Sunday, August 31, 2008

And Not A Fossil In Sight

Methane gas oozing up from Siberian seabed: Swedish researcher.

STOCKHOLM (AFP) — Methane, a potent greenhouse gas, is leaking from the permafrost under the Siberian seabed, a researcher on an international expedition in the region told Swedish daily Dagens Nyheter on Saturday.

"The permafrost now has small holes. We have found elevated levels of methane above the water surface and even more in the water just below. It is obvious that the source is the seabed," Oerjan Gustafsson, the Swedish leader of the International Siberian Shelf Study, told the newspaper.

The tests were carried out in the Laptev and east Siberian seas and used much more precise measuring equipment than previous studies, he said.

Thursday, August 28, 2008

Tsar Putin Tells The Left What They Want To Hear

The world's wealthiest man and the real CEO of Gazprom, Tsar Vladimir Vladimirovich Putin, of the KGB's 5th Directorate, and Don of the Uzbek heroin mafia, is telling the Left what they want to hear :Transcript: CNN interview with Vladimir Putin.

We have serious reasons to believe that there were U.S. citizens right in the combat zone. If that is the case, if that is confirmed, it is very bad. It is very dangerous; it is misguided policy

But, if that is so, these events could also have a U.S. domestic politics dimension.

If my suppositions are confirmed, then there are grounds to suspect that some people in the United States created this conflict deliberately in order to aggravate the situation and create a competitive advantage for one of the candidates for the U.S. presidency. And if that is the case, this is nothing but the use of the called administrative resource in domestic politics, in the worst possible way, one that leads to bloodshed. ...

I have said to you that if the presence of U.S. citizens in the zone of hostilities is confirmed, it would mean only one thing: that they could be there only at the direct instruction of their leaders. And if that is so, it means that in the combat zone there are U.S. citizens who are fulfilling their duties there. They can only do that under orders from their superiors, not on their own initiative.

Ordinary specialists, even if they train military personnel, must do it in training centers or on training grounds rather than in a combat zone.

I repeat: This requires further confirmation. I am quoting to you the reports of our military. Of course, I will seek further evidence from them.

Why are you surprised at my hypothesis, after all?
In case anyone is confused: Russia's Strike Shows The Power Of the Pipeline.

Wednesday, August 27, 2008

Magnitude 6.3 Earthquake At Lake Baikal

Is the world trying to tell us something? Is science itself trying to tell us something? Is God (gasp!) trying to tell us something? I'm referring to 2 temporally related events, the discovery of a third oil fissure in Lake Baikal's bedrock and the 6.3 Magnitude earthquake at Lake Baikal on the morning of Wednesday August 27th (Hat tip: Quantum Flux). Even if these 2 events seem to be causally unrelated and are merely Jungian "synchronicity", they still point us to the same conclusion, namely the conclusion reached by Thomas Gold in Chapter 8 ("Rethinking Earthquakes") of The Deep Hot Biosphere: "Earthquakes can best be understood as outgassing phenomena, within the framework of the deep-earth gas theory."

Tuesday, August 26, 2008

Third Oil Fissure Discovered In Lake Baikal

Scientists find more oil fissures in Lake Baikal's bedrock.

NOVOSIBIRSK, August 26 (RIA Novosti) - Scientists have found two more cracks in the bedrock of Siberia's Lake Baikal from which crude oil seeps into the lake, bringing the total to three, an expedition member said on Tuesday.

The second stage of a major expedition to explore the depths of the lake began on August 20.

Arnold Tulokhonov, director of the Baikal Institute of Nature Management at the Russian Academy of Sciences, said: "The new oil fissures were discovered along the east coast of Lake Baikal, at a depth of around 600 meters (1,970 feet)."

He said that during the ongoing expedition, the Mir-1 and Mir-2 mini-submarines have enabled scientists to take samples of the oil at source for the first time.

During the current stage, set to run until the beginning of September, the mini-subs are exploring Talanka Bay near the mouth of the Selenga River on the southeastern shore.

An oil source was found during the first stage of the expedition, conducted from July 29 to August 18 in the deepest part of the lake.

Part of the ongoing research is focused on examining the processes through which microbes in the world's deepest lake digest petroleum that naturally enters the water.

Dr. Mikhail Grachyov, an expert on the molecular evolution of Baikal's animal and plant life, said earlier that the first oil source was found at a depth of around 850 meters (2,800 feet) to the south of Barguzin Bay, and that samples of the oil had been taken.

"It turns out that a large number of organisms live in this oil. This will require a huge amount of study," he said.

"We will study everything - the oil, the means through which it is broken down, the microbes, physical characteristics, and so on. This is necessary both for fundamental science and for practical goals."

