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Gnostam  LLC    PO  Box  960  Inverness,  CA  94937  

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January  14th,  2014  

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Independent Investment Advisor

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ENERGY PRODUCTION WORLD WIDE: There are over 4,000 actively producing oilfields in the world. These fields produce 90 million barrels a day of crude oil from almost one million individual wells. Most of these oilfields are relatively small. The average field produces less than 20,000 barrels per day. Three percent of these oilfields make up almost half of this output. This paper focuses on this small three percent of giant oil fields whose daily production exceeds 100,000 barrels a day. Approximately 120 giant oilfields in the world produce 100,000 barrels a day or higher. In total, these fields produce in excess of 42.3 million barrels a day, or 47% of the world’s total supply. Even within this tiny tip of the world’s oilfields, half of these 120 giant fields barely exceed the minimum 100,000 barrel per day production parameter that I have used to define a giant oilfield. The 62 smallest of these “giant fields” account for 12% of the world’s daily oil supply. In contrast, the fourteen largest account for over 20%. The average age of these 14 largest fields is 43.5 years. This data of course does not include the new discoveries in the US, made possible by the recovery through “Fracking”. In fact the production in the US is so great, that it is likely that the US balance of payments will be affected.

The United States has been running consistent trade deficits since 1980 due to high imports of oil and consumer products.

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In recent years, the biggest trade deficits were recorded with China, Japan, Germany, Mexico and Saudi Arabia. United States records trade surpluses with Hong Kong, Australia, Netherlands and Belgium. As an example of the scale of this shift in economic potential in the US, consider that in the last 10 years the deficit balance of trade in the US has halved. Going forward, if the US were to export the energy bonanza, the US balance of trade would be positive. This will have a huge impact on capital flows, the value of the US $, and the attractiveness of US treasuries.

The IEA caused a stir when it stated in November of 2013 that it is likely that by 2015, the US would become the biggest producer of energy, surpassing Saudi and Russia. It will be very positive for heavy industry in the US, in particular the industries that supply machinery and equipment for drilling wells.

We have long liked a company called

 

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Gnostam  LLC    PO  Box  960  Inverness,  CA  94937  

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January  14th,  2014  

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World Oil Production and Consumption

Gnostam  was  established  in  February  2004.    It  provides  professional  clients  with  investment  consulting  services.  Since  inception  the  annualized  rate  for  return  for  a  client  portfolio  managed  by  Gnostam  

Source  EIA  

 

 

Gnostam  LLC    PO  Box  960  Inverness,  CA  94937  

January  14th  2014  

US  PERMIAN  BASIN:    NEW  DISCOVERY  IS  WORLD’s  SECOND  LARGEST  OIL  FIELD  

Location  of  Ghawar,  Saudi  Arabia,  world’s  largest  oil  field  

 

 

Gnostam  LLC    PO  Box  960  Inverness,  CA  94937  

January  14th  2014  

 

 

Gnostam  LLC    PO  Box  960  Inverness,  CA  94937  

January  14th  2014  

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TABLE OF WHO HAS THE OIL PRE FRACKING:

National Oil Well Varco, [NOV] based in Houston TX. We think the following US companies are likely to benefit disproportionately from the increase in energy production:

PAA, Pipelines, Core Labs, [CLB] seismic, Schlumberger [SLB] diversified, ION Geophysical [IO] offshore exploration, and Weatherford. We also like EOG, CLR and PXD.

For this reason we believe that it is of vital importance that businesses focus on the opportunity to service these companies, both in terms of staffing, supplies and as excellent sources of capital markets demand, see for example GE’s April 2013 $3.3 bn purchase of Lufkin Industries, a producer pumps for the oil industry.

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Trend in US Balance of Trade, in table above shows the incremental impact of substitution of domestic crude for water-borne imports. One impact is clearly that the macro-economic assumption that the US $ will continue to weaken as it has for the past 15 years, is likely false. The other important impact is the how important pipelines will become in the new landscape, as opposed to water borne tankers.

 

 

Gnostam  LLC    PO  Box  960  Inverness,  CA  94937  

January  14th  2014  

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Table of largest 10 Oilfields in the world, pre US Fracking:

It is interesting that this list of the largest fields in the world does not include the Permian Basin in the Unites States, which is estimated to be capable of over 1.6 million b/d in 2014. If we look forward from 2012, the largest oil fields are: Ghawar, Saudi 1948, past peak; Orinoco Basin, Venezuela, coming onstream Permian Basin, USA 2010, capable > 2m/bd Burgan, Great Kuwait 1927, past peak; Kirkuk, Iraq, 1938, capable of increases; Canterell Mexico 1976, capable of increase; Iran South Pars, 2008, coming onstream. The Permian Basin in West Texas and New Mexico includes a variety of thick, overlapping formations such as the Spraberry, Bone Springs, and Wolfcamp. Crude oil producers are investing heavily in research and implementation of hydraulic fracturing in both vertical and horizontal wells. The stacked formations of the Permian allow vertical wells to reach several productive zones, while several horizontal wells drilled from the same surface location can target different formations or several pay zones within the same formation. EIA forecasts production in the

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Permian Basin, which averaged 1.32 million bbl/d in 2013, to grow more than any other region in the United States through 2015. CONCLUSIONS:�

• The US could produce as much as 11 million b/d of crude in 2020 thanks to shale, according to the International Energy Agency, surpassing Saudi Arabia.

• US crude oil production breaches 7 million b/d, levels not seen since the 1990’s in 2015.

• Production from key shale plays Eagle Ford and Bakken rises to over 1.6 mn b/d in January 2014, 900,000 b/d above year-ago levels, and could top 3.2 mn b/d combined in 2016.

• Eagle Ford loadings at Corpus Christi jump to 280,000 b/d in November thanks to the completion of pipelines and storage terminals.

• Bakken rail car loadings jump to 500,000 b/d in December 2013 as increasing rail loading and offloading capacity provides more flexibility for sellers.

• US crude imports collapse in February 2013 to the lowest levels in 12 years at 8 million b/d in response to rising domestic crude production.

• US refiners Valero, Marathon, and Phillips 66 announce shifts to domestic shale crudes at many of their refineries; US Atlantic Coast refiners begin to shift to Bakken and eschew imports.

• Continually wide discounts for WTI relative to Brent spark US Midcontinent to US Gulf Coast pipelines projects to increase total capacity to 1.95 mn b/d by 2014.

• Delays in TransCanada’s northern 830,000 b/d Keystone XL line spur alternative delivery options for Canadian heavy.

 

 

Gnostam  LLC    PO  Box  960  Inverness,  CA  94937  

January  14th  2014  

BALTIC  DRY  INEX  AS  AN  EFFECTIVE  LEADING  INDICATOR.  

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The Baltic Dry Index stood at 2,237 of December 10, 2013. Indexes for Capesize vessels stood at 4,011, while Panamax vessels approached close to 2,000, at 1,997. All three indexes have moved up together since the last few days of November. On December 12, the BDI stood at 2,337.

Rates have come a long way since the lows of 2012 and earlier this year on the back of lower new build deliveries and stabilization in China’s economic activity. Rates skyrocketed from mid-August to early September this year due to an earlier iron ore stocking activity in China. That surprised the market and pushed many stocks—like DryShips Inc. (DRYS), Navios Maritime Partners LP (NMM), Navios Maritime Holdings Inc. (NM), Safe Bulkers Inc. (SB), and Diana Shipping Inc. (DSX).

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The Baltic Dry Index/Gold shows that there has been a recovery in Dry Shipping, while gold has slipped. This can be interpreted as a good foundation for a recovery, as we have low input energy prices and cheap funding. The main problem is that almost all credit institutions are unable to lend, given their balance sheets are full of supposed risk free debt from Euro zone. It will take many years for the equity and risk capital of the banks to permit normal cycle lending. Given the increase in volatility in shipping rates for iron and copper, it is best perhaps to avoid DRYS, and focus instead on a recovery in tanker rates, and a shipper like Frontline, FRO.

 

 

Gnostam  LLC    PO  Box  960  Inverness,  CA  94937  

January  14th  2014  

BURGAN  OIL  FIELD  IN  KUWAIT-­‐IRAQ  BORDER  

LARGEST  OIL  FIELDS  IN  MID  EAST  

 

 

Gnostam  LLC    PO  Box  960  Inverness,  CA  94937  

January  14th  2014  

 

Gnostam  LLC  PO  Box  960  Inverness,  CA  94937  USA    E-­‐mail:  pcorsano@gnostam.com    www.gnostam.com  

Disclaimer:

The information and any statistical data contained herein have been obtained from sources which we believe to be reliable, but we do not represent that they are accurate or complete, and they should not be relied upon as such. All opinions expressed and data provided herein are subject to change without notice. Gnostam LLC and/or its shareholders, directors, officers and/or employees, may have long or short positions or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The securities mentioned in this report may not be suitable for all types of investors. ALL investments involve different degrees of risk. You should be aware of your risk tolerance level and financial situations at all times. Furthermore, you should read all transaction confirmations, monthly, and year-end statements. Read any and all prospectuses carefully before making any investment decisions. You are free at all times to accept or reject all investment recommendations made by the Gnostam LLC. As you know, a recommendation, which you are free to accept or reject, is not a guarantee for the successful performance of an investment and we are expressly prohibited from guaranteeing accounts against losses arising from market conditions.

Past performance is no guarantee of future results, and current performance may be lower or higher than the performance data quoted.

Investment Disclaimer All investments involve different degrees of risk. You should be aware of your risk tolerance level and financial situations at all times. Furthermore, you should read all transaction confirmations, monthly, and year-end statements. Read any and all prospectuses carefully before making any investment decisions. You are free at all times to accept or reject all investment recommendations made. All products sold are subject to market risk and may result in the entire loss to the client's investment. (For example: excessive withdrawals may result in the depletion of your account). Please understand that any losses are attributed to market forces beyond the control or prediction of Gnostam LLC. As you know, a recommendation, which you are free to accept or reject,