Daily Archives: June 30, 2017

The Sequoyah Nuclear Plant.

President Trump gave a speech about energy in the US today, highlighting six policy issues that willdirect his administrations energy policy for the time being.

The new initiatives Trump did talk about included reviving and expanding the nuclear energy sector, reducing barriers to financing coal plants in foreign countries, opening up a new petroleum pipeline to Mexico, pushing more exports of natural gas, opening a natural gas export terminal in Louisiana, and relaxing restrictions on offshore oil and gas drilling.

Bloomberg noted this morning that Trump would order a complete review of policies to pinpoint where the US government could roll back nuclear energy regulations. The nuclear energy industry is facingconsiderable hurdlesthese days; nuclear energy is more expensive than cheaper natural gas, and the US still hasnt made any decisions on where waste from the plants will go. Trumps statements today echoed comments by Energy Secretary Rick Perry earlier this week, who said he wanted the Department of Energy to make nuclear energy cool again.

Trump specifically mentioned expanding coal trade in Ukraine by making it easier to finance foreign coal plants (although the Washington Postwrote that the US doesnt have any prohibitions on private financing of foreign coal plants. Instead, the Obama administration said in 2013 that it would oppose using multinational bank fundsto invest in coal plants.) Trump also said he would approve building an oil pipeline to Mexico thatll go right under the wall, allowlicenses to export liquified natural gas from Lake Charles, Louisiana, and support the export of natural gas to South Korea. CNBC notes that President Barack Obama paved the way for Trump by lifting a 40-year ban on exporting US crude oil and by approving about two dozen liquefied natural gas export licenses.

Finally, Trump pointed to efforts toroll back restrictions on offshore drilling. Back in April, the president instructed the Interior Department to come up with plans to roll back Obama-era rules that would prohibit new drillingon federal offshore areas.

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Trump talks increasing fossil fuel exports, relaxing offshore drilling rules - Ars Technica

By Dave Forest - Jun 29, 2017, 10:30 AM CDT

Oil prices have been a big item lately with crude plunging below $45 per barrel in recent weeks.

But quiet reports across the industry show costs for oil and gas drillers may be falling even faster than that. With recent studies showing that offshore oil projects may actually be feasible at or near current prices.

That sentiment appears to be trickling through to project activity on the ground. With one first-of-a-kind exploration project announced this week showing that E&Ps are once again going big for offshore targets.

That project is in the Caspian Sea of central Asia. Where an international consortium of companies signed a historic deal this week to drill the deepest exploration well ever attempted by the global petroleum industry.

The so-called Eurasia project will be attempted by Chinas CNPC along with Italys Agip, Americas NEOS GeoSolutions, Azerbaijans state oil firm SOCAR, and Kazakhstans RN-Exploration and KazMunayGas-Eurasia. With those partners having been cooperating for several years already in compiling data and geophysical studies on the play.

Heres the plan: the partners will now prepare to drill an exploratory well up to 15 kilometers depth targeting oil under the Caspian depression. A feat that would eclipse the previous-deepest well ever drilled, the 12.3 kilometer Kola Bore Hole at Murmansk, Russia.

This will obviously be a massive technical challenge. But the consortium says the prize could be worth it with estimates suggesting the deep basin here could hold up to 60 billion tonnes (429 billion barrels) of crude. Related:Goldman Sachs: Oil Crash Unlikely To Continue

Interestingly, the consortium is moving ahead with this target without the aid of any major names in the Western international E&P business. Meaning that a success here could mean a major shift in power away from the big names in the industry to rising players like CNPC.

No timeline was given for the drilling watch for further announcements from the consortium on when exactly this record-breaker will come down. It wont be immediate, but this is a potential gamechanger worth keeping an eye on.

Heres to going deep.

By Dave Forest

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The Deepest Exploration Well Ever Signals A Return For Offshore Oil - OilPrice.com

The federal government has announced its intention to launch an offensive cyber capability to fight cyber criminals and thwart attacks against Australia.

