Tag Archives: Permian Basin

Midland Texas Gun Store Offer Silencers, Automatic Weapons

S&K Helps People With NFA Process

by Rye Durzin | MRT.com

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Midlanders with an itch for silencers and automatic weapons — and who need help acquiring them — can now get them at the recently opened S&K Arms store.

Located across from Grub Burger off Midland Drive, S&K Arms has been open since Christmas Eve, but finally had its grand opening on Feb. 23 after store officials got tired of people telling them that they didn’t know the new gun store was there.

“Grub Burger is probably responsible for 90 percent of our business, and, until this event, we hadn’t done any advertising, and we still had a ton of business,” said assistant manager Danny Anderson.

Customers milled about as Anderson explained how S&K offers high-end guns, suppressors, machine guns and general advice. Walls made out of wood paneling are racked with 30-odd guns of varying types.

“When we first opened we wanted this to be like a sushi place like, ‘Hey! We’re glad you’re here,’” Anderson said of S&K’s philosophy. “We wanted not only to cater to the high-end person who wants unique boutique stuff, but also the person who’s never bought a gun before. We don’t want them to feel intimidated. We just really wanted to give people the level of customer service that they expect when they walk into any other place; why should you put up with less than helpful employees?”

Founder Kane Kolisek started the company a few years ago in Crane, selling suppressors out of the back of his parent’s home health store. The new store features not only silencers, but also automatic weapons, with a .50-caliber machine gun in the center of the store and a well-kept World War I-vintage machine gun on a coffee table.

Anderson also explained that S&K offers help acquiring suppressors and automatic weapons, including how to negotiate the seemingly daunting National Firearms Act (NFA) that is the framework of regulations used by the Bureau of Alcohol, Tobacco and Firearms (ATF). He said that the staff helps clients with their paperwork, and that, while the wait time might be long (the NFA applications take the ATF four and six months to process), the duration is much shorter than the year it took the ATF to process the paperwork in early 2014.

An NFA application can be filled out by an individual, but Anderson said each person would have to provide their fingerprints, a passport photo, and a signature from a chief law enforcement officer such as Sheriff Gary Painter or Midland Police Chief Price Robinson.

Anderson suggests that if someone wants to buy a suppressor or automatic weapon that they set up a trust with a lawyer, which means that they would not have to provide the previously mentioned information. It also means that when the holder of NFA items passes away, the handover process involves less hassle.

“Every time it (the NFA item) gets transferred, you have to pay a $200 tax, which is why the trust is better because, let’s say you pass your suppressors down to your kids, they don’t get transferred to the kids, they stay in the trust and you can do whatever you want with them,” Anderson explained.

If a trust is not set up by a an owner of NFA items, things for their family can go south fast.

“When you die, you have a safe full of suppressors, and as soon as you die, those things get transferred and everybody’s committing felonies all of a sudden,” Anderson explained of what can happen to NFA items not in a trust. “On top of that, to be legal, your estate has to handle all the paperwork all over again, and a $200 tax on each individual item all over again. So it can get expensive and you can end up surrendering a lot of stuff to the federal government.”

Anderson attributed a growth in demand for suppressors to the falling wait time, which he believed meant that the ATF is getting better at processing the applications. But if you want to buy a gun, ogle some nice ones or just talk shop, S&K officials believe they have created a store for you.

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Jimmy Dean’s 12 Greatest Hits

Jimmy Ray Dean  (August 10, 1928 – June 13, 2010)[1] was an American country music singer, television host, actor and businessman. Although he may be best known today as the creator of the Jimmy Dean sausage brand, he became a national television personality starting on CBS in 1957. He rose to fame for his 1961 country crossover hit “Big Bad John” and his 1963 ABC television series, The Jimmy Dean Show, which also gave puppeteer Jim Henson his first national media exposure. His acting career included a supporting role as Willard Whyte in the 1971 James Bond movie, Diamonds Are Forever. He lived near Richmond, Virginia, and was nominated for the Country Music Hall of Fame in 2010, although he was formally inducted posthumously.

FBI, Police Raid Republic Of Texas Meeting, Fingerprint Members, Seize Cell Phones, Computers (Video)

https://reclaimourrepublic.files.wordpress.com/2013/07/texas16.jpg

Source: Reclaim Our Republic

Group filed summons local and federal government consider illegal
February 24, 2015 by Kurt Nimmo

The Bryan Police Department, the Brazos County Sheriff’s Office, the Kerr County Sheriff’s Office, Agents of the Texas District Attorney, the Texas Rangers and the FBI raided a congressional meeting for the Republic of Texas held in Bryan, Texas.

