Ghawar dying?

Fears that the massive Ghawar oil field in Saudi Arabia may have passed its prime have been the stuff of speculation for many years. Ghawar has underpinned Saudi Arabia’s dominance of the oil market ever since it came on stream in 1951. With its ability to pump out some five million barrels per day on average, more than half of Saudi Aramco’s total of 9.1 million barrels per day, the slow death of Ghawar may help to ensure that the low oil prices of the 1980s are but a dream for the average consumer.

Don Coxe, an analyst from the Bank of Montreal, once described Ghawar as having passed “Hubbert’s Peak”, a phrase used in honour of geologist M King Hubbert, who predicted oil field decline in the 1950s. The best indication of this is the steadily increased usage of water injection in the wells. Water injection is normally used on older oilfields to maintain pressure within the well and force out more oil. The problem is, once the water reaches the well head, the field has to be abandoned. Many are now pondering the connection between Saudi production and increasing water usage. As Coxe puts it, “Isn’t water flooding [the] Viagra of ageing wells?”…

Uranium Press

CBS Marketwatch:

SAN FRANCISCO (MarketWatch) — As the world seeks alternatives to oil as a source of energy, uranium has been on a tear, scoring a gain of around 700% in six years as interest in nuclear power has revived.
“Uranium’s performance has been in a league of its own,” said Scott Wright, an analyst at financial-services company, Zeal LLC.
Uranium has been one of the best-performing commodities in this bull market, he said. Spot prices are trading at around $56 a pound, an eight-fold increase from as low as $7 back in 2000. See the latest uranium prices.
“And the way fundamentals look today, there could be a lot more room to run,” said Wright.
Crude and gold prices have seen strong gains, but they pale in comparison to uranium. Over the last six years, crude futures are up around 90% and gold futures prices have more than doubled.
The biggest reason for uranium’s rise? Simply put: supply scarcity.…

Uranium getting mainstream

In recent years, the price of uranium has flown higher than that of gold, silver, platinum or palladium. From 2001 to 2006, the uranium price rose by approximately 700%.

It looks like the upside may have a lot further to go. Global demand for uranium is 160 million pounds per year, but only 90-100 million pounds is produced from mining production. The shortfall is being made up by drawing from stockpiles that had built up from the over-production during the 1970s and from decommissioned nukes from the former Soviet Union.

“For 20 years, mine supply has accounted for 60% of what is needed to supply reactors,” says Dr Tim Sugden, managing director at Nova Energy Limited at the gold and precious metals investment world conference in Hong Kong. Nova owns a major uranium deposit in Australia that it hopes to start mining in the near future. “After 2013, Russia has said it will stop supplying enriched uranium to the West.There will be a supply squeeze.”

Analysis: It is interesting and typical that people gain interest in an investment after it has gone up hundreds of percent. The fact that a supply squeeze is coming is of interest to us as we have fairly nice gains in our uraniums and will look to cash out as the public comes in at the top.…

Housing not stable

Comstock Partners:

Widespread reports that the housing industry is stabilizing are just too incredible to believe.  Affordability remains at a 15-year low; inventories are at record levels, new housing permits are plunging; and industry executives are telling us every day how bad things really are.

Foreclosures in dallas highest sine 1980’s oil bust.

Dallas Morning News:

 Home foreclosure postings in the Dallas-Fort Worth area have surged to their highest level since the 1980s.Nearly 4,000 homes in Dallas, Tarrant, Collin and Denton counties have been posted for possible sale in November, up 49 percent from the same period a year ago.

“It’s high, much higher than normal,” said George Roddy, president of Addison-based Foreclosure Listing Service, which compiled the data.

Fueling the foreclosures are interest rate hikes, rising living expenses and consumer debt, and aggressive lending practices.

Home foreclosure postings reached about 35,300 so far this year, increasing 20 percent over the same period a year ago. That figure has already surpassed the total for 2005, which was about 32,500.…

Dune Energy gas production up 435% since August 30, 2006

Yahoo:

Dune Energy, Inc. (Amex: DNE – News) announced today that it has placed nine wells on production since August 30, 2006. Stabilized rates from these new wells has added gross production of 10.0 million cubic feet per day (MMcfe/d), bringing the Company’s total daily gross production to 12.3 MMcfe/d. This represents better than a four-fold increase over previous levels.

Four wells were drilled and placed on production by Dune on its existing core Barnett Shale acreage, while two were purchased as part of its recent acquisition of properties from Voyager Partners, Ltd.

Dune has also participated in the successful recompletion of three wells on its Bayou Couba property in South Louisiana. Dune owns a 91.4% WI in two of these wells and a 20.7% WI in the third.

In addition, Dune has participated in the completion of two wells on its Welder Ranch property in Victoria County, Texas. Both wells are waiting on pipeline connection. Dune was carried to casing point in the two wells as part of a previously announced farm-in agreement with Chesapeake Energy.

Amiel David, President and Chief Operating Officer said, “Dedicating the Itera #1 Rig to our Barnett Shale properties allows us to drill up to 10 wells per year. We have 24 horizontal and vertical locations in our current Barnett Shale drilling inventory. Upon successful closing of the remaining Voyager assets, our total number of drilling locations will increase to 51, excluding any additional acquisition of acreage in the Basin.”

