Bright Lights, Peak Oil

Hat tip to Aaron Edelheit (with a second assist to Paul Kedrosky) for this article by Chris Turner in the Walrus magazine (which looks like a Canadian version of the Atlantic magazine before the Atlantic's recent, garish redesign): "An Inconvenient Talk: Dave Hughes's guide to the end of the fossil fuel age".

From this article, Dave Hughes, a geologist/doomsayer, appears to be Canada's answer to Matt Simmons. For some reason (perhaps in tribute to the upcoming 25^th anniversary of Jay McInerney's novel Bright Lights, Big City) Chris Turner refers to himself in this article in the second person. Here's a taste:

Dave had to start out fifteen minutes earlier than the requisite ungodly hour so he could pick you up at your house. So you wouldn’t drive yourself. Save a few hydrocarbons, he’d joked. He’s a coal man, a geologist, and he always refers to the holy trinity of fossil fuels whose flames have stoked the past 200 years of industrial growth — coal, natural gas, and especially oil — in that same semi-technical way: hydrocarbons. Dave Hughes has a lot to say about hydrocarbons, mainly how there’s no possible way to keep running the engine of a modern global economy for much longer at the pace we’re burning them. Which is why you felt compelled to join him in the black chill of this late-autumn morning. Because that seems like a pretty big deal.

The uninspired photo above of Dave Hughes (that's the best backdrop they could come up with in Calgary and its environs?) accompanies the article and is credited to "Wilkosz + Way".

Gaseous Anomaly?

This is a one year chart comparing the U.S. Natural Gas ETF (NYSE: UNG) to a Gulf Coast natural gas¹ royalty trust I own a few shares of, Tidelands Royalty Trust (OTC BB: TIRTZ.OB):



And this is a three month chart comparing them:



It makes sense for the share price of the royalty trust to decline as natural gas prices have declined (the natural gas ETF closely tracks natural gas prices), but I don't know what the explanation is for the recent divergence. It is possible, of course, that the trust's distributions could rise if an increase in production outweighs the drop in natural gas prices, but I don't know of any estimates of future production increases for this trust.

¹About 90% of this trust's royalties come from natural gas production, with the balance coming from oil production.

U.S. Energy Corp. Update

On Monday, U.S. Energy Corp. (Nasdaq: USEG) filed its 10-K and released its highlights for 2008, most of which we noted here when they were announced individually. Today the company held its conference call. CEO Keith Larsen mentioned that the company's Gillette, WY real estate development was currently 95% occupied, and is generating $225k in rental revenue per month. He also noted that the local economy in Gillette remained strong¹, despite the national downturn. Larsen also noted that the current low oil and natural gas prices offered promising opportunities to sign new exploration and production deals.

If the conference call was any indication, investor interest in USEG, such as it was, appears to have declined significantly. This may have been the shortest quarterly conference call I have listed to, by any company. There was exactly one question (I would have asked a question², but I was listening via streaming audio on the Internet). Other signs of a decline in investor interest:

- The company's Investor Hub message board has four posts in the last four months, all by the moderator.

- The company's Yahoo! message board hasn't had a post since January 27th.

Based on its year-end balance sheet data, USEG is currently trading for less than its net cash.

The photo above comes for U.S. Energy Corp's website. You can read more details on the company's interests in Molybdenum, Oil & Natural Gas, Uranium, Geothermal, and its Gillette, WY real estate project on the projects section of the company's website.

¹As of January, according to the Bureau of Labor Statistics, Wyoming's unemployment rate was 3.7%, the lowest in the nation.

²My question would have been about what cost-cutting plans (if any) the company had in mind to get closer toward profitability from the cost side.

This Week's Other Big News from the Mideast

From the Lex Column in yesterday's Financial Times ("Holy Hydrocarbons"):

An old joke in Israel says that Moses turned left when he should have turned right during his desert wanderings. After all, he had the rotten luck of finding almost the only country in the Middle East virtually bereft of oil and gas.

In a piece of news this weekend overshadowed by the ceasefire agreement in Gaza - but with perhaps equally important security implications - a major natural gas find was announced 90km off the coast of northern Israel. Nobel Energy of the US, which owns a 36 per cent interest, called it the biggest in the company's history, saying the lower bound of the reserve may be 3,000bn cubic feet.

As sweet as such a discovery is for a small country whose right to exist is denied by most of the leading owners of the global energy reserves, it is a bitter pill for the BG Group and the Palestinian Authority. BG owned a major stake in the field and, reportedly against the objections of its country manager, allowed its rights to lapse without compensation three years ago. Instead, it focused on its holdings in Egypt and off the shore of the Gaza Strip, where it invested amid optimism over the peace process.

Even after Hamas won an election in 2006 and took control of Gaza in 2007, BG's negotiations over selling gas from GAza to Israel, which seeks to plug a looming supply gap, continued. Hamas opposed the deal as an "act of theft", both because Israel was the buyer and because the proceeds would have gone to the Palestinian Authority. Negotiations broke down over price in late 2007.

Along with its disastrous December rocket barrage, this is another Palestinian own-goal. Noble's new discover could supply Israel for decades. BG, meanwhile, is left supplying gas-rich Egypt, a much less lucrative prospect. Perhaps Moses had a sense of direction after all.

This brings to mind the late Israeli foreign minister Abba Eban's quip¹ that the Arabs of Palestine "never missed an opportunity to miss an opportunity".

The photo of the natural gas rig above is from Noble Energy's website.

¹That line has been quoted frequently recently, including in this Economist leader from a couple of weeks ago, "The Hundred Years' War".