Windows on the World of Raymond Plank
Founder, Apache Corp

Vol. 2015 No.  2

VIEWS


The proximity of 2015 No. 1 & 2 is based more on personal travel plans than a report on “Late Breaking News,” of which there is, of course, much more.
  • The loss of high paying jobs continues unabated in the oil and gas industry, the first of which were the service providers.. The closing of 133 Target stores across Canada with attendant drops in employee count highlights what a source well known by me reports in Alberta and British Columbia: “the economy is in shambles.”  The recent decline of the Canadian dollar against our dollar has accelerated.
  • In North Dakota where friends Dave and Jim Flynn own oil minerals and follow drilling rig counts, oil, natural gas and gasoline prices.  I don’t know how recently the rig count may have been reported, but since the paper publishes it daily it may be fresher than the fat free milk in my Wyoming refrigerator.  The count had fallen in recent weeks, from one hundred eighty-eight.  I wonder what the count will be when wells presently drilling go idle.
  • Are we in a domino mode?  This week I hope not but not for a cheerful reason.  The global economy is on an inflationary binge, as witnessed by Europe’s Central Bank pledging a trillion Euro quantitative easing package to inflate their way out of the cellar.  Will that be enough?

All of the above feed into the next topic; concurrent inflation and deflation. Methinks we’re in the early phases of both.  It’s my view that the last combination took place in 1932.  I’m reminded of the game Monopoly when the banker for the game would declare a special dividend so that the players could continue the game.  The game we’re in now is deadly.

As I read history, the last time U.S. was severely shaken by the combination of inflation and deflation was during the first term of F.D.R.’s presidency in 1932; F.D.R. did everything he could think of, some effective and some at cross purposes with recovery.  For instance, while men and women were standing in long lines shivering in their thread bare clothing waiting for food when Secretary of Agriculture, Henry Wallace, ordered the killing of cattle, sheep, and hogs to raise prices.  It took World War II, twelve million Americans in uniform and a war, which people supported whole-heartedly, to dispel the deflationary impact with which we are now again flirting. 

My greatest concern is over failing international relations, present executive leadership is enhancing the greater danger of war.  Not skirmishes but war.  In effect the clouds of war are building.  I believe foreign policy to be “upside down.”

We are aware that Americans are not well served by our failed presidency.  Nowhere in that malaise is failure more obvious than the seriously impaired arena of foreign policy.  Let’s consider Russia under Putin.  On Canada’s Lake of the Woods, yours truly and guests have fished for excellent Walleye Pike in a bay named “Dead Broke Bay” which describes the condition of the Russian economy.  Two summers ago friend and professor David Teese of the non-bastion of conservatism University of California Berkeley taught Russians economics translated by an interpreter.  Prof Teese described his students as bright, attentive, friendly, eager, and Russia itself to be in abject poverty.  However, One writer who comes across as knowledgeable points out that Russia’s standard of living has substantially improved across the points of measurement. 

Over the weekend I watched Hannity, a reporter for Fox News, who referenced Russia as an enemy of the U.S. That is stupidly inflammatory; the opposite of what we need.  Over a long life, I’ve noted not infrequently those least competent to judge tend to rely on their swagger sticks instead of decent judgment to cover their deficiencies.  Methinks that may be characteristic among failed presidencies as well.

Imagine if our Presidents and Secretaries of State approached their global counterparts with an element of sincerity and humility instead of bravado and contempt. With over a hundred military bases abroad including England, Australia, and New Zealand, who could possibly believe that we are pursuing peace.  Suppose our ambassadors, if trained properly, opening line were:  “We’re here in the interest of peace not global war.”

Suppose foreign relations with Putin and Russia were approached by a succeeding president with “I’m here to thank you on behalf of the American people for the role Russia played in ending WWII.  While the United States supplied armaments and much of the fuel, Russia supplied the passion, and the manpower.  You contributed the lives of your people who were dying not only to save Russia but in fact saving the United States. That help is what we are here to thank you for.  We’re hopeful that in the months ahead we can sit down together without us telling you what to do and absent threats from either side but to seek the common goal of peace instead of massive killing with advanced technology.” 

When I heard the rumor that the U.S. was activating military bases in North Dakota, I checked on the bases with Harold Hamm, the second largest player in the Bakken Shale, and learned that the build up of personnel is more likely associated with the advances in our drone technology.

Back to the collapsing hydrocarbon commodity prices. Harold Hamm noted that he and other operators were drilling the vertical leg of their wells while not fracking the shale.  Bakken N.D. shale play had witnessed driving the state’s production from 25,000 bpd low to over 1,000,000 bpd, second only to Texas which was also deeply impacted by the sudden steep decline of oil prices.  I happen to believe fracking horizontal structures only becomes economic when prices are above $60/barrel.

Why did oil prices which had declined from a high of $140 per barrel in summer of 2008 suddenly plunge to $70 per barrel or half of the high and continue in the avalanche to the middle $40ies?  The simple answer would be to smile and note, “Supply exceeded demand.”  That’s too simple.  When the rate of decline accelerated down from $60 to $50 and then into $40ies, analysts, experts and economist were caught in the midst of earlier 2014 statistics being applied in the midst of a meltdown causing instant response in the form of layoffs. 

Methinks many financial analysts missed the boat on how rapidly and how deeply a very key industry must adapt to new realities which defy historic trends. Nothing unique about prices dropping when supply inventories exceed demand, but causes are more relevant than effects.  If the masters of hedge funds were more accurate, for example, they might have spilled less blood of their investors last year.  Am I saying I could have done better?  Absolutely not.  It’s tough enough when one has knowledge, yet judgment when absent and unaccounted for can resemble chaos. 

What next for my pen?  Hoping to author a series of papers in depth on a variety of subjects, I want them of record for future generations, as was the purpose behind writing “A Small Difference.”

Enough for now. 

RP 2/6/2015