# 1 McDonald's
$1M - $2.2M
# 2 7-Eleven Inc.
$38K - $1.1M
# 3 Dunkin' Donuts
$229K - $1.7M
# 4 The UPS Store
$178K - $403K
# 5 RE/MAX LLC
$38K - $225K
# 6 Sonic Drive-In Restaurants
$1.1M - $2.4M
# 7 Great Clips
$137K - $258K
# 8 Taco Bell
$525K - $2.6M
# 9 Hardee's
$1.4M - $1.9M
# 10 Sport Clips
$189K - $355K
# 11 Jimmy John's Gourmet Sandwiches
$330K - $558K
# 12 Servpro
$158K - $212K
# 13 Culver Franchising System Inc.
$1.8M - $4.3M
# 14 Supercuts
$144K - $297K
# 15 Carl's Jr. Restaurants
$1.4M - $2M
# 16 Papa John's Int'l. Inc.
$130K - $844K
# 17 Anytime Fitness
$89K - $678K
# 18 uBreakiFix
$60K - $221K
# 19 Ace Hardware Corp.
$273K - $1.6M
# 20 Kumon Math & Reading Centers
$70K - $141K
# 21 Planet Fitness
$857K - $4.2M
# 22 Keller Williams
$184K - $337K
# 23 Budget Blinds LLC
$105K - $226K
# 24 Jersey Mike's Subs
$193K - $660K
# 25 Marco's Pizza
$223K - $664K
# 26 CPR-Cell Phone Repair
$58K - $176K
# 27 Primrose School Franchising Co.
$717K - $5.8M
# 28 Mathnasium Learning Centers
$103K - $144K
# 29 Hampton by Hilton
$6.9M - $17.1M
# 30 Snap-on Tools
$170K - $350K
# 31 Wingstop Restaurants Inc.
$347K - $733K
# 32 Pet Supplies Plus
$555K - $1.3M
# 33 Hilton Hotels and Resorts
$29.1M - $112M
# 34 Valvoline Instant Oil Change
$162K - $2.3M
# 35 Smoothie King
$226K - $778K
# 36 Matco Tools
$91K - $270K
# 37 HomeVestors of America Inc.
$44K - $347K
# 38 Merry Maids
$87K - $124K
# 39 Firehouse Subs
$95K - $1.1M
# 40 Mac Tools
$103K - $256K
# 41 Baskin-Robbins
$94K - $402K
# 42 Mosquito Joe
$67K - $128K
# 43 Jack in the Box
$1.5M - $2.9M
# 44 Freddy's Frozen Custard & Steakburgers
$593K - $2M
# 45 Massage Envy
$435K - $1M
# 46 The Maids
$76K - $164K
# 47 Pizza Hut LLC
$302K - $2.2M
# 48 Orangetheory Fitness
$488K - $994K
# 49 Right at Home LLC
$78K - $138K
# 50 Nurse Next Door Home Care Services
$105K - $199K
5 Things To Do Before You Search For A Franchise
The TGG’s Patron Incentives: To Be Determined (case by case) such as Initial Investment, Initial Franchise Fee, Net-worth Requirement, Liquid Cash Requirement. More details from The Global Gallery
Confidential Consultation: Contact us
1. Start Reading & Studying.
Reading books on these topics will help you get a better understanding of business, and what it’s going to take to succeed. You want you to read books about:
- Starting a business
- Business plans
- And if you really want to get a leg up, read an accounting book.
“The more that you read, the more things you will know. The more that you learn, the more places you’ll go.” – Dr. Seuss
Before you take the time needed to search for a franchise to buy, it’s important to see where you stand, financially. The best way to do it is by putting together a financial statement.
Generally speaking, the most time-consuming part of doing a financial worth statement is gathering all the information you need.
You’ll need your mortgage loan and credit card statements, information on all of your investments, and more. In a nutshell, you’ll need to gather everything that lists all of your assets and all of your liabilities.
If you’re like most of the people who are considering franchise business ownership, you’ll need a small business loan for the lion’s share of your startup capital needs.
That’s why it’s crucial to learn all you can about the types of loans that are currently available. And the information you need is only one-click away.
Transitioning from employee to franchise owner is a big deal.
That’s why it’s essential to discuss what you’re thinking of doing with the people who will be affected the most; your family.
And when you have the discussion, don’t hold back. Tell them why you want to be your own boss. Tell them how you’re going to get the money. Tell them how careful you’re going to be-and that you promise to do great research.
In the long run, as long as you’re upfront with them, and communicate with them during the entire process, chances are they’ll support your decision.
The last thing to do, before you start your search for a franchise opportunity is to eliminate all unnecessary distraction.
Specifically, take an internet-social media break. Spend a few months with you.
Refrain from answering emails, logging into your social media networks, or reading articles about franchising-or business. Instead, spend some time away from your Smartphone. Maybe you can spend time outdoors, or at least somewhere that will provide a change of scenery. But, it has to be distraction-free.
Doing what I just recommended will force you to take a hard look at what you’re thinking of doing.
To sum things up, deciding to become the owner of a franchise business is a big decision. The preparation you do before you begin your franchise search really matters. That includes talking about your idea with your family, and spending a period of distraction-free time alone. Combined, all these action items will go a long way in preparing yourself up for success as the owner of a franchise.
When you are ready, please contact us
Managing smaller projects with increased rigor and a through-cycle mentality can help companies to capture significant untapped value.
Growth in the metals and mining sector typically requires large capital investments, which naturally garner considerable top-management attention. Yet these big projects account for only 50 to 60 percent of the sector’s $350 billion in annual capital spending. Many companies struggle to manage another category of capital expenditure with sufficient rigor: small investments to maintain existing assets, as well as small and midsize growth projects. And therein lies an opportunity.
However, we have found that decreases in capital spending rarely come with additional on spending (i.e., more robust processes to plan and manage small and medium capex). As a result, companies miss out on capturing additional value when demand returns—an opportunity they could seize by developing a through-cycle mentality to capex and increasing spend discipline.
Small and medium capex challenge
- Time-force approvals. Management teams are asked for hundreds of approvals every year during the budgeting cycle.
- Weak business cases and risk assessment. Many business cases are poor or nonexistent, with no clear benefits or revenue impacts, underestimated costs, and optimistic schedules. Risks are not fully assessed and mitigation plans are insufficiently robust, leading to delays and cost overruns.
- Bundling of small projects into large packages. Many projects are bundled together under one large topic, and decisions are made for the entire package. Limited granularity means that low-return projects end up being approved.
- Poor tracking. Executives frequently lack transparency into real-time project progress, preventing timely management intervention.
- No feedback loop. Most companies do not have a structured review process, which inhibits future opportunities to learn from mistakes.
- Low productivity. Construction productivity often falls short; there is not enough true lean construction/execution.
Project sponsors are often overburdened and may lack time or technical capabilities to effectively stress-test proposed small and medium projects.
Implementing best practice
Align capital strategy and allocation with corporate strategy
To achieve desired outcomes, mining and metals companies must translate overall corporate strategy into individual business-unit, regional and then mine/asset strategy, taking into consideration the risk-return profile of each entity. Best-practice companies ensure that projects are properly aligned with their overall strategy and are appropriately prioritized. Most recently, those companies are also incorporating lessons from the last few years and using a through-cycle mentality to determine optimal annual expenditure levels. Because many projects are small, the allocation is often made at the business-unit or even mine/asset level, which requires companies to adopt disciplined processes to ensure that expenditures align in the aggregate.
