Aside from the API WTI spec which favors gasoline, WTI is cheaper because there is too much available light crude. Before the 2014 crash, Brent was the first choice crude all along the GOM. Therefore the WTI price was close to if not equal to the Brent. The GOM refineries represent 70% to 80% of the crude processing in the US and were set up to process Brent principally.
LTO-Shale has changed everything. First the WTI is very light, at first the refineries did not want to use WTI because it did not produce the quantity of diesel that Brent could produce. WTI was heavily discounted, the refiners, such as VLO, invested in modifying their refineries to take advantage of the WTI discount. Today the majority of GOM refineries can process WTI or Brent which minimizes the diesel loss.
OPEC has responded to the loss of Brent by making more Brent available which is pushing prices down. WTI had to respond and WTI prices follow Brent closely. There is still a crack spread differential which explains the price differential. The difference is minimal once the Brent transport cost is included. The export of WTI is not to be seen as a slam dunk. The Brent has been the standard crude used throughout the world; therefore the majority of refineries are set up for Brent. WTI will have to find a market; my guess is that this market will be politically motivated. Europe appears to be a very good candidate.
The crash in the O&G index prices is putting a blindfold on analysts and traders in general. You should not be confused by downstream, which refineries are, with upstream which the E&P are. The Pipeliners are in the middle and are fees based; they are or will be squeeze by the producers.
Refineries like Big Spring ALDW responds to a local market. ALDW buys what it processes and sale the refined products. ALDW and others of the same size, do not produce volumes so large that it over supply the market. The diesel is a case that ALDW did not have. VLO for example modified its refineries process to take advantage of WTI prices and still producing diesel for sale in South America. This South America market has dried up somewhat.
ALDW respond to the South West market and are attacking the Arizona market, which was a California cousin. ALDW has a pipeline and storage to feed their crude demand. My guess is ALDW has 3 month of crude oil supply on hand therefore is able to take advantage of price volatility. What we, traders, have to get used to is low crude prices means lower crack spread. The Big Spring refinery still processes 74 000 barrel of crude barrel per month but the crude is cheaper, the gasoline and diesel as well, so less gross, less profit, same percentage. I have to admit that the volatility is hard to forecast. My guess ALDW will have $0.60 there about, this will make traders to take a second look, unfortunately.
The O&G market in the US particularly is not understood at all. Analysts are looking at the US market with the eyes of international producers. This view is out of whack with reality.
The LTO-Shale E&P have taken over the US O&G business. From a financial and management view, both industries are very different, and cannot be compared.
The standard reservoir type production requires an upfront sizable investment; this is where the analysts are wrong. LTO-Shale does not require a large upfront investment today, February 2016. The early days of LTO E&P was based on the existing business model. The technology was new and not understood. Today, the price to complete a well is $2.5 million, it used to be $4 million plus. This is also the difference with standard production, in LTO a well standoff first as IP production, after a year or two into EUR production, in standard production the reservoir pressure is the volume provider. In a LTO production, the producer provides the pressure by fracking the geology that is where the big difference is. Excelyte is another element that reduces the cost of operation, Excelyte competition cost many time more, the competition is Chlorine, Excelyte is water basically and after 30 days Excelyte can no longer be found, therefore the mud residues can be dispose of cheaply.
In a LTO production management drilling cannot stop, the EUR wells have to be replaced to keep a stable production, not so with standard reservoir production. Drilling is positive for Excelyte, I also believe that H2S or not, Excelyte can be used effectively to disposed of mud residues ecologically. After M&A has swallow the financially wounded E&Ps, US LTO will provide profits even with WTI at mid-$20 per barrel. Presently the market perspective is the old model, LTO is changing every things.
The Crack Spread is the volume of gasoline and diesel you can process out of 3 barrels of WTI or Brent. The variable is the API degree of the crude, heavy API is good for diesel and light API is good for gasoline. The advantage ALDW may have, the “may have” is important, because ALDW is located in Big Spring and when the pipelines throughput to Houston are full, the local producers discount their crude to the local refiners. ALDW can use the light or heavy API WTI. The price crash of the WTI is the result of too much available crude and not enough demand. This has to be what the Saudis want, to so call keep market share. The reality is that the Saudis want to hurt Iran their arch rival. WTI will have problems founding an overseas market. Brent is heaver and has been the reference crude overseas. Too early to access the overseas WTI price.