More than 20 police and agents prevented the members from leaving, seized their cellphones, recording equipment, computers and fingerprinted them.

The raid was in response to to legal summons sent by Republic of Texas members to a Kerr County judge and bank employee. The organization demanded the judge and bank employee appear before Republic of Texas court held at the Veterans and Foreign Wars building in Bryan on the day the police raided the meeting.

State and federal officials say the chief justice of the international Common Law Court for the Republic of Texas had issued writs of quo warranto, mandamus and a subpoena not recognized by county, state and federal governments.

“You can’t just let people go around filing false documents to judges trying to make them appear in front of courts that aren’t even real courts,” Kerr County sheriff Rusty Hierholzer told the Houston Chronicle.

The group believes the state of Texas was illegally annexed by the federal government and Texas remains an independent nation under occupation.

Police told the newspaper they did not want a repeat of a 1997 week-long standoff between the group and police.

The Republic of Texas group cites public opinion polls that show significant support for the secession of Texas and other states from the federal Union.

A poll conducted last September during the Scottish independence vote shows one in four Americans are in favor of seceding from the United States.

Former Congressman Ron Paul believes secession is already underway in the United States.

“I would like to start off by talking about the subject and the subject is secession and nullification, the breaking up of government, and the good news is it’s going to happen. It’s happening,” Paul said last month during a speech at the Mises Institute.

“And it’s not going to be because there will be enough people in the U.S. Congress to legislate it. It won’t happen. It will be defacto. You know, you’ll have a gold standard when the paper standard fails and we’re getting awfully close to that. And people will have to resort to taking care of themselves. So when conditions breakdown, there’s going to be an alternative. And I think that’s what we’re witnessing.”

Last week Infowars.com reported on a Department of Homeland Security intelligence assessment issued earlier this month that characterizes sovereign citizen groups as an equal if not worse threat to the government than ISIS.

According to CNN the “government says these are extremists who believe that they can ignore laws and that their individual rights are under attack in routine daily instances such as a traffic stop or being required to obey a court order.”

The assessment states that “law enforcement officers will remain the primary target of (sovereign citizen) violence over the next year due to their role in physically enforcing laws and regulations.”

In 2014 National Consortium for the Study of Terrorism and Responses to Terrorism (START), a University of Maryland project funded by the Department of Homeland Security, designated the so-called sovereign citizen movement as the number one domestic terrorist threat in America.

In August, Infowars.com reported:

Sovereign citizens do not constitute a cohesive movement, although the government characterizes them as such. The Southern Poverty Law Center estimates around 100,000 Americans were “hard-core sovereign believers” in 2010 and an additional 200,000 were “just starting out by testing sovereign techniques for resisting everything from speeding tickets to drug charges.”

The SPLC works with the DHS to formulate the terrorist threat posed by citizens allegedly belonging to the sovereign citizen movement.

According to a report by issued by START last month, “sovereign citizens were the top concern of law sovereign enforcement” and ranked ahead of neo-Nazis, the KKK, the patriot movement, and other “idiosyncratic sectarians,” including survivalists, all who allegedly pose a threat to the police and the state according to a survey conducted by the Homeland Security funded organization.

https://reclaimourrepublic.wordpress.com/2015/02/25/video-fbi-cops-raid-republic-of-texas-meeting-fingerprint-members-seize-cellphones-computers/

http://www.infowars.com/fbi-cops-raid-republic-of-texas-meeting-fingerprint-members-seize-cellphones-computers/

Sheffield: Midland Texas Economy Will Recover, Maybe Not As Strong

World will still need Permian Basin oil, Pioneer CEO says

Scott SheffieldScott Sheffield, CEO of Pioneer Natural Resources, addresses the Permian Basin Chapter of Division Order Analysts during a luncheon Wednesday, Feb. 18, 2015 at the Petroleum Club. Photo by James Durbin/Reporter-Telegram. Article by Mella McEwen

Midland’s economic landscape is expected to look very different, even compared to November when Scott Sheffield celebrated the opening of his company’s new regional office building.

Fueled by a thriving oil and gas industry powered by strong commodity prices, Midland has boasted one of the strongest, if not the strongest, economies in the nation.

But current crude prices are half of the $107 peak that was reached in June, companies have slashed budgets and activity plans, and layoff announcements are becoming a daily occurrence.

