Geology and Technology Drive Estimates of Technically Recoverable Resources

A common measure of the long-term viability of U.S. domestic crude oil and natural gas as an energy source is the remaining technically recoverable resource (TRR). TRR estimates are a work in progress, changing as more production experience becomes available and as new technologies are applied to extract these resources. The greatest uncertainty is associated with the "estimated ultimate recovery," or EUR, per well.

EIA updates its TRR estimates using the latest available well production data. EIA's recently released Annual Energy Outlook 2012 (AEO2012) contains a detailed discussion of TRR estimates and resource uncertainty. AEO2012 projections also include sensitivity cases varying the EUR per well and a high-TRR case. The TRR estimates provide context for the size of the resource, while projected production depends strongly on the number of wells, the EUR per well, other well characteristics, and economics.

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TRR estimates consist of "proved reserves" and "unproved resources." As wells are drilled and field equipment is installed and productivity is assumed, unproved resources become proved reserves and, ultimately, production. The TRR estimate for a continuous-type shale gas or tight oil area is the product of land area, well spacing (wells per square mile), percentage of area untested, percentage of area with potential, and the estimated ultimate recovery (EUR) per well.

The Annual Energy Outlook 2012 unproved TRRs are shown in the figures above for the major shale gas and tight oil formations. The formation parameters that result in these TRR are provided elsewhere. The volume of total TRR due to proved reserves is not shown. "Tight oil" refers to crude oil and condensates that are produced from low permeability sandstone, carbonate, and shale formations. The tight oil TRRs are for the entire formation, including the non shale portions.

Read the entire article at EIA.Com

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Welcome BreitBurn Energy Partners to the COT Fund

We are proud to announce that we have added BreitBurn Energy Partners [ticker BBEP] to the COT Fund. BreitBurn has picked up some recent analyst upgrades and with a reliable 10.2% dividend we felt it was a good addition to our list of MLP's. BreitBurn adds diversity to the MLP side of our portfolio as it focuses on the western portion of the U.S. yet still has holdings throughout the east.

Todd Johnson wrote on Seeking Alpha this week....Breitburn Energy Partners offers an enticing 10.2% dividend yield to retirees. The upstream master limited partnership (MLP) generates revenues via natural gas and oil production. I would like to highlight 3 reasons why this MLP has its financials in order to pay out reliable dividends. The 10.2% yield can't be ignored by retirees in the world of a 2.61% 30 Year Treasury Bond yield. Click here to read Todds entire article.

In May equities research analysts at Citigroup lifted their price target on shares of Breitburn Energy from $26.00 to $27.00. The analysts wrote, “BBEP announced on 05/10/2012 that it signed two separate purchase agreements to acquire oil and natural gas properties in the Permian Basin for a combined price of $220 million, subject to customary closing conditions. The acquisition is expected to close within 60 days from the date of the announcement and will be funded with the company’s revolving credit facility.”

BBEP has been the subject of a number of other recent research reports. Analysts at Global Hunter Securities initiated coverage on shares of Breitburn Energy in a research note to investors on Tuesday, April 17th. They set a “buy” rating and a $22.00 price target on the stock. Separately, analysts at Barclays Capital reiterated an “equal weight” rating on shares of Breitburn Energy in a research note to investors on Friday, March 30th. Finally, analysts at Deutsche Bank initiated coverage on shares of Breitburn Energy in a research note to investors on Tuesday, February 14th. They set a “hold” rating on the stock.

But just this week has been upgraded by TheStreet Ratings from hold to buy. With The StreetWire saying....The company's strengths can be seen in multiple areas, such as its robust revenue growth, compelling growth in net income, good cash flow from operations, impressive record of earnings per share growth and notable return on equity. We feel these strengths outweigh the fact that the company shows low profit margins.

BreitBurn Energy Partners is an independent oil and gas limited partnership, focused on the acquisition, exploitation and development of oil and gas properties for the purpose of generating cash flow to make distributions to our unitholders. Our assets consist primarily of producing and non producing crude oil and natural gas reserves located in the Los Angeles Basin in California, the Wind River and Big Horn Basins in central Wyoming, the Powder River Basin in eastern Wyoming, the Evanston and Green River Basins in southwestern Wyoming, the Sunniland Trend in Florida, the Antrim Shale in Michigan, and the New Albany Shale in Indiana and Kentucky.

