Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows that the war is over
Everybody knows the good guys lost
Everybody knows the fight was fixed
The poor stay poor, the rich get rich
That’s how it goes
Everybody knows
Leonard Cohen

Earlier this week I attended the World Resource Investment Conference in Vancouver where I spoke on topics that included “Is the commodity bull market over?” (yes if you use 2 year charts, no if you use 10 year charts) and “Big picture trends in oil and gas”.

This conference is primarily populated by junior mining enthusiasts and while the conference organizers marketed the conference with a similar program to last year’s, attendance was down significantly. Still, approximately 5000 investors visited The Vancouver Convention Center (VCC), one of the most stunning in the world. The breathtaking backdrop of Vancouver Harbor, Stanley Park and the North Shore Mountains may be recognizable to those who watched the Winter Olympics as the VCC  served international media headquarters. Many of Canada’s exports are shipped to the Pacific Rim from here including coal, forest products, grain, sulphur, and potash. Cruise ships are continually docking at Canada Place which housed many previous conventions. While this facility features a stunning white sail fabric roof, it is not sound proof. I’ve had the opportunity to pause a presentation several times while the noise of a seaplane taking off drowned out the PA system.

The weather was fantastic, sun is one of the rarer commodities in Vancouver so when it arrives everybody makes the effort to get out and walk, blade or cycle along the seawall or drink coffee on a patio (they are mostly covered and for good reason). Against this international backdrop of sun, tourism, trade and commerce, you’d think it might be possible to find an optimistic investor.

I’m an optimistic person and like to think that I attract other optimists into my life. I think I was in the wrong place this year. I heard several stories of investors riding down their portfolio of junior companies to near catastrophic losses only to be rescued by the recent liquidity driven bull trend. This time there is a lack of conviction in the markets. People are selling. They are happily selling because they don’t want to relive the pain of the last market downturn. Nobody knows how low the markets will go this time but they sure remember how low they got in 2008 and that is plenty bad enough thank you very much.

Commentators at the conference were negative on most everything with the exception of precious metals. Even senior gold companies were whacked during the 2008 downturn and the general populace isn’t feeling particularly trusting of ETFs or any other paper construct designed to represent owning gold. Only hard assets and sound money will do. My friend David Morgan likes to bang his silver dollar money clip on the table to illustrate the point that sound money… makes a sound. No longer will investors be calling brokers. Instead they will be driving to coin shops and bullion dealers with barred windows and/or bulletproof glass. Is everyone going to be carrying around scales so they can conduct trade using gold? Shades of Deadwood?

Everybody knows this market is going to hell in a handcart. In conversations with a 40+ year trader my optimistic thought of a short term rally was quashed by his statement “who is going to buy?”

Certainly not Mark Steel of BMO Capital Markets who says Go to Cash – In Plain English. His call rivals Eric Sprott’s September 2007 assertion to Keep it simple… BUY GOLD for brevity.

Everybody knows.

A chain is only as strong as its weakest link and in the world of deepwater drilling, BP has snapped a critical segment of the US energy industry. Offshore drillers are faced with a time out that us going to cripple a big part of the Gulf Coast states economies.

Interior Secretary Ken Salazar has blocked new permits for six months and suspended 33 deepwater operations, including Walter’s. Drilling in waters less than 500 feet deep will be allowed to continue, as will production activity in deep waters. nytimes.com

This is creating some bargains in the oil patch but it could take a very long time before these bargains offer any sort of positive return for investors.

Is this the Three Mile Island of offshore oil exploration in the US?

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I’m not tapped into the Calgary oil patch dealflow but yesterday I received 2 emails about financings for companies with large Cardium landholdings. The Cardium formation is a fine-grained marine sandstone with, with massive sandstone beds separated by shale.

The Pembina oil field was discovered in 1954. So there has been a long time to pump the oil out of the ground but so far recoveries are only around 15-20% of the original oil in place. That means that at least 80% of the Cardium oil is still stuck in the ground. The oil patch doesn’t like to jump into new concepts too quickly but when they find an idea that makes money they’re all over it. In the case of the Cardium, drilling horizontal wells with multi-stage fracturing treatments yields high production rates. The oil has already been discovered so the main challenges are technical ones.

