Houston, We Have A Problem
Research for Online Investors

by John Dalt

7/16/10

BP has the gulf well capped for now.  They are running an “integrity test” to see if the well can hold the pressure, estimated at 9,000 psi, and perhaps much more.  This makes no sense.  BP has a stack on the riser, why aren’t they letting the oil flow to the tankers waiting overhead?  The well test now underway is dangerous, and there is no reason to do it.  The first relief well is four feet away laterally with only 34 feet to drill to intercept the casing.  And it sits there, waiting for completion of the tests.

If this is the result of experts in the White House, “Houston, we have a problem.”  If the well fails the integrity test, it may do it in dramatic fashion.  John Hofmeister, retired Shell Oil President told Chris Matthews on Wednesday, “I think the fundamental issue… is there are serious concerns about the integrity of the casing that is the well itself.  And that by putting the cap on and doing the stress tests… that the integrity of the steel is insufficient to hold the pressure of the well.  And if you lose the casing, its game over.  It’s like having a volcano on the bottom of the sea.  If you lose the casing and oil starts coming up on the outside of the casing you can’t stop it.  There’s nothing you can do that would stop it…other than implode the well….There are many in the industry that feel the casing must have been damaged because of the power of that well, the pressure of that reservoir.  Let's not go to the "stress tests" until we're ready to go with the relief wells... Better have relief wells up and operating before [you run any integrity tests]…Secretary Chu is a brilliant Nobel Laureate, but he has never drilled a well….He has no first-hand experience…They are getting an additional point of view that raises serious questions.”  You can watch the Hofmeister interview on YouTube.

Hey John...Did the White House call you?

Why the government has stopped progress on the relief wells, and chose to cap the well (to run a test) rather than collect all of the oil in waiting tankers is a mystery.  The relief wells need to be completed and kill the well.  If the relief wells cannot kill the well, then the best option is to continue piping oil to the surface into tankers.  The decisions made in the last few days defy logic.  This is what happens when government bureaucrats get involved.

The well integrity test means absolutely nothing. If time passes without the well blowing out, BP will complete the relief wells and try to kill the well. If it fails and blows out the well, the problems are compounded. The integrity test can only make the situation much worse! Our article on It Can’t be that Bad never anticipated the government dictating stupid and possibly catastrophic tests.

7/17/10 Update:

Pressure in the well is lower than expected at 6700 psi and rising slowly.  The government has allowed the relief wells to continue drilling.  Retired Adm. Thad Allen said "We need to be careful not to do any harm or create a situation that cannot be reversed."  Duh.

The government nor BP have announced what will happen later today when the 48 hours has passed.  Will they hook up the pipe and let oil flow to the waiting tankers?  Will they leave the cap in place and leave the well shut in until the relief wells kill the well?  Even if the well "passes" this integrity test, it seems incredulous they would take this irreversable risk.

To the mailbag:
Thanks for your article on Perth Mint Certificates which are appealing to me.  I am afraid of holding all of my money in US dollars.  I expect the dollar to fall dramatically in value.  I want to hold GOLD or PRECIOUS METALS outside the USA.  I am however concerned that it might be illegal to send a check for a very large amount to Perth which would in essence remove this money from the USA.  I have written to verify that it is legal and will not result in things happening in my life that I do not want.—subscriber D.H.

John’s reply: It is gratifying to receive a note such as yours that we have given a subscriber an idea that will benefit them.  The Perth Mint will not sell you a certificate directly.  You have to go through a licensed dealer.  We mentioned two such dealers they are Euro Pacific Capital and Asset Strategies.  Euro Pacific Capital is Peter Schiff's company (he is running for Senate).  Your relationship would be with this company that is here, in the states.  You would mail them a check after setting up an account and they would mail you a Perth Mint Certificate.  You mention a large amount of money.  I understand they require a minimum $10,000 to set up an account, and additional purchases must be a minimum of $5,000.  The FOMC minutes this week highlight the Fed's fight against deflation.  Don't be in a hurry buying gold or silver.  I would suggest opening your account and splitting the amount you wanted to allocate to precious metals into five equal amounts and buy an equal dollar amount every month.  You do not have to declare this asset, as precious metals are not considered currency.

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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