Historical Dividends

Declared	Ex-Date	Record	Payable	Amount	Type
Apr 19, 2012	May 3, 2012	May 7, 2012	May 14, 2012	0.4550	U.S. Currency
Jan 27, 2012	Feb 2, 2012	Feb 6, 2012	Feb 14, 2012	0.4500	U.S. Currency
Oct 28, 2011	Nov 7, 2011	Nov 9, 2011	Nov 14, 2011	0.4350	U.S. Currency
Jul 27, 2011	Aug 5, 2011	Aug 9, 2011	Aug 12, 2011	0.4225	U.S. Currency
Apr 28, 2011	May 6, 2011	May 10, 2011	May 13, 2011	0.4175	U.S. Currency
Jan 31, 2011	Feb 4, 2011	Feb 8, 2011	Feb 11, 2011	0.4125	U.S. Currency
Oct 29, 2010	Nov 5, 2010	Nov 9, 2010	Nov 12, 2010	0.3900	U.S. Currency
Jul 30, 2010	Aug 5, 2010	Aug 9, 2010	Aug 13, 2010	0.3825	U.S. Currency
Apr 28, 2010	May 6, 2010	May 10, 2010	May 14, 2010	0.3750	U.S. Currency
Jan 30, 2009	Feb 5, 2009	Feb 9, 2009	Feb 13, 2009	0.5200	U.S. Currency
Oct 29, 2008	Nov 6, 2008	Nov 10, 2008	Nov 14, 2008	0.5200	U.S. Currency
Aug 1, 2008	Aug 7, 2008	Aug 11, 2008	Aug 14, 2008	0.5200	U.S. Currency
Apr 28, 2008	May 7, 2008	May 9, 2008	May 15, 2008	0.5000	U.S. Currency
Jan 29, 2008	Feb 7, 2008	Feb 11, 2008	Feb 14, 2008	0.4525	U.S. Currency
Nov 1, 2007	Nov 7, 2007	Nov 12, 2007	Nov 14, 2007	0.4425	U.S. Currency
Jul 27, 2007	Aug 3, 2007	Aug 7, 2007	Aug 14, 2007	0.4225	U.S. Currency
Apr 26, 2007	May 3, 2007	May 7, 2007	May 15, 2007	0.4125	U.S. Currency
Jan 22, 2007	Feb 1, 2007	Feb 5, 2007	Feb 14, 2007	0.3990	U.S. Currency

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What is T. Boone Pickens Buying?

Crude oil may have sold off hard recently, but billionaire investor T. Boone Pickens still loves energy stocks. After all, he made his fortune by investing in energy, so he knows a thing or two about picking winners among the oil, natural gas and power producers. Recently, BP Capital released its holdings as of March 31, 2012 in a 13F filing. Let’s take a closer look at some of its most bullish bets.

Top 10 Holdings

Company	Ticker	Value ($000s)	Activity
BP PLC	BP	20,345	12%
ENCANA CORP	ECA	18,392	New
NATIONAL OILWELL VARCO INC	NOV	14,262	0%
DEVON ENERGY CORP NEW	DVN	13,513	36%
TRANSOCEAN LTD	RIG	13,068	47%
CHESAPEAKE ENERGY CORP	CHK	11,563	-12%
WEATHERFORD INTL LTD NEW	WFT	10,489	35%
SANDRIDGE ENERGY INC	SD	9,250	0%
DAWSON GEOPHYSICAL CO	DWSN	8,426	0%
SUNCOR ENERGY INC NEW	SU	7,063	0%

Encana Corp (ECA) is a new position in BP’s portfolio – the fund did not report owning any shares of Encana at the end of 2011 – but it is one of its largest holdings. During the first quarter of 2012, BP initiated a new position in the company worth $18 million. A few other hedge funds also have Encana in their 13F portfolios. At the end of last year, there were 19 hedge funds reported to own this stock. Steven Cohen’s SAC Capital Advisors had nearly $100 million invested in Encana at the end of last year. Martin Whitman and Ken Griffin are also bullish about this stock. See chart below.

Pickens likes Devon Energy Corp (DVN) as well. The stock is the fourth largest position in his latest 13F portfolio. Pickens boosted his stakes in Devon by 36% over the first quarter to $190 million. Devon is also quite popular amongst the other hedge funds we track. There were 32 hedge funds with positions in Devon at the end of last year. Devon has also shifted its focus from natural gas to oil and natural gas liquids. We think Devon is well positioned to benefit from the higher margins of liquids.  See chart below. 

Of course, just because BP Capital is natgas and alternative energy-heavy doesn’t mean that Boone Pickens’ fund is eschewing traditional oil firms. His fund picked up 188,000 shares of Valero Energy (VLO) last quarter, building up a $5 million stake in the country’s largest independent oil refiner. Valero has the capacity to process more than 2.8 million barrels of crude per day through its 14 refineries, in addition to a massive ethanol business and a 1,000-unit gas station business. See Chart below.