He also said research into Baikal's oil may provide new insights into the origins of petroleum.

The consensus view among scientists is that crude oil is formed by decayed plant matter accumulating on the bed of a body of water and being subjected to heat and compression under heavy sediment over a period of millions of years.

However, several Russian scientists going back as far as Dmitry Mendeleyev have suggested an 'abiogenic hypothesis,' according to which petroleum was formed from carbon deposits originating deep in the Earth's mantle.
I first posted about this here.

Natural Gas Price Falls On Infinite Supply

Natural gas prices fall as shale yields bounty. (Hat tip: John A. Bailo)

HOUSTON — American natural-gas production is rising at a clip not seen in half a century, pushing down prices of the fuel and reversing conventional wisdom that domestic gas fields were in irreversible decline.

Monday, August 25, 2008

God and Infinite Oil

I love this kind of post because nothing upsets the doomers more than throwing a little God into the infinite hydrocarbon mix: What God Thinks About Anthropogenic Global Warming.

One would think God would know of the alleged shortage of oil, and He would devise a way oil could be produced almost indefinitely. The 1970’s scientific theory called Hubbert’s Peak Oil predicted we would exhaust oil reserves by 2003. But counter intuitively, many oil fields have reported increased production.

Evidence for “abiotic” oil (Science) has been popping up in some strange places. “Abiotic” means formation of oil without biological decay over millions of years. Evidence such as finding oil at 30,000 feet, far below 18,000 feet where organic matter disappears; and some inoperative wells that are pumping significantly more barrels than earlier. But the oft-overlooked “coup-de-grace”: the amount of oil pumped to date, cannot be accounted for by matter from ancient forests and dinosaurs.

Oil from numerous sources has been verified to partially be from a geologically different age than the original sources. Scientists are finding the carbon-13 isotope associated with “abiotic” origin together with carbon-12 associated with biotic origin. Remarkably, as drilling techniques are allowing for deeper drilling, huge quantities of oil deposits are being discovered. Lately, huge finds are in the territories of Canada, Mexico, Bolivia, Venezuela, Brazil, Kazakhstan, Russia, and the US.

Sunday, August 24, 2008

Jim Rogers Says Oil To Rise For Next Decade

The bull case: Jim Rogers Says Oil Price Rise to Continue for Decade.

Aug. 23 (Bloomberg) -- Jim Rogers, who in April 2006 correctly forecast the oil price would reach $100 a barrel and gold $1,000 an ounce, said he expects oil to continue to increase over the next decade.

``Over the course of time, it's a bull market,'' the chairman of Rogers Holdings said today after an investor conference in Kuala Lumpur. While the oil price could fall to $75 or rise to $175, the market will continue to increase over the next 10 years, he said.

Crude oil futures have dropped 22 percent since touching $147.27 a barrel on July 11, the highest since trading began in 1983. Oil slid more than $6 a barrel yesterday, falling the most in percentage terms since December 2004, as the rising dollar curbed demand for commodities as an inflation hedge and BP Plc restored shipments on a Caspian Sea pipeline through the former Soviet republic of Georgia to Turkey.
Also see here: Why oil won't fall below $100

Many analysts say oil is unlikely to go much lower than $100 a barrel, and it has to do with the rising cost of production.

The overall cost to produce oil has gone up, especially oil from tough to reach places like Canada's tar sands and the deep water Gulf of Mexico.

These areas require massive investment and materials to produce oil and that expense has risen as the price of commodities surge. And while they represent a small fraction of total worldwide production, they're important because some analysts believe prices won't fall below the cost of the most expensive barrel of oil.

Oil May Fall To $80

The bear case: Oil May Fall to $80, Hedge-Fund Manager Haugerud Says.

Aug. 22 (Bloomberg) -- Crude oil may tumble to $80 a barrel within 12 months as supplies of alternative energy increase, while grain prices may climb on emerging-market demand, said Renee Haugerud, whose hedge fund gained 18 percent this year.

The surge in oil has been ``overdone'' by investors seeking holdings in raw materials through the Standard & Poor's GSCI Index, a commodity gauge weighted toward energy, she said. Industrial metals also rose too high, she said.

``They were the sexy commodities,'' Haugerud, founder of the $2.5 billion commodities hedge-fund firm Galtere Ltd., said in an Aug. 19 interview in her New York office. ``Everyone wanted to get long an asset class via the GSCI, and let's face it, the GSCI is crude.''

Grains including corn and wheat may double as wealthier populations in nations such as Brazil and Russia eat more meat, boosting demand for livestock feed, Haugerud said. New energy sources such as solar power and ethanol will stall a recovery in oil prices, she said.