Already the nation’s rig count has fallen from a high of about 1,960 to 1,300. The Permian Basin rig count may fall to 300 rigs before beginning to rebound this summer.

Sheffield, chairman and chief executive officer of Pioneer Natural Resources, said during a visit to Midland last week that this is the industry’s fifth major downturn since he arrived in Midland in 1979.

The Cause

This downturn is more significant, in part because the root cause is different, he said. He discounted the 2008-2009 downturn, caused by the Great Recession that depressed demand globally, because prices rebounded quickly.

Previous downturns were caused by other nations trying to take market share from the Organization of Petroleum Exporting Countries, particularly Saudi Arabia. They would then react by increasing supplies that would exceed demand, sending prices lower.

This time, “we were too good at our jobs” and developed shale plays that have added 4.5 million barrels of oil a day to the nation’s output. The United States has become the world’s largest producer of oil and natural gas and the nation’s crude inventories are at 80-year highs.

“The additional production is a game-changer for the Permian Basin, for the Untied States, for the industry,” he said.

Permian Basin production has soared from about 750,000 barrels a day in 2007 to a little more than 1.9 million barrels a day today.

The New Cycle

Midland will recover, “but not as strong as six months ago,” Sheffield said.

He stands by his prediction that Midland’s population will grow to 200,000, but thinks it will take longer — maybe 12 years — to reach that figure.

“We know the oil is here; it will always be here. We know in the Midland Basin, in the Delaware Basin, you can always make a well,” he said.

The Spraberry-Wolfcamp formation that lies under Midland contains an estimated 75 billion recoverable barrels of oil equivalent, he said.

The Midland Basin has several stacked plays, and operators already have proven 10 zones reaching down about 4,000 feet, he said. The Delaware Basin has an estimated 25 billion barrels, but “not enough work is being done there,” he said.

He predicted the industry will become more cyclical and hedging of oil prices by operators will be a major component of their operations.

“The Permian Basin will come back; I just can’t tell you if it will be at $60 or $70 or $80 oil,” he said.

The world population will rise from 6 billion to 9 billion people and they will need oil for their energy needs. “The world needs the Permian Basin,” Sheffield said.

He said Saudi Arabia doesn’t want to eliminate the nation’s shale production but to slow it down because the Saudis know the world will need that oil in the future.

The Answer

Sheffield said lifting the 40-year ban on exporting domestic crude could be a key to improving the industry’s fortunes.

He said he has spent a lot of time in the nation’s capital educating lawmakers, regulators and President Obama’s staff on the benefits of lifting the ban.

“My main point is the differential is widening,” he said, referring to the price differences between West Texas Intermediate and Brent grades, and even between West Texas Intermediate-Midland and West Texas Intermediate-Cushing.

For most of the past 40 years, WTI and Brent brought prices within $1 or $2 of each other, he said. But over the last three years, that gap has widened to an average of $15 a barrel. Currently, it is about $8 a barrel and is expected to increase. There is also a gap between Midland and Cushing grades because Cushing storage is expected to reach capacity in the next couple of months and there is still limited pipeline transportation to send Midland crudes to other markets, such as the Gulf Coast.

Pioneer and other producers want the flexibility to send their product to the Gulf Coast or to overseas refiners that are configured to process the light, sweet crude coming out of the shale plays. This would help narrow the differential, he said.

“That extra $8 or $10 a barrel would have a tremendous impact on production, on jobs, on investment,” he said.

It could also benefit consumers because gasoline prices are based on the price received for Brent, with is about $8 higher than West Texas Intermediate. Eliminating the ban now, while crude prices are low, could lessen the impact of higher gasoline prices should they rise in response, he said.

He thinks the ban has a 50-50 chance of being lifted this year but virtually no chance next year — an election year. “I’m 80 to 90 percent confident it will get done by 2017,” he said.

“Next Time Around The Feds Are Going To Have To Confiscate Stuff”

https://i2.wp.com/www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/11/EPS%20growth%20DB%203.jpg

Source: Zero Hedge.  Authored by James H. Kunstler

Events are moving faster than brains now. Isn’t it marvelous that gasoline at the pump is a buck cheaper than it was a year ago? A lot of short-sighted idiots are celebrating, unaware that the low oil price is destroying the capacity to deliver future oil at any price. The shale oil wells in North Dakota and Texas, the Tar Sand operations of Alberta, and the deep-water rigs here and abroad just don’t pencil-out economically at $45-a-barrel. So the shale oil wells that are up-and-running will produce for a year and there will be no new ones drilled when they peter out — which is at least 50 percent the first year and all gone after four years.

