Daily Archives: August 16, 2011
President Obama’s green energy push is rapidly proving to be a crooked racket. It works like this: Revolving-door political hires rev up subsidy programs that enrich their former employers. Then they cash out themselves, pocketing taxpayer loot while turning out energy products that range from inefficient technologies to total failures. Faster than the turbine on a subsidized wind mill, the “clean-tech” revolving door spins out green bandits who get rich off the subsidies they helped craft.
Cathy Zoi, an Al Gore acolyte, has left her job as assistant secretary for energy efficiency and renewable energy to go to work for a new fund that invests in green energy. It was started by Democratic donor George Soros.
Her former “special assistant,” Peter Roehrig, joined DOE’s renewable energy office from the lobbying firm ISG. Roehrig’s bosses at the firm then launched a company, US-REG, seemingly in effort to pocket taxpayer dollars by acting as cutouts for Chinese windmill barons trying to get their hands on stimulus money.
There are plenty of revolving-door green bandits, but the paths of Zoi and Roehrig – both of whom passed through the Energy Efficiency and Renewable Energy office, which was responsible for $16 billion in stimulus money – exemplify how Obama’s stimulus and green-energy initiatives open the door for corruption and patronage.
Zoi’s tenure at EERE was rife with conflicts of interest. Her husband, Robin Roy, is an executive at Serious Materials, a small window manufacturer that boomed when Obama came to office. First, Serious Materials benefited from free advertising by the White House: President Obama praised a new Serious factory in March – before he officially nominated Zoi – and then Vice President Biden made a public visit to a different Serious plant in April, just after her nomination but before her confirmation. Finally, Serious was also the first window company to pocket a stimulus tax credit – worth $584,000 – for investing in new equipment.
Zoi testified before the Senate Energy and Natural Resources Committee in favor of a HOMESTAR program, also known as cash for caulkers, which became another subsidy for Serious.
At the time of her nomination, the couple owned between them 120,000 stock options in Serious Materials, according to her April 2009 personal financial disclosure. She also owned at least $265,000 of stock in a Swiss company called Landis+Gyr that makes “smart meters,” high-tech thermostats that the administration has promoted for saving energy. Pro-free-market writer and lawyer Chris Horner described the conflicts of interest: “Clearly, DoE funding to encourage the adoption of ‘smart meters’ would very likely lead to much increased sales by Landis+Gyr — and a potential windfall for Zoi.”
Now Zoi has left Energy’s EERE, where she advanced and implemented subsidies for renewable energy, and is going to work for a Soros-backed green-tech fund: Silver Lake Kraftwerk, a partnership between Soros Fund Management and Silicon Valley private equity giant Silver Lake.
Zoi’s boss will be veteran tech investor Adam Grosser, who gave more than $50,000 to Democratic candidates last election. Soros said the fund, for which he is employing the former head of the federal Energy Efficiency and Renewable Energy office, will focus on “developing alternative sources of energy and achieving greater energy efficiency.”
The Soros-Zoi hire not only undermines Obama’s talk about stopping the revolving door, it also undermines the constant liberal refrain that Soros – unlike conservative political donors – is simply funding political causes he believes in, not causes that profit him. The Soros-created Center for American Progress is a leading advocate of green subsidies.
The pedigree of Zoi’s former “special assistant” focused on giving out stimulus money, Peter Roehrig, also deserves scrutiny.
Roehrig, according to an online biography, “helped start US Renewable Energy Group, [US-REG] which has recently made the largest ever U.S.-China joint investment in American renewable energy to date.” After this column first ran, Roehrig told me the biography was incorrect, and that he instead worked as a researcher at K Street lobbying firm Integrated Solutions Group before ISG lobbyists formed US-REG.
A little-noticed report by Russ Choma at MSNBC.com last December showed that US-REG epitomizes the way in which Obama’s green agenda has become a feeding frenzy for the politically connected.
US-REG was founded by K Street lobbyists John O’Hanlon and Moses Boyd and Democratic fundraiser Ed Cunningham, apparently for the sole purpose of winning federal subsidies. The company started a joint-venture with a Chinese wind-power developer, took a 51 percent stake, and applied for stimulus money – while their former researcher, Roehrig, was on the inside, working for Cathy Zoi in DOE.
In any other industry, these conflicts of interest and naked subsidy-suckling would draw a firestorm of media attention about cronyism and corporate welfare. But green bandits like Zoi, Soros, Roehrig, and O’Hanlon, instead are praised as entrepreneurs who are also trying to save the planet. It just shows what you can get away with in this town if you cloak yourself in green.