Anticipating cybercrime to cost the Australian economy at least AU$1 billion per year, Prime Minister Malcolm Turnbull has directed the Australian Signals Directorate (ASD) to use its offensive cyber capabilities to "disrupt, degrade, deny, and deter" organised offshore cyber criminals.

By using the intelligence agency's cyber capability, which Turnbull said is currently used to help target, disrupt, and defeat terrorist organisations such as Daesh, Australia is expected to have a stronger arsenal to prevent and shut-down safe-havens for offshore cyber criminals.

"The recent WannaCry and Petya ransomware attacks have affected governments, businesses, and individuals around the world," Turnbull said on Friday.

"Cyber criminals continue to adapt and evolve their methods and tactics, increasingly employing new methods to gain access to a victim and extort funds. As their level of sophistication has improved, cyber criminals are increasingly targeting businesses directly.

"Our response to criminal cyber threats should not just be defensive. We must take the fight to the criminals."

It is expected the ASD will be tasked with defending Australian military targets from cyber attacks and preparing to launch its own assaults on foreign forces, and that it will comprise of specialists staff with a mixture of defence personnel and public service employees, the ABC reported.

"We are using the offensive cyber capabilities against terrorists, and what we are announcing today is that this now will also be used against cyber criminal networks operating offshore," Australian Minister Assisting the Prime Minister for Cyber Security Dan Tehan said on Friday.

"We have to make sure that we are keeping the mums and dads, the small businesses, large businesses, government departments and agencies secure, and that is why we've made this direction to the ASD."

Addressing the National Press Club in November, Tehan warned of the devastation a "cyberstorm" could have.

"All of us must be on notice -- it is not a case of if but when government, businesses, or individuals will be hit," he said.

"When it comes to cybersecurity, being prepared isn't just having a wall that will block and protect from attacks. Instead, being prepared means minimising risk and having the ability to recover, to remediate, and to respond.

"No police force can guarantee that they will eradicate crime completely. But we can make it a lot harder if the windows aren't open, the doors are locked, and there is a strong cop on the beat."

Turnbull launched the country's AU$240 million cybersecurity strategy in April last year, which is aimed at defending the nation's cyber networks from organised criminals and state-sponsored attackers, and sits alongside the AU$400 million provided in the Defence White Paper for cyber activities.

Since its inception at the end of 2014, there have been over 114,000 reports of cybercrime registered with the Australian Cybercrime Online Reporting Network (ACORN), and, according to Turnbull, 23,700 incidents have been reported over the last six months.

"The government will target criminals wherever they seek to hurt Australian citizens but every Australian has a role to play in ensuring our cybersecurity," the prime minister added. "We must work together to share threat information and learn from each other about the online threats that seek to do us harm."

Also announced on Friday was the transition of the Australian Internet Security Initiative (AISI) from the Australian Communications and Media Authority (ACMA) to the Computer Emergency Response Team (CERT) Australia, which sits within the Attorney-General's Department.

The move comes in response to a recommendation made last month by the Department of Communications after it probed the functions under the ACMA.

The transition will take effect on Saturday, with the ACMA noting it has been working closely with the CERT for a number of months on transferring select cybersecurity functions over.

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Australian military cyber warriors authorised to target offshore criminals - ZDNet

When it comes to offshore rig companies lately, you really need to grade on a curve, because the entire industry is suffering. With that in mind, Diamond Offshore Drilling's (NYSE:DO) results lately have been surprisingly positive. It has been able to keep its earnings afloat with some steep cost-cutting, but it has also been able to find work for rigs. That's something we haven't seen much in this industry lately.

On the company's most recent conference call, management tooted its own horn a bit thanks to those new contracts, but it also provided some interesting insights into what the market for offshore rigs will look like in the coming years. Here's a selection of quotes from Diamond CEO Marc Edwards that will help investors better understand the offshore industry today.