Haugerud's flagship fund has surged almost fivefold since starting in 1999. The long-term performance and this year's return were outlined in a letter sent to an investor. She declined to comment on her fund's returns.

Oil has slumped 22 percent from a record $147.27 on July 11. Futures for October delivery tumbled $6.59 to $114.59 today on the New York Mercantile Exchange. The 5.9 percent drop was the most since December 2004.
Also see here.

Thursday, August 21, 2008

Oil's Biggest Weekly Gain Since June

Oil heads for biggest weekly gain since June

Crude oil is headed for its biggest weekly increase in more than two months after rising almost 5% yesterday as the dollar slumped, prompting investors to buy commodities.

Oil is poised for its first weekly gain in two weeks and its largest increase since June 6. Energy and metals futures climbed as the US currency fell the most against the euro in more than a month. An August 20 missile-shield agreement between the US and Poland has ''real anti-Russian potential,'' the Foreign Ministry said in Russia, the second-biggest oil producer.

''Gains were pretty broad based across the commodity space,'' said Gerard Burg, an energy and minerals economist with National Australia Bank. ''The US dollar fell which magnified the upward trend. It's a big move but we've seen this level of volatility and it's once again a symptom of how tight the market remains at this time.''

Crude oil for October delivery was at $US121.43 a barrel, down 25 cents, in afternoon trading on the New York Mercantile Exchange. Yesterday, the contract surged $US5.62, or 4.9%, to settle at $US121.18 a barrel, the biggest increase since June 6. Futures are down 18% from a record $US147.27 reached on July 11. Prices are up 75% from a year ago.
And as for commodities in general: Commodities head for biggest weekly jump in 33 years

Commodities headed for their biggest weekly gain in 33 years as oil traded near a three-week high and a weakening US dollar revived demand for raw materials as alternative assets.

The Reuters/Jefferies CRB Index of 19 commodities soared 3.7% to 405.92 in New York yesterday. A settlement at that level today would mark a 6.2% gain for the week, the most since July 1975.

Tuesday, August 19, 2008

Soros Loads Up Petrobras

Petrobras: Buy and Sit Tight Like Soros.

As reported at, George Soros purchased an $811 million stake in Petroleo Brasileiro SA (PBR), (better known as Petrobras) in Q2. The Brazilian oil company is now the largest holding in his fund, amounting to 22 percent of the total $3.68 billion of stocks and American depositary receipts held by Soros Fund Management LLC. Of course, crude oil has taken a dive in the last month, helping to push Petrobras down 28 percent since his purchase and costing Soros $235 million. I guess we would all like to be in a position to lose nearly a quarter billion dollars and still be "OK". Then again, if Soros holds tight, he could end up doing well.

While the timing for Soros may not be perfect for this trade, a number of other people are also betting on Petrobras. As quoted by Ricardo Kobayashi from UBS Pactual SA: "Petrobras has something that other oil companies don't have: oil - lots of it and they're going to find more. If you can buy now and hang on, if you have the staying power, it's great.''

As written in a previous post , estimates have the Tupi-area fields in Brazil costing between $200-$240 billion to develop, in part due to deepwater rigs causing $600,000 a day to rent, forcing Petrobras to look for capital. Yet the cost might eventually be worth it given that the offshore fields are expected to hold up to 50 billion barrels. Petrobras has already leased approximately 80% of the deepest-drilling offshore rigs (see post). The company is also buying new rigs and production platforms.

If oil prices stabilize, companies to consider would be Transocean (RIG), Nobel (NE), and Nabors (NBR), each of which have sold off with lower crude prices, but each of which are also near some key support levels. For longer-term investment, some capital-intensive E&P oil companies such as Exxon Mobil (XOM) should do well, even without direct investment. Of course, this all requires crude oil to stabilize, probably stay over $100 a barrel, and potentially continue its march higher. If not, you may be experiencing the short-term returns of Soros, and not necessarily the longer-term ones.
And I'm not even going to make any Communist jokes about Soros or Lula.

Thursday, August 14, 2008

Afraid of Reality

Raymond J. Learsy asks: Why Does Abiotic Oil Theory Ignite Peak Oil Theorists' Fulminations?? I think the answer is obvious. (Hat tip: Anaconda)

Abiotic Oil, calling into question the overarching theory that the origins of fossil fuel are of biological/organic origin was touched upon in my previous post, "Oil's Big Dirty Secret as Producers Rake in Hundreds of Billions," 04.12.08.