UPDATE, TUESDAY, MARCH 1: After this column ran, Roehrig responded to my requests for comment. He told me the online bio I had quoted was wrong, and that he was a researcher on energy issues at ISG for a few months before joining DOE. He said US-REG wasn’t founded until after he left ISG. I have updated the above text to reflect this.
August 16, 2011 at 11:41 am by Brett Clanton
The U.S. government will invest up to $510 million over the next three years to develop advanced aviation and marine biofuels for military and commercial transportation, President Barack Obama announced today.
Under the plan, the U.S. Departments of Agriculture, Energy and Navy will partner with private industry to jointly construct or retrofit existing biofuel plants and refineries, with the goal accelerating output of renewable jet and diesel fuels, the White House said.
The administration touted the plan as a way to enhance both energy security and national security, while also helping domestic farmers.
“Biofuels are an important part of reducing America’s dependence on foreign oil and creating jobs here at home,” Obama said in a statement. “But supporting biofuels cannot be the role of government alone. That’s why we’re partnering with the private sector to speed development of next-generation biofuels that will help us continue to take steps towards energy independence and strengthen communities across our country.”
In the U.S., biofuels are largely derived from corn and vegetable oils. But producers are trying to develop “next generation” fuels from non-food crops, agricultural waste, wood chips, algae and other feedstocks that don’t impact the food supply. However, costs are high and technology hurdles remain.
The White House plan calls for the production of “drop in” biofuels that can be made in the same facilities as petroleum-based fuels and be transported through existing pipelines.
By Peter Staas 8/11/2011
As the shale oil and gas revolution has picked up steam over the past several years, several important trends have emerged that will separate the winners from the losers.
The combination of depressed natural gas prices in North America and robust oil prices has prompted independent producers to ramp up drilling activity in fields rich in oil, condensate and natural gas liquids (NGL) while reining in operations in Louisiana’s Haynesville Shale and other dry-gas plays. By many accounts, natural gas production has become incidental to these higher-value hydrocarbons.
Besides focusing on a company’s production mix, investors must also evaluate the economics and quality of a producer’s acreage. first movers in oil- and liquids-rich plays have the opportunity to snap up the best acreage at a fraction of the costs incurred by late entrants.
For example, Marathon Oil Corp (NYSE: MRO) recently paid $3.5 billion for 141,000 acres (about $21,000 per acre) in the Eagle Ford Shale from Hilcorp Resources Holdings LP. The deal surpassed the $16,000 per acre that Korea National Oil Corp paid to Anadarko Petroleum Corp (NYSE: APC) to establish a foothold in this liquids-rich shale play.
The elevated prices that latecomers have paid for acreage illustrate the importance of being an early mover in these plays. This strategy has paid off for EOG Resources (NYSE: EOG), the leading oil producer in North Dakota, the Eagle Ford Shale and the Niobrara Shale. Lower entry prices translate into more financial flexibility and superior margins for producers that snap up the best acreage at pre-boom prices.
Readers of The Energy Strategist can attest to the importance of focusing on early movers that have acquired the best acreage.
My colleague Elliott Gue added Petrohawk Energy Corp (NYSE: HK) to the publication’s model Portfolio on May 10, 2010, citing the company’s acreage in the Eagle Ford Shale, a liquids-rich field in South Texas that the firm discovered in 2008. The stock represented a compelling value at the time; investors had overlooked this asset and the potential for the firm to grow its liquids output, focusing instead on its leasehold in the Haynesville Shale and exposure to natural gas prices. Elliott also highlighted the stock as one of his top takeover targets of 2010.
A year later, Elliott’s investment thesis panned out: Australian mining giant BHP Billiton (NYSE: BHP) announced that it would acquire Petrohawk Energy in an all-cash deal worth $12.1 billion. Readers who followed Elliott’s call booked a 92 percent gain.
With these advantages in mind, producers are constantly on the lookout for the next liquids-rich shale play that offers attractive margins. Here’s a brief rundown of some of the emerging shale plays in which North American producers have accumulated acreage.
1. Tuscaloosa Marine Shale
In recent quarters, a handful of independent exploration and production (E&P) outfits have touted their acreage in the Tuscaloosa Marine Shale (TMS), a formation that stretches from Texas to Louisiana and Mississippi. The field is far from a new discovery; famed Mississippi wildcatter Alfred Moore spearheaded drilling in the TMS in the 1960s.
