Proposed Energy Regulations Spell Trouble for Mineral Rights Owners

WASHINGTON D.C. -- A coalition of America’s oil and natural gas producers today released the findings of a major research initiative, which, among other things, concludes that enacting new federal environmental regulations - especially related to hydraulic fracturing - could have disastrous economic consequences and increase our dependence on foreign sources of oil.

“The scope of the Project BRIEF research project is unprecedented, and its findings are stark,” said Lee Fuller of the Independent Petroleum Association of America, one of the coalition organizers which represents the 5,000 smaller, independent producers that drill 90 percent of the nation’s wells.

“Implementing new federal regulations that threaten domestic energy production and increase costs - without creating any additional environmental benefits - is the wrong policy course for the country, and could cost thousands of hard-working Americans their jobs. That’s the bottom line in the BRIEF reports.”

America’s natural gas and oil producers provide massive untold contributions to the national economy, and play a critical role in ensuring that America’s energy needs are - and will continue to be - met. Saddling these producers with new, unnecessary, and ineffective environmental regulations could put them out of business, destroy jobs, and increase our U.S. dependence on foreign sources of energy. That’s especially true if lawmakers in Congress move forward with plans to target hydraulic fracturing, a safe and commonly used production technology that renders possible the efficient extraction of energy resources from shale rock.

“Energy is the lifeblood of our economy and the fuel that sustains and creates good jobs here at home,” Fuller continued. “The men and women who work for America’s roughly five thousand small and independent oil and natural gas producers are using 21st century technology to develop supplies safely, efficiently, and effectively - as their long record of achievement illustrates.

Potential new regulations now circling around Washington could:

* Force the closure of more than half of America’s oil wells and a third of our gas wells

* Cost the federal government $4 billion in revenue; state treasuries would lose $785 million

* Slash domestic oil production by 183,000 barrels per day; natural gas by 245 billion cubic feet per year


Source: http://www.energyindepth.org/news/

Energy News Update

Natural Gas Update

• Since Wednesday, April 1, natural gas spot prices declined at most market locations in the Lower 48 States, with decreases ranging up to 40 cents per million Btu (MMBtu). Prices at the Henry Hub fell by 6 cents per MMBtu, or about 2 percent, to $3.50.

• At the New York Mercantile Exchange (NYMEX), the futures contract for May delivery at the Henry Hub settled yesterday, April 8, at $3.63 per MMBtu, declining by 7 cents or about 2 percent during the report week.

• Natural gas in storage was 1,674 billion cubic feet (Bcf) as of April 3, which is about 23 percent above the 5-year average (2004-2008), following an implied net injection of 20 Bcf during the report week.

• The spot price for West Texas Intermediate (WTI) crude oil increased by $0.91 per barrel since Wednesday, April 1, to $49.37 per barrel or $8.51 per MMBtu.

Industry News

Denbury Resources

HOUSTON -- Twenty years after Gareth Roberts, a gregarious geologist, started Denbury Resources, a Plano, Texas-based oil and gas exploration and production company was added to the S&P 500 on April 1. Its main asset is the Jackson Dome, a primary source of naturally occurring carbon dioxide in Mississippi. The $4.25 billion market-cap company uses the CO2 to goose more crude out of old reservoirs, a technique called tertiary oil recovery.

Denbury’s prospects are partially dependent on Congress, which is expected to attempt to pass a carbon tax or institute a carbon cap and trade scheme that would motivate companies to capture some of the CO2 they produce. Denbury Resources ( DNR - news - people ) is building a $750 million CO2 pipeline from Jackson Dome to an oilfield near Houston that it bought in February for $200 million and plans to start flooding it with CO2 once the line is finished in 2010. Stretched along refinery row, one day Roberts foresees making money by using manmade CO2 for its oilfields and then sequestering it underground. The so-called "green pipeline" could link to diesel, synthetic natural gas and chemical plants along the Gulf that would capture CO2. Carbon capture gasification power plants have been proposed in the region, too, but financing and cost have proved significant hurdles.

"There are a tremendous amount of places that will emit CO2, so these sources will expand our ability to flood other fields," Roberts told Forbes in a particularly chipper interview last year. Oil was at $120 a barrel then, on its way up to $147 in July. By Christmas, oil dropped to $31. Oil closed Thursday at $52 a barrel.

Genesis Energy

HOUSTON--Genesis Energy, L.P. (AMEX:GEL) announced today that it will pay a regular quarterly distribution of $0.3375 per Common Unit for the quarter ended March 31, 2009. The distribution will be paid on May 15, 2009, to Common Unitholders of record at the close of business on May 4, 2009. This distribution represents an increase of approximately 13% over the first quarter 2008 quarterly distribution of $0.30 per unit. This is the fifteenth consecutive quarter in which Genesis has increased its quarterly distribution.