Leading companies in the industry also examine projects in terms of the value they create for the company overall, not only for the mine/asset. Often, this approach leads to the conclusion that a project should not be approved and that the value-creation goal can be achieved in other ways. This process also constitutes an important release mechanism, enabling companies to escape from the “engineer’s mind-set”—a focus on implementing the best engineered solution regardless of value. In addition, best practices also call for establishing systems to regularly monitor capital spending.
Management teams often lack the data or processes to evaluate the merits of one project portfolio over another. Instead, they may pursue a default basket of projects year after year or make blunt, across-the-board spending cuts without actively shaping the portfolio for optimized growth and operations maintenance. In contrast, the most successful companies identify an optimal portfolio of projects, basing their assessment on two main factors:
Experience in the mining and metals industry shows that quality, safety, and environmental projects—typically mandated by regulators—are often inefficiently executed. Yet when viewed through the prioritization prism, they can yield cost savings ranging from 10 percent to 30 percent. A large precious metal miner recently realized 37 percent cost reduction through the capital scrubbing of its quality, safety, and environmental projects—savings that could then be reallocated to higher-value projects.
In streamlining project concept and design, managers must scrub the business cases for each project to ensure they are realistic and robust. Companies must ensure projects meet key objectives, such as:
- Does the proposed project fix a real problem (safety, environment, operations, maintenance) or can noncapital solutions address the root issue?
- Is the project based on complete, error-free data?
- Are the underlying assumptions reasonable?
- Have all dependencies been identified?
- Can the project be done with less capital by optimizing the project scope, simplifying technical specifications, or buying from lower-cost sources?
- Can the project be made to generate revenue faster—for example, by reducing construction or ramp-up time or by introducing a phased implementation process?
- Can operational cash flows be enhanced by improving yields or reducing running costs?
Many mining and metals companies have effective stage-gate processes for managing large projects such as new mines or process facilities expansions; yet many smaller projects are managed with a one-size-fits-all approach, which leads to frustration and process or bureaucratic overload. Companies with effective portfolio management tailor their approach to each project based on its size and complexity. For example, for smaller, simpler projects, they streamline the number of stage gates and stakeholders involved. By redeploying engineering and project-management staff to the most complex or costly projects, they maximize value.
Many mining and metals companies tout excellent capabilities in managing their capital procurement. In reality, many fail to integrate procurement professionals into the front end of the project life cycle. As a result, they miss opportunities to incorporate the latest supply-market insights or technological advancements. Companies also fail to capture synergies by procuring projects individually as “spot” purchase. In the procurement of equipment, materials, or services, the industry’s best-performing companies:
- Create clear product road maps, allowing them to bundle like commodities across different projects and mines/assets.
- Employ advanced analytic tools to facilitate supplier discussions.
- Expand their supply markets to include global suppliers and take advantage of the best technology or labor markets.
- Deploy the most appropriate contracting model for each project (for example, switching between cost-plus and lump-sum methodologies) rather than always sticking to the same contracting approach.
- Base decisions on the clarity of the project scope and an understanding of the execution risk, as well as the natural ownership of that risk.
- Carefully assess contractor capabilities and select contractors that can deploy the most efficient and effective crews to sites that are often remote.
A fertilizer mining company reduced its spending on small and medium capital projects by 15 percent by challenging its insourcing and outsourcing labor strategy; by developing new procurement processes (for example, rules for using time and materials rather than fixed-cost contract structures); and through new contractor management approaches (for example, level of contractor supervision).
Small to medium capex management in a highly cyclical industry like mining and metals is often most successful when senior management treats it as a priority. Leading companies actively manage their process with regular performance dialogues between project teams and senior management. In addition, these companies do not treat smaller project optimization as a one-off event. Rather, they invest in team capabilities that promote project optimization and higher standards of execution throughout the company. They invest in training a cadre of project and portfolio-management experts. They also create centers of excellence, which they use to train small-project teams from different mines/assets to be more effective and efficient in leveraging resources. Over time, such training programs can be rolled out across the entire company. This “Capex Academy” model spreads expertise across all sites, which is essential for small-scale projects that are typically driven at the mine/asset level, in contrast to major projects that receive abundant attention from headquarters. Using this approach, one company put all of its project teams through thorough training on the prefeasibility and feasibility phases, resulting in substantial increases in project quality.
Source: Mc & Company
- You Will Soon Be Able To Order Beer, Wine Delivered Along With Your Pizza Hut Pie
- PetSmart Opens 1,600th Store in North America, Establishes Presence in All 50 States
- In-N-Out Burger Expanding To Colorado Where It Will Add As Many As 50 Restaurants
- Dollar General Adding 900 New Stores In 2018
- Five Below Keeps Adding Stores As Sales Soar
You Will Soon Be Able To Order Beer, Wine Delivered Along With Your Pizza Hut Pie
Pizza Hut on Tuesday started testing beer delivery in Phoenix and intends to add wine in January. It hopes to expand alcohol delivery to other markets next year.
The pizza chain, owned by Yum Brands, already offers beer and wine at many of its locations, so the delivery option was a natural extension, said Stacy Lynn Bourgeois, director of brand marketing for Pizza Hut.
Phoenix was selected as the test market because it already had locations that served beer and wine and is in an area that consistently mimics customer behavior patterns seen nationwide, Bourgeois said.
The beer will arrive cold in a specially designed cooler, and drivers will check IDs to ensure the purchaser is over 21.
The decision to add alcohol comes as Pizza Hut looks to distinguish itself from its competitors. The pizza chain has been a major drag on Yum Brands' earnings, so much so that some analysts have suggested that executives divest the brand.
Strong delivery sales are key for Pizza Hut as competition in the pizza segment has stiffened and more restaurants outside the group begin to deliver. In addition, Pizza Hut has typically split its sales between delivery and in-store dining.
Annual Technomic data released in May showed that Pizza Hut's share of the pizza category declined from 25% in 1995 to just 14.3% in 2016.
The gap between Pizza Hut's share and its closest competitor, Domino's, was less than 1%, with Domino's holding onto 13.6% of the sales in the market last year.
Domino's has had 22-consecutive quarters of positive growth in the U.S. and has been taking share not only from national chains like Pizza Hut but also regional and independent locations.
In April, Yum invested $130 million into Pizza Hut in an effort to upgrade equipment, improve technology and bolster its advertising.
Pizza Hut has since launched a loyalty program, made plans to hire 14,000 delivery drivers by the end of this year and has revamped its pizza boxes to keep their product hotter for delivery.
Source: USA Today
PetSmart Opens 1,600th Store in North America, Establishes Presence in All 50 States
The store in El Paso features nearly 18,000 square feet of space and includes a Pinnacle Pet Nutrition Shop, which is a new feature in all new PetSmart stores. The shops are about 550 square feet and offer 400-plus items across several brands, and an expanded collection of pet food.
PetSmart, Inc. is specialty pet retailer. The company operates more than 1,500 pet stores in the United States, Canada and Puerto Rico, as well as more than 200 in-store PetSmart PetsHotel dog and cat boarding facilities.
In-N-Out Burger Expanding To Colorado Where It Will Add As Many As 50 Restaurants
The Irvine-based burger institution, founded in 1948 in Baldwin Park, confirmed plans to build a beef-patty production facility and distribution center in Colorado Springs, which will serve up to 50 restaurants within 350 miles of the facility.