Pickens stuck to his strong suit in energy with new picks Encana (ECA), Calpine (CPN), Exelon (EXC), Valero (VLO), and NRG Energy (NRG). He also added to BP Plc (NYSE:BP), Devon Energy (NYSE: DVN), Transocean, and Weatherford International LTD. 

Other large positions in Pickens’ portfolio are BP Plc (BP), National Oilwell Varco Inc (NOV), and Transocean Ltd (RIG). Pickens did not increase or decrease his stakes in National Oilwell. He increased his BP position by 12% and his Transocean position by 47% over the first quarter. All of these stocks have attractive valuation levels, especially BP. It is currently trading at only 5.6x its 2013 earnings and has a dividend yield of 5.12%. 

BP is the most popular oil company among hedge funds, followed by Exxon Mobil. Value investor Seth Klarman had a $400+ million position in the stock at the end of the first quarter. Billionaires Ken Fisher and Ken Griffin are among the fund managers with large XOM positions. They both boosted their stakes in XOM during the first quarter. See chart below.

Posted courtesy of  Turn Key Oil.Com


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Forget "Libor Gate" .... Crude Oil Market Manipulation Is Far Worse

Since the Global Community all the sudden seems to be preoccupied with Market manipulation even though the authorities knew it was a problem for over 5 years with Libor Rate Fixing. It is high time authorities look at the Crude Oil market which has been manipulated for the last decade and all the sophisticated participants know it is rigged or artificially higher than the fundamentals of the economy dictate.

Consumers are paying an easy $35 dollars per barrel over what they would otherwise doll out for a barrel of oil, if fund managers didn`t use the benchmark futures contracts as their own personal ATMs.

Just a month ago Crude Oil WTI was $78 a barrel and today it is $93. Do you think the fundamentals changed one bit to merit this price swing? Nope! Supply levels are all at record highs around the world. Is it Iran? Please!! It is all about the money flows, nobody takes delivery anymore. Assets have become one big correlated risk trade.

Risk On, Risk Off. If the Dow is up a hundred, you can bet crude is up at least a dollar! It has nothing to do with fundamentals, inventory levels, supply disruptions, etc. It is all about fund flows.

Just click here to read the entire EconMatters article Forget "Libor Gate" .... Crude Oil Market Manipulation Is Far Worse


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Diamond Offshore Announces Second Quarter 2012 Results

Diamond Offshore Drilling, Inc. (NYSE:DO) today reported net income for the second quarter of 2012 of $201.5 million, or $1.45 per share on a diluted basis, compared with net income of $266.6 million, or $1.92 per share on a diluted basis, in the same period a year earlier. Revenues in the second quarter of 2012 were $738.2 million, compared with revenues of $889.5 million for the second quarter of 2011.

Results for the quarter included an after tax gain of approximately $50.5 million, or $0.36 per share, related to the sale of five jack up rigs. These transactions included the sale of the Ocean Sovereign for $38.5 million cash, in addition to the previously announced sales of the Ocean Heritage, Ocean Drake, Ocean Crusader and Ocean Champion. The reduction in the Company’s overall effective tax rate for the quarter, compared to the previous quarter, resulted primarily from the low effective tax rate associated with these sales transactions.

Since the first quarter of 2012, the Company put in place 14 new agreements that are expected to generate maximum total revenue of approximately $1.1 billion and 10 rig years of contract drilling backlog. Significant among these awarded contracts are the following:

* The Ocean Onyx was awarded a one year contract with Apache Deepwater LLC, a subsidiary of Apache Corporation, at a rate of $490,000 per day. The rig will work in the U.S. Gulf of Mexico upon its completion and delivery from the shipyard in 3Q of 2013.

* The Ocean Vanguard was extended with Statoil by 20 months to continue operating in the Norwegian sector of the North Sea into March of 2015. The new rate will be $450,000 per day, up from the previous rate of $352,000 per day.

* The Ocean Nomad was awarded a two year contract with Dana Petroleum to work in the U.K. North Sea until June of 2015. The rate will be $330,000 per day.

* The Ocean Guardian was extended with Shell for one year at a rate of $350,000 per day to continue working in the U.K. North Sea until July of 2015. The current rate is $263,000 per day.

Click here for the complete report

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Where are U.S Refineries Concentrated?

Of the more than 17.3 million barrels per day (bbl/d) of refinery capacity located in the United States as of January 1, 2012, about 44% (or nearly 7.7 million bbl/d) is located along the Gulf Coast. As the map below indicates, there are a number of refineries, some of them very large, situated along the coasts of Texas, Louisiana, Mississippi, and Alabama.

