Drill Baby Drill
Research for Online Investors

by John Dalt

6/16/10

Drill Baby Drill is now repeated derisively, targeting those who believe a country should exploit our own natural resources as opposed to paying other countries to sell their natural resources.  We had a chance to watch the “Wizard of Washington” last night. I came away feeling I might be coming down with the stomach flu.  It was a similar feeling to when Jimmy Carter won the presidency.  I almost died of alcohol poisoning.

We have all heard about the size of the “blow-out” in the gulf as being the “worst oil spill ever.”  Well, it is not.  At least not yet.  The worst U.S. oil spill ever was 100 years ago in California.

The Lakeview Gusher blew on March 14, 1910.  In a strange repeat of history, it started out at 18,000 barrels a day, then grew to 48,000 barrels per day and culminated at 100,000 barrels per day.  The well spewed 9 million barrels of oil in eighteen months creating a lake of oil around the well site.  Crude oil gathered on the surface up to thirty miles away from the well.

The oil was sold, depressing prices in the area to 1/10 pre-gusher price. Today, other producers are barred from exploiting a gigantic oil field under the ocean that reportedly may extend as far south as Venezuela.

Because of the president's moratorium on off-shore drilling, Statoil (STO) has suspended contracts for two deepwater drilling rigs in the Gulf of Mexico. The rigs belonged to Transocean (RIG) and Maersk Drilling. Anadarko Petroleum (APC) and Cobalt International Energy (CIE) have also cancelled contracts on three rigs. By cancelling or suspending contracts the companies avoid paying rental on idle rigs.

STO is the fourth largest license holder in the Gulf of Mexico.  They announced in March that they were the highest bidder on 21 new drilling tracts released by the Minerals Management Service.

Reuters reports that BP cut corners on the well that subsequently blew out in the gulf. Tony Hayword, BP’s CEO, is slated to testify before the House Energy and Commerce Committee on Thursday. Committee members Henry Waxman and Bart Stupak released information yesterday that BP used fewer barriers than recommended by Halliburton. The barriers, or centralizers, kept the pipe casing aligned for the cement casing to set properly.  Halliburton was subcontracted to perform the cement case sealing process.

BP rented the Deepwater Horizon at a rate of about $500,000 per day.  The well completion was a month past due and they were in penalty on the lease.

Halliburton recommended using 21 centralizers.  BP opted for only six, even after warnings of a “SEVERE gas flow problem.”  The centralizers were not available on the rig, but were located in Houston and available to be flown to the platform.  BP team leader John Guide responded, “It will take ten hours to install them…I am very concerned about using them.”  In an email, BP drilling engineer Brett Cocales wrote, “But, who cares, it’s done, end of story, will probably be fine and we’ll get a good cement job.”

BP flew a Schlumberger crew to the platform on April 18 to log the cement bond done by Halliburton.  This would insure the cement was adequate to seal the well casing.  On the morning of April 20, they were told their services were not needed.  The Schlumberger crew flew off the rig at 11:15 a.m.  A little over ten hours later, at 9:53 p.m. the rig exploded.

The Wall Street Journal’s article BP Crew Focused on Costs has additional decisions BP employees made to lower costs and shorten the completion time of the well.

In life imitates art, Gary Faulkner of Greeley, Colorado has been arrested in a remote Pakistani forest with a handgun, 40 inch sword and night vision equipment. He said he was on a mission to kill Osama bin Laden. Mr. Faulkner sold all his construction tools to finance his trip as a bounty hunter. The U.S. has offered a $25 million dollar reward on information leading to the capture of bin Laden. When asked why he thought he could find bin Laden, Faulkner replied, “God is with me, and I am confident I will be successful in killing him.”

Go Gary! Just so you know, Osama doesn’t like country music either.

To the mailbag:
65 years ago, I could by a single dip ice cream cone for 5 cents and a double dip for 10 cents.  Today it costs somewhere between $2.00 and $3.00.  Gas was 18 cents a gallon, tax included.  I remember the picture of the German guy with a wheelbarrow full of Marks on his way to the bakery to buy a loaf of bread.---paid up subscriber J.P.

John’s reply:  Tax on gasoline is now 50 cents a gallon in our state.  Who raises costs more, government or business?

Do you proof read all of your articles before sending them?  You might consider a proof reader to combine with your good market insights.---subscriber B.E.

Editor’s note: I intentionally take some grammatical freedoms with articles, believing this makes them more readable. I always proof read articles at least twice, but errors still slip through. I will do better.

Quote:
Whether you think you can or whether you think you can’t, you’re right.---Henry Ford

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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