“In-N-Out Burger is excited to be in the early planning stages of its expansion to the state of Colorado,” company spokesman Carl Arena told the Register in a statement early Thursday. “Colorado Springs is an ideal community for us to locate facilities to serve surrounding markets with fresh ingredients, including meat patties produced locally.”
The expansion marks another major milestone for the chain. Its burgers are craved from coast-to-coast by loyal fans that range from Hollywood celebrities to corporate giants. Colorado represents the seventh state the chain has entered in 69 years.
In-N-Out operates 328 restaurants in California, Utah, Arizona, Texas, Nevada and Oregon.
“Because we are still in the early development phase, we don’t yet have a timeline for the construction of either our support facilities or future restaurants,” said Arena, who is traveling in Colorado.
For years, In-N-Out has steadfastly remained a regional chain despite having a legion of cravers begging for expansion outside its core Western market.
Arena, vice president of development, said the company is “extremely fortunate to have a number of loyal customers in Colorado and they have been encouraging us to open locations there for some time.”
The first Colorado store will open in Victory Ridge, said Andrew Klein, principal at Westside Investment Partners. Klein said a Denver In-N-Out will open shortly after.
“This is actually happening. We’re under contract to sell land to In-N-Out Burger,” said Klein. “I’ve had to keep my mouth shut for six weeks now; it was not easy.”
The company does not franchise and is owned by Lynsi Snyder, the granddaughter of the Snyders and the sole heiress to the burger empire.
Snyder is the president of the company. Her estimated worth increased by hundreds of millions when she turned 35 earlier this year and received the remaining shares of her trust. She has been in full control of the company since 2010.
In 2011, the company created huge buzz when it opened its first restaurants in Texas. To accommodate that expansion, the chain built a beef processing plant. Today, Texas is home to 36 restaurants with more in the works. In 2015, In-N-Out added locations in Oregon.
Source: OC Register
Dollar General Adding 900 New Stores In 2018
- Dollar General posted a net sales of $5.9 billion in the third quarter, an 11% increase compared to the year-ago period, according to a press release. The deep discounter's same-store sales rose 4.3%, which the company attributed to both customer traffic and average ticket increases, as well as a boost from hurricane-related sales.
- Net income for Dollar General rose 7.3% year-over-year to $252.5 million, though it shrank slightly as a percentage of net sales. Sales and administrative expenses also rose slightly as a percentage of net sales, to 22.9%. Gross profit rose 11.3% to 1.77 billion. Earnings per share were 93 cents, up from 84 cents in Q3 2016.
- The company also announced plans to build 900 stores, relocate 100 stores and to remodel another 1,000 in its fleet. Dollar General CEO said in a statement that the company viewed the 2,000 total store projects "as an investment to enhance and consistently deliver on our brand promise to help our customers save time and money every day."
Neil Saunders, managing director of GlobalData Retail, said in comments emailed to Retail Dive that the company's Q3 numbers shows Dollar General "is finally back on track" after a (relatively) soft start to the year. And all those stores the retailer is building? They are likely a smart play for the discounter.
"We believe that Dollar General will continue to benefit from convenient smaller shopping locations, making it faster to shop than larger format discounters," Moody's Vice President Mickey Chadha said in comments to Retail Dive, adding that "the combination of low prices, broad assortment and convenience" will help the retailer grow.
"With well over 14,000 stores across the U.S., almost 75% of the population now lives within five miles of a Dollar General store," Saunders said. "This makes the company the closest and most convenient general merchant for millions, especially those living in rural areas."
Analysts at Gordon Haskett note that the recent store build out gives Dollar General a high level of visibility, helping push its comparable store sales higher, while mature stores have seen their best comp numbers in four years. The analysts also note that "the core [Dollar General shopper] is feeling a touch more upbeat" of late, which is also helping to push sales forward.
Along with the store changes and build out, the discounter has broadened its assortment and added brand-name products, helping Dollar General "to shift quality perceptions — especially among non-traditional shoppers" and also driving transaction values, Saunders said. Along similar lines, he noted that adding more fresh food to some of its stores "appears to be working well, improving both customer traffic and spending."
"In our view, rolling fresh out across the bulk of the estate would give Dollar General more of a destination status —although executing this in some of the smaller stores may prove challenging," Saunders said.
It all paints a picture of a retailer trying to beef up existing stores and make itself into a destination, while building new stores at a furious clip. "The frantic activity does come with costs attached," Saunders points out, but the strong sales numbers would seem to justify the discounter's ambitions.
Source: Retail Dive
Five Below Keeps Adding Stores As Sales Soar
- Five Below reported that third quarter net sales rose 28.9% to $257.2 million from $199.5 million in the year-ago quarter as same-store sales rose 8.5%. Operating income in the quarter rose 71.6% to $14.8 million from $8.6 million in the third quarter last year, and net income rose 81.4% to $9.9 million, up from $5.4 million in the year-ago period, according to a company press release.
- The retailer is aggressively expanding its footprint: In the quarter the company opened 41 new stores to end the calendar year with 625 stores in 32 states, an increase of 20.9% from the end of the third quarter last year, the company also said. The company doesn't break out digital sales except to say that it's a "very small" part of its business.
- For the fourth quarter of fiscal 2017, the company expects net sales to fall between $491 million and $503 million, and assumes a 4% to 6% increase in same-store sales. Net income in the quarter is expected range between $60.8 million to $64.6 million. For the full year, the company expects net sales to range between $1.264 billion to $1.276 billion based on opening 103 net new stores and assuming a 5.7% to 6.5% increase in same-store sales. Net income for the year is expected to range $95.9 million to $99.7 million, the company said.
"We've always been a trend right retailer," he told analysts last week, according to a transcript from Seeking Alpha. "That's what Five Below was built on."
Trends, specifically three current trends, are helping to drive momentum, like fidget spinners and Silly Bandz, that Anderson called a "craze." The other two are licensed trends, like Disney’s Frozen or Star Wars, which last three or four years, and merchandise that remain popular, like blankets, but have trends within, like color or pattern. All forms of trends worked in the company’s favor in the third and second quarters, he said.
"We do a lot of surveys with our customer. And the surveys tell us that the spinner craze brought in a lot of new customers in the Five Below, and those customers have returned and shopped at Five Below," he said. "The reason we think they returned is they come back, they have a great in-store experience, the like the product, it’s trend right. We assume that they will continue to come with us and that halo effect will continue for many quarters to come."
The retailer's merchandising chops will deliver a strong fourth quarter, Anderson maintained. "I would tell you from second quarter to the third quarter and now leading into the fourth quarter, we continue to get better with the merchandise offering, our marketing efforts, and what our store operators are doing to make the experience better than ever," he told analysts. "And when you factor all that in, as you can tell by our results and our forecast for Q4, we think we’re going to have a great Q4."
Source: Retail Dive
1. Banks Are Still Lending
Not only are banks lending for U.S. commercial real estate projects, but that lending has surpassed pre-recession levels, according to an August study conducted by the Federal Reserve Bank of Richmond. Analysts attributed this boost in commercial lending activity to three key factors — low interest rates, foreign investors’ robust appetite for U.S. property and strong renter demand that has led to an apartment building boom.
The Fed finds that bank CRE exposure today is far less risky than it was in 2007. Traditional lenders have become more strategic in how they lend to commercial real estate players, making sure not to allocate too much of their credit to any one developer, sector or geographic area.
“They have tightened their standards somewhat, but they still have plenty of capital to lend and can be very competitive for certain types of loans,” Cushman & Wakefield Vice Chairman and President of Equity, Debt & Structured Finance Steve Kohn said. Kohn is speaking on a panel at NAIOP’s Office Evolution 2017 event Nov. 9.