The cost of the crude is low therefore the gasoline and diesel as well. The profit percentage is the same, but the dollar value is lower. This quarter expect ALDW distribution to be around $0.60, with luck $0.70.
H2S is a major safety problem, the threshold for fatalities when exposed to H2S in at 5 PPM. First you smell the rotten eggs, than you lose your sense of smelling, than you go to sleep and you do not wakeup. It is that bad, the US government is extremely aware of the problem.
Aside from Chlorine, Excelyte has no competition that cheap. Excelyte has other known applications but, my view, is that the packaging and the life of Excelyte make it difficult to distribute. A hospital would need an Excelyte production unit to be competitive, and then the upfront cost is against Excelyte. The O&G drilling standard or LTO-Shale is the way to go.
Presently the problem is the low index price of crude. Any play subjected to H2S is seen as a negative and closed off, unless the production is high 2,000 or 5,000 BPD. Many E&P can no longer produce because their cost is too much; H2S is part of the problem.
My question is how long the Saudis can keep the price that low. Their production cost is below $10 per barrel, Iran is around $12 per barrel. Most of OPEC production cost is not near those of the Saudis or Iranians. I believe the US LTO-Shale E&P can be profitable at $20 per barrel, once the M&A has taken place. IEVM will require patience, by 2017/18 we can look at $0.50 per share.
My understanding is that Excelyte is plane water that goes through an electrolytic process. I believe that the electrolytic process changes the polarity of the water to negative, how much negative polarity, I do not know. All I know the negativity of the water kills the bacteria on contact. After 30 days the water polarity goes back to normal.
Hypochlorous acid is a weak acid with the chemical formula HClO. It forms when chlorine dissolves in water. Hypochlorous acid does not go through electrolysis process. I may be wrong but chlorine is not used in the Excelyte process. If someone knows more, please contribute.
Crude oil export is believed to remove the US refiners discount. These discounts are based on the refineries locations and the lack of pipeline throughput to the GOM. The result is supposed to create a sizable discount to the nearby refineries.
New pipelines are available from the Permian to Houston and beyond to Louisiana. The throughput pressure is less than 6 month or a year ago. The GOM refineries were mostly set up to process Brent heavier API crude. In the last 2 years many refineries have modified their refineries to process WTI as well. It appears to me that for the WTI to be exported it has to be to a refinery that can handle light API crude WTI type. It all comes down the refinery classification allowing it to process a single to several API type crudes. This may not be possible right away therefore the WTI may have to be discounted versus the Brent. The pricing has to have the Crack Spread relationship, how much gasoline and diesel can you process out of 3 barrels of crude, and what are the markets demands.
The US refineries equity loses is over stated at present, I can see a rebound soon, but in a year??? It all depends on the WTI export!
I have done so for the last 18 month. IEVM will take off, when the WTI will go up to $50. My guess within 12 month.
Calumet Specialty Products Partners, L.P. (CMLT) was formed in 1919 as the Calumet Refining Company. CMLT does not mention since 1919 that it is an MLP, the acronym is the original SEC name. MLP has a different acronym such as: ALDW the MLP and ALJ is the corporation. MLPs have to have bylaws, CMLT does not. As a corporation CMLT is able to pay dividends, not distribution, as they wish. CMLT as a corporation may be a good investment, it is just that I question borrowing for paying dividends. The O&G market, today, is seeing volatility that requires the investigation of questionable practices.
Being antagonistic or not, numbers do tell the story. The total amount allocated to the dividend was stated as a loss. It happen that the amount equal the dividend payout. It is CMLT choice to finance the dividend, but not a good decision when no profit was generated. Looking at XOM for example, dividends are taken out of profits. Some analysts believe that XOM will not be able to keep the same amount much longer. XOM is still making a profit. I question CMLT continued dividend payout in 2016, unless the market changes.
