Isn't It About Time We Send an Engineer to Washington?

Problem: noun \ˈprä-bləm, -bəm, -ˌblem\ a question raised for inquiry, consideration, or solution  

Solution: so·lu·tion noun \sə-ˈlü-shən\ 1a : an action or process of solving a problem b : an answer to a problem

An engineer is a professional practitioner of engineering, concerned with applying scientific knowledge, mathematics and ingenuity to develop solutions for technical problems. You see, Kevin Wade is an engineer and through his firm, Philadelphia Control Systems that he started over thirty years ago, has been successful in solving problems with technical solutions to help Fortune 500 companies bring everyday products that we enjoy to life.  From manufacturing bread, automobiles, antibiotics, infant formula, nylon, chocolate and peanut candies, aircraft, paints and coatings, oil and electricity and many, many other things.

In a previous post, we highlighted Kevin Wade's first hand knowledge of working on an oil rig as being a key asset to leveraging America's treasured crude oil reserves to be part of America's path to be energy independence.  In this post, we would like to share Kevin's own words on energy and the vital importance of our nation's security in being energy independent from foreign energy (oil, etc):

My decades of professional work and rigorous education allow me to see America’s energy problems and energy solutions through pragmatic experienced eyes and with an engineer’s clarity.

First of all, the politicians continuously confuse the various energy problems facing the country. This may be by their personal lack of understanding or by their personal intention to confuse the public.

There are two different energy problems in the US. The first and most critical to our security is our reliance on imported oil. The second is the artificially high cost of electricity. Both energy problems are due to the bad hands and failed policies of the career politicians in Washington. They are guilty of one or both of the charges of not knowing what they do or not caring what they do to the American people. This must end at election day in 2012.

Imported Oil – Today and everyday America imports 10 million barrels of foreign oil. This drains more than 1 billion dollars each day and every day from our sick and anemic economy. This is one billion dollars not here to build schools, hospitals, new plants and offices or to create new American jobs and a real sustainable prosperity. This treasure of dollars runs to waste from our hands into foreign hands. This drain has killed our national prosperity and armed so many of those in the Mideast who are at odds with our values.  

American Oil – Every new barrel of American oil directly offsets imported oil. Dollars stay at home. Jobs are created here. North Dakota is producing lots of oil in spite of Federal policies because the oil is produced on private and state owned lands. North Dakota’s 500,000 barrels per day in oil production has created a booming economy and very low unemployment. It is an island of prosperity beyond the reach of Washington. There is far more oil to be discovered and produced across this country and in our offshore waters. There is far more prosperity to be found using the new technologies developed by unfettered free enterprise. The road block between us and the treasure of resources beneath our feet is the willful blindness of the bleed America first crowd in Washington.

Oil Prices, the Dollar and Gas Prices – Gasoline is only made from oil. No number of windmills or solar panels will ever put gasoline in our tanks. Any career politician who speaks of energy security and gasoline prices when promoting solar or wind sources of electricity is guilty of misleading the American people. There is no connection. Repeat, there is no connection.

Oil is bought and sold worldwide in US dollars. As Washington policies destroy the value the dollar and of our dollar savings and dollar wages, it also increases the dollar price of oil. Every dollar increase in a barrel of oil results in a 2 cents per gallon increase at the pump. Fifty years ago, 2 silver dimes bought a gallon of gas. Two silver dimes still buy a gallon of gas because the price of silver in terms of oil is almost unchanged. It is the value of the dollar that has been destroyed. Who did this? Look again to Washington and the career politicians there.

Oil is a commodity that has a special economic property. Its supply and demand curves are economically “inelastic”. This means that consumption changes little with changes in price. If grape fruit suddenly doubles in price, most consumers switch to an alternate fruit to save money. They buy cheap cantaloupe, for example, and stop buying expensive grapefruit. Oil has no equivalent replacement. As oil prices soar people have no choice but to pay. School buses must make their rounds and people need to drive to work. As an inelastic commodity the slightest changes, up or down, in supply result in a great change in price. America can drive down the cost of oil (gasoline) by pumping more oil. Small changes in the total world output will bring major price reductions. The price of gas will tumble when combined with policies to protect your dollar savings and ensure a sound and stable currency.

American Electricity – There is no shortage of fuel sources or generating technologies to produce cheap American electricity. Electricity is made primarily from American coal with significant contributions from nuclear, natural gas (methane) and hydro sources. Federal policy and overreaching regulation have limited access to coal and restricted the use of coal fired power plants. Federal policy has delayed for a generation of small and safe nuclear designs. Federal intervention impede the use of new technologies to produce extremely cheap natural gas. This has limited the rapid drop in natural gas prices needed to fuel modern gas fired turbine driven electric power plants. If we remove the onerous regulations American can see electric rates drop more than 30% in the coming years.

