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Global oil crash slams into the Bakken

Capital Report New Mexico Blog Postings - Fri, 2016-01-15 14:37

BOOM, THEN BUST IN THE BAKKEN: The low global price of oil has finally hit the energy-rich Bakken shale formation.

By Rob Nikolewski

The Bakken shale formation has been the golden child of what’s been called the energy renaissance in oil and natural gas in North America, transforming North Dakota into one of the most productive regions in the world.

But even a golden child is subject to market forces.

At his monthly meeting with reporters on Friday, Lynn Helms, the director of the North Dakota Department of Mineral Resources on Friday cited a litany of bad news that reminded him of the 1977 Jackson Browne hit song, “Running on Empty.”

“Quite honestly, we’re at the bottom of the bottom of the tank in terms of cash flow and capital to maintain activity in the state of North Dakota,” Helms said.

Among the statistics:

  • The price of the sweet crude produced in the state has fallen all the way down to $20 a barrel, the lowest price since 2002 — well before the “shale revolution” transformed sleepy burghs like Williston into boom towns.
  • The state’s rig count has fallen to 49, the fewest since August 2009. The highest number was 218 in May 2012.
  • The number of permits issued in North Dakota has cratered in the space of just two months, going from 152 in October to 95 in December. The all-time high for the state was 370 in October 2012.

Click here to read all the statistics released Friday by the North Dakota Department of Mineral Resources in what the agency calls its monthly “Director’s Cut.”

All this comes against a backdrop of cascading prices in a glutted global oil market, fueled by fears of decreasing demand in China, the refusal of OPEC leader Saudi Arabia to reduce output, increased efficiency on the part of North American drillers and an estimated 1 million barrels per day of more oil reaching the market due to the lifting of economic sanctions on Iran.

In the summer of 2014, global prices were above $100 a barrel.

But on Friday, the price of Brent crude — the generally accepted international price — and the price of West Texas Intermediate crude — the price associated with oil produced in the U.S. — continued sliding, falling about 5 percent to below $30 a barrel.

Prices that low could spell the end of the Bakken oil rush.

“To sustain our current production at 1.2 million barrels [a month] we need $50 oil,” Helms said. “At $40 oil, it’s a very slow decline, maybe 10,000 barrels a day, but at sub-30, it’s significantly harder. We cannot sustain production at sub-30 prices.”

And that means as many as seven oil and gas companies in North Dakota will declare bankruptcy in the coming weeks.

“At these prices they could be running at the end of their financial rope,” Helms said. “Everybody is really scrambling at this point.”

Last month, the Moody’s ratings service issued a report warning that job losses in the state could face a “full-blown recession.”

“North Dakota’s oil boom has come to an end,” Moody’s economist Dan White wrote.

Despite all the bad news, there are some positive signs.

Production numbers are still robust. More oil was actually produced in November 2015 in North Dakota than in October, topping more than 1.176 million barrels a day. The increase is partly due to drilling contracts on federal and Native American land that are still to be completed.

And natural gas production in the state hit an all-time high in November 2015 —  1,667,994 million cubic feet per day.

Helms said investors are indicating prices will turn around.

“As soon as wells are going on the market, there are buyers lining up for them,” Helms said. “Not at anywhere near what folks were paying for acquisitions in 2013 or early 2014 but they’re not having any problem finding buyers.”

On Monday, Goldman Sachs made headlines by saying oil could drop to $20 a barrel but at the same time, the investment banking giant predicted a bull market for oil by the end of this year as the industry corrects the global oversupply.

Eytan Gilboa: “If you want to run from the Middle East, the Middle East runs after you”

Capital Report New Mexico Blog Postings - Thu, 2015-10-29 23:48

Eytan Gilboa speaking at the Santa Fe Council on International Relations, 10/29/15 — Photo by Rob Nikolewski

By Rob Nikolewski

It’s perhaps the most well-known phrase when discussing politics in the Middle East:

“The enemy of my enemy is my friend.”

But Eytan Gilboa, professor and academic chair of the Israel Public Diplomacy Forum, amends the old saying to read, “The enemy of my enemy is not my friend.”

“You have so many shifting alliances that you have to be in control,” Gilboa said Thursday night after giving a wide-ranging speech to the Santa Fe Council on International Relations that focused on U.S. interests and dilemmas in the Middle East that included analysis of what’s happening in Egypt, Syria, Iran, Iraq, Turkey as well as the metastasis of ISIS and the growing influence of Vladimir Putin’s Russia in the region.

“You have to have influence on how those alliances develop, how they can be used to improve your interests. This is true for Russia, this is true for Israel, this is true for the United States … Interests change all the time. Bismarck said, you don’t have permanent friends or permanent enemies. You have permanent interests. And whoever is happy to cooperate with you, then you go ahead with it.”

Gilboa, who writes opinion pieces in publications around the globe and appears on international television, told the audience of about 50 that “the U.S. has abandoned its leadership role in the region and left a huge void that has recently been filled by Iran and Russia.”

He criticized the Obama administration for “leading from behind” when it comes to foreign affairs. “This is problematic. Either you lead or you’re behind,” Gilboa said. “It’s an oxymoron.”

