2013 March 1

The Master Resource Report  2013-03-01

Discount prices on shale

In July of 2012 Chesapeake Energy valued its stake in the Mississippi Lime formation in the $8,000 per acre range. However this week China Petrochemical (subsidiary of Sinopec Group) managed to get some garage sale prices from Chesapeake cutting a deal that valued the property down two thirds from Chesapeake’s July figures.

According to a Bloomberg report “Chesapeake is selling some of its most-promising Mississippi Lime acreage…”

Maybe even more important than the land deal is the knowledge and technology that will be inevitably transferred to the Chinese company. This may prove to be the real cost of the irresponsible management of the U.S. second largest natural gas producers.

Shell bails on plans to drill in the arctic this summer

Shell oil, which has made a large commitment to the arctic region north of Alaska, announced a major step back this week by abandoning its activities in the area for 2013, according to the Financial Times. Shell had high hopes for its arctic projects based on estimates of the arctic resources.

The USGS has said the arctic region holds about 20% of the yet-to-be-discovered oil and gas resources in the world. How do they know 20% of something that is yet-to-be-discovered? Should unicorns be classified as yet-to-be-discovered?

There may be plenty of yet-to-be-discovered oil and gas in the arctic but it is not going to be easy to discover or extract. Given Shell’s arctic program has already run up a $4.5 billion bill it has at least discovered that it is going to be expensive oil and gas. This is just one more example of the increasing cost in capital, labor, material resources and energy extracting this vital liquid.

Note: Currently clients and advisors at Ravenna Capital Management do not hold positions in Chesapeake Energy or Sinopec. They do hold positions in Shell.