Evolution Petroleum

HOUSTON -- Evolution Petroleum Corporation (NYSE Euronext: EPM) today reported financial and operating results for the three month period ended December 31, 2008, the Company's second quarter of fiscal 2009 ("Q2-09").

Oil and gas revenues for Q2-09 increased 58% to $1.0 million from $652,600 for the three months ended December 31, 2007 ("Q2-08"). The increase in quarterly revenues was due to a 228% increase in sales volumes, partially offset by a 52% decline in blended oil and gas prices. The substantial increase in sales volumes for Q2-09 was the result of drilling operations in the Giddings Field in central Texas, which generated 100% of Q2-09 revenues, compared to a contribution of 15% of the revenues in Q2-08. The properties that comprised the remaining 85% of Q2-08 revenues were sold in March 2008. Sequentially, revenues for Q2-09 were 65% less than Q1-09 due to a 53% decrease in realized commodity prices and normal production declines.

For the six months of fiscal 2009, net cash provided by operating activities was $6.4 million, partly due to the collection of $3.6 million in recoverable income taxes from a prior year loss carry-back, compared to $1.3 million used in the first six months of fiscal 2008. Cash flow provided before changes in operating assets and liabilities ("Adjusted Cash provided or used", a non-GAAP measure reconciled below), was $1.2 million for the first six months of fiscal 2009, a substantial improvement over the $0.3 million of Adjusted Cash used during the first six months of fiscal 2008.

At December 31, 2008, working capital was $7.6 million, compared to $13.6 million at June 30, 2008. The decrease was mostly due to $6.8 million of capital expenditures used for oil and natural gas properties, or more than half of fiscal 2009 planned expenditures. Approximately $0.9 million was used to repurchase the Company's common stock. Throughout both periods, the Company remained debt free.

Energy Price Update

Natural Gas
This Week: $3.63
Last Week: $4.22,
Last Year: $9.57

Crude Oil
This Week: $52.38
Last Week: $51.06
Last Year: $107.58

Energy News for Mineral Interest Owners

Short Term Energy Outlook

• The global economic contraction continues to depress energy demand.

• The annual price of West Texas Intermediate (WTI) crude oil averaged $100 per barrel in 2008. The global economic slowdown is projected to cut these prices by more than half, to average $42 per barrel in 2009 and $53 in 2010—forecasts slightly lower than last month’s Outlook.

• The U.S. economic downturn is the principal cause for the decline in domestic natural gas consumption, particularly in the industrial sector—where it is projected to fall by 6 percent in 2009—which in turn has led to lower natural gas prices. The Henry Hub natural gas spot price is projected to decline from an average of $9.13 per thousand cubic feet (Mcf) in 2008 to about $4.70 per Mcf in 2009, but then increase in 2010 to an average of almost $5.90 per Mcf.

• Warmer temperatures moved into major population centers this report week, signaling the imminent end of winter and the corresponding reduction in demand related to space heating. Spot prices continued to decline, with the biggest decreases west of the Mississippi River. During the report week, the Henry Hub spot price decreased $0.17 per million Btu (MMBtu) to $3.75.

• At the New York Mercantile Exchange (NYMEX), futures prices also decreased as temperatures climbed higher this week. The futures contract for April delivery decreased by 11 cents per MMBtu on the week to $3.68, the lowest close for a near-month contract in about 6½ years.

• As of Friday, March 13, working gas in underground storage was 1,651 billion cubic feet (Bcf), which is 16 percent above the 5-year (2004-2008) average.

• The price of West Texas Intermediate (WTI) crude oil increased on the week by $5.66 per barrel to $48.12, or $8.30 per MMBtu. During the week, the WTI daily price reached as high as $48.97 per barrel, which was the highest price for WTI crude oil since December 1, 2008.

Industry News

Chevron

Mar. 24, 2009 - China National Petroleum Corporation (CNPC), China's largest integrated oil and gas company, halted talks with Chevron Corp about buying a 12.5% stake in an oilfield in the Gulf of Mexico, sources reported.

Last month, Chevron, the world's fourth largest non-governmental energy company, proposed selling a 12.5% stake in a Gulf of Mexico oil field to CNPC. However, the latter firm wanted a bigger stake, said an anonymous official at CNPC.

Big Foot, the oil field in question, is located in deep water about 362 kilometers south of New Orleans. It is currently 60% owned by Chevron, 27.5% owned by Norway's StatoilHydro ASA (STO) and 12.5% owned by Royal Dutch Shell PLC.

Chevron has no further plans to sell stakes in Big Foot, said a spokesman.

Reportedly, Chevron obtained exploration rights in a gas field in China's Sichuan Province in 2007.

Anadarko Petroleum Corp.

In recent years, Anadarko Petroleum Corp. has spent big to beef up and diversify its production portfolio in the U.S. and elsewhere. Now’s the time to bring exploration success to fruition by developing mega-projects already in the pipeline, CEO James Hackett said Tuesday.

Even if crude prices continue their recent upswing, he said, the best use of that additional cash is to reinvest it in exploration and production projects.

“We’ll make that decision as it comes,” Hackett said at the company’s annual meeting with analysts, noting no immediate plans for more acquisitions.

The Houston-based independent explorer and producer expects to increase production by up to 3 percent this year and spend a fifth of its reduced capital spending budget of $4 billion to $4.5 billion on exploration.
Fewer cuts

While Anadarko cut spending amid lower oil and natural gas prices and slumping demand in the global recession, other independents have slashed more.

Al Walker, Anadarko’s chief operating officer, said the company also is spending one-fifth of its budget on mega-projects, including finds in the Gulf of Mexico, offshore Ghana and offshore Brazil. Several major projects are slated to start producing from 2011 through 2013, Walker said.

Chevron also has a string of new projects scheduled to begin production in the coming years, executives from the San Ramon, Calif.-based oil major said at its annual analyst meeting, also Tuesday.

Occidental Petroleum

With steady growth over the last few years, something many of its competitors can't claim, Occidental Petroleum (NYSE:OXY) is a well-rounded player in the energy sector. Occidental is an interesting mix of mature domestic properties and higher-growth assets that give the company good production growth, despite its size.

Occidental Petroleum is a partially-integrated oil and gas company with operations in areas around the world, including North America, Libya, the Middle East and South America. The company also has a sizable chemicals and midstream business.

While most integrated oil companies seem to have problems growing production due to, if nothing else, sheer size, Occidental has grown production by a compound annual growth rate of 8.3% since 2005. This growth rate assumes 2009 production of 660,000 barrels of oil equivalent (BOE) production. The company's long-term production growth target is 5-8%.

Energy Price Update

Natural Gas

This Week: $4.22
Last Week: $3.93
Last Year: $9.06

Crude Oil

This Week: $51.06
Last Week: $46.25
Last Year: $101.84

Rig Count

U.S: 1,085
Rocky Mountain: 175
Appalachian Region: 77


Sources: Bloomberg News, Chron.com, Investopedia, Energy Information Administration

Investor advice for the current times.

Energy investor mentality - Money seems to be tiptoeing around…appropriately unwilling to make bold bets. Slow to bite/chase on current rally. Partly economic viewpoint (not sure we’re seeing anything more than bear market bounce in market/energy), partly job survival (calendar says 2009, but performance pressure/anxiety still around). Plenty of cash still on sidelines…but +40% off bottom seems like wrong time to aggressively re-engage in our view.

Oil Pricing - As oil goes, so goes energy stocks. $35/bbl looking like an overshoot to the downside. Oil is getting rebound help from OPEC cutting production, Middle East tension as Israel/Gaza conflict develops, Iran barks, Russia/Ukraine gas conflict (substitution to oil where possible). $50/bbl today I’d bet. Hard part is knowing what to trust. Is this a bear market rally - or just back toward where oil “should be”?

A Deal that Says Something - We like vote of confidence being shown by buyer George Kaiser (OK businessman; using private equity vehicle Argonaut; long relationship with Chesapeake’s Tom Ward). Kaiser well-regarded energy money maker.

Russian Shakedown – Ahh, all’s right in the world. Russia executing its annual winter shakedown on its former children. This won’t last long (2 days in 2006)... but it sure matters if you’re one of the ones getting the cold treatment. Dispute with Ukraine impacts Europe imports by about 8bcf/day. Short-term fear factor bolstering global natural gas and refined product/crude oil prices as Europe will have to do some fuel switching. Long-term bullish for LNG as Europe will seek alternatives to unreliable Russian (mafia) pipeline gas. Stay tuned.

The WSJ has an interesting article about private capital moving back into energy.

News for Energy Investors!

Today we begin a new blog to provide investors who are interested in energy investments with our insight into what is happening in the marketplace.

In this blog, we will comment regularly on what we see happening around the world that will be of interest to individuals seeking to profit from the opportunities presented by the ever-changing conditions. We welcome your comments on our views and will try to address your specific interests when they seem to have a wider audience.

Let us know what you think about our effort, and what topics you would like more information about...