I thought price fixing was illegal
- Thread starter SLY
- Start date
June 3 (Bloomberg) -- John Bartelson, who smokes Marlboro Lights through fingers blackened with tractor grease, may look like an average wheat farmer. He isn't. He's one of North Dakota's new oil barons.
Every month, he gets a check for tens of thousands of dollars from a company in Houston called EOG Resources Inc., which drilled two oil wells on his land last year. He says the day his first royalty check arrived was one to remember.
``I smiled to beat hell, and I went to town and had a beer,'' Bartelson, 65, says.
His new wealth springs from the Bakken formation, a sprawling deposit of high-quality crude beneath the durum wheat fields of North Dakota, Montana and southern Saskatchewan and Manitoba. The Bakken may give the U.S. -- the world's biggest importer of oil -- a new domestic energy source at a time when demand from China and India is ratcheting up the global competition for supplies and propelling average U.S. gasoline prices to almost $4 a gallon.
And unlike the tar from Canada's oil sands, Bakken crude needs little refining. Swirl some of it in a Mason jar and it leaves a thin, honey-colored film along the sides. It's light - -almost like gasoline -- and sweet, meaning it's low in sulfur.
Best of all, the Bakken could be huge. The U.S. Geological Survey's Leigh Price, a Denver geochemist who died of a heart attack in 2000, estimated that the Bakken might hold a whopping 413 billion barrels. If so, it would dwarf Saudi Arabia's Ghawar, the world's biggest field, which has produced about 55 billion barrels.
Thin Deposit
The challenge is getting the oil out. Bakken crude is locked 2 miles (3.2 kilometers) underground in a layer of dolomite, a dense mineral that doesn't surrender oil the way more-porous limestone does. The dolomite band is narrow, too, averaging just 22 feet (7 meters) in North Dakota.
The USGS said in April that the Bakken holds as much as 4.3 billion barrels that can be recovered using today's engineering techniques. That's a fraction of the oil that Price said should be there, but it's still the largest accumulation of crude in the 48 contiguous U.S. states. North Dakota, where Bakken exploration is most intense now, won't become Saudi Arabia unless technology improves.
``The Bakken is the biggest thing in oil in the lower 48 right now,'' says Jim Jarrell, president of Ross Smith Energy Group Ltd., a research firm in Calgary. ``And among the least understood.''
Delaying the Peak
Some oil, like the 10.4 billion barrels estimated to be recoverable in Alaska's Arctic National Wildlife Re***e, remains off limits -- as a nature conservation measure -- even as President George W. Bush renews his calls for drilling there. North Dakota, already crisscrossed by farm roads, is open for business.
As traditional oil fields become scarce, exploration companies must tackle trickier ones to stay in business. Their success will determine when the world reaches peak oil -- the high point in production after which new supply will no longer be there to slake new demand. It's a gloomy concept. Peak oil theorists predict the mother of all oil shocks, complete with famine and wars for energy.
These days, big new oil deposits often come with caveats. Brazil's Petroleo Brasileiro SA says its offshore Tupi field contains as much as 8 billion barrels of oil, which the company hopes to start pumping next year. But the field is under more than four miles of water and rock, where pressure can crush drilling equipment.
Hedge Bus
The Bakken dolomite is hardly an obstacle, by comparison. And even if Price was too optimistic, the Bakken is big enough to make investors rich. Some have made fortunes already.
In April, a busload of hedge fund managers drove by Bartelson's land, ogling the metronomic pump jacks and the devilish orange flares of excess natural gas that are making parts of North Dakota look more like west Texas.
``There's nothing that can stop this play,'' says Mike Reger, chief executive officer of Northern Oil & Gas Inc., a five-person company near Minneapolis that has leased the mineral rights under 32,000 acres (13,000 hectares) in the North Dakota Bakken.
Reger, 32, brought the hedge fund managers up to see the oil field. Some, like Ryan Zorn of Houston-based investment management firm Saracen Energy Advisors LP, are investors in Northern already. Northern shares have risen 61 percent since being listed on the American Stock Exchange on March 26.
Fool's Gold
For decades, the Bakken was the fool's gold of the oil industry. The name describes a geological formation that looks like an Oreo cookie: two layers of black shale that bleed oil into the middle layer of dolomite. It's named after Henry O. Bakken, the North Dakota farmer who owned the land where the first drilling rig revealed the shale layers in the 1950s.