Analysis: This could be another GMX Resources. If you remember we rode to around 400% gains on that stock under the same conditions. Huge increases in production will move the stock. This stock is a strong buy.…

Housing index has alot more to fall

Smith Blog:

While screaming-head entertainers/pundits can call all the “bottoms” they want, even a cursory analysis of the HGX chart suggests the bottom is a long way down. Not shown on the chart is the third downleg, which will bring the index down to 50 or even lower.

Impossible, you say? Recall the dot-com meltdown, if you will. Take a real company such as Akamai (AKAM) which ran to $348 at the height of the dot-com mania in early 2000. It subsequently fell to 56 cents in October 2003. If the housing sector continues to build unwanted inventory and dumps that inventory for losses, why would anyone buy housing stocks? For the land, which is depreciating rapidly? For the book value of deteriorating assets?

I would say fair value of the housing index at the real bottom several years hence will be about 38. Give or take a few points; check back in October 2008 and we’ll see where the index stands at that point.…

Housing correction just starting

New York Sun:

Don’t get relaxed about the housing industry, because it’s going to get much, much worse. That’s the message from Gary Gordon at Annaly Capital Management, a firm which invests in mortgage-backed securities. Mr. Gordon is looking for substantial further declines in housing starts and sales, which will result in a recession beginning in 2007.

He is on the pessimistic side of the Great Housing Debate, which will doubtless be reignited when the figure for September housing starts comes out tomorrow.

The real issue is: How much consumer spending has been funded by rising home prices and how vulnerable is the economy to a fall-off in home values? Bears argue that the consumer has used his home ownership as a piggybank that is now ominously empty. They point out that mortgage equity withdrawals have climbed almost without pause since the early 1990s. Today, these borrowings are plummeting, a development that the folks at economics consultancy ISI call “unprecedented.”Equally without precedent is that existing home prices may actually decline this year.…

One cent penny melt value now over one cent

Coinflation:

Zinc passed the $1.80 mark today, that means the current “penny” has a melt value of $0.0101867. All the coins in your penny jar are worth more than their denomination (except for steel cents made during WW2).

There’s been a lot of discussion lately about the elimination of the one cent piece. Jim Kolbe, the sponsor of the original bill in congress, has been mentioned several times with the Mark Foley scandal and it’s unlikely his legislation will ever make it to the voting floor.

Personally, I think some kind of action is required. However, I would rather see the metal composition changed to steel or aluminum (similar to Canada) instead of outright removal of the denomination.

Shortages of cents and nickels is probably coming, maybe a lot sooner than most people think. Metal compositions of future coins should be changed before a disruption takes place, but I’m not sure there’s enough time.

If copper/zinc/nickel prices continue to trend higher, not sure how mass melting could be avoided.…

America’s new ghost towns

CBS marketwatch:

The housing slowdown has turned some parts of the Phoenix and Las Vegas metropolitan areas into “ghost towns,” where many unsold homes stand empty, Janet Yellen, president of the San Francisco Federal Reserve Bank, said Monday.

Yellen said that she heard the ominous description from a “major home builder,” who told her that the share of unsold homes in some subdivisions around the two Southwestern cities has topped 80%.
“Though the situation isn’t that bad everywhere, a significant buildup of home inventory implies that permits and (housing) starts may continue to fall, and the market may not recover for several years,” she warned, according to the text of a speech delivered Monday at the Hong Kong Association of Northern California in San Francisco.
The housing slowdown was one of several factors Yellen cited in which she argued that the current level of interest rates is “moderately restrictive,” and that it makes sense to keep it that way “for a time.”
Nationally, inventories of unsold homes have climbed as housing became less affordable, Yellen said in a meeting with reporters after her speech.
Speculation had been quite high in areas such as Phoenix and Las Vegas and now that prices may not be heading higher anymore, those speculators seem to be dumping inventory on the market, she added.
“The market (in these regions) has seized up to some extent and inventories are building,” she said.…

Petrolifera (PDP.TO) news

Petrolifera Petroleum Limited (PDP – TSX) announced today that it has tested its RN. PM. a-1014 well. On test, light gravity crude oil flowed without water at a calculated sustainable rate of approximately 1,200 bbl/d through an 18 millimeter choke, primarily from the Punta Rosada Formation. In this regard, results are similar to those encountered in the offsetting although structurally higher 1011 well. This is Petrolifera’s tenth successive completed crude oil well and ninth successive flowing Sierras Blancas or dual Sierras Blancas/Punta Rosada oil well on the Puesto Morales Block in the Neuquén Basin, Argentina.

The company also wishes to confirm that the drilling rig which was utilized to drill the 1014 well has now moved to the 1024 location, situated south and east of the excellent 1013 well, as the surface location at 1019 was not ready when the rig completed operations at 1014. In the absence of any development to cause a change of plans, Petrolifera anticipates drilling the 1019 location following completion of drilling operations at 1024, which have now been underway for approximately six days.

Analysis: This just keeps getting better and better. We are up over 120% here since June 2006 and look at the move in Dune Energy today. We are up over 40% in just over a few weeks. Nice moves with rising production profiles in both companies. Both are buys on weakness.…