Anyway, the financial structure of the shale play was suicidal from the get-go. You finance the drilling and fracking with high-yield “junk bonds,” that is, money borrowed from “investors.” You drill like mad and you produce a lot of oil, but even at $105-a-barrel you can’t make profit, meaning you can’t really pay back the investors who loaned you all that money, a lot of it obtained via Too Big To Fail bank carry-trades, levered-up on ”margin,” which allowed said investors to pretend they were risking more money than they had. And then all those levered-up investments — i.e. bets — get hedged in a ghostly underworld of unregulated derivatives contracts that pretend to act as insurance against bad bets with funny money, but in reality can never pay out because the money is not there (and never was.) And then come the margin calls. Uh Oh….

In short, enjoy the $2.50-a-gallon fill-ups while you can, grasshoppers, because when the current crop of fast-depleting shale oil wells dries up, that will be all she wrote. When all those bonds held up on their skyhook derivative hedges go south, there will be no more financing available for the entire shale oil project. No more high-yield bonds will be issued because the previous issues defaulted. Very few new wells (if any) will be drilled. American oil production will not return to its secondary highs (after the 1970 all-time high) of 2014-15. The wish of American energy independence will be steaming over the horizon on the garbage barge of broken promises. And all, that, of course, is only one part of the story, because there is the social and political fallout to follow.

The table is set for the banquet of consequences. The next chapter in the oil story is more likely to be scarcity rather than just a boomerang back to higher prices. The tipping point for that will come with the inevitable destabilizing of Saudi Arabia, which I believe will happen this year when King Abdullah ibn Abdilaziz, 91, son of Ibn Saud, departs his intensive care throne for the glorious Jannah of virgins and feasts. Speaking of feasts, just imagine how the Islamic State (or ISIS) must be licking its chops at the prospect of sweeping over an Arabia no longer defined as Saudi! The Saudis are so spooked that they announced plans last week for a kind of super Berlin-type wall to be constructed along the northern border with Iraq. But that brings to mind a laughable Maginot Line scenario in which the masked invaders just make an end run around the darn thing. In any case, Saudi Arabia will already be disintegrating internally as competing clans and princes vie for control. And then, what will the US do? Rush in there shock-and-awe style? Bust up the joint? That’ ‘ill make things better, won’t it? (See American Sniper.)

Meanwhile, there will be plenty to contend with state-side. The next time there is a pratfall in the stock and bond markets and the TBTF banks — and there is sure to be — the rescue tricks are liable to be a whole lot more severe than the TARP, ZIRP, and QE hijinks of 2008-2015. Next time around, the federals are going to have to confiscate stuff, break promises, take away things, and rough some people up. The question is how much of this abuse will the public take? I take a certain comfort knowing how heavily armed America is. And not just the lunatic fringe. The thought of Hillary and Jeb out there beating the bushes for big money makes me laugh. They are so not going happen. Just wait. For now, take this MLK holiday break to reflect on the fragility of our own country, and gird your loins for the week to come.

Money Dries Up for Oil & Gas, Layoffs Spread, Write-Offs Start

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by
Wolf Richter

When money was growing on trees even for junk-rated companies, and when Wall Street still performed miracles for a fee, thanks to the greatest credit bubble in US history, oil and gas drillers grabbed this money channeled to them from investors and refilled the ever deeper holes fracking was drilling into their balance sheets.

But the prices for crude oil, US natural gas, and natural gas liquids have all plunged. Revenues from unhedged production are down 40% or 50%, or more from just seven months ago. And when the hedges expire, the problem will get worse. The industry has been through this before. It knows what to do.

Layoffs are cascading through the oil and gas sector. On Tuesday, the Dallas Fed projected that in Texas alone, 140,000 jobs could be eliminated. Halliburton said that it was axing an undisclosed number of people in Houston. Suncor Energy, Canada’s largest oil producer, will dump 1,000 workers in its tar-sands projects. Helmerich & Payne is idling rigs and cutting jobs. Smaller companies are slashing projects and jobs at an even faster pace. And now Slumberger, the world’s biggest oilfield-services company, will cut 9,000 jobs.

It had had an earnings debacle. It announced that Q4 EPS grew by 11% year-over-year to $1.50, “excluding charges and credits.” In reality, its net income plunged 81% to $302 million, after $1.8 billion in write-offs that included its production assets in Texas.