Inexpensive electricity is the essential building block to a high standard of living. It is electricity that moves our industrial sector of the economy and its high wage manufacturing jobs.

America has hundreds of years of natural gas and coal supplies. Washington’s distorted focus on solar and wind sources of electricity has blocked our natural energy advantages. This forced artificially high prices on the American consumer and crippled our ability to compete in the world of high value/high wage manufacturing. Solar power and wind power are technical curiosities today. They are not solutions to rebuild our country.

 The technical analysis above by Kevin Wade on the current state of imported oil and high electric rates, and the alternatives are why we need someone to represent Delaware in Washington who will actually look at practical solutions rather than kicking the can down the road.  In true engineer form of offering solutions rather than rhetoric, Kevin Wade has a unveiled a robust platform to preserve America's national security through energy independence:

• Increase American oil production to 20 million barrels a day over the next 12 years; become oil independent by opening Alaska and most Federal lands to safe and responsible drilling and production to those willing to take a the risk of safe and productive exploration and production; NO TAXPAYER dollars

• All new oil is for use of the American people and is not for sale overseas; American oil independence before multinational oil company profits

• Stabilize the value of the dollar to eliminate currency decline affects on oil and gas prices

• Reanimate the country with the treasure of resources beneath our feet

• Remove Federal regulations that prevent use of high MPG engines operating on clean diesel for autos and trucks

• Allow alternate technologies to flourish in a free enterprise economy; the best ideas win in a fair marketplace

• Remove ALL energy subsidies and let the market decide; this applies to wind, solar, “Green”, oil, gas, coal and nuclear

Obama's Outsourcing of America

For being the President of the United States, President Obama is anything but a support of the United States.  For the second time in two weeks, Obama has touted foreign business over American business.  Last week while gallivanting in Brazil, Obama touted Brazilian oil.  Not once since he assumed the Presidency has Obama touted American oil development. 

And when last year's BP oil spill occurred, the Obama administration pulled all American drilling permits further enslaving America to foreign oil.  A sign that Obama does not want America to be energy independent.

Today Obama visited a Pennsylvania wind turbine manufacturer outside Philadelphia.  Obama's visit to Gamesa's  Fairless Hills plant should raise concern.  Gamesa is a Spanish wind turbine manufacturer.  How ironic that Obama could not even pay a visit to the GE Wind Energy division of General Electric, which has a plant in Connecticut. 

Nordic Windpower is another American wind turbine manufacturer, based in Kansas City, Missouri.  Northern Power Systems is another another American wind turbine manufacturer, based in Vermont.  PacWind, based in Torrance, California is another manufacturer.  Add Flagstaff, Arizona based Southwest WindPower to the list. 

What is alarming is that a simple Google search revealed five American wind turbine manufacturers that Obama could have promoted, but he had to touted a Spanish one.  So much for touting American business! 

For a President who has a Energy Secretary, what use is this department if America cannot develop energy? And the hypocrisy of Team Obama supporting American business, and jobs!  Yeah right!

Will Obama Destroy Any Hope of U.S. Energy Independence?

This article was written by Charles Brant of Casey Research.  Given the rise of oil and gas prices, Obama's refusal to drill domestically, and the turmoil in the Middle East this is too important to not share.

The U.S. consumes nearly three times the amount of oil that it produces domestically on a daily basis. How can this statistic get any worse, you might ask?


Imagine in 2010 the Obama administration persuades Congress to pass a budget that results in a reduction of domestic oil production by 10% - 20%, making the supply/demand imbalance even more lopsided. Foreign oil companies will gain a distinct advantage over American domestic operators as an unintended consequence of these proposals.

Sound farfetched? It's closer to reality than you may think... If it comes to pass, it will likely be the biggest structural change in the U.S. domestic oil and gas industry in decades and have far-reaching implications for investors and for the entire country.

In early 2009, the Obama administration proposed to eliminate significant tax incentives for the oil and gas industry. These tax benefits were put in place decades ago to incentivize oil and gas producers to develop domestic sources of energy, while recognizing that oil and gas exploration entailed special risks. Two of the proposed repeals with the most potential impact relate to what the industry refers to as "percentage depletion" as well as "intangible drilling costs" (IDC).

Tax incentives explained

The first proposal involves eliminating the deduction for percentage depletion. Currently, the tax code allows small oil and gas producers to choose between two different tax deductions, percentage depletion or cost depletion (Big Oil's ability to use percentage depletion was severely limited years ago).