After the U.S. went into Afghanistan and Iraq under George W. Bush, Gilboa said he understood Obama’s desire to develop a foreign policy that went in the opposite direction but said the administration’s actions have created a vacuum that has destabilized an already fractious region and hasn’t kept the U.S. from getting tangled in events.

“If you want to run from the Middle East, the Middle East runs after you,” Gilboa said.

But he also added that Russia’s intervention could eventually backfire.

The Russians “have an inherently different agenda,” Gilboa told me after his speech. “Russia has (its) own interests and I think in the long run they will find themselves in conflict with Iran and Syria and Lebanon. This axis is in many ways artificial. Russia is very concerned about Iran but thinks it’s more important now to save (Syrian leader Bashar al-) Assad.”

Gilboa, who is also a senior research associate at the Begin-Sadat Center for Strategic Studies at Bar-Ilan University just outside of Tel Aviv, said the shifting relationships in the Middle East — such as the historically tense relationship between a now seemingly ascendant Shiite Iran and its Sunni rivals in Saudi Arabia — could lead to closer relations between unlikely counterparts.

“Right now, Israel and Saudi Arabia and some of the Persian Gulf countries are closely cooperating in all kinds of issues,” Gilboa said. “You don’t see it, it’s not visible, it’s under the table. But this is important because one day it could come on the table. Because once you create those kinds of contacts and cooperation, it may spill over into open relations.”

Here are some other quotes from Gilboa, who spoke for about 45 minutes and then took about a half-hour of questions:

“Obama decided to work against (former Egyptian leader Hosni) Mubarak. This was seen in the Middle East as a betrayal of a traditional power.”

“There’s a crisis primarily of trust between Obama and (current Egyptian president Abdel Fattah el-) Sisi.”

“The Iraqi army was dismantled and Islamic State was able to conquer large parts of Iraq.”

“The leaders of Iran said soon after the (nuclear agreement with the U.S. and six other countries) that they still see the United States as an enemy of Iran.”

On Russia intervention: “It’s been perceived in the region as a Russian success. It may not be the case, but the perception is a much more assertive Russia (than the U.S.).”

“The media focus has been on Islamic State but the Iran axis in Tehran, Damascus and Beirut may be more threatening.”

Eytan Gilboa: “Either you lead or you’re behind.” Photo by Rob Nikolewski

“I still think the United States is the super power in the world. The problem is the image of the United States as a declining power. The 20th century was called the American century but now the discussion is that this century is the post-American century. It’s a negative type of term but people use it all the time. This is not good. It creates images and expectations.”

“The Middle East is a big mess.”

“It seems the (Obama) administration does not know what to do or how to do it.”

“The United States cannot retreat from a region like the Middle East because what happens there affects what happens here.”

“The United States needs a more coherent policy, that’s more clear, so friends as well as enemies know where the United States is going.”

“The big difference between Russia and the United States is Russia says Assad is part of the solution. The United States says he’s part of the problem.”

“Henry Kissinger was the best Secretary of State you ever had.”

“The next president has to reassure allies … Now it’s better to be an enemy of the United States than an ally.”

“When it comes to military interventions, (countries) know how to begin them, but you often don’t know how to end them.”

On Iran ascending: “I don’t think Turkey will tolerate Persian imperialism for a very long time. So in time, while Iran will become stronger and more influential, it will more so inspire the emergence of competitors, especially those who want to establish their own empires. So you have Turkey, you have Islamic State and those (will) challenge Iran. Islamic State wants to establish a caliphate, like a Sunni imperial body. And I think they eventually will have to be destroyed because too many attack them all the time but they will continue to challenge Iran. So you will see Iran becoming stronger and stronger but because of that, it will trigger competition.”

On the Israeli-Palestinian conflict: “Palestinians don’t consider Judaism and Israel as a state. They consider it only a religion … Palestinians don’t say, two states for two peoples.”

“I think the two peoples (Israelis and Palestinians) need different kinds of leadership … This conflict will end. All conflicts come to an end … Israel agreed to a peace agreement with Egypt and with Jordan so it can be done.”

On the United Nations: “This is really a tragedy. The Security Council passed only one resolution against Syria but more than 20 against Israel. The U.N. is a corrupt organization … Don’t expect anything from the United Nations.”

On Turkey: “We see Turkey playing all kinds of contradictory roles … Turkey was more concerned about the Kurds than the Islamic State … (Turkey) is moving more into an Islamic regime.”

On the persecution of Christians in the Middle East:

“The irony is dictators (in the region) protected minority religious rights.”

“Christians have been leaving Lebanon. The majority of Lebanon used to be Christians. Not any more.”

“Nobody says anything about it, including the Pope. Not much is done about it … It’s disappearing from the region.”

When asked, can Saudi Arabia save the Saudis from themselves?:

“I don’t like this term. It’s a little bit arrogant … But there is a huge problem in Saudi Arabia.”

“Saudi Arabia becomes much less important when it comes to oil. The United States is much more self-sufficient. If oil becomes less important, Saudi Arabia becomes less important … The United States could have done better to encourage reforms” in the kingdom.


Listen to my interview with Gilboa here. It runs 9 minutes and 51 seconds:

document.createElement('audio'); http://www.capitolreportnewmexico.com/wp-content/uploads/2015/10/New-Recording-5.m4a





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