To prop up its shares, it announced that it would increase its dividend by 25%. And yes, it blew $1.1 billion in the quarter and $4.7 billion in the year, on share buybacks, a program that would continue, it said. Financial engineering works. On Thursday, its shares were down 35% since June. But on Friday, after the announcement, they jumped 6%.

All these companies had gone on hiring binges over the last few years. Those binges are now being unwound. “We want to live within our means,” is how Suncor CFO Alister Cowan explained the phenomenon.

Because now, they have to.

Larger drillers outspent their cash flows from production by 112% and smaller to midsize drillers by a breathtaking 157%, Barclays estimated. But no problem. Wall Street was eager to supply the remaining juice, and the piles of debt on these companies’ balance sheets ballooned. Oil-field services companies, suppliers, steel companies, accommodation providers… they all benefited.

Now the music has stopped. Suddenly, many of these companies are essentially locked out of the capital markets. They have to live within their means or go under.

California Resources, for example. This oil-and-gas production company operating exclusively in oil-state California, was spun off from Occidental Petroleum November 2014 to inflate Oxy’s share price. As part of the financial engineering that went into the spinoff, California Resources was loaded up with debt to pay Oxy $6 billion. Shares started trading on December 1. Bank of America explained at the time that the company was undervalued and rated it a buy with a $14-a-share outlook. Those hapless souls who believed the Wall Street hype and bought these misbegotten shares have watched them drop to $4.33 by today, losing 57% of their investment in seven weeks.

Its junk bonds – 6% notes due 2024 – were trading at 79 cents on the dollar today, down another 3 points from last week, according to S&P Capital IQ LCD.

Others weren’t so lucky.

Samson Resources is barely hanging on. It was acquired for $7.2 billion in 2011 by a group of private-equity firms led by KKR. They loaded it up with $3.6 billion in new debt and saddled it with “management fees.” Since its acquisition, it lost over $3 billion, the Wall Street Journal reported. This is the inevitable result of fracking for natural gas whose price has been below the cost of production for years – though the industry has vigorously denied this at every twist and turn to attract the new money it needed to fill the holes fracking for gas was leaving behind.

Having burned through most of its available credit, Samson is getting rid of workers and selling off a big part of its oil-and-gas fields. According to S&P Capital IQ LCD, its junk bonds – 9.75% notes due 2020 – traded at 26.5 cents on the dollar today, down about 10 points this week alone.

Halcón Resources, which cut its 2015 budget by 55% to 60% just to survive somehow, saw its shares plunge 10% today to $1.20, down 85% since June, and down 25% since January 12 when I wrote about it last. Its junk bonds slid six points this week to 72 cents on the dollar.

Hercules Offshore, when I last wrote about it on October 15, was trading for $1.47 a share, down 81% since July. This rock-bottom price might have induced some folks to jump in and follow the Wall-Street hype-advice to “buy the most hated stocks.” Today, it’s trading for $0.82 a share, down another 44%. In mid-October, its 8.75% notes due 2022 traded at 66 cent on the dollar. Yesterday they traded at 45.

Despite what Wall-Street hype mongers want us to believe: bottom-fishing in the early stages of an oil bust can be one of the most expensive things to do.

Paragon Offshore is another perfect example of Wall Street engineering in the oil and gas sector. The offshore driller was spun off from Noble in early August 2014 with the goal of goosing Noble’s stock price. They loaded up the new company with debt. As part of the spinoff, it sold $580 million in junk bonds at 100 cents on the dollar. When its shares started trading, they immediately plunged. By the time I wrote about the company on October 15, they’d dropped 68% to $5.60. And the 6.75% notes due 2022 were trading at 77 cents on the dollar. Then in November, Paragon had the temerity to take on more debt to acquire Prospector Drilling Offshore.

Two days ago, Moody’s downgraded the outfit to Ba3, with negative outlook, citing the “rapid and significant deterioration in offshore rig-market fundamentals,” “the high likelihood” its older rigs might “not find new contracts,” and the “mostly debt-funded acquisition” of Prospector Drilling. The downgrade affects about $1.64 billion in debt.

Today, Paragon’s shares trade for $2.18, down another 61% since October 15. Its junk bonds are down to 58 cents on the dollar.

Swift Energy – whose stock, now at $2.37, has been declining for years and is down 84% from a year ago – saw its junk bonds shrivel another eight points over the week to 36 cents on the dollar.

“Such movement demonstrates the challenging market conditions for oil-spill credits, with spotty trades and often large price gaps lower,” S&P Capital IQ LCD reported.