The gradual increase of short-term interest rates has not tempered overall lending activity. CBRE’s Lending Momentum Index jumped 16.9% year-over-year in Q3, though it fell 4.7% quarter-to-quarter.
CMBS issuances took the cake in Q3. New CMBS loans amounted to $66.6B for the year as of the end of Q3, up significantly from the $49.9B issued during the same time period last year, CBRE reports.
There has been a whirlwind of activity in the CMBS market this year as lenders settle in to risk retention rules that took effect last year. The market was in an uproar in 2016 as strict lending regulations forced lenders to keep more money on the books when underwriting loans. Fear that this tightening would deter banks from issuing loans was rampant in 2016, but that uncertainty has lessened significantly since the beginning of the year. In August lenders issued 335 loans totaling $10.65B, a huge spike compared to zero loans issued in January, further signaling a dramatic shift in lender mentality.
Alternative lenders are no longer the black sheep of the debt financing market. These nonbank lenders are stepping in and filling a void left by big banks by offering bridge and mezzanine loans for assets in the interim while borrowers seek more permanent financing.
"They became a major player in the capital markets several years ago,” Kohn said. “They compete favorably on high [loan-to-value] loans of all types, mezzanine loans, construction loans and heavy transitional loans, where banks and insurance companies are much more conservative.”
The country’s top five nonbank lenders — Blackstone Group, Mesa West Capital, Starwood Capital Group, TPG Capital and Mack Real Estate Credit Strategies — together funded $20B in bridge loans in 2016, according to Trepp data.
Some of the country’s top developers are expanding their businesses to include debt to fund their peers’ projects. Developers like White House adviser Jared Kushner’s family business, Kushner Cos., Moinain Group, Related Cos. and SL Green Realty have shifted to the debt side of the business as good deals on the development side grow harder to find.
Traditional bank lenders and alternative lenders are becoming increasingly competitive. JCR Capital Managing Principal Jay Rollins said there are two primary buckets of capital in the commercial lending game today — price leaders (balance sheet lenders) and proceeds leaders.
Price leaders consist of life companies, insurance companies and traditional lenders in the space. Proceeds leaders are where the debt funds and alternative lenders hang out, Rollins said. With price leaders, borrowers are getting a lower rate, but only about a 60% loan-to-value ratio, which means they have to put in more out-of-pocket capital. Debt funds cannot compete with traditional lenders on rates, but can compete with a higher LTV ratio, often 80%.
“It’s really become a fine line between those two things,” he said. “The market is becoming divided. Debt funds and balance sheet lenders are trying to find their niche.”
- Russia and Iran Sign USD 30 Billion Energy Agreements
- The Oil Company That Lost USD 800 Billion In Shareholder Value
- Coal Company Armstrong Energy Files for Chapter 11 Bankruptcy Protection
- Shell Completes USD 4.4 Billion in Sales A Day Before Earnings Report
Russia and Iran sign $30bn energy agreement
The Oil Company That Lost $800 Billion In Shareholder Value
Ten years later, almost to the date, PetroChina’s Shanghai-listed shares have dropped by a staggering 82 percent since the IPO, wiping out shareholder value of $800 billion, Bloomberg calculated. That’s more than the current market capitalization of Microsoft, or the value of the entire Italian stock market, or the combined net worth of the world’s 12 richest people, or Switzerland’s GDP—take your pick.
But back then, cracks in the financial system had already started to emerge; the subprime mortgages market collapsed a few months later, Lehman Brothers filed for bankruptcy in September 2008, and the global financial crisis was in full swing.
Apart from those international market events, PetroChina’s Shanghai-listed shares also suffered from the 2015 Chinese market collapse, when excessive speculation in stocks led to an unsustainable bubble, which the government then suppressed with extraordinary measures and intervention on the stock market. This also wiped out some of the market value of the Shanghai shares of China’s biggest oil producer (PetroChina is also listed in Hong Kong and New York).
In addition, PetroChina’s stock is expensive in terms of forward price-to-earnings ratio—it trades at a much higher P/E ratio than its peers around the world.
PetroChina trades at a forward P/E ratio of 32, compared to Chevron’s 25, Exxon’s 22, BP’s 18, or Sinopec’s 13, for example.
Not everything is bleak for PetroChina’s shares—the ones traded in Hong Kong have better prospects. The latest price target by Hong Kong-based analyst at Jefferies, Laban Yu, suggests that the stock may gain 31 percent in the next 12 months.
Nevertheless, the Chinese policy to curb speculative trading and its aggressive push into EVs adoption don’t bode well for PetroChina’s chances to offset most of the market value loss that its Shanghai stock has sustained over the past decade.
Coal Company Armstrong Energy Files for Chapter 11 Bankruptcy Protection, CN 1747541-659
Coal-mining company Armstrong Energy Inc. filed for bankruptcy on Wednesday with a plan to turn over ownership of its struggling operations to a competitor and its lender. The St. Louis company plans to use the chapter 11 process to transfer the ownership of its five mines and other operations to a new entity owned by Illinois coal company Knight Hawk Holdings LLC and some of Armstrong Energy’s noteholders. Nearly all of Armstrong Energy’s shares are now owned by energy investor Rhino Resources Partners Holdings LLC. The terms of the transaction weren’t immediately disclosed in documents filed in U.S. Bankruptcy Court in St. Louis. Armstrong Energy mines for coal in western Kentucky on land that is estimated to have 445 million tons of proven and probable coal reserves, according to a June 30 report. It also operates three coal processing plants and a river dock coal handling and railroad loading.