Having a look at the latest K8 dated 30th July 2015 CMLT took an $83.4 million loss. The Net Income Applicable To Common Shares was ($52.3 million), that amount is equal to the $0.685 distribution. This means that CMLT distribution is a loss. My previous comment is retracted. CMLT is not a MLP therefore there are no obligation to distribute. None the less CMLT does distribute at a loss. The CMLT diversification is from fuel to food and personal care. Can it continue to distribute at a loss, thoughtful in this market condition.
CLMT has had a distribution of $0.685 since 31 July 2013. I cannot see CLMT increasing their distribution during these troubling times. Out of the 3 segments CLMT manages, the service segment provides drilling fluids. The drilling industry is in a down turn. The crack spread is narrowing because of the many new pipelines coming into services. The 2 segments, specialty and fuel services will not fetch the profit warranting an increase in distribution. Should be lucky to stay at $0.685.
Early on Excelyte was pursuing the healthcare industry. Did not go any where! The food industry was not really pursued. O&G is where the money is. The environmental disposal of industrial waste water should be a possible market. Chlorine is the competition, Excelyte is much cheaper and environmentally safe, chlorine is not.
My view is that Excelyte has a 30 days life, beyond 30 days Excelyte can no longer be found. This is the handicapped that Excelyte distribution has. Excelyte has to be processed and used practically where it is processed. Therefore I question Excelyte distribution in bottle, the shelf life is too short.
I have own IEVM for 18 month, so 6 more months or another year??!! Why not ! Excelyte will not go out of business. Excelyte does provide a service that really has little to no competition. The worst deal is that it is bought by a propent company or a drilling mud additive provider.
I have time, IEVM will not break me!
You have to come down to hearth! The crude oil is crashing therefore the light tight oil (LTO – shale oil) is down in the $30s. Excelyte market is LTO that have H2S therefore more expensive to extract. The LTO market will benefit the shale play that does not have H2S because the production is cheaper.
Excelyte even though effective, is an added expense, so the average production between IP and EUR wells must be high, so the cost of Excelyte becomes a few cents per barrel. The potential clients, today at $30 plus per barrel, are not so many. I am afraid that the US LTO market is starting to include many “Zombies” shale play that are surviving or unprofitable. Many LTO E&P will have to redefine their declared reserves. They will no longer be able to include any well that have been included in the declared reserved but not drilled in the last 5 years. This new rule will be disastrous to some and we will see many more “Zombies”. That is what the Saudis want less competition.
Time are not easy in the O&G business!
Electrolysis process is not new. In my early years in the piping business, I tried to bet a job at the Palo Alto accelerator, ( never got it) and the cooling water had a negative polarity, the electrical potential is very important in keeping the test element in the center of the core of the accelerator.
In the semiconductor manufacturing polarity is very important, so wash water has a negative polarity. This is also why all water piping is in inert material, Teflon, so as not to modify the polarity of the water.
My background was offshore drilling GOM and overseas, first with SEDCO and later ENSCO and Noble. H2S is an expensive bug to manage. The FED makes it very expensive to control and to dispose of the shavings environmentally friendly way.
Excelyte can mitigate H2S cheaply. Excelyte cannot be patented; also presence of Excelyte can no longer be detected behind 30 days. This is bad and good, good because once the shavings are treated they can be disposed of like any other dirt really. I believe, although I have not knowledge, that the Excelyte is water that once gone through the electrolysis process, the polarity of the water becomes negative. Not many organisms can survive negative polarity, naturally the degree of negative polarity is the company secrete! Negative polarity washing water is extensively used in the manufacture of electronic chips. It is also used in the Palo Alto accelerator cooling water. All these applications require the control of polarity. Negative water will attract unwanted particles and bugs and flush them out.
I strongly believe Excelyte has a bright future, but in the O&G business it takes time to acquire the bonified status of good product. Also and not least, the drilling business is on a downturn. None the less, 230 wells are now under treatment!
So far for Q4 the crack spread 3.2.1 is $9.64. The Q3 crack spread was $11.19. To be able to publish the K8 report, which the SEC must receive 10 days before the wanted Xdate, the crack spread data has to be taken no further than 30 days before the Xdate. ALDW has 20 days to prepare the report and have it approved by the BD.
So far Q4 crack spread is not too good!