It boils down to this: these companies are locked out of the capital markets for all practical purposes: at these share prices, they can’t raise equity capital without wiping out existing stockholders; and they can’t issue new debt at affordable rates. For them, the junk-bond music has stopped. And their banks are getting nervous too.

Their hope rests on cutting operating costs and capital expenditures, and coddling every dollar they get, while pushing production to maximize cash flow, which ironically will contribute to the oil glut and pressure prices further. They’re hoping to hang on until the next miracle arrives.


These Two Charts Show the True Fiasco of US Oil & Gas

https://i0.wp.com/static.panoramio.com/photos/large/78033170.jpgby Wolf Richter

Rig count for oil and for gas: two separate fiascoes

Oil-and-gas exploration and production companies in the US have announced cutbacks of 30%, 40%, or 50% and beyond in operating budgets and capital expenditures. They want to survive in an environment of plunging oil and gas prices, and hence plunging revenues. They loaded up on debt, and that debt is now exacting its pound of flesh.

These companies lease drilling rigs from oil-field services companies, such as Halliburton. When the going gets tough and they run out of borrowed money, they stop leasing rigs, and they try to get out from under the rigs that they have already contracted for. It’s a slow process. But it has begun.

The number of rigs drilling for oil in the US dropped another 55 in the latest week to 1,366, the lowest since October 2013, down 15.1% from the peak in the second week of October last year, when 1,609 rigs were drilling for oil.

The rig count had already dropped by 61 in the prior week, the largest week-to-week drop in Baker Hughes’ data series going back to 1987. In percentage terms (-4.12%), it had been the largest drop since the Financial Crisis.

In both weeks combined, the rig count plunged by 116, or 7.8%. The last time it started plunging like this for two weeks was in December 2007 (also down 7.8%, ironically), at the cusp of the stock market crash.

The standouts:

California lost 4 active oil and gas rigs in the latest week, bringing the rig count to 18 (including 1 offshore), from 45 rigs (including 2 offshore) reported on November 21. In those eight weeks, the rig count plunged 60%! Drilling is coming to a halt in California.

North Dakota, second largest oil-producing state, lost another 6 rigs in the latest week, to 156 active rigs. Down 13.3% in five weeks.

Texas, the largest oil-producing state, got hit the hardest, not in percentage terms – that honor belongs to California – but in number of rigs that have been evaporating: 44 in the latest week. The oil and gas rig count is now at 766, the lowest since March 2011. That’s down 15.4% from the peak of 905 rigs reported on November 21.

This is what drilling activity looks like across the US:

US-rig-count_1988_2015-01-16=oil

As I wrote a few days ago in This Is Just the Beginning of the Great American Oil Bust:

Estimates vary widely as to how far the rig cutting will go. Barclays’ analyst Anderson estimated that at least 500 rigs could be idled in the American oil patch by the end of the year. Raymond James analyst Praveen Narra said that his firm estimated that up to 850 rigs could be idled this year. If 60% are idled, as was the case during the Financial Crisis, it would mean that 965 rigs would be taken out of service.

Over the last 10 years, the oil and gas business in the US has become huge, and the unwind will be huge as well.

Rigs drilling for natural gas follow a different pattern. The rig count collapsed years ago as the price of natural gas fell below the cost of production, after a phenomenal no-holds-barred fracking boom in the years before the financial crisis, which culminated in August 2008 when over 1,600 gas rigs were active. This resulted in a “gas glut” that killed prices, pushing them below the cost of production.

The rig count collapsed in two phases, first during the financial crisis, and then after a sucker rally, during the “gas glut.” It has turned into a true fiasco for the industry and increasingly for its investors:

US-rig-count_1988_2015-01-16=gas

But why is production still rising after this kind of plunge in drilling activity?

There are a number of reasons, but one stands out: Numerous of these newly drilled and completed or partially completed wells couldn’t be hooked up to pipelines because the growth of the pipeline infrastructure hadn’t kept up with the drilling boom. These wells – by some estimates, 1,300 in the Marcellus alone – just sat there, waiting for the pipeline. Over the last two years, pipeline infrastructure has reached these wells, and despite the plunge in drilling activity, “production” – which is counted when natural gas reaches a trading hub, not when the well is drilled – has soared in 2014.

So the rig count for natural gas dropped 19 in the latest reporting week, to 310, matching the low of June 2014, levels not seen since May 1993! Yet, in the overall fiasco that natural gas drillers are facing, this is just another minor downtick, and barely visible on the chart.