The U.S. Energy Information Administration's annual Refinery Capacity Report provides capacity information about individual refineries as of January 1 each year. The report identifies refineries that are operable at the beginning of each year. Operable refineries are further classified as either operating or idle. A refinery could be idle for a number of reasons including routine maintenance, unplanned maintenance, or market conditions.

The Refinery Capacity Report also identifies refineries that were new, reactivated, or shut down in the previous calendar year, as well as refineries that were sold in the previous calendar year. The report includes detailed information about the atmospheric crude oil distillation capacity at each refinery and the capacities for several important downstream refinery units that are used to process the products coming from the atmospheric crude oil distillation unit for further processing.

Many refineries are located close to crude oil production centers such as the Gulf Coast (which has significant volumes of crude oil produced both onshore and offshore); near destinations for importing crude oil; or near major population centers where much of the refineries' output will be needed (e.g., California and the areas near Philadelphia, New York City, and Chicago).

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The Passage of Time Leads to Profitability for Option Traders

From J.W. Jones at Options Trading Signals.......


J.W may not be talking crude oil today but we never miss a chance to hear what he is thinking about using options to play this market.

My most recent missive discussed some of the nuances of the options Greek, Delta which deals with the change in option price with regard to changes in price of the underlying. Today I would like to examine some of the practical details surrounding the second of the primal forces describing the behavior of options with regard to the passage of time. This second Greek is Theta.

As opposed to the value of a stock position which varies only in relation to changes in price, options are subject to changes in value as a result of the interplay of three factors: price of the underlying, time to expiration, and implied volatility.

Before we delve into describing the operational characteristics of Theta, we need to talk about the anatomy of an options price. Although it is quoted as a single bid / ask pair of quotes, the options price reflected on your quote screen actually consists of the sum of two components – the extrinsic and the intrinsic value of the option in question.

The intrinsic value of an option is that portion of the option that has value by virtue of the current stock price. For example, AAPL currently trades around $607 / share as I write this. The August 600 strike call trades at around $27.00. The intrinsic value portion of that premium is ($607-$600 = $7).

Intrinsic values of a given option can vary from essentially the entirety of the option value for a "deep in the money" option to $0 for an "out of the money option". In our AAPL example, the "out of the money" strike of $610 sells for $22 and contains $0 of intrinsic value.

Read the entire article > The Passage of Time Leads to Profitability for Option Traders

Why Devon Is Worth $83 Per Share

From guest blogger The Global Value Investor.....

Devon (DVN) is a energy company listed in S&P 500 and engages in exploration, development and production of oil and natural gas. Competitors include Chesapeake Energy Corporation (CHK), Encana Corporation (ECA) and EOG Resources (EOG). Devon has a market capitalization of $23.5 billion and revenues of $11.8 billion.

Risks refer to a price drop in the underlying commodities, particularly gas liquids as this article suggests. Now, missing analyst estimates is always a possibility, as is the decline in price of market traded commodities. Since I am long term oriented investor, I do not assign much weight to near term price fluctuations and suggest, investors use the current weakness in Devon, and stocks in general, to their advantage and increase their equity exposure.

Why I like Devon
From a value investor perspective, the stock is trading below intrinsic value. The company is achieving an operating margin of 44% and a decent, yet not spectacular, return on equity of 10.5%.

Investors sometimes point out the debt load of Devon which seems to be quite high at $11 billion dollars. However, they neglect the around $7 billion cash position on Devon's balance sheet, bringing its net debt position down to only $3.7 billion, or only 16% of current market value of equity. Factoring the cash position, Devon is significantly less leveraged than Chesapeake for example.

In fact, Devon's cash position allows for major capital expenditures for its US and Canadian operations that are going to drive EPS going forward. Currently, analysts estimate about 9.55% earnings growth per year over a 5 year period. EPS growth is expected to increase by over 30% over next year, which makes the investment proposition even more attractive.

Analysts estimate a 2013 EPS on average of $5.53. Applying a multiple of only 15x forward earnings (which is conservative because it still discounts Devon's strong cash flow prospects from its US operations, its high level of proven reserves and strong balance sheet) would yield an intrinsic value estimate of $82.95 - representing about 43% upside potential.

Chart traders may also find this natural gas play interesting. The stock has just rebounded from its lower bound trend canal at just below $55 and regained strength after testing its support level. The stock now sits just under the upper bound of its short term trend canal that it defined in April, when the stock started sliding downwards from its 52 week high.