The comments to the post were wide ranging and the Peak Oil missionaries were apoplectic that one dared question their gospel intoning the sanctity of the biological origin of fossil fuels and its rapidly diminishing availability. Clearly the words "Abiotic Oil" stir up heated passions and clear concern among those in the oil patch who would be impacted were the theory to take hold. My post highlighted the issue without offering an opinion on Abiotic Oil Theory's viability. It did however attempt to outline the reasons why the oil industry would happily not have the concept of "Abiotic Oil" taken with any grain of seriousness.

Wednesday, August 13, 2008

OPEC Production At 48 Year High

Opec pushes output to record level (Hat tip: John A. Bailo)

Opec last month pushed its production to the highest level in its 48-year history even as demand was slipping in the US and Europe, the International Energy Agency (IEA) said on Tuesday.

The combination of surplus supply and weaker demand has pushed oil prices to $113.50 a barrel, down 24 per cent in the past month and the lowest level since late April.

Tuesday, August 12, 2008

Oil's Big Secret

Actually it's not so secret and I wouldn't call it dirty.

Raymond J. Learsy: Oil's Big Dirty Secret as Producers Rake in Hundreds of Billions.

But wait, suppose, just suppose they are wrong and willfully misleading us. That oil's origins are not, to repeat, not biological, according to the gospel we have been taught to believe. That in effect oil originates from deep carbon deposits dating to the very beginnings of the Earth's formation in quantities vastly greater than commonly thought. The very presence of methane in the solar system is cited as one of the key underpinnings of this theory's seriousness. Then by seepage through the earth's mantle, Abiotic oil becomes in essence a renewing resource migrating toward the Earth's crust until it escapes to the surface (i.e. Canada's tar sands as theorized by some) or trapped by impermeable strata forming petroleum reservoirs.

Much research has been done on Abiotic Theory by a bevy of Russian and Ukranian geologists starting during the Soviet era, most especially by Nikolai Alexandrovich Kurdryavtsev who proposed the modern Abiotic Theory of Petroleum in 1951.

Among Kurdryavtsev's colleagues was Professor V.A. Krayushkin, chair of the Dept. of Petroleum Exploration at the Ukranian Academy of Sciences and leader of the DneiperDonets Basin Exploration project in the Ukraine, an area that has yielded eleven giant oil fields holding at least 65 billion barrels of oil and some 100 billion cubic meters of recoverable gas, comparable to the North Slope of Alaska . The area had previously been designated as having no potential for petroleum production whatsoever. Exploration, according to a paper by Richard Heinberg, was conducted entirely according to the "perspective of the modern Russian Ukranian theory of abyssal, abiotic petroleum origins".

Question, how often have you heard of M. King Hubbert and his peak oil theories dating to 1949 and how often have you heard of Kurdryavtsev or Krayushkin? Certainly, for those having some interest in Peak Oil jargon, Hubbert's name comes up endlessly, while Kurdryavtsev and Krayushkin probably never, or rarely if at all. But then again Hubbert was Chief Consultant for Shell Oil's Production Research Division and his theories served their Marketing Department well. His predictions first made in 1949 that the fossil fuel era would be of very short duration made him, with help of the fine hand of oil industry flacks, probably the best known geophysicist of his time.

Monday, August 11, 2008

Petrobras Q2 Results

Brazil's Petrobras Posts Record Profit.

SAO PAULO -(Dow Jones)- Aided by higher oil and oil-product prices and a break on federal taxes, Brazilian state-run energy giant Petrobras (PBR) on Monday posted a new all-time record for quarterly profits.

Second-quarter profits rose 29% from a year ago to 8.78 billion reals ($5.41 billion). Second quarter revenues were up 30% from a year ago to BRL54.57 billion. The company released its quarterly figures in BR GAAP terms.

In a statement, the company, also known as Petroleo Brasileiro SA, attributed the rise in profits and revenues to higher international and domestic oil and oil-product prices, among other factors.

Saturday, August 9, 2008

Refutation of Geoffrey P. Glasby

Geoffrey P. Glasby is a so-called "chemist" at the University of Göttingen. In 2006, while at the University of Tokyo, he wrote an ontological (no offense to Ontologists) critique of reality in Resource Geology titled Abiogenic Hydrocarbons: An Historical Overview (also available here if you don't have Adobe).

There are so many factual errors in this paper that I assert it's impossible that it was peer reviewed and, if it was in fact peer reviewed, I would like to know the names of the illiterates who did so.

I have therefore decided to list the many factual errors of Geoffrey P. Glasby using his own words.

