(See our mid-Atlantic energy analyst friend’s Venezuela commentary next story below)

With Competent Leadership Alaska’s Future Could Still Be Prosperous


Dave Harbour

Alaska brings in less than half the price for oil needed to have a current balanced budget.  Up to 90% dependent on oil revenue, the state has worked itself into a $3-4 billion annual budget deficit.

State leaders seeking the ‘easy way out’ are funding the deficit by taking money from the next generation.  How?  They are depleting savings accounts and passing on tax credit obligations to the next legislature.

Alaska’s governor is openly hostile to the state’s biggest investors and several smaller producers have already sold out, picked up stakes and moved on to greener pastures.

Alaska’s critical support industries have already fired or laid off thousands of employees…and thousands more are accepting lower paychecks and benefits — or threatened with job loss — as the vast majority of state entitlement programs and bureaucrats are kept whole by patron politicians.

Department stores tell us that business is dramatically down.  Realtors tell us that home values are receding by as much as $1 thousand/month.  A local dentist said yesterday that business is dramatically down.    The state now labors under the lowest credit rating in history.  As one would expect, the rating agencies, along with the state’s think tank, the Institute of Social and Economic Research, have been warning decision makers for years; like politicians elsewhere, they’ve responded to warnings irresponsibly: sensitive to constituent wants and deaf to the fiscal needs of the state.

(Commentary continues in right column.)

Calgary says goodbye to more than 4,000 businesses in 2016

Canada is not immune from runaway spending in the wake of oil price volatility!

Yedlin: No mistaking oil price stress in Alberta.  Calgary Herald.  More from Deborah Yedlin, Calgary Herald … Oil prices have strengthened in recent trading sessions while natural gas in Alberta has … stocks of 2.5 million barrels and a draw on gasoline inventories of 2.7 million barrels. … Whether it’s visits to the Calgary Inter-Faith Food Bank exceeding the Christmas …

Left column commentary continues:

Meanwhile, Alaska’s quixotic governor pursues his socialistic quest to control — if not own — private gas pipeline, LNG, distribution and production industries.   In short, the handwriting is on the wall for those who have eyes to see: Alaska is poorly led, has left the age of prosperity and is wading deeper into a new age of socialism and a tragic loss of freedom.

This self-induced tragedy is more poignant when one realizes that with political courage the state’s leaders could simply have cut spending to meet revenue supply and protected the strength and pioneering spirit of the state.   Yes, some powerful constituencies would have suffered.  But in, arguably, the most socialist, welfare state in the nation, spending discipline is an unavoidable imperative should citizens of the 49th state wish for a return to fiscal responsibility.        -dh


TODAY’S Commentary From our anonymous Mid Atlantic Energy Analyst Friend

A week ago, we featured an article from Euan Mearns and Art Berman (contributor) that discussed the difference in “breakeven cost points” for OPEC countries and western Big Oils and E&Ps. Essentially, OPEC had to consider the costs of supporting their respective national budgets, while the others had a more conventional approach to operating cash flow in figuring out breakeven points and ROCE.


One OPEC country that was conveniently omitted from estimating a breakeven point is Venezuela. It has no breakeven point.  The country’s economic condition is so deplorable (and quickly getting worse) that there is no realistic price that is meaningful. Even when crude oil sold above $100, Venezuela was siphoning funds from PDVSA (it national oil company) with no money left for reinvestment. The article below discusses how Venezuela’s export volumes are declining. Consider the following:


  • The fields are going into volume declines.
  • Venezuela has no cash to purchase lighter oil to blend with its very heavy crude.
  • The oil service companies (led by Halliburton and Schlumberger) have essentially left the country due to nonpayment for past work.
  • Venezuela has already sold a lot of future production to China,meaning future cash flow has already been pulled forward.
  • Cuba, which has been a major customer (at a big discount), is doing better, but Venezuela is running a net deficit with Cuba due to paying for other services.
  • The company cannot afford to import food, medicines, toilet paper or even the printed money it needs to cover its hyperinflation.


The point of all this is that oil supply from Venezuela will continue to decline, even if the price of crude rebounds to any level short of $100/barrel. This is bullish for the price of crude oil. By itself it is only a data point. But when combined with problems in Brazil and elsewhere, it is a contributor to our bullish attitude to crude oil pricing over the next 18 months.


There are 156 days left.


Venezuela Oil Exports Seen Falling as Economic Woes Worsen

Angelina Rascouet @arascouet

August 16, 2016 — 8:17 AM EDT

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The long decline in Venezuela’s oil production is becoming a supply risk for international markets, according to a report by Columbia University’s Center on Global Energy Policy.

Exports from the holder of the world’s largest crude reserves fell more than 300,000 barrels a day in June, compared with….

More here….

Repsol Left Argentina For Alaska — Now Closes Alaska Office!

We can love Alaska or Venezuela, but reject their lack of leadership”

Venezuela and Alaska are both blessed with abundant natural resources.  We note that both are currently suffering from political leaders intent on buying political support (i.e. power and re election) with subsidies they can no longer afford.

Venezuela is 95% dependent on oil as its economy crashes. Alaska’s economy is 90% dependent on oil as its economy crashes. Venezuela’s leader refuses to give up control of the means of production, good socialist that he is. Alaska’s governor seeks control of the means/transportation/distribution of production (i.e. LNG project equity, In-state gas pipeline & government subsidized Fairbanks gas utility). Both Venezuela and Alaska spend more than they take in. The late President Chavez gained popularity by increasing entitlement spending. Alaska’s governor has institutionalized expansion of Medicaid and maintained subsidies for virtually all other entitlement programs. Venezuela’s past and present leaders demonized oil companies. Alaska’s governor and his supporters have demonized oil companies. Venezuela is a “democratic socialist” nation. Alaska’s democrats have formally supported a “democratic socialist” candidate for President of the United States. No one wants to invest in Venezuela. Who, in his or her right mind, will want to invest in Alaska until its leaders finally come to their senses?

One’s eternally springing hopefulness can only find solace in one conclusion: that the people will become sufficiently united in common sense to reject socialism and begin to give free enterprise the respect and support it deserves.

For a free market — minimally oppressed by taxation and regulation — is the key to prosperity and sustainable, long-term economies in both Anglo and Latin America!

And make no mistake: as Venezuela and Alaska have discovered, the mere act of ‘democratically electing’ socialists who want to control you and everything you depend on to thrive does not sustain freedom.

Democratically elected socialists (i.e. Chavez and Hitler) were just as ruthless, economically ignorant and hard to eject as socialists (i.e. Lenin, Castro and Pol Pot)  who maintained power by force.


Footnote: Apologists for Alaska’s leadership decisions over the years could criticize us for comparing Alaska to Venezuela.  Admittedly,  (Read more from our 4-28-16 commentary….)