AMERICAN LAND HOLDINGS OF KENTUCKY LLC
701 MARKET ST STE 775
ST LOUIS, MO 63101
ASSOCIATED ENGINEERS INC
2740 NORTH MAIN ST
MADISONVILLE, KY 42431
BLAIR TIRE INC
1300 HWY 15
ISOM, KY 41824
BRAKE SUPPLY CO INC
BARRY HEICHELBECH (CFO)
5501 FOUNDATION BLVD
EVANSVILLE, IN 47725
BRANDEIS MACHINERY AND SUPPLY CO
1801 WATTERSON TRL
LOUISVILLE, KY 40232
BRIAN'S BATTERY LLC
BRIAN MASS (OWNER)
86 EPHIE DRIVE
COLDIRON, KY 40819
CONN-WELD INDUSTRIES INC
JAMES D CONNOLLY
PO BOX 5329
PRINCETON, WV 24740-5329
12 RIVER HILL RD
LOUISVILLE, KY 40207
FIRST-LINE FIRE EXTINGUISHER CO
1333 N 8TH ST
PADUCAH, KY 42001-1032
HERITAGE PETROLEUM LLC
516 NORTH 7TH AVE
EVANSVILLE, IN 47719
INTERNAL REVENUE SVC
INTERNAL REVENUE SVC
CINCINNATI, OH 45999-0009
271 GAWTHROP RD
WINCHESTER, KY 40391
JOY GLOBAL UNDERGROUND MINING LLC
JANET HOUSTON OR SHANNON KASH
1748 SOUTH MAIN ST
HENDERSON, KY 42420
6402 OLD CORYDON RD
HENDERSON, KY 42419-0018
KENTUCKY DEPT OF REVENUE
KENTUCKY REVENUE CABINET
FRANKFORT, KY 40620
KENTUCKY STATE TREASURER
KENTUCKY DEPT OF REVENUE
FRANKFORT, KY 40620
KENTUCKY UTILITIES CORP
PO BOX 9001954
LOUISVILLE, KY 40290-1954
KY WORKER'S COMP FUNDING COMMISSION
#42 MILLCREEK PK
FRANKFORT, KY 40602-1128
MADISONVILLE TIRE AND RETREADING INC
PO BOX 1593
MADISONVILLE, KY 42431
MINE EQUIPMENT AND MILL SUPPLY CO
4 NW 2ND ST SECOND FL
EVANSVILLE, IN 47708
MUHLENBERG COUNTY SHERIFF
PO BOX 227
GREENVILLE, KY 42345
OFFICE OF SURFACE MINING
PO BOX 979068
ST LOUIS, MO 63197-9000
OHIO COUNTY SHERIFF
PO BOX 186
HARTFORD, KY 42347
OVERLAND CONVEYING SYSTEMS LLC
PO BOX 434
MADISONVILLE, KY 42431
RAY JONES TRUCKING INC
3296 SR 181 SOUTH
GREENVILLE, KY 42345
JAMES L ROGERS III AND MARY M ROGERS
PO BOX 12969
FT PIERCE, FL 34979-2969
ROGERS GROUP INC
10234 HOPKINSVILLE RD
PRINCETON, KY 42445
ROYAL BRASS AND HOSE INC
2856 ANTON RD
MADISONVILLE, KY 42431
RUBY CONCRETE CO
134 NORTH DEMPSEY ST
MADISONVILLE, KY 42431
S AND L INDUSTRIES LLC
234 STATE ROUTE 109 NORTH
CLAY, KY 42404
SGS NORTH AMERICA INC
618 BOB POSEY ST
HENDERSON, KY 42420
SMITH MANUS SURETY BONDS
2307 RIVER RD STE 200
LOUISVILLE, KY 40206-5005
WILLIAM J LEVY (CFO)
BEAVER VALLEY RD STE 500
WILMINGTON, DE 19803
SPECIAL MINE SVC INC
2180 HWY 70 WEST
CENTRAL CITY, KY 42330
STAR MINE SVC INC
LEE BOWLES OR BO TAYLOR
PO BOX 571
MADISONVILLE, KY 42431
THE BRENNAN GROUP
12221 BIG BEND RD
ST LOUIS, MO 63112
THOMPSON AND KNIGHT LLP
ONE ARRTS PLZ 1722 ROUTH ST
DALLAS, TX 75201-2533
THOROUGHBRED RESOURCES LP
CHARLES R WESLEY IV
3033 E 1ST ST STE 837
DENVER, CO 80206
UGM ADDCAR SYSTEMS LLC
NO 1 HWM DR
ASHLAND, KY 41102
68 JONSPIN RD
WILMINGTON, MA 1887
UNITED CENTRAL INDUSTRIAL SUPPLY CO
1150 NATIONAL MINE DR
MADISONVILLE, KY 42431
US DEPT OF LABOR MSHA
PO BOX 790390
ST LOUIS, MO 63179-0390
WABASH MARINE INC
PO BOX 287
STURGIS, KY 42459
WALLACE ELECTRICAL SYSTEMS LLC
2853 KEN GRAY BLVD STE 4
WEST FRANKFORT, IL 62896
WC HYDRAULICS LLC
MICHAEL SANDERS CFO
172 PHILPOT LN
BEAVER, WV 25813
WEST KENTUCKY PIPE AND VALVE INC
200 POND RIVER COLLIERS RD
MADISONVILLE, KY 42431
WESTERN KENTUCKY ROYALTY TRUST
PO BOX 2042
HENDERSON, KY 42419-2042
WHAYNE SUPPLY CO
2420 E LYNCH RD
EVANSVILLE, IN 47711-2953
WHITCO ENTERPRISES INC
PO BOX 81
WHITE PLAINS, KY 42464
WOODRUFF SUPPLY CO INC
628 LINCOLN AVE
MADISONVILLE, KY 42431
Shell completes $4.4 billion in sales a day before earnings report
For $628 million, Shell said it completed the sale of its entire Gabonese oil and gas interests to a company controlled by The Carlyle Group. The transaction includes the sale of all of Shell's onshore oil and gas interests, which includes nine total fields, and the associated infrastructure, including pipelines and export terminals.
French energy major Total in February said it was taking advantage of improved market conditions by selling mature assets in Gabon to Anglo-French company Perenco for $350 million.
BP has produced nearly 400 million barrels of oil from Schiehallion since production started in the late 1990s and the company said redevelopment could yield another 450 million barrels and extend the field's life into the 2030s.
"With improving operating costs, competitive fiscal terms and a world class skills base, the North Sea is undergoing a period of rejuvenation," Chairperson Linda Cook added.
Shell said the sales show "clear momentum" behind the effort to shed $30 billion in assets and "re-shape the company into a world class investment." The company reports its third quarter earnings on Thursday. Net profit for the second quarter was $3.6 billion, up from the $1 billion reported for the second quarter 2016. From the first quarter, however, net profit is down about 4 percent.
Sources: WSJ, UPI, Oil Price Energy, Financial Times
Kuczynski and company executives signed three exploration and drilling agreements with state oil agency Perupetro in blocks Z-61, Z-62 and Z-63 in the Pacific Ocean adjacent to the Lambayeque and La Libertad regions.
Peru is trying to increase oil output, which has fallen to about 40,000 barrels of crude a day, about a third of what it produced in the 1970s, as investment lagged.
In May, the government said state-run China National Petroleum Corporation (CNPC) would invest some $2 billion in an oil and natural gas block in a jungle region in southern Peru.
After Hurricane Harvey roared into Texas, flooding oil refineries and crippling ports along U.S. Gulf Coast, Latin American countries scouring the globe for other sources of fuel are zeroing in on a flotilla waiting to unload off the coast of Venezuela.
Almost no fuel tankers have sailed from Texas for Latin America in six days, according to Thomson Reuters vessel tracking data. Terminals and refineries shut by the storm are unlikely to fully recover for weeks.
The United States is the world’s largest net exporter of refined petroleum products, shipping around 5.05 million barrels of fuel per day. Latin America received almost half of that, or 2.5 million barrels per day (bpd). Most of it loads from the U.S. Gulf Coast.
Latin America’s top recipients of U.S. fuel shipments are Mexico, Brazil and Venezuela, which is an OPEC member sitting on the world’s largest crude oil reserves. However, Venezuela refineries are in such poor repair that the country cannot meet its domestic fuel needs.
On Tuesday, a trading firm with two cargoes of diesel waiting to discharge in the port of Curacao notified Venezuela’s state-run oil company PDVSA it plans to suspend its delivery contract and divert the shipments to Ecuador, according to a PDVSA source familiar with the firm’s international trade.
PDVSA did not immediately respond to a request for comment.
Mexico, Brazil, Colombia and other countries also want to tap some of the about 7 million barrels of fuel sitting in the Caribbean sea, according to three traders and shippers.
Some of the two dozen tankers sitting offshore have been waiting for weeks to discharge, either because cash-strapped PDVSA has been slow to pay for fuels or because of bottlenecks at ports.
“Refiners are waiting for (U.S.) ports to reopen to start shipping what they have in storage, but some companies are desperate,” said a trader from an oil firm supplying some regional state-run oil companies.
Mexico, which normally imports two gasoline cargoes per day, is among the countries looking to buy the fuels, the trading sources said.