Image source: Getty Images.

Probably the hardest thing for offshore rig companies right now is finding new work for their respective rigs. While some companies have been able to tout a few small and short-term contracts, Diamond has been able to secure several long-term contracts. Using this conference call to take a victory lap, Edwards highlighted the contracts Diamond secured in the first quarter of the year:

[W]e commenced two new contracts for our sixth-generation assets, the Ocean GreatWhite and the Ocean BlackRhino, and additionally, we secured a new term contract for our third generation asset, the Ocean Patriot, as well as securing 2 new short-term contracts for the Ocean Monarch. Overall, I'm pleased with these results as it demonstrates our ability to employ all of our sixth-gen assets and find new work for a variety of asset classes while at the same time maintaining a relentless focus on cost management and increased operating efficiency.

Some of these contracts won't be showing up in current results because they are either extensions for rigs already working, or they are in the yard for maintenance work. What is more important is that it extends the time that Diamond's current revenue is protected by long-term contracts. That in and of itself is something few rig companies have today.

The woes of deepwater drilling have been almost exclusively been blamed on the advent of shale drilling and how quickly the latter has moved down the cost curve. Some financial pundits have declared offshore drilling is dead. While the evidence seems to support this idea -- shale drilling in North America has been going like gangbusters, while deepwater drilling has ground to a near-standstill -- Edwards gave a more nuanced approach that should give investors some comfort:

[F]ull life cycle project [net present values] can in many circumstances deliver better returns offshore than onshore, and the real issue here is the timing of the cash flows. While oil prices languish at their current levels, we spend direct investments onshore. However, we are now seeing many [integrated oil companies] rehabilitating their deepwater portfolios and options with a view as to when to bring sanctioning back over the horizon. Nonetheless, it is important express caution here due to the time lag from project sanctions to the actual commencement of drilling activity. But when current industry investment is at such unsustainable levels, we are finally starting to see discussions in relation to deepwater portfolios. It is clear that deepwater economics continue to improve through project standardization and simplification while competing [shale] costs are now trending back up.

For cash-strapped producers, the choice today is pretty obvious. A 10% return you can get three weeks from now is much more attractive than a 30% return you won't get for another three years. Once their balance sheets are in better shape, though, chances are they will start to swing for those greater returns that can be found in the offshore environment.

Up until a few years ago, the drilling industry in general suffered mightily from an old-school, heuristic approach to the entire business -- from rig design and construction to repair and maintenance schedules. Thankfully, though, this trend is starting to come to an end. By now, just about every company has started using a more standardized design for rigs that makes replacement parts that much easier. According to Edwards, Diamond is taking the next logical step and updating the way in which it handles maintenance and replacing parts through data analysis:

[W]e began implementing our new risk-based asset management system, which enables predictive maintenance. This system has been under development for over 18 months, and we are now ready to implement it fleetwide. And with this solution, Diamond Offshore will utilize data analytics to manage rig maintenance across our entire fleet for improved reliability and lower operating costs. This approach moves away from the drilling industry's traditional reliance on time-based rig maintenance and embraces leading practices often found in high-reliability industries such as aerospace and power generation.

This isn't the first stab at new thinking for Diamond when it comes to a more advanced approach to equipment maintenance. Last year, Diamond signed a deal with General Electric (NYSE:GE) where Diamond sold its blow-out preventors back to GE and now leases them back from General Electric with incentive bonuses for less maintenance downtime. The idea is that it puts more skin in the game for General Electric, which motivates it to use a more data-driven approach to repair and maintenance. Diamond benefits because a rig works more days within the duration of a contract, and makes it more likely to receive performance bonuses from the producer. Hopefully, it will be able to do something similar with this new asset management system.