Factual error #1)

Thomas Gold's theory involves...the formation of higher hydrocarbons from methane in the upper layers of the Earth's crust.
That is incorrect. First of all it's not Thomas Gold's theory. More importantly, Thomas Gold's so-called "theory" involves the formation of higher hydrocarbons in the mantle. As Thomas Gold wrote in 1993, "Advances in high-pressure thermodynamics have shown that the pressure-temperature regime of the Earth would allow hydrocarbon molecules to be formed and to survive between the surface and a depth of 100 to 300 km." A depth of 100 to 300 km is clearly not in the crust. On the contrary, and unfortunately for Mr. Glasby, it is biogenic theory which states hydrocarbons are formed in the earth's crust which Glasby notes in the Abstract, is "not possible on thermodynamic grounds". Glasby writes, and I quote, "Formation of higher hydrocarbons in the upper layers of the Earth's crust occurs only as the result of Fischer-Tropsch-type reactions in the presence of hydrogen gas but is otherwise not possible on thermodynamic grounds." Therefore biogenic theory is invalid.

Factual error #2)

The theories of...N.A. Kudryavtsev and V.A. Porfir'ev...were too abstract and geologically too vague to be of practical use.
In what way is drilling past 15,000 feet and into igneous rock "too abstract and too vague to be of practical use"? This claim is laughable.

Factual error #3)

The Soviet theory of deep, abiotic petroleum origins was never a driving force in the major oil fields as it's proponents claim.
So why did they drill past 15,000 feet TVD and into igneous rock?

Factual error #4)

The upper mantle is too oxidizing to permit methane from being the dominant form of carbon to be there.
How does Mr. Glasby know that the mantle is too oxidizing for methane to form there? Has he been to the mantle lately? Glasby offers no citation for this claim and, in fact, he cites precisely the opposite (Vernadsky 1933). However no abiotic theorist ever claimed that methane is the dominant form of carbon in the mantle.

Factual error #5)

These data show that the majority of the world's oil and gas is very young with 50% generated since the Oligocene.
However, Klemme and Ulmishek actually concluded "The concentration of [so-called] source rocks in these several stratigraphic intervals demonstrates uneven distribution of [so-called] source rocks in time." The reality is there is no such thing as so-called source rocks.

"The elemental distribution in the crude oil from all studied deposits does not match such of any known crustal rock." -- Kirill S. Ivanov, 2007.

Factual error #6)

The mantle is too oxidizing for methane to form there in abundance.
If the mantle is too oxidizing for methane to form in the mantle, how does Mr. Glasby propose that methane forms in the earth's crust? Oxygen is the most abundant element in the earths crust and comprises 46.6% of the earth's crust by mass. Once again Glasby offers no citation for the claim that oxidation is only possible in the earth's mantle but not in the earth's crust. In fact, he cited precisely the opposite (Vernadsky 1933) and I quote Glasby directly "with increasing depth in the earth's crust the oxygen content would decrease to zero, and the content of hydrogen would increase leading to the formation of hydrocarbons at depth." For the record, methane in the atmosphere has a half life of 7 years. More importantly, according to Oleg Sorokhtin, Ph.D.(Physics and Mathematics), of the Russian Academy of Sciences' Institute of Oceanology, formation of methane REQUIRES oxidation:

Oleg Sorokhtin also said that abiogenous methane is likely to be found on the lake bed. The gas evolves from oxidation of material from the earth's interior rising through the split between continental plates. Mantle rock contains liquid iron, causing the emissions of methane, which is involved in the carbon cycle.
Furthermore the National Academy of Sciences would, yet again, seem to disagree with Mr. Glasby: Generation of methane in the Earth's mantle: In situ high pressure–temperature measurements of carbonate reduction.

"I don't think anybody's arguing that gas couldn't be generated from the mantle." -- Barry J. Katz, 2002

Thursday, August 7, 2008

Abiotic Oil In Lake Baikal's Bedrock

Russian scientists have discovered oil seeping from bedrock aka volcanic igneous rock. This means there is no sedimentary so-called "source rock": Scientists find oil fissure in Lake Baikal's bedrock

NOVOSIBIRSK, August 7 (RIA Novosti) - Scientists have located a crack in the bedrock of Siberia's Lake Baikal from which crude oil seeps into the lake, and have discovered a range of organisms living in the oil, an expedition member said on Thursday.

Researchers, who are currently examining the processes through which microbes in the world's deepest lake digest petroleum that naturally enters the water, conducted deep water dives on Monday and Wednesday to locate the oil source.

Dr. Mikhail Grachyov, an expert on the molecular evolution of Baikal's animal and plant life, said the source was found at a depth of around 850 meters (2,800 feet) to the south of Barguzin Bay, and that samples of the oil had been taken.

"It turns out that a large number of organisms live in this oil. This will require a huge amount of study," he told RIA Novosti.