If trading firms that control the tankers “offer to divert a cargo from Venezuela, they (Mexico) are going to take it,” said a source at an oil company with large operations in Latin America.
Peruvian oil company Petroperu on Monday launched a tender to buy up to five cargoes of diesel for delivery in September and October, according to a document seen by Reuters. Colombia’s state-run Ecopetrol ECO.CN has called trading firms to find gasoil cargoes for prompt delivery, a source said.
Harvey has caused refinery outages that resulted in about 21 million barrels of gasoline and distillates in lost production as of Wednesday, according to Reuters’ estimates based on Energy Information Administration numbers.
U.S. refineries with capacity to produce 4.4 million bpd have shut. That is nearly 4.5 percent of total global fuel supply.
Diverting the cargoes from Venezuela could bring big profits to traders as diesel and gasoline prices are rising fast due to the U.S. supply disruptions. But providers would have to reach agreements with PDVSA before moving the tankers.
PDVSA has failed to prepay for most of the tankers anchored near Venezuelan ports, according to the sources. Even so, traders would seek to agree with Venezuela to swap them for cargoes they could deliver later, rather than violate their end of a contract and damage their relationship with PDVSA.
“For diverting a cargo you need to declare a contract breach and that could lead to a long battle,” one trader said.
“It might be easier for traders to negotiate another delivery window for September or October, which could allow charterers to divert these cargoes in the meantime.”
Some nations have more fuel in storage than others to cushion the impact on domestic markets of the reduction in U.S. supplies.
Brazil, Latin America’s largest buyer of U.S. diesel and a big gasoline importer, has fuel storage constraints, said Adriano Pires, a consultant at Brazil’s Center for Infrastructure. But he added that the storm’s hit to U.S. shipment capacity has not yet became a problem.
“I don’t think those cargoes have a strong commitment to be delivered to PDVSA in the current situation, so South America, especially Brazil, could get something from there,” said Robert Campbell from consultancy Energy Aspects.
U.S. sanctions on new Venezuelan debt operations and on officials, including President Nicolas Maduro and PDVSA’s Finance Vice President Simon Zerpa, have compounded trading difficulties.
Some banks that routinely provided trade financing for companies importing and exporting Venezuelan oil have stopped issuing letters of credit.
Maduro’s government has sought to blame the shortage of essential goods on the United States for imposing financial sanctions that have delayed imports.
The sanctions meant that Venezuela “cannot pay for imported essential goods for the people”, said Delcy Rodriguez, president of Venezuela’s recently-installed pro-Maduro Constituent Assembly.
How Refiners Are Faring From The Ravages Of Hurricane Harvey
Hurricane Harvey, which slammed the Texas coast over the weekend and flooded large portions of Houston, is having dramatic effects on the energy complex along the Gulf Coast. By Raymond James' estimates, the storm took out more than 2 million barrels of oil per day at area refineries -- and potentially much more if run-rates are reduced at other facilities.
The known shut-downs/closures have affected such companies as:
- ExxonMobil (561,000 barrels of oil per day in Baytown),
- Valero Energy (470,000 at refineries in Corpus Christi and Three Rivers),
- Royal Dutch Shell/Pemex (312,000 in Deer Park),
- Koch Industries' Flint Hills Resources (300,000 in Corpus Christi),
- Phillips 66 (247,000 in Sweeny) and
- Brazilian oil giant Petrobras (106,000 in Pasadena).
- Magellan Midstream Partners' and Buckeye Partners' condensate splitters in Corpus Christi (50,000 barrels of oil per day each) also have been affected.
Jenkins said it's too early to assess the lasting impact that Hurricane Harvey will have on crude oil and refined product markets. Valero reported that its refineries made it through the hurricane relatively unscathed, although a full return to its production schedule isn't known.
However, each refining company will tend to benefit at least from a margins, earnings and stock price perspective from periods of disruption, Jenkins said, even if they have assets affected (shares of Raymond James' coverage list jumped 4.5% on average last week).
Indeed, as of Sunday night, gasoline and diesel benchmarks surged, widening crack spreads further, and Jenkins thinks crack spreads may remain strong in the days and weeks ahead due to the disrupted operations. Shares of the major refiners were up on Monday, with Delek, Holly Frontier and PBF all up by around 7%.
More refining capacity could be taken offline if Harvey loops and begins moving up the Texas coast toward Louisiana as forecasted, analysts at Tudor, Pickering, Holt said in a report. That could result in additional shutdowns in the Port Arthur/Beaumont/Lake Charles refining center that holds another 2.2 million barrels per day of capacity, or about 12% of the U.S. total, they estimated.
"Thus [the] worst case suggests that upwards of 25% to 30% of domestic refining capacity could be shuttered near-term," TPH said. "We guess that the supply disruption will be in the one- to two-week range at this point."
Source: Reuters and Forbes
Investment of 9.8% stake makes Berkshire the third-largest shareholder in Store Capital Corp. real-estate investment trust
Warren Buffett's Berkshire Hathaway is betting on net lease assets with a $377M investment in retail REIT Store Capital Corp. — a move that shows the world’s most famous investor thinks there is still life in the retail real estate sector.
The real estate mogul's company took a 9.8% stake in Scottsdale, Arizona-based Store Capital Corp. Monday, sending its stock soaring 11%. The REIT primarily leases retail properties to mom-and-pop retailers, and avoids the sectors that have seen their market eaten up by e-commerce, such as fashion, media and electronics, Bloomberg reports. Its tenants tend to be preschool facilities, health clubs, dine-in movie theaters and pet care sites. Tenants cover the costs of running the property. Store Capital CEO Christopher Volk told Bloomberg that Berkshire Hathaway had been studying the REIT since 2014, occasionally holding conversations with management. He said 10 days ago, Buffett’s deputy investment manager, Ted Weschler, called the company to suggest a deal because the share price had fallen to an attractive level. Buffett has previously told investors in his famous shareholder letters that real estate can be a good hedge against inflation and is a better store of value than gold and bonds.
- Oil and the Global Economy
- The Middle East & North Africa
1. Oil and the Global Economy
During the past month, there have been several important developments which could have a major impact on the course of oil prices and production in the next few years. First was the OPEC/NOPEC decision to extend the current 1.8 million b/d production cut for another 18 months despite increasing evidence that increasing US shale oil output and rebounding Libyan and Nigerian production are offsetting the production cut. Because of the timid nature of the OPEC decision, increasing stockpiles and higher oil production, the price of crude has fallen some 11-12 percent in the last three weeks leaving US futures below $46 and Brent below $48 a barrel.
The continuing price slide took prices back to where they were before the production freeze was first discussed last fall. Oil prices back in the mid-$40s has OPEC and other oil producers very concerned. Most analysts do not see much of a further decline in oil prices; however, bullish enthusiasm and confidence that that OPEC will rebalance the markets have faded for the time being. OPEC and Russia are already talking about the need for deeper production cuts, and another meeting is being discussed for July to weigh further actions should prices not rebound by then. OPEC and Russia now are talking about a permanent alliance between the oil producers that are currently a party to the production cut.
OPEC is said to be working on forming a legal relationship between the cartel and the members of the production cut alliance that in effect could expand the cartel to control more than 40 percent of world oil production.
The next major development during the last month was the blow up over the freewheeling foreign policy and good relations with Iran that Qatar has maintained in recent years. In a dramatic announcement, Bahrain, Egypt, Saudi Arabia, the UAE, and Yemen said that they were breaking diplomatic relations with Doha and cutting off land, air and sea travel to the country. All but Egypt which has 250,000 of it citizens earning a good living there directed their nationals to return home. The main charge against the Qatari government is that it supports what some consider terrorist groups across the Middle East.