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Crude Oils Have Different Quality Characteristics

Many types of crude oil are produced around the world. The market value of an individual crude stream reflects its quality characteristics. Two of the most important quality characteristics are density and sulfur content. Density ranges from light to heavy, while sulfur content is characterized as sweet or sour. The crude oils represented in the chart are a selection of some of the crude oils marketed in various parts of the world. There are some crude oils both below and above the API gravity range shown in the chart.

Source: U.S. Energy Information Administration, based on Energy Intelligence Group—International Crude Oil Market Han

Crude oils that are light (higher degrees of API gravity, or lower density) and sweet (low sulfur content) are usually priced higher than heavy, sour crude oils. This is partly because gasoline and diesel fuel, which typically sell at a significant premium to residual fuel oil and other "bottom of the barrel" products, can usually be more easily and cheaply produced using light, sweet crude oil.

The light sweet grades are desirable because they can be processed with far less sophisticated and energy intensive processes/refineries. The figure shows select crude types from around the world with their corresponding sulfur content and density characteristics.

The selected crude oils in the figure are not intended to be comprehensive of global crude production. Rather, they were grades selected for the recurrent and recently updated EIA report, "The Availability and Price of Petroleum and Petroleum Products Produced in Countries Other Than Iran."

Source: U.S. Energy Information Administration. 

Notes: Locations on the map are based on the pricing point, not necessarily the area of production. Locations are approximate. Points on the map are labeled by country and benchmark name. United States-Mars is an offshore drilling site in the Gulf of Mexico. WTI = West Texas Intermediate; LLS = Louisiana Light Sweet; FSU = Former Soviet Union; UAE = United Arab Emirates

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McMoran Exploration MMR Spikes on 2nd Quarter Earnings

McMoran Exploration, ticker MMR, spiked 12.4% today on the release of their second quarter earnings.

Here is just some of the highlights from the earnings......

* Ultra Deep Development Activities. In June 2012, successfully perforated 165 feet of Wilcox sands in the Davy Jones No.1 well with electric wireline casing guns. Commenced operations on July 13 to run production tubing and expect to conduct measurable flow test during the week of July 30.

* Completion and testing of Davy Jones No. 2 expected to commence following review of results from Davy Jones No. 1. As previously reported, Davy Jones No. 2 confirmed 120 net feet of pay in multiple Wilcox sands and also encountered 192 net feet of potential hydrocarbons in the Tuscaloosa and Lower Cretaceous carbonate sections. Davy Jones is located on a 20,000 acre structure that has multiple follow on drilling opportunities.

* Expect to submit development plans for Blackbeard East and Lafitte with Bureau of Safety and Environmental Enforcement (BSEE) in the third quarter of 2012. Positive drilling results on these structures have identified formations in the Miocene, Oligocene and Eocene.

* Ultra-Deep Exploration Activities, Blackbeard West No. 2, Drilling below 21,100 feet with a proposed total depth of 24,500 feet.

* Set liner after well encountered a high pressure gas flow immediately below the salt weld in May 2012.

* Targeting Miocene aged sands seen below the salt weld at Blackbeard East.

* If successful, completion could utilize conventional equipment and technologies.

* Lineham Creek onshore prospect, Drilling below 19,000 feet with a proposed total depth of 29,000 feet. Targeting Eocene/Paleocene objectives below the salt weld.

* Highlander onshore prospect, Acquired exploratory rights to 68,000 gross acre area located in Iberia, St. Martin, Assumption and Iberville Parishes, Louisiana.

* Expect to commence drilling exploratory well in the second half of 2012.

* Well has a proposed total depth of 30,000 feet and will target Eocene, Paleocene and Cretaceous objectives seen below the salt weld in the Davy Jones wells.

* Central Gulf of Mexico Lease Sale 216/222 Results, Apparent high bidder on 14 leases, of which six were sole bids and the remaining eight were made jointly with Chevron U.S.A. Inc.

* This new acreage would enhance McMoRan's industry leading Shelf sub-salt prospect inventory.

* Second quarter 2012 production averaged 140 MMcfe/d net to McMoRan, compared with 197 MMcfe/d in the second quarter of 2011.

* Average daily production for 2012 is expected to approximate 137 MMcfe/d net to McMoRan, including 135 MMcfe/d in third quarter 2012.

* Operating cash flows totaled $11.7 million for the second quarter of 2012, net of $9.1 million in working capital uses and $16.0 million in abandonment expenditures.

* Capital expenditures totaled $147.2 million in the second quarter of 2012.

* Cash at June 30, 2012 totaled $287.1 million.

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