Diamond has been one of the companies that aggressively scrapped or sold older rigs that were less relevant in today's offshore drilling market. As a result, it has one of the more capable fleets -- which explains why it is getting work while others struggle to get contracts. Even after all of the rig scrapping that has gone on in recent years, Edwards thinks that a lot more will be done:

So there's generally a reluctance, I think, to actually grasp the nettle and start scrapping some of the early generations sixth-[generation] rigs, the ones that came out in '08, '09, '10, for example that are sitting at the back of the deli line in terms of desirability and many of our peers simply just can't afford to take the impairment of those rigs due to, as I mentioned, breaking their debt covenants and as a result they're just sitting out there. I think ultimately, however, if we truly take a look forward to this recovery, which will be somewhat drawn-out, I think that many of those sixth-generation rigs that are cold-stacked today, that are of the early generation of the sixth-gen category will not see the light of day again simply because as each year passes, your activation costs come up too high and therefore, they will effectively be de facto scrapped.

This is bad news for companies with lots of these sixth-generation rigs that were made in the past 10 years, but can't find work. One of the reasons they have been hesitant to scrap these newer rigs is many of them are still held for a high value on balance sheets, and to scrap them would involve even more asset impairments that could make some rig companies violate their debt covenants. Eventually, these rigs will either go away, or the market will eventually rebound enough that even these rigs will find work. Whatever the case, those companies with these kinds of rigs in their fleets are likely to suffer for a while.

Tyler Crowe owns shares of General Electric. The Motley Fool owns shares of General Electric. The Motley Fool has a disclosure policy.

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4 Things Diamond Offshore's Management Thinks You Should Know - Motley Fool

Beaufort Mayor Billy Keyserling and other state municipal leaders were successful in their first effort to oppose offshore drilling, but now they are preparing for another fight.

President Donald Trump on April 28 instructed the Department of the Interior to lift offshore drilling restrictions that former President Barack Obama put in place for the Arctic and Atlantic oceans.

Trumps executive order calls for the administration to fast-track permitting to test for oil and natural gas deposits using seismic air guns off the Atlantic Coast.

We won the first battle to stop offshore drilling along our coast, but dont know what the new battle is just yet, Keyserling said last week.

We havent seen anything specific yet from the new administration under President Trump, but the number of businesses in opposition of offshore drilling is now in the thousands and we also have been informed that Gov. Henry McMaster is opposed to the drilling.

While things are changing under the new administration, the resolution against offshore drilling that multiple municipalities passed during the Obama administration would only require some updating for another round of opposition, Keyserling said..

At this point, we need to see where the current administration is coming from in terms of the new developments about this issue, Keyserling said. Everyone who worked with us before is ready to get back on it.

Keyserling said it is important to wait and see what happens next.

Lets wait and see the cards we are dealt, he said. We all have learned to work together and have a strong grassroots impact when it comes to opposing the drilling.

Keyserling said there are many reasons Beaufort County would not be an appropriate location for offshore drilling.

One reason is because so much of our economy depends upon tourism and the quality of life is what the coast is about, he said. If they were to drill, where you do have a port or community? Who wants to become an oil town?

Keyserling also said testing or drilling for oil could disturb marine life.

We dont have the infrastructure here in Beaufort County for offshore drilling, he said. Weve spent hundreds of millions of dollars to refurbish beaches, and to rebuild bridges and communities all along the coast. That tourism could be wiped out if the drilling should move forward.

No matter what, we have to be aware of whats happening and you always want to keep your guard up to protect what you have.

While Keyserling and others wait to see what their next move will be, he said citizens can contact their representatives to voice their concerns.

NOAA Fisheries is accepting public comment through July 6 on incidental harassment authorizations that allow companies that propose seismic testing to incidentally, but not intentionally, harass marine mammals by using the air guns.

They can write their senators, Sen. (Lindsey) Graham or Sen. (Tim) Scott, and simply state they are opposed to seismic testing and drilling, Keyserling said. We are going to continue to work on this issue, and wait and see what comes next in our battle.

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Beaufort mayor ready for another offshore drilling fight - Bluffton Today