All of the layers are thin -- about 150 feet altogether -- and none of them give up oil easily. In older, vertical wells, oil would often flow for a month and then fizzle.
Now, companies like Austin, Texas-based Brigham Exploration Co.; Denver-based Whiting Petroleum Corp.; and EOG are drilling horizontally. They go straight down 10,000 feet and then put a slight angle in the mud motor, a 30-foot piece of tubing that drives the bit, so they hit the Bakken sideways, making a horizontal tunnel 4,500 feet long through the dolomite.
That exposes more of the oil-bearing rock. Then they pump pressurized water and sand into the hole to fracture the dolomite, making cracks for oil to seep through.
It eventually winds up in a pipeline that runs east to Clearbrook, Minnesota, and then south to Chicago.
Where Billionaires Roam
Several billionaires are at work in the Bakken. Harold Hamm's Enid, Oklahoma-based Continental Resources Inc. has leases on 487,000 acres in Montana and North Dakota. Hamm, who started out driving a truck, owns 73 percent of Continental, worth $7.9 billion. Philip Anschutz, 68, founder of Qwest Communications International Inc. and Regal Entertainment Group, is there, too.
So are two sons of billionaire H.L. Hunt, the 1930s wildcatter. Petro-Hunt LLC is owned by the trust estate of William Herbert Hunt, who was convicted in a civil trial with his brothers Lamar and Nelson Bunker of trying to corner the silver market in 1979. Hunt Oil Co., another Bakken operator, is owned by their half brother, Ray L. Hunt.
The big winner so far has been EOG, formerly a subsidiary of bankrupt energy trader Enron Corp. It drilled a horizontal well in western North Dakota just north of Parshall -- population 1,028 -- in April 2006. The well came online a month later and kicked out 1,883 barrels in the first seven days. Unlike the older vertical wells, it's still going. In March, it produced 2,305 barrels, according to the North Dakota Industrial Commission.
No Slam Dunk
EOG has eight rigs running on 320,000 acres of mineral leases in the North Dakota Bakken. The company said in its 2007 annual report that the area has the highest return of all the places in which it operates -- including Texas's Barnett Shale, the Gulf of Mexico coast and the Permian Basin of New Mexico.
The Bakken isn't foolproof. Far from it. Drilling there is expensive -- about $5 million a well, according to EOG -- and takes experience. Dallas-based Petro-Hunt's first well in the North Dakota Bakken didn't make money, company geologist Steve Bressler says. Brigham's Bergstrom Family Trust well came online at 277 barrels a day -- viable at today's high oil prices but not a gusher.
``There will be variances,'' says John Gerdes, an oil and gas analyst at SunTrust Robinson Humphrey Inc. in Houston. ``The rock matters. The people matter.''
Oil Rush
The success of EOG's Parshall well set off a land grab in North Dakota's Mountrail County. Land men -- the experts who move from boom to boom leasing mineral rights -- swarmed, paying ever higher prices for ground that for decades grew crops and concealed Cold War missile silos.
On private acreage, land men negotiate with mineral owners like Bartelson. They offer a bonus upfront to hold the mineral rights for three to five years, and they agree to pay a fraction of the revenue from any oil produced each month -- often from 1/8 to 3/16. On land with a producing well, the mineral lease lasts as long as the well does. On government land, the bonus is set at auction.
Bartelson in 2004 granted a five-year lease on 1,400 acres, under which he owns half the mineral rights. He got a bonus of $25 per mineral acre, or $17,500, plus one-sixth of any oil revenue. Times have changed since then. In November, Sinclair Oil Corp. of Salt Lake City paid $16,500 an acre at auction for half the mineral rights on 320 acres of government- owned land in the Parshall Field, according to the U.S. Bureau of Land Management.
Every month, he gets a check for tens of thousands of dollars from a company in Houston called EOG Resources Inc., which drilled two oil wells on his land last year. He says the day his first royalty check arrived was one to remember.
``I smiled to beat hell, and I went to town and had a beer,'' Bartelson, 65, says.
His new wealth springs from the Bakken formation, a sprawling deposit of high-quality crude beneath the durum wheat fields of North Dakota, Montana and southern Saskatchewan and Manitoba. The Bakken may give the U.S. -- the world's biggest importer of oil -- a new domestic energy source at a time when demand from China and India is ratcheting up the global competition for supplies and propelling average U.S. gasoline prices to almost $4 a gallon.