The play’s proximity to the Haynesville Shale should make it easier for producers to redirect drilling rigs from the out-of-favor dry-gas play and limits bottlenecks associated with a lack of midstream infrastructure. Despite boasting similar geologic characteristics to the Eagle Ford, the TMS is far from a slam dunk, which explains the low prices that early movers have paid to build an acreage position.
Goodrich Petroleum Corp (NYSE: GDP), for example, amassed about 74,000 acres, paying an average of $175 per acre. Meanwhile, Devon Energy Corp (NYSE: DVN) has accumulated 250,000 acres on the Louisiana-Mississippi border at an average cost of $180 per acre.
Thus far, early movers in the TSM have yet to report drilling results, though management teams have indicated that these tests have been encouraging. Devon Energy recently completed drilling, coring and logging its first vertical well in the play and plans to sink its first horizontal well later this year. Denbury Resources (NYSE: DNR) and its partner EnCana Corp (TSX: ECA, NYSE: ECA) are at a similar stage in their drilling program and plan to sink a horizontal well in September.
During EnCana’s conference call to discuss second-quarter results, Executive Vice-President Jeff Wojahn described its TMS assets as “a promising liquids-rich opportunity” based on “how the rock breaks, the hydrocarbon content and gas in place, and the like.” Management also pegged the drilling costs for its first horizontal well–a 12,000-feet deep vertical shaft with a 7,500-foot lateral segment–at about $8 million.
We’re very comfortable today with what we see from a geologic standpoint of going ahead and drilling wells. In fact we don’t really even see much need, at least in most of our acreage, for pilot holes. There [are] sufficient amounts of historical vertical wells that have been drilled through the Tuscaloosa Marine Shale that we’re comfortable going out and drilling today. I would characterize at least in our view that the sole or the largest single risk to the play is just one of the economic performance versus well costs. We know the Tuscaloosa is present, sufficiently thick, thoroughly oil saturated. It’s just a little unproven in that no one has drilled yet a well that’s demonstrated in the EUR horizontally that would match up to costs. And that’s just [be]cause there haven’t been really many or any of them out there that have done that.
Drilling results in this frontier play could provide a meaningful upside catalyst for these E&P operators. At the same time, if the play proves uneconomic to produce or drilling results disappoint, the low cost of acreage provides a degree of downside protection.
2. Utica Shale
Management teams from several E&P firms also touted the potential of the Utica Shale, a formation that lies beneath the Marcellus Shale but extends from Tennessee into Canada. Thus far, the Marcellus has attracted the most attention from investors and producers, though interest has picked up in the Utica–particularly the shallow portion in Ohio and Western Pennsylvania.
For example, Devon Energy has assembled an 110,000-acre leasehold in the play’s oil window and recently noted that a vertical test well indicated that the formation features excellent permeability. During Devon Energy’s conference call to discuss second-quarter results, the head of its exploration and production operations noted that the play’s oil window “could offer some of the best economics in the play.”
CEO Aubrey McClendon and his team at Chesapeake Energy (NYSE: CHK) likewise highlighted the firm’s position in the Ohio portion of the Utica during the company’s July 29 conference call. One of the first movers in the play, Chesapeake quietly amassed 1.25 million net acres–by far the largest position in the field–and drilled some of the first test wells, including nine verticals and six horizontals. Over this period, the company has also analyzed 3,200 feet of core samples and more than 2,000 well logs.
McClendon compared this portion of the Utica Shale to the Eagle Ford in South Texas, noting that the field includes three phases: a dry-gas zone in the east; a wet-gas window in the middle; and an oil-rich phase on the western side.
The outspoken CEO boldly suggested that the emerging field would generate better returns than the red-hot Eagle Ford: “[W]e believe the Utica will be economically superior to the Eagle Ford because of the quality of the rock and location of the asset.”
Not only is much of the company’s acreage already held by production, but the relative shallowness of these oil and gas reserves should limit drilling costs. Although management demurred from sharing well results, McClendon did indicate that his team was sufficiently encouraged to ramp up the rig count from one at the beginning of 2011 to eight units by year-end. At the same time, the play will require a substantial investment in midstream infrastructure to process and transport the oil, NGLs and natural gas to market.
3. Neuquen Basin
In The Future of Shale Gas is International, we opined that major international oil and natural gas companies were investing heavily in US shale plays to gain experience that would translate to fields outside the US. Argentina’s Neuquen Basin is home to one of the most-promising international shale oil plays.
Spanish energy giant Repsol (Madrid: REP, OTC: REPYY) in July announced that its Bajada de Anelo X-2 exploration well had yielded 250 barrels of oil per day from the Vaca Muerte shale formation.