Spry Energy (private) is looking to raise $6-10 million

Base Oil and Gas (BOG.V) is looking to raise $1 million

This is one of the best oil plays in Canada right now and Cardium wells can’t be drilled fast enough. However, oil prices are dropping and access to capital is getting tight. Production from the Cardium will continue for many decades into the future. However not all the companies looking to drill this year will be around in a few years. Most will sell out to larger companies. Whether that happens at a higher or lower price than today’s depends on many factors.Keep your eye on the oil price.

No shortage of ideas as to how to plug BP’s unfortunate subsea gusher. A very bright engineer who became a college professor at age 18 is suggesting that tires be pushed into the leaking riser and inflated. The oil industry uses this technique already – rubber packers are routinely used to seal off segments of well bores.

Even more interesting is the suggestion by Matthew Simmons that a nuclear device be used to seal off the well. This method still requires the drilling of a relief well which pushes the timeline out until August. It also would make it impossible to try any other methods after the device was detonated. However, big problems call for big solutions…  like that asteroid movie.

The Russians did it! Watch “A nuclear explosion puts out a gas well blaze”

I’m all in favor of crowdsourcing radical solutions to problems but I think this one can be handled using tried and true methods.

Footage of oil spewing out of the Gulf of Mexico sea floor has become a daily news fixture.  Unfortunately the odds of taming this well before 2 relief wells are finished drilling are not very high. The realities of drilling engineering is that they will take until August to complete. This is not an acceptable option to the American public. The appearance of doing “something” is required and James Cameron is being called in to offer his suggestions on killing the well. In spite of his technical prowess, I don’t think using the shiny water tentacles of non-terrestrial intelligences (NTIs) will work. Matthew Simmons has suggested using nuclear devices to stop the flow oil. Armchair quarterbacks aren’t going to fix this problem but thankfully drill bits are turning on the relief wells.

While things are looking pretty grim for the Gulf of Mexico, it is no stranger to having oil contaminate its ecosystem. Indeed natural processes are responsible for over 60 percent of the petroleum entering North American waters according to the National Academies. I’m not saying the BP disaster is excusable but sometimes having some sense of proportion can lead informed discussion instead of a media circus. The NASA Earth Observatory scientists estimated in 2000 that oil seeps from the sea floor at over 600 locations. In aggregate, the annual volume of natural seepage in the Gulf of Mexico is conservatively estimated to equal that of two Exxon Valdez spills every year. The issue with the BP disaster is that all the oil is coming from a single source like a fire hose instead of hundreds of leaking faucets. The use of dispersants may help mitigate the damage and give hydrocarbon degrading microbes a better chance to chow down on some of the spill.

Meanwhile shares of BP continue to plummet and British pensioners are now at risk of having their retirement income slide into the abyss.

BP is the most important company on the UK stock market by a considerable margin. Roughly £1 in every £6 received in dividends by UK pension funds comes from BP, so a cut would severely impact almost every saver in the land.

from The Times

Who knew that BP stood for British pensions?

15 year monthly chart of BP Amoco .

Thanks to Bernie Hensel of Raymond James for passing along the pension article.

I’m a very happy iPad owner. While it doesn’t make the bed or cook food, it turns out to be a very handy device.

My favorite app by far is The Elements by Theodore Gray. Gray obsesses about the elements so that we don’t have to. He actually built a table… in the shape of the periodic table. Then he started putting physical samples of elements in the squares of his periodic table table. Then he made placemats, and a book and one of the best iPad apps out there.

Hey porter! Hey porter!
What time did ya say?
How much longer will it be till I can
see the light of day?

Johnny Cash

Porter Aviation Holdings Inc announced today that they were cancelling their planned initial public stock (IPO) offering due to market’s recent volatility.

Our company is well-positioned to wait until the equity markets stabilize before deciding whether to proceed with a new public offering according to a statement by Porter CEO Robert Deluce.

Alberta continues with its anti-business ways…

Between 200 and 300 Townships (a Township is 6 square miles), in NE Alberta have been removed from oil sands acquisition, metallic mineral acquisition and coal acquisition (see map below).

This has been done without public notice or consultation.

I’ll try to post more on this as things develop.

Metallic Mineral Map May21 2010

As of Thursday evening it is still a Sammy Hagar kind of market…

Given the current distribution of oil production in the US, there should be a market for methods that increase production from medium and low rate wells.