And unlike the tar from Canada's oil sands, Bakken crude needs little refining. Swirl some of it in a Mason jar and it leaves a thin, honey-colored film along the sides. It's light - -almost like gasoline -- and sweet, meaning it's low in sulfur.
Best of all, the Bakken could be huge. The U.S. Geological Survey's Leigh Price, a Denver geochemist who died of a heart attack in 2000, estimated that the Bakken might hold a whopping 413 billion barrels. If so, it would dwarf Saudi Arabia's Ghawar, the world's biggest field, which has produced about 55 billion barrels.
Thin Deposit
The challenge is getting the oil out. Bakken crude is locked 2 miles (3.2 kilometers) underground in a layer of dolomite, a dense mineral that doesn't surrender oil the way more-porous limestone does. The dolomite band is narrow, too, averaging just 22 feet (7 meters) in North Dakota.
The USGS said in April that the Bakken holds as much as 4.3 billion barrels that can be recovered using today's engineering techniques. That's a fraction of the oil that Price said should be there, but it's still the largest accumulation of crude in the 48 contiguous U.S. states. North Dakota, where Bakken exploration is most intense now, won't become Saudi Arabia unless technology improves.
``The Bakken is the biggest thing in oil in the lower 48 right now,'' says Jim Jarrell, president of Ross Smith Energy Group Ltd., a research firm in Calgary. ``And among the least understood.''
Delaying the Peak
Some oil, like the 10.4 billion barrels estimated to be recoverable in Alaska's Arctic National Wildlife Re***e, remains off limits -- as a nature conservation measure -- even as President George W. Bush renews his calls for drilling there. North Dakota, already crisscrossed by farm roads, is open for business.
As traditional oil fields become scarce, exploration companies must tackle trickier ones to stay in business. Their success will determine when the world reaches peak oil -- the high point in production after which new supply will no longer be there to slake new demand. It's a gloomy concept. Peak oil theorists predict the mother of all oil shocks, complete with famine and wars for energy.
These days, big new oil deposits often come with caveats. Brazil's Petroleo Brasileiro SA says its offshore Tupi field contains as much as 8 billion barrels of oil, which the company hopes to start pumping next year. But the field is under more than four miles of water and rock, where pressure can crush drilling equipment.
Hedge Bus
The Bakken dolomite is hardly an obstacle, by comparison. And even if Price was too optimistic, the Bakken is big enough to make investors rich. Some have made fortunes already.
In April, a busload of hedge fund managers drove by Bartelson's land, ogling the metronomic pump jacks and the devilish orange flares of excess natural gas that are making parts of North Dakota look more like west Texas.
``There's nothing that can stop this play,'' says Mike Reger, chief executive officer of Northern Oil & Gas Inc., a five-person company near Minneapolis that has leased the mineral rights under 32,000 acres (13,000 hectares) in the North Dakota Bakken.
Reger, 32, brought the hedge fund managers up to see the oil field. Some, like Ryan Zorn of Houston-based investment management firm Saracen Energy Advisors LP, are investors in Northern already. Northern shares have risen 61 percent since being listed on the American Stock Exchange on March 26.
Fool's Gold
For decades, the Bakken was the fool's gold of the oil industry. The name describes a geological formation that looks like an Oreo cookie: two layers of black shale that bleed oil into the middle layer of dolomite. It's named after Henry O. Bakken, the North Dakota farmer who owned the land where the first drilling rig revealed the shale layers in the 1950s.
All of the layers are thin -- about 150 feet altogether -- and none of them give up oil easily. In older, vertical wells, oil would often flow for a month and then fizzle.
Now, companies like Austin, Texas-based Brigham Exploration Co.; Denver-based Whiting Petroleum Corp.; and EOG are drilling horizontally. They go straight down 10,000 feet and then put a slight angle in the mud motor, a 30-foot piece of tubing that drives the bit, so they hit the Bakken sideways, making a horizontal tunnel 4,500 feet long through the dolomite.
That exposes more of the oil-bearing rock. Then they pump pressurized water and sand into the hole to fracture the dolomite, making cracks for oil to seep through.
It eventually winds up in a pipeline that runs east to Clearbrook, Minnesota, and then south to Chicago.