Percentage depletion allows a tax deduction of 15% of the annual gross revenue of a well, continuing as long as the well produces and even after 100% of the costs have been recovered. On the other hand, cost depletion is calculated as the amount of oil or gas produced annually as a percentage of the total reserves of the reservoir. This deduction ceases when 100% of costs have been recovered (after which the producer may switch to percentage depletion).

From a practical standpoint, this means many small stakeholders, including investors and lessors who are not directly involved in the operations of the wells, will lose their ability to deduct depletion altogether, putting them at a significant disadvantage to their larger competitors.

And cost depletion is pretty much out of the question for most small stakeholders, as it's extremely difficult for them to calculate. Small stakeholders in wells often aren't entitled to the proprietary reservoir data developed by the operator of the well, which is necessary to calculate cost depletion. While the operators do disclose reservoir data in their annual reports, they rarely contain enough detail for a small stakeholder to locate information relating to a small field or well in which the stakeholder has an interest. Oil and gas stakeholders - such as individual royalty owners, royalty trust investors, and landowners, who all benefit from leasing land to oil and gas explorers - will immediately see the value of their investment decrease while simultaneously paying more in taxes every year.

The other proposal relates to drilling costs. Under current rules, oil and gas producers can elect to deduct certain intangible costs related to the drilling and workover of wells, including labor, drilling fluids, and drilling rig time. By electing to deduct instead of capitalizing and amortizing expenses, explorers recoup their costs faster. If the Obama administration does away with intangible drilling costs, oil and gas producers will no longer be incentivized to reinvest in new drilling projects, and new exploration will decline.

Small oil and gas producers will also rethink their decisions to pursue riskier prospects if drilling incentives are reduced. The only projects that will be worthwhile to undertake will be the "sure win deals." And if they do decide to drill, they won't recoup their costs as quickly, which means they'll be slower to start new projects. Without the tax incentives, marginal producing wells, which might otherwise be reworked and continue to produce for years, will be more likely to be plugged and abandoned.

So what if marginal wells are no longer subsidized? Taxpayers shouldn't be supporting bad assets and small oil and gas companies that operate them.

That's a fair point. But it's significant to note that 85% of the total oil wells in the U.S. are marginal producers, and these wells account for approximately 10% of total oil production from the lower 48 states. For natural gas, marginal wells produce nearly 9% of the total. And it's not just small companies operating these wells. These subsidies are deeply embedded in the economics of the U.S. independent oil and gas industry. Cutting the tax incentives will drastically change the industry. The chairman of the Independent Petroleum Association of America thinks these proposals will cost independent oil and gas producers over $30 billion.

Back in May 2009, when it came time to include the president's proposals limiting oil and gas tax incentives in the FY2010 budget, cooler heads prevailed in Congress and the proposals were not enacted. However, you can bet that similar policies affecting the industry will be enacted sooner rather than later.

Profiting from the mayhem

All independent, non-integrated U.S. explorers and producers will be affected if these proposals become a reality. At first, profits of oil and gas producers across the board will decline precipitously, impacting companies' bottom lines and hammering investor returns. Producers that primarily operate marginal wells will be forced to plug and abandon newly uneconomical wells as a result of the policy changes. Without cash flow to support high fixed costs and precarious balances sheets, these companies will quickly become distressed.

Next, oil services companies will suffer as their small and medium-sized customer bases shrivel up. Regardless of size, all exploration and production companies with significant exposure to U.S. oil and gas assets will get hurt.

It's also almost guaranteed the market will overreact and punish any U.S. company that has anything to do with oil and gas, whether or not it's fundamentally justified. However, once the initial panic subsides, expect to find some screaming bargains among the surviving companies.

Oil and gas companies with conservative balance sheets, diversified assets outside of the U.S., spare cash, and opportunistic management will have a heyday picking up quality assets at fire sale prices. The trick is to identify the companies that will survive the turmoil and be able to capitalize on their competitors' misfortune. Initially these strong companies will suffer stock declines along with every other oil and gas company. But they will recover quickly, and as they acquire new assets at attractive prices, their growth and profitability will be better than before. The window of opportunity to get into these stocks at bargain prices will be brief, as the market will quickly correct and the value will disappear.

Big Oil identified the United States as a hostile political environment years ago and has moved most of its production overseas, so they're less likely to be negatively affected by these changes. However, bargain prices will be too tempting for these giants to stay on the sidelines. They'll wade into the fray in a big way, picking up great assets even though it means they'll be subjected to the stifling regulatory environment that comes with doing business in America.

Energy prices across the board will explode upwards and stay high until the production void left by oil and gas can be replaced by renewable energies, nuclear, or coal. The coming energy crisis will present you with plenty of opportunities to profit if your portfolio is correctly positioned.

Source: http://www.safehaven.com/article/15781/will-obama-destroy-any-hope-of-us-energy-independence