"We will study everything - the oil, the means through which it is broken down, the microbes, physical characteristics, and so on. This is necessary both for fundamental science and for practical goals."

Research into Baikal's oil may provide new insights into the origins of petroleum, he said.

The consensus view among scientists is that crude oil is formed by decayed plant matter accumulating on the bed of a body of water and being subjected to heat and compression under heavy sediment over a period of millions of years.

However, several Russian scientists going back as far as Dmitry Mendeleyev have suggested an 'abiogenic hypothesis,' according to which petroleum was formed from carbon deposits originating deep in the Earth's mantle.

Baikal is the world's oldest lake, with an age estimated at 25 million years. Scientists taking part in the current expedition, during which 160 deep water dives are planned over the next two years, have stressed that research is not aimed at exploiting possible oil and gas reserves, but at protecting Baikal's unique ecosystem. ...

Baikal, a UNESCO World Heritage site, holds around 20% of the planet's freshwater.

Wednesday, August 6, 2008

Geological Anomaly In Ventura County

The Southern California oil fields are located along the San Andreas Fault line which allows hydrocarbons to seep up from the crystalline basement: Southern California Hot Spot Hits 812 Degrees, Baffles Experts. (Hat tip: John A. Bailo)

The area has recorded high temperatures at least five times since 1987, Allen King, a retired geologist with the U.S. Forest Service told the newspaper.

The hot spot is located in steep, rugged terrain a few miles north of the town of Fillmore on land owned by the U.S. Bureau of Land Management and leased by Seneca Resources Corp.

Officials who are familiar with the patch of land, which is near the large Sespe Oil Field, have come up with a few theories as to why the ground soared to 812 degrees fahrenheit on August 1.

One theory is that natural hydrocarbons, such as oil or gas, are burning deep in the earth and seeping out through cracks in the area, causing the surface to rapidly heat and generate smoke.

According to the Star, Allen King, a former geologist with the U.S. Forest Service recently stuck a thermometer into the ground and got a reading of 550 degrees — so hot that it melted the glue holding the sole of his boots together.

Transocean Q2 Results

Transocean Inc. Reports Second Quarter 2008 Financial Results.

HOUSTON--(BUSINESS WIRE)--Aug. 6, 2008--Transocean Inc. (NYSE:RIG) today reported net income for the three months ended June 30, 2008 of $1.107 billion, or $3.45 per diluted share, compared to net income of $549 million, or $2.63 per diluted share for the three months ended June 30, 2007. Revenues for the second quarter of 2008 were $3.102 billion compared to $1.434 billion for the second quarter of 2007.

For the six months ended June 30, 2008, net income totaled $2.296 billion, or $7.15 per diluted share, on revenues of $6.212 billion. For the same period last year, net income totaled $1.102 billion, or $5.24 per diluted share, on revenues of $2.762 billion.

And, our next question comes from Lee Cooperman with Omega Advisors. Please go ahead.

Lee Cooperman

Thank you. Just, I apologize if I ask a question that was redundant, but I had to leave the call for a few minutes. I have two questions. Your contract back, I’m sorry, okay, You contract backlog is now $40.7 billion and our estimate that the cash margin is about $24.4 billion. If we back out the $4 billion in remaining newbuild CapEx, that leaves about $20.4 billion, which now I guess compares to debt of around $15.3 billion. So, this issue of returning money to shareholders I assume is going to be an issue that will be discussed sometime this year. Is that a reasonable view?

Bob Long

I think it’s reasonable to say that it will be discussed this year. We are already thinking hard about what we are going to do there, Lee. On your numbers, I think you are a little bit high with your net and I suspect what you have left out is cash taxes and some allocated local costs.

Lee Cooperman

Got, you. Okay. But in principle this is a possible this year type of discussion?

Bob Long

It’s definitely a this year type of discussion. I won’t promise you that we will make a decision to do anything this year, but.

Lee Cooperman

My only promise I want from you is that we don’t buy back overvalued stock. If we go the route of stock repurchase, we want to make sure that it’s undervalued.

Bob Long


Lee Cooperman

Okay. Now, the second question, when we first met three or four years ago we talked about the issues that would determine the outlook for the Company, and some of the issues. We talked about the importance of the commodity price and you had said back then that deepwater drilling was economic down to prices as low as $35 a barrel.

Second, you said important for prospectivity, in other words that if we don’t find stuff the customer is not going to come back and keep drilling. Third was the risk of over builds. I’m just wondering how you would see these three issues today in other deepwater is economic down to prices as low as X given the inflation in oil country goods, second how is prospectivity lined up, in my own advantage point it looks like the only place that’s undiscovered -- deposits exist is deepwater offshore, which is terrific for us. Third, this financial environment we are in would seem to suggest that overbuilding, if it’s a risk, would be a risk that is being pushed out somewhat because of the constrained credit environment. But I would love your inputs on these three items as you gave several years ago.