Where Billionaires Roam
Several billionaires are at work in the Bakken. Harold Hamm's Enid, Oklahoma-based Continental Resources Inc. has leases on 487,000 acres in Montana and North Dakota. Hamm, who started out driving a truck, owns 73 percent of Continental, worth $7.9 billion. Philip Anschutz, 68, founder of Qwest Communications International Inc. and Regal Entertainment Group, is there, too.
So are two sons of billionaire H.L. Hunt, the 1930s wildcatter. Petro-Hunt LLC is owned by the trust estate of William Herbert Hunt, who was convicted in a civil trial with his brothers Lamar and Nelson Bunker of trying to corner the silver market in 1979. Hunt Oil Co., another Bakken operator, is owned by their half brother, Ray L. Hunt.
The big winner so far has been EOG, formerly a subsidiary of bankrupt energy trader Enron Corp. It drilled a horizontal well in western North Dakota just north of Parshall -- population 1,028 -- in April 2006. The well came online a month later and kicked out 1,883 barrels in the first seven days. Unlike the older vertical wells, it's still going. In March, it produced 2,305 barrels, according to the North Dakota Industrial Commission.
No Slam Dunk
EOG has eight rigs running on 320,000 acres of mineral leases in the North Dakota Bakken. The company said in its 2007 annual report that the area has the highest return of all the places in which it operates -- including Texas's Barnett Shale, the Gulf of Mexico coast and the Permian Basin of New Mexico.
The Bakken isn't foolproof. Far from it. Drilling there is expensive -- about $5 million a well, according to EOG -- and takes experience. Dallas-based Petro-Hunt's first well in the North Dakota Bakken didn't make money, company geologist Steve Bressler says. Brigham's Bergstrom Family Trust well came online at 277 barrels a day -- viable at today's high oil prices but not a gusher.
``There will be variances,'' says John Gerdes, an oil and gas analyst at SunTrust Robinson Humphrey Inc. in Houston. ``The rock matters. The people matter.''
Oil Rush
The success of EOG's Parshall well set off a land grab in North Dakota's Mountrail County. Land men -- the experts who move from boom to boom leasing mineral rights -- swarmed, paying ever higher prices for ground that for decades grew crops and concealed Cold War missile silos.
On private acreage, land men negotiate with mineral owners like Bartelson. They offer a bonus upfront to hold the mineral rights for three to five years, and they agree to pay a fraction of the revenue from any oil produced each month -- often from 1/8 to 3/16. On land with a producing well, the mineral lease lasts as long as the well does. On government land, the bonus is set at auction.
Bartelson in 2004 granted a five-year lease on 1,400 acres, under which he owns half the mineral rights. He got a bonus of $25 per mineral acre, or $17,500, plus one-sixth of any oil revenue. Times have changed since then. In November, Sinclair Oil Corp. of Salt Lake City paid $16,500 an acre at auction for half the mineral rights on 320 acres of government- owned land in the Parshall Field, according to the U.S. Bureau of Land Management.
`No Acreage'
``That's a record for Montana and North Dakota,'' BLM spokesman Greg Albright says.
Among the biggest companies punching holes in the North Dakota Bakken are Houston-based Marathon Oil Corp., the fourth- largest U.S. oil company, and Hess Corp. of New York, which is No. 5. No. 1 Exxon Mobil Corp. isn't active in the Bakken. John Freeman, an analyst at investment bank Raymond James & Associates Inc. in Houston, says Exxon is looking for bigger deposits overseas.
``Now, there's no acreage left,'' he says.
The truest believer in the Bakken might be Reger, the CEO of Northern Oil. He's certainly the loudest promoter.
Reger is a fourth-generation oilman. His great-grandfather managed operations for Mobil Oil, now part of Exxon Mobil, in the Williston Basin, the 110,000-square-mile (285,000-square- kilometer) geological formation in the northern plains that holds the Bakken and other deposits. Reger's grandfather leased land atop all of them. His father, uncle and brother are in the business, too.
``It's our basin,'' Reger says.
Bakken Hunters
If it works out the way Reger says, he and his partner, a former derivatives trader named Ryan Gilbertson, will be the Sergey Brin and Larry Page of the Bakken. Like the Google Inc. founders, Reger and Gilbertson are young -- Gilbertson is also 32 -- and they aren't afraid to roll the dice.
