Terrel L. Shields
Elite Member
- Joined
- May 2, 2002
- Professional Status
- Certified General Appraiser
- State
- Arkansas
Oil is triple its price months ago. Gasoline is up by double in the same time. This is a bubble. And it is driven by the same forces and the same investment bankers who gambled with your mortgage packaged in a neat little hedge fund.
http://www.ourfuture.org/blog-entry/lets-hear-debate-oil-speculators
And they will go down like a rock sooner or later. But that doesn't mean gasoline prices will. This madness is spending huge sums of money on companies who are funded by hedges and taking very large acreage positions all across America. These positions in land are basically bets being placed and backed by companies who are totally funded by the same folks who backed Enron and who backed CDOs of mortgages.
Here is the problem. The "old" oilmen are mostly gone. Speculators during the 1973-86 boom consisted of promoters who sold deals to individuals. No such small fry operations survives today. They create an energy hedge fund instead. Then they fund a company to buy leases which are then flipped to an oil company.
How do they know where to lease? They watch where Chesapeake is buying or where Devon is buying. Once Chesapeake Energy secures their first acre, they descend upon that county and region by the hordes. They have no scientific basis for leasing. They know CHK will buy them out for a profit. But sooner or later, CHK is gonna leave a bunch of them holding the bag and then the caterwauling will begin....hedge down, Wall street bank on the ropes again...Uncle Sam will bail the bank and blame the big oil companies that had nothing to do with it.
Yours truly apparently started a stampede in a Texas county after remarks I posted on a Royalty Owners site asking about activity in that area after a landowner called me that he had 2 companies bidding for his land. This in an area of very little activity. Suddenly the courthouses were full.
Obviously to old oil heads like me and intutive in most people if they give pause to think. What basis do people have to buy a lease? Well, in the old days a geologist developed an idea and once the company decided it was good, they sought out leases and followed up with more intensive research. Sometimes, they decide at the last minute to not proceed but usually, they have committed only a few thousand acres and a few $10s of thousands of dollars.
Today, long before the newbie geologists who work for oil companies now have had time to even get a clue, the company has accumulated 30,000 to perhaps a full 1,000,000 acres of land at prices to $500 an acre or more....all funded by investor money.
They aren't looking for 'real' deals. They are rarely even looking for oil. Its all about gas. And the reason is that these are "resource" plays. The gist is that improved technology of horizontal drilling which allows a company to auger sideways in a formation exposing long sections of that formation to the borehole are producing gas economically that could not be produced economically by drilling a vertical hole. Since this is trapped in formations that have little native porosity, huge fracturing (frack) jobs crack the formations open for more gas. The gas is barely economic and many wells make less than the cost to drill back. The few good ones have to pay for the less productive ones. The trick is that about 95% of wells will produce something...
The classic strat or structural trap of a sand formation is rarely pursued. Yet that is where the money is.
A friend of mine who has a small company told me today that they have a harder time making money now with geologically defensible prospects than 20 years ago. No one is interested in a traditional oil prospect. They want a "resource" play - tight sand or shale gas.
There is a huge amount of money chasing a very little gas on the continent. The only big finds will be off shore or Alaska. When the mullets finally figure out the resource plays don't pay off well, they are going to flee...flee so fast that they will take these hedge funded companies down like a rock.
http://www.ourfuture.org/blog-entry/lets-hear-debate-oil-speculators
And they will go down like a rock sooner or later. But that doesn't mean gasoline prices will. This madness is spending huge sums of money on companies who are funded by hedges and taking very large acreage positions all across America. These positions in land are basically bets being placed and backed by companies who are totally funded by the same folks who backed Enron and who backed CDOs of mortgages.
Here is the problem. The "old" oilmen are mostly gone. Speculators during the 1973-86 boom consisted of promoters who sold deals to individuals. No such small fry operations survives today. They create an energy hedge fund instead. Then they fund a company to buy leases which are then flipped to an oil company.
How do they know where to lease? They watch where Chesapeake is buying or where Devon is buying. Once Chesapeake Energy secures their first acre, they descend upon that county and region by the hordes. They have no scientific basis for leasing. They know CHK will buy them out for a profit. But sooner or later, CHK is gonna leave a bunch of them holding the bag and then the caterwauling will begin....hedge down, Wall street bank on the ropes again...Uncle Sam will bail the bank and blame the big oil companies that had nothing to do with it.
Yours truly apparently started a stampede in a Texas county after remarks I posted on a Royalty Owners site asking about activity in that area after a landowner called me that he had 2 companies bidding for his land. This in an area of very little activity. Suddenly the courthouses were full.
Obviously to old oil heads like me and intutive in most people if they give pause to think. What basis do people have to buy a lease? Well, in the old days a geologist developed an idea and once the company decided it was good, they sought out leases and followed up with more intensive research. Sometimes, they decide at the last minute to not proceed but usually, they have committed only a few thousand acres and a few $10s of thousands of dollars.
Today, long before the newbie geologists who work for oil companies now have had time to even get a clue, the company has accumulated 30,000 to perhaps a full 1,000,000 acres of land at prices to $500 an acre or more....all funded by investor money.
They aren't looking for 'real' deals. They are rarely even looking for oil. Its all about gas. And the reason is that these are "resource" plays. The gist is that improved technology of horizontal drilling which allows a company to auger sideways in a formation exposing long sections of that formation to the borehole are producing gas economically that could not be produced economically by drilling a vertical hole. Since this is trapped in formations that have little native porosity, huge fracturing (frack) jobs crack the formations open for more gas. The gas is barely economic and many wells make less than the cost to drill back. The few good ones have to pay for the less productive ones. The trick is that about 95% of wells will produce something...
The classic strat or structural trap of a sand formation is rarely pursued. Yet that is where the money is.
A friend of mine who has a small company told me today that they have a harder time making money now with geologically defensible prospects than 20 years ago. No one is interested in a traditional oil prospect. They want a "resource" play - tight sand or shale gas.
There is a huge amount of money chasing a very little gas on the continent. The only big finds will be off shore or Alaska. When the mullets finally figure out the resource plays don't pay off well, they are going to flee...flee so fast that they will take these hedge funded companies down like a rock.