Bob Long

Okay, I will take a stab at it. But on the price of oil that will justify deepwater, it’s difficult to say based on some input from a few operators that we hear consistently. My guess would be -- and it’s obviously a total guess -- is that $35 a barrel range is probably up now to the $60 or $65 a barrel range, maybe higher in certain areas. But I’m guessing its somewhat in that range. On the prospectivity its seems to me and this maybe the result of the escalation of the old prices that prospectivity has not been problem that potentially it could have been, in part they also be due to technology, but clearly the success rate that the operators are having, particularly in deepwater, has been significant. There is a big backlog of development and appraisal opportunities out there. There is also a growing need for additional deepwater exploratory efforts. I think many of the operators have been concerned about the inability to get drilling capacity to dedicate to an exploration program. So I don’t think that prospectivity is going to be an issue in any kind of a near-term future. On overbuilding, I think that we have seen such an increase in demand that despite the fact that we have had a lot of new construction in the floater business, 70% or more of that is already contracted. I am very confident that the rest of the speculative newbuilds, given the demand we see out there, is going to get contracted. And given the shipyard delivery times now, I think the last deepwater rig that was ordered has a 2012 delivery. You are not going to see much additional capacity come into this business for the next four years. So I think your characterization that some of these risks have been pushed out is accurate.

Lee Cooperman

Thank you very much. Let me just take a moment to thank you and your whole team for doing such a wonderful job for the shareholders.

Tuesday, August 5, 2008

The Argument For Offshore Drilling

The New York Sun's Liz Peek: The Argument for Offshore Drilling. (Hat tip: Bill)

Last Friday, the confrontation on this issue turned the House of Representatives into a circus. The Democrats voted to adjourn the session for the August recess, but Republicans refused to depart, continuing to call for a vote on offshore drilling even as the leadership turned off the lights and microphones, plunging the chamber into darkness. C-SPAN, bereft of power, didn't cover the fracas, which went on for several hours. Really, is it any wonder that Congress's approval ratings are so dismal?

Ms. Pelosi's disdain for offshore drilling (and for the American people, it would seem), stems from her view that granting oil companies the opportunity to explore for oil on federal lands is tantamount to a giveaway. She also seems to feel that the effort would, in any event, prove futile.

As to the first concern, it is a puzzle. Who else is going to drill for oil on our offshore lands? Are we to punish the oil industry for reaping huge profits by not allowing them to reinvest in domestic prospects? Is it really better to encourage them to take their cash flow overseas and look for oil in foreign countries than to seek reserves here? Would we rather invite oil companies backed by President Chavez or Prime Minister Putin to drill offshore in America?

Moving on, let us look at the opportunity that exists offshore. The American Petroleum Institute says that because of the leasing ban, the oil industry has not been able to use current technology to estimate reserves on the 85% of the lower 48 outer continental shelves that have been off limits. The U.S. Minerals Management Service estimates that these lands contain 18 billion barrels of oil and 76.5 trillion cubic feet of natural gas. (Including Alaska, the figure jumps to 86 billion barrels of oil and 420 trillion cubic feet of natural gas, representing 60% of the oil and 40% of the natural gas yet to be discovered.)

The API reckons the lower 48 figure to be conservative, since over time initial estimates of recoverable reserves have tended to be understated, and to increase as technology improves. For instance, reserves at Prudhoe Bay in Alaska were initially thought to be 7 to 9 billion barrels; by the end of 2005 the region had produced 15 billion barrels.

Monday, August 4, 2008

Sitting On A Fortune

Mike Snyder of the Houston Chronicle: West Texans jaded instead of giddy during this oil boom

KERMIT — The lights on the rigs pierce the black West Texas night, illuminating mesquite shrubs and jack rabbits scampering across the flat landscape. The glow sends a reassuring message: Good times have returned to the oil patch.

Pump jacks nod vigorously alongside the highway. Fat royalty checks arrive monthly in the mailboxes of ranchers and other landowners. Teachers and retail clerks abandon their jobs for better-paying work in the oil fields as long-idle wells surge to life.

Yet, the people of Kermit and other Permian Basin towns have learned that petroleum-based prosperity is too fragile to squander in wild exuberance. They're paying off debts and investing in public institutions that will endure beyond the boom-and-bust cycles of the oil business.