Qatar produces only a small amount of oil but is the world’s largest exporter of natural gas. The regional embargo is already making trouble for Qatar’s LNG exports although Exxon announced that its exports of LNG from Qatar had not been affected.
This situation already has many facets, ranging from a major US airbase in the middle of the country to Turkish troops coming to support Qatar to Iran’s offer of alternative transportation routes for food and water. As Qatar believes, the Saudis are trying to affect a regime change in the country; they will resist as best they can with the help of Turkey, and Iran. The situation is obviously dangerous as so many of the world’s major oil exporters are involved not to mention Qatar’s large LNG exports.
The final noteworthy development in the last month was the announcement that the US is pulling out of the Paris climate change agreement. Opinions are mixed as the impact of this action. Some see this as a major setback to the effort to reverse climate change; others as a boom to the fossil fuel industry that will be free to develop new sources of energy that will start an economic boom; and still others believe that the global movement to slow climate change is so strong and deeply embedded that the pull-out will have little effect on the use of fossil fuels over the long run.
During the past month, there has been an unusual amount of discussion in the financial press about the possibility of “peak oil demand.” This development is supposed to be caused by the advent of large numbers of electric vehicles which in the next 25 years will reduce the demand for gasoline way below most projections. Most major manufacturers have announced electric vehicle programs, and some are talking about building networks of recharging stations to speed their adoption. The situation is made more interesting because of the attitude of the Chinese government seems close to making electric powered cars mandatory as part of the effort to clean up their air.
Needless to say, the oil industry rejects the notion that the public will buy large numbers of electric-powered cars in the foreseeable future citing their high cost, limited range and time to refuel. Others are not so sure that sales of electric cars will not take off and come to dominate the market much as cell phones did 30 years ago. Proponents of electric cars cite the falling costs, improved technology, the advent of autonomous cars, lower operational costs and reduced emissions as reasons electric cars will come to dominate the markets in the next few decades.
2. The Middle East & North Africa
Qatar: On June 5th yet another Mid-Eastern crisis began when five Arab countries severed relations with Qatar alleging that Doha was funding and supporting many “terrorist” groups across the region. The trouble had been brewing since 1995 when the grandfather of the current Emir of Qatar was overthrown, and the country embarked on a foreign policy not dictated by the Saudis. Qatar became a friend of almost everybody, hosting a large US airbase as well as maintaining good ties with Shiite nations such as Iran. The Qatar-sponsored Al-Jazeera TV network has been critical of the Saudis and their allies for years.
Qatar is the wealthiest of the oil and gas exporting nations on a per capita basis; Qatar has had the income from large LNG sales to support many Arab groups around the region. Some of these, especially groups supporting Iran and the Muslim Brotherhood which was overthrown by a military coup in Egypt were an anathema to the Saudis and their Sunni friends.
Some believe that the recent Trump administration embrace of the Saudis as America’s best friend in the region was the proximate cause of the crisis which is likely aimed at a regime change in Qatar. If this is indeed the Saudi goal, a negotiated settlement will be hard to attain and the crisis may continue for a considerable time. The Saudis seem unlikely to invade a small neighbor with large US military base, and the backing of the Turks, who are planning to move more troops to Qatar, and Iran which says it will substitute for the now closed Qatari-Saudi border.
The question here is the implication of this crisis for oil and LNG exports from the region. While it is still too early to assess the full impact of the embargo on Qatar, ports in Saudi Arabia and the UAE have already been closed to shipping traffic to and from Qatar. Oil shipments from Qatar are frequently mixed with oil from other Gulf States and LNG ships taking away Qatari gas are usually serviced in other countries. Beyond the immediate impact of the embargo, there are many ways this crisis could go that will impact the oil markets. If the crisis drags on the OPEC production cut could be affected. Saudi efforts to attract more foreign investment could be harmed. Qatari LNG exports could be curtailed driving up prices. Finally, hostilities could break out leading to all sorts of problems that would drive up oil prices.
Iran: The major news of the week was an attack on Iran’s Parliament and the Shrine of the Iranian revolution’s founding father, the Ayatollah Khomeini, by suspected ISIS gunmen. There is some suspicion that ISIS would be able to mount attacks so deeply in a Shiite state. Tehran is blaming the Saudis for the attacks. If nothing else the attacks show that security throughout the region continues to deteriorate among the numerous confrontations currently going on.
Tehran said last week that the first post-sanctions petroleum contract that will be made available on commercial terms would be announced next month. The contract will be for the Azadegan oil field near the Iraqi border which is supposed to hold 6 billion or perhaps 37 billion barrels of recoverable reserves. Tehran is notorious for hyping its projects. The contract for developing the field had been held by the China National Petroleum Corp, but the Chinese were kicked out for failure to make any progress in developing the field.
Iraq: Last week Wood Mackenzie released a report assessing the status of the Iraqi oil industry. Iraq is a low-cost producer and has some of the world’s most capable energy companies working on expanding its production. The country, however, is burdened with the ISIS insurgency, low oil prices and a stagnant bureaucracy which is keeping it from expanding production to its goal of 12 million b/d. The costs of the war have prevented many oil contractors from being paid and the initiation of new projects. The country has agreed to a 4.35 million b/d production cap that will last for another year.
Insurgent attacks are picking up in Diyala province as ISIS is being driven out of Mosel. In the last week, there has been a spate of deadly attacks targeting Iraqi security forces and energy infrastructure.
The US has begun importing increased amounts of Iraqi crude to replace cuts from Saudi Arabia, which is concentrated on maintaining its share of the Asian market. During the first week of June, Iraqi oil entered the US at the rate of 1.1 million b/d, the first time in five years that Iraq has surpassed Saudi Arabia as a source of crude.
Baghdad plans to increase its refining capacity which currently is only 500,000 b/d in contrast with its daily production of 4.35 million. Iraq currently is spending $2 billion each year importing refined products despite being one of the world’s largest oil producers.
Saudi Arabia: Events are moving rapidly in the kingdom which is fighting a war in Yemen; recently opened a serious confrontation with Qatar; just negotiated a $200-$350 billion deal to invest and buy arms from the US; and is running through its foreign currency reserves at the rate of circa $100 billion a year. Some are concerned that the confrontation with Qatar could backfire on the Saudis by scaring away the foreign investors Riyadh needs to revamp its economy away from dependence on oil exports. The deeper the Saudis become involved in Middle Eastern confrontations, the harder it will become to sell off part of Aramco and start partnerships with foreign companies.
In the meantime, the Saudi oil minister says there is no need to adjust the oil freeze agreement immediately, but deeper cuts may be discussed at the OPEC meeting coming in November. The Saudis recently announced that they will cut oil shipments to the US to reduce swollen US stockpiles and drive up prices.
The OPEC/NOPEC production cut has led to the realization in Moscow and Riyadh that the two countries have a lot in common in their mutual interest to drive up oil prices as a paramount national goal. The two have been discussing new forms of cooperation in what Reuters terms “an axis of love.” Both realize that should oil prices remain at their current levels or lower for the next few years, both of their economies could be in serious trouble.
Libya: Oil production seems to be back up to 827,000 b/d in recent weeks as many of the internal squabbles between the National Oil Company and the groups that control many of the oil facilities have been settled – at least for now. Outside observers doubt that Libya can increase its production much beyond 1 million b/d without an improvement in the security situation that would allow large numbers of foreign workers back into the country to repair damaged infrastructure.
