Wednesday, November 30, 2016

The Wolfcamp Shale and America's Energy Independence

With oil prices remaining well below highs experienced prior to 2014 and with OPEC finding it difficult to reach a conclusive deal on constraining production levels, recent news from the United States Geological Survey would suggest that oil supplies will continue to be problematic for producers who are awaiting a return to the $70 to $80 per barrel level last seen in mid-2014.

Despite the predictions that non-conventional and, by extension, total oil production levels in the United States would plummet in the current low price environment, production has remained fairly robust.  Here is a graph from the U.S. Energy Information Administration showing how domestic oil production levels have fared over the past 30 plus years:

Here is the ungraphed weekly production data from the beginning of 2012:

Domestic oil production peaked at 9.61 million barrels per day during the first week of June 2015 and fell to a low of 8.428 million barrels per day during the first week of July 2016.  While this 12.3 percent drop would seem significant, at more than 8.4 million barrels of oil per day, production is still far higher than it was prior to the mid-2014 price "cliff".  In fact, during the month of November 2016, oil production increased, hitting a high of 8.692 million barrels per day during the first week of November 2016.

Obviously, supply is continuing to put downward pressure on prices, particularly when oil demand looks like this:

The International Energy Agency predicts that oil demand growth is set to rise by only 1.2 million barrels per day in 2016 thanks to dropping demand from the Americas and China.  This is down from demand growth of 1.8 million barrels per day in 2015.

Now, let's look at the real subject of this posting, a recent announcement from the United States Geological Survey that has the potential to put further downward pressure on oil prices in the future.  According to the USGS, a formerly traditional play that was exploited using vertical wellbores, the "Wolfberry" play that encompasses Mississippian, Pennsylvanian and Permian strata, now forms  the largest estimated contiguous resource that has ever been assessed by the USGS.  In total, the Wolfcamp shale of Midland Basin in Texas' Permian Basin contained an estimated mean of 20 billion barrels of oil, 16 trillion cubic feet of natural gas and 1.6 billion barrels of natural gas liquids.  This resources are classified as continuous, undiscovered and technically recoverable resources according to the following definitions ;

continuous - oil and gas that is dispersed throughout a geological formation rather than existing as discrete, localized occurrences.  Exploitation of these reserves require special recovery techniques including horizontal drilling and hydraulic fracturing. 

undiscoveredresources postulated, on the basis of geologic knowledge and theory, to exist outside of known fields or accumulations. Included also are resources from undiscovered pools within known fields to the extent that they occur within separate plays.

technically recoverable - those resources producible using currently available technology and industry practices. USGS is the only provider of publicly available estimates of undiscovered technically recoverable oil and gas resources.

Here is a map showing the outlines of the contiguous estimated Wolfcamp shale resources:

To date, more than 3000 horizontal wells have been drilled at completed in the Wolfcamp in the Midland Basin; additionally, since the Wolfcamp shale is present in the Delaware Basin portion of the Permian Basin, reserves may be higher than the current assessment shows.

Here is a table showing the fully risked assessment results for all six continuous assessment units of the Wolfcamp shale in the Midland Basin:

If you are interested, the entire USGS report can be found here.

To help you put these numbers into context, here is a table showing the most recent U.S. proved oil, condensate and natural gas reserves for 2013 - 2014:

In 2014, for the first time since 1972, U.S. oil proven reserves exceeded the 39 billion barrel mark or just under twice the mean technically recoverable reserve estimate for the Wolfcamp.  

The recent analysis by the United States Geological Survey shows us how significant the Wolfcamp shale play could become as part of America's move toward energy independence and how exploitation of this resource could impact the very delicate supply - demand global oil market balance in the future.  Given that the mathematical odds of a global recession are growing by the day, a return to the halcyon days of triple digit oil prices look increasingly unlikely.

Tuesday, November 29, 2016

How to Destroy WikiLeaks

Wikileaks most recent release looks at a selection of more than 60,000 emails, sourced from private intelligence/technology security company HBGary, now a subsidiary of ManTech International.  Here is what Wikileaks has to say about the release in their own words:

"Today, Tuesday 29 November 2016, WikiLeaks publishes in searchable format more than 60 thousand emails from private intelligence firm HBGary. The publication today marks the early release of US political prisoner Barrett Brown, who was detained in 2012 and sentenced to 63 months in prison in connection with his journalism on Stratfor and HBGary. Coinciding with Mr Brown's release from prison WikiLeaks is publishing a searchable index of the HBGary emails. WikiLeaks published the Stratfor emails in 2012.

The HBGary emails are from four email accounts of key people from HBGary and HBGary Federal. HBGary was founded in 2003 by Greg Hoglund to provide cyber security-related services to corporate clients. A separate entity, HBGary Federal, was managed by Aaron Barr to do similar work for government agencies and so had staff with security clearances and worked with companies such as Booz Allen Hamilton (one of the contractors Edward Snowden worked for).

In February 2011 Aaron Barr did an interview with the UK’s Finanical Times that stated he had been investigating the internet activist group Anonymous and claimed to have uncovered the real identities of some of what he described as the leaders of the organisation. In retaliation Anonymous penetrated Barr’s organisation and took emails from the accounts of four key people from HBGary and HBGary Federal: Aaron Barr and Greg Hoglund, but also Ted Vera (then Chief Operating Officer at HBGary Federal) and Phil Wallisch, a former Principal Technical Consultant.

These emails and revelations from them started to be published on the internet, predominantly through the work of Barrett Brown and a crowd-sourced investigative journalism project he ran: Project PM. As a result, later that month Barr was forced to step down, HBGary Federal closed and HBGary, Inc. was sold to ManTech International. This would have been little consolation to Mr Brown, who a month later on 6 March 2012 had both his and his mother’s houses raided by the FBI, seeking “Records relating to HBGary, Infragard, Endgame Systems, Anonymous, LulzSec, IRC chats, Twitter,, and” Agents seized his laptops. 

Barrett Brown’s work through Project PM was one of the first collaborative investigations into the US corporate surveillance industry. Looking into corporate firms that work hand-in-hand with the government to surveil on citizens, Mr Brown was one of the first to shed light on this unaccountable industry.

The HBGary revelations that came out through the work of Barret Brown and others showed that HBGary and related companies were involved in plans to spread disinformation and to attack watchdog organisations, including WikiLeaks and US Chamber Watch. For example, the emails revealed a plan to form a group called Team Themis with a number of companies from the industry to "ruin" WikiLeaks by submitting false documents in the hope they would be published, as well as discrediting WikiLeaks staff and supporters (including the journalist Glenn Greenwald). HBGary was also bidding to fulfil a tender from the US Air Force to assist it in manipulating social media to spread propaganda about the Air Force." (my bold)

As background, here is a summary of HBGary's expertise:

As I highlighted above, the plan was to destroy WikiLeaks from within by discrediting their efforts with the use of false documents.  This plan is highlighted in the following innocuous looking email from 2010:

Note that there is an attachment to this email, a 24 slide presentation outlining "The Wikileaks Threat" which you can download from Scribd here.  As well, please note that Palantir Technologies is one of the partners in this program; Palantir claims the following on its website:

"Palantir Technologies is a mission-driven company, and a core component of that mission is protecting our fundamental rights to privacy and civil liberties. Since its inception, Palantir has invested its intellectual and financial capital in engineering technology that can be used to solve the world’s hardest problems while simultaneously protecting individual liberty. Robust privacy and civil liberties protections are essential to building public confidence in the management of data, and thus are an essential part of any information system that uses Palantir software." (my bold)

As you will see in this posting, this self-description is somewhat ironic.

Let's start by looking at some background information about WikiLeaks from the presentation noting that "Glenn" refers to Glenn Greenwald, former journalist for  The Guardian who was responsible for breaking the Edward Snowden/NSA snooping story:

The presentation goes on to note that WikiLeaks uses a strategy of migrating their use of servers around the globe, making the organization far more difficult to trace (and shut down).  As well, they are incorporated and registered in different countries that provide maximum legal protection; for example, at the time, they had a library in Australia, a foundation in France and two no-name tax exempt non-profits in the United States.  The presentation notes that their weakness is a lack of funding because governments are blocking their funding sources and that security concerns could be used to make potential submitters of documents  to WikiLeaks doubt the safety of interacting with the group.

Here's the key slide, the proposed strategy for discrediting and ultimately destroying WikiLeaks:

Note the use of disinformation through the submission of fake documents to bring WikiLeaks to its knees.  The plan by HBGary and its affiliates was to destroy WikiLeaks by having them release fake documents to the public.  Additionally, they wanted to use cyber attacks against Wikileaks's server infrastructure and create the impression that supplying information to WikiLeaks was risky.

This gives us an inside look at what lengths the Deep State will go to to keep information from reaching the public.  During the 2016 election cycle, the information released by WikiLeaks likely played at least some role in the final outcome of the U.S. Presidential race.  The loss of an organization like WikiLeaks would mean that so much more secret activity would go on behind closed doors, keeping the public from knowing what is really going on in Washington, Corporate America and other jurisdictions.   After all, those who lead us would rather that the sweaty masses lived their humble lives without giving any thought to their true motivations.

The Public Debt - GDP Growth Gap

Despite the fact that economic growth levels are starting to tail off, when we look at economic growth since 2000 on a nominal dollar year-over-year basis, the economy looks like it’s expanding at somewhat reasonable rates as shown here:

Let's look at the basic formula for calculating GDP:

Y = C + I + E + G



C = Consumer Spending

I = Industry Investments

E = Excess of Imports over Exports

G = Government Spending

As a very significant portion of overall government spending is funded by the federal government and, since government spending includes the accumulation of public debt, government debt is a component of GDP.  

Over the period from 2000 to the present, here is what has happened to the year-over-year accumulation of federal government debt:

Now, let's look at the bottom line.  How does the accumulation of federal government debt compare to GDP growth on a dollar basis?  Here's the answer:

It's interesting to see how the growth in federal government debt far outstripped growth in GDP, particularly since 2008.  It is also interesting to observe that GDP grew faster than the federal debt until the Great Recession, in fact, if we go back in time to the mid-1960s, this has pretty much been the case except for very short periods during the 1991 and 2001 recessions:

We do live in unique times!

If we look at the actual numbers, here is what we find.  According to the U.S. Treasury, the total public debt outstanding was $9.229 trillion on January 1, 2008, rising to $19.573 trillion on September 30, 2016, a gain of $10.344 trillion.  By way of comparison, at the end of Q4 2007, nominal GDP was $14.685 trillion, rising to $18.651 trillion at the end of Q3 2016 for a net gain of $3.966 trillion.  In other words, the federal public debt increased 2.6 times faster than GDP growth since President Obama took office in 2008, resulting in a public debt-to-GDP growth gap of $6.378 trillion.   

Donald Trump's trillion dollar infrastructure plan looks interesting on paper, particularly since much of the U.S. infrastructure has been ignored for decades.  That said, such plans create a situation where Corporate America becomes dependent on ever-rising government investments (accompanied by ever-rising debt issuance) as a business model.  With the federal debt rapidly approaching the $20 trillion mark, it's obvious that Washington thinks nothing about continuing to mortgage the future for the present and is creating an situation where we are continuously eating tomorrow's dinner today.