US operator EOG Resources added 100,000 acres in the Neuquen Basin to its exploration portfolio in the second quarter and plans to sink two wells in this acreage in early 2012. During a recent conference call, CEO Mark Papa noted that he expected results from the play to help operators overcome a lack of hydraulic fracturing and other equipment in the country:
[T]he major service companies are in a process of shifting additional frac [hydraulic fracturing] equipment down there, and for the first couple wells, it’s going to be kind of one-off deals that we’ll have to schedule months and months in advance to get the fracs done. But our logic is if this shale turns out to be something that is commercial and productive, that you’ll see, particularly the major service companies, just move equipment in there in a 2013 through 2015 time frame. We’re pretty optimistic about the quality of that shale. We charged our people with the only way we’d go outside North America is if we could find a shale–an oil shale that we thought looked superior to the Eagle Ford, and we believe we’ve found one there. So time will tell.
As in the rest of the world, Monday was not kind to Latin American stock exchanges. The region’s most important stock markets took a collective nosedive as investors scrambled away from emerging markets. Brazil’s BOVESPA index in São Paulo narrowly avoided brushing the 10 percent threshold at which the market suspends trading. State-controlled oil company Petrobras and mining enterprise Vale were among the market’s biggest losers, as fears of a global slowdown brought commodity prices down. Argentina’s Merval fared even worse, with a 10.7 percent drop—its steepest decline since October 2008. The rest of the region’s major stock exchanges also recorded heavy losses, including the Lima index at 7.1 percent, Chile’s IPSA at 6.9 percent, Mexico’s BMV with 5.9 percent, and Colombia’s BVC at 4.1 percent. Though most markets opened with rebounds on Tuesday, Latin America is likely to feel the ongoing effects of economic uncertainty in the United States and European Union. But while the world’s advanced economies fret over the possibility of a double-dip recession, many Latin American economies expect to continue growing.
Economists differ in their assessments of how bad the global slowdown will wind up hurting Latin America. “It may be too early to pronounce a global downturn, but there is little doubt that Latin America can’t escape without seeing its growth path suffer,” Morgan Stanley said in a report issued Monday. Mexican Finance Minister Ernesto Cordero said as much on Tuesday in an interview with Grupo Imagen Multimedia. Before Monday, Cordero said Mexico estimated its growth annual growth for 2011 would fall somewhere “very close to 5 percent… But the corrections have started coming in, and while we’re still between 4 and 5 percent, we’re much closer to 4 than 5.” Brazilian Finance Minister Guido Mantega echoed the sentiment at a press conference Monday, saying he expected Brazil’s economy to grow less than expected this year, though he did not provide specific figures.
At the same time, both finance ministers remained optimistic that their economies would continue to post strong growth over the medium term. “Our advantage is a strong internal market,” Mantega said. “On top of that, we have fiscal and monetary reserves, and methods of controlling the exchange rate (of the Brazilian real).” U.S. companies seem to agree. According to a report from The Los Angeles Times, corporations now look to countries like Brazil, with its expanding middle class and attendant growth in consumer demand, as the engines of future growth. The Economist Intelligence Unit (subscription) predicted in reports based on information gathered in July that the economies of Bolivia, Brazil, Chile, Nicaragua, and Bolivia would all grow between 4 and 6 percent in the coming three years. The U.S. economy, on the other hand, is less attractive. Growth remains anemic, with just 1.3 percent in the second quarter of 2011 and 0.4 percent over the first quarter, compared to Mexico’s 5 percent growth in the first trimester of the year. Progressive economist and Nobel Prize winner Joseph Stiglitz told The Miami Herald columnist Andrés Oppenheimer he remains “very optimistic” about Latin America’s possibilities for growth, even in a climate of stagnation in the United States and Europe.
Latin America’s resilience in the face of U.S. economic stagnation seems to support the thesis that the region has “decoupled” from the United States—historically, Latin America’s largest source of investment and its biggest foreign market. The idea first came into vogue to explain Latin America’s strength bouncing back from the Great Recession due to its growing internal markets and increased economic links with Asia, especially China. This time around, the Obama administration is looking to ramp up exports to emerging markets like Brazil to help the U.S. economy climb out of its slump. The United States currently exports more than three times as much to Latin America as China, Obama pointed out before a trip to the region in March. Al Jazeera English correspondent Gabriel Elizondo pondered the implications after watching U.S. Ambassador Tom Shannon speak at the AS/COA conference in São Paulo this week. As Elizondo tweeted: “Does the U.S. need Brazil more than Brazil needs the US right now?”
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