"I've pissed away three booms in my lifetime, but this time, no," said Gary Blue, 43, who says his business preparing sites for drilling is turning down about as much work as it accepts these days.

Rodney Hayes, 49, who owns Kermit's only floral shop, said he and his neighbors haven't forgotten what happened when oil prices plummeted in the 1980s and the town's population dropped from 10,000 to its current 6,000 in a matter of months.

"It was like a suitcase parade" as companies and their workers left town, Hayes said. ...

Stefanie Haley, 70, has learned to take the swings in the oil business in stride during the decades she has lived in West Texas. Her family owns a ranch west of Kermit where companies are producing natural gas, and she works in a related family business that supplies saltwater that helps maintain pressure in wells.

Haley's daughter has planned a party to celebrate the dream home that contractors are building on a section of the ranch that she and her brother own. Haley calls it "the house that gas built."

The gas beneath the ranch, Haley said, is buried deep in the earth — too deep to justify the expense of extracting it until recently.
There must be a lot of cows living in the mantle.

Sunday, August 3, 2008

Exxon Claims Titan

Too funny...LOL. But if Exxon gets the lease they probably won't develop that either.

Friday, August 1, 2008

Oil Doesn't Come From Dead Dinosaurs


Somehow it’s hard to imagine, even over geologic time, that rotting algae and zooplankton found their way more than a mile under water then another mile under the seabed where some oil is now being found. But it’s easy to imagine pools of liquid hydrocarbons falling through cracks in the Earth made by earthquakes, volcanic eruption or meteor impact.

There’s a lot we don’t know about our planet. We don’t have the ability to scour the entire ocean bottom that makes up 2/3 of our planet’s surface. Nor do we have the ability to travel through the Earth’s crust to view with the naked eye what’s going on.

Hydrocarbons on Saturn’s largest moon should be an eye-opener for scientists and may eventually turn the petroleum world upside down. There may be more oil on our planet than we think, which would be unfortunate.
Well at least we know where they stand on the issue...LOL.

NASA Confirms Hydrocarbon Lakes On Titan

NASA discovered a hydrocarbon lake on Titan called Ontario Lacus that is bigger than Connecticut and Rhode Island combined: NASA Confirms Liquid Lake On Saturn Moon

PASADENA, Calif. -- NASA scientists have concluded that at least one of the large lakes observed on Saturn's moon Titan contains liquid hydrocarbons, and have positively identified the presence of ethane. This makes Titan the only body in our solar system beyond Earth known to have liquid on its surface.

Scientists made the discovery using data from an instrument aboard the Cassini spacecraft. The instrument identified chemically different materials based on the way they absorb and reflect infrared light. Before Cassini, scientists thought Titan would have global oceans of methane, ethane and other light hydrocarbons. More than 40 close flybys of Titan by Cassini show no such global oceans exist, but hundreds of dark lake-like features are present. Until now, it was not known whether these features were liquid or simply dark, solid material.

"This is the first observation that really pins down that Titan has a surface lake filled with liquid," said Bob Brown of the University of Arizona, Tucson. Brown is the team leader of Cassini's visual and mapping instrument. The results will be published in the July 31 issue of the journal Nature.

Ethane and several other simple hydrocarbons have been identified in Titan's atmosphere, which consists of 95 percent nitrogen, with methane making up the other 5 percent. Ethane and other hydrocarbons are products from atmospheric chemistry caused by the breakdown of methane by sunlight.

Some of the hydrocarbons react further and form fine aerosol particles. All of these things in Titan's atmosphere make detecting and identifying materials on the surface difficult, because these particles form a ubiquitous hydrocarbon haze that hinders the view. Liquid ethane was identified using a technique that removed the interference from the atmospheric hydrocarbons.

The visual and mapping instrument observed a lake, Ontario Lacus, in Titan's south polar region during a close Cassini flyby in December 2007. The lake is roughly 7,800 square miles in area, slightly larger than North America's Lake Ontario.

"Detection of liquid ethane confirms a long-held idea that lakes and seas filled with methane and ethane exist on Titan," said Larry Soderblom, a Cassini interdisciplinary scientist with the U.S. Geological Survey in Flagstaff, Ariz. "The fact we could detect the ethane spectral signatures of the lake even when it was so dimly illuminated, and at a slanted viewing path through Titan's atmosphere, raises expectations for exciting future lake discoveries by our instrument."

The ethane is in a liquid solution with methane, other hydrocarbons and nitrogen. At Titan's surface temperatures, approximately 300 degrees Fahrenheit below zero, these substances can exist as both liquid and gas. Titan shows overwhelming evidence of evaporation, rain, and fluid-carved channels draining into what, in this case, is a liquid hydrocarbon lake.