Even so, a Libya producing 1 million b/d and not subject to the OPEC production cap would go a long way towards offsetting the current production cut of 1.8 million b/d.
Despite efforts to clean up their environment and slowing economic growth, Beijing continues to import increasing quantities of oil and coal. In the case of oil, newly released customs data shows that China is now the world’s largest importer of oil with crude imports up 13.1 percent over the first five months of the year. Part of the increase is to offset declining high-cost domestic oil production and part is going to increased exports of refined products.
China’s coal imports in May were up 17 percent over last year. Again, some of this is due to the recent closure of small, inefficient coal mines. Increasing coal imports suggest that economic growth still has a higher priority than cleaning up the air. However, Beijing announced that it will continue to adhere to the climate pact despite the US withdrawal.
Moscow is adamantly maintaining that low oil prices will not harm its future economic growth and continues to say that it can live with $40 oil indefinitely. While oil prices have recovered from the very low levels seen last spring, some 40 percent of federal budget revenues comes from oil and gas revenues. It is difficult to see how Moscow can rework its economy in the short run to reduce this dependency.
Despite concerns about EU dependence on Russian natural gas, exports to the EU in the first quarter were higher with German purchases up nearly 20 percent, Polish purchases up 24 percent and French purchases up 14 percent. Gazprom has called for tenders to build a second Nord Stream pipeline under the Baltic to supply western Europe. The new line could be open sometime in 2019. Moscow is also considering building a pipeline to Japan to supply gas directly to Japanese power plants. The issue is still open as Japan decides which, if any, of its nuclear power plants will be reopened.
In Washington, the Comey testimony that Moscow was involved in interfering with the US election last fall increases the odds that a bill containing new sanctions on Russia will get though the US Senate.
On June 6th, Shell lifted the force majeure that has been on the Forcados Export Terminal for the last 17 months after repairs to a sabotaged pipeline. The reopening of the terminal improves the prospects of the government meeting its goal of a 2.2 million b/d export target. As with the situation in Libya, the resumption of full production capability goes a long way towards offsetting the OPEC production cut as Nigeria is exempt from the agreement.
On the downside, the New Delta Avengers vowed last week to resume disruption of oil production in Delta State. The militants announced that from midnight June 30, 2017, there would be no more oil operations in the Delta. The Nigerian story is far from over.
Mass anti-government demonstrations have entered their third month with no end in sight. So far some 70 people have been killed by security forces and hundreds wounded. The government is desperate for money to pay for imported food and medicine and to keep paying the security forces that are opposing the mass demonstrations and are keeping the government from being overrun. Venezuela teeters on the brink of collapse threatening some 1 to 2 million b/d of oil that is still being produced.
The Trump administration is considering sanctions against Venezuela’s oil industry, but fears it would only make the social crisis worse and cut exports to the US. In March, Venezuela was the 3rd largest US source of foreign crude and 8 percent of US imports.
- Drilled wells up 80% as equipment made cheaper by price slump
- Revival of output from shale formation may compound surpluses
That’s because the Montney, unlike many parts of Canada’s oil and gas region, is seeing a surge of investment three years after the worst energy slump in decades. During the first four months of 2017, the number of wells drilled jumped 80 percent from a year earlier to 277, according to Calgary-based Grobes Media Inc.’s BOE Report. It’s the most for the period since 2014, when oil prices were twice what they are now and natural gas was 50 percent higher.
Grimes started noticing a pickup in orders back in November and December -- the start of the winter drilling season -- as more customers put in urgent orders for equipment. Demand hasn’t let up. “By January, it was getting pretty crazy,” Derek Mackey, the company’s accountant, said by telephone from Edmonton. “Some people called saying: Can we get a rig in a couple days?”
“We call it Canada’s bellwether play,” said Mark Oberstoetter, lead analyst for upstream research at Wood Mackenzie in Calgary. “We have seen reduction in activity in every play, but the Montney has held up better than most.”
The deposit straddles the northern border of Alberta and British Columbia. It was dubbed the “Permian of the North” by Vancouver-based Blackbird Energy Inc. because the Montney has the same layered, stratified geology as the Texas shale formation that has led a resurgence in U.S. oil production. But unlike the Permian, which yields mostly crude, the Montney is rich in gas and associated liquids such as condensate.
Shale deposits have become popular targets for North American producers as technologies like horizontal drilling and hydraulic fracturing made it cheaper to extract oil and gas trapped in narrow seams deep underground. The techniques led to gushers at old fields in Texas, North Dakota and Pennsylvania.
West Texas Intermediate rose to $50.41 a barrel as of 11:57 a.m in New York on Friday, topping $50 for the first time this month.
Western Canadian gas also has recovered. After dropping as low as 65 Canadian cents (50 U.S. cents) per million British thermal units last May, the lowest in about 20 years, prices have more than quadrupled to almost C$3, data compiled by Bloomberg show.
The Montney contains about 449 trillion cubic feet of marketable natural gas, Canada’s National Energy Board estimated in 2013. That’s about half the total reserves of Qatar, the Persian Gulf country that is the world’s biggest exporter of liquefied natural gas. The Canadian formation also contains 14.5 billion barrels of natural gas liquids and 1.13 billion barrels of oil, according to the NEB report.
With investment and drilling on the rise, daily gas production at the Montney will jump to 7 billion cubic feet by 2019, compared with 4.9 billion cubic feet now, according to Wood Mackenzie. Condensate, oil and other natural gas liquids will grow to 470,000 barrels a day from 250,000 barrels, as development proceeds in liquids-rich areas of northern British Columbia, Heritage/Tower, Elmworth and Kakwa, the industry researcher said.
On April 27, the Petroleum Services Association of Canada raised its 2017 well-drilling forecast for the country by 60 percent to 6,680.
Encana Corp., the largest Montney producer, plans to drill about the same number of wells this year as in 2014, Jay Averill, a spokesman, said in an April 20 email. By 2019, the company expects to double gas output to 1.2 billion cubic feet, with similar gains in production of liquids to more than 70,000 barrels a day.
“The Montney has evolved into a world-class condensate play, and with a relentless focus on innovation and efficiency, we have driven costs lower and increased well productivity,” Averill said.
Even with those gains, Encana probably will lose the top spot to bigger increases by Seven Generations, according to Wood MacKenzie. ARC Resources will be No. 3, followed by Royal Dutch Shell Plc.
While the Montney is a long way from the energy-hungry U.S., it is close to Canada’s biggest consumer of gas and condensate -- Alberta’s oil sands mines and wells. The industry uses gas to loosen the hard bitumen rock, as well as to heat water used in the process. Condensate is blended with viscous, raw bitumen so it can flow freely through pipelines. Oil sands production by 2020 could reach 3.4 million barrels a day, up 34 percent from 2015, according to Canadian Energy Research Institute projections.
Montney producer Kelt Exploration Ltd., which planned at least three new wells, is the best-performer this year among 27 companies tracked by the S&P/TSX Composite Oil & Gas Exploration & Production Index. Its shares are up 6.5 percent, while the index is down 14 percent.
The drilling revival in the Montney has been a lifesaver for Grimes Well Servicing, which increased its winter workforce to 80 from 50 a year earlier. While demand isn’t strong enough yet to raise service rates that were cut 20 percent during the slump, executives at the company are glad for the business.
“Its an improvement over the last couple of years, no doubt about it,” said Mackey, the company’s accountant.
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