The lanky, blue-eyed Reger wears cowboy boots and a saucer-sized belt buckle emblazoned with an ``R.'' He vacationed this year in the Maldives in the Indian Ocean and insisted on a stopover to see Dubai's building boom. Gilbertson, meantime, shot a 10-foot-tall brown bear at eight paces in Alaska in 2007. He has a picture of him and the dead bear on the wall in his office.
`Son o' *****es'
The future partners met while boating on Lake Minnetonka, outside Minneapolis. Gilbertson is from the area and traded derivatives for Piper Jaffray Cos. and a hedge fund firm named Telluride Asset Management LLC in nearby Wayzata, where Northern is based. Reger moved from Montana to St. Paul to attend the University of St. Thomas.
``We're both cowboy-boot-wearing, country-music-listening, gun-toting sons o' *****es,'' Gilbertson says. These days, they both drive black Cadillac Escalade SUVs and wear designer jeans.
Gilbertson says he knows more about interest-only mortgage bonds than he does about oil. But he says Northern will succeed because he and Reger weren't in business during the busts of earlier decades, so they aren't gun-shy today.
When EOG hit oil, they leased as many mineral rights in Mountrail County as they could, even as prices rose.
``The fear of these busts has clouded the judgment of so many players,'' Gilbertson says. ``We just grabbed everything with both hands.''
Turning Over Leases
Northern makes money without actually drilling or operating wells. Its strategy is like the game of Monopoly: lease in promising areas and get paid when someone else uses the land to drill.
The strategy is possible because of the way land is assembled for drilling. Reger's grandfather, uncle and father had made their money as lease brokers: They'd lease the land themselves or buy leases already granted and then sell them at higher prices to exploration companies.
Reger and Gilbertson intend to keep their leases, pay a share of the drilling costs and keep a portion of the oil revenue. Gilbertson says it was his idea. ``I saw the family's model as flawed,'' he says.
Leasing mineral rights means finding mineral owners. That's not always easy, because the farmer who owns the surface may not own the ``minerals,'' as they're known. Farmers can sell land and retain the minerals. When a mineral owner dies, the rights are often passed in equal portions to his or her children, Reger says, making them hard to track down.
Hauling County Records
To find mineral owners in Mountrail County, land men spend months in the courthouse, poring over photo-album-sized books that show who owns mineral rights and whether they've been leased.
One day in April, there were 50 people lugging books around. They line up well before the courthouse opens to get a spot on the first floor so they don't have to haul volumes up the stairs to an old law library that's been filled with folding tables to accommodate the horde.
Reger started leasing land for oil and gas exploration in Montana at age 15. He carried a portable typewriter to bang out contracts on landowners' kitchen tables.
It takes more than mineral rights to drill. Most western states are divided into neat little squares called sections. Each is one square mile, or 640 acres. If you want to drill an oil well in a section, you lease the mineral rights inside it. You don't need all of them, but you have to find all of the rights owners in that section and offer to let them participate.
This is where Northern makes its money.
Watching Permits
Reger's favorite time of day is 4 p.m., when the North Dakota Industrial Commission posts the names of companies that have gotten permits to drill. Very often, a rig is heading to a section in which Northern has mineral rights. He knows then that it will be a matter of time before he gets a letter from the company asking if he wants to share the cost -- and the revenue -- based on the percentage of mineral rights Northern controls in that section. He almost always says yes.
Reger makes it look easy because the Bakken is hot, says Summerfield ``Sam'' Baldridge, a partner at Montana Oil & Gas Properties Inc., founded by Reger's uncle, Steve, in Billings, Montana. Bigger companies are eager to drill, their wells are producing and oil prices are high.
``If it goes bad, you can go broke really quick,'' Baldridge says. ``You have to have guts and capital.''
Booms and Busts
Baldridge, 51, knows from experience. He was leasing mineral rights for Mobil in Montana in February 1986 when he heard on the radio that oil prices had plunged. In two days, a barrel of West Texas Intermediate crude fell to $15 from $20.
``We knew it was history,'' Baldridge says. ``From Calgary to Houston, everything went south.''
North Dakota has seen booms and busts from an array of oil deposits. The Bakken began forming 360 million years ago from dead algae that sank to the bottom of an ancient sea, where they were buried by successive layers of rock. Heat and pressure turned the algae into oil-saturