You want less production of oil here? Prepare to be more beholden to Saudi Arabia and other nations that sponsor terrorism.
What we have to understand is that life comes with trade-offs. These can't be legislated away despite the self-serving proclamations of our elected officials and those that seek to be elected. Cry about it, but don't make it worse by over-reacting. Let the market take care of it.
Marko's Take
Our 7-Step solution to fixing the ponzi scheme called Social Security is now available on You Tube. Entitled "Social In-Security: The Solution", the video can be accessed by clicking here http://www.youtube.com/markostaketv#p/u/0/7Rl6XtobFpE.
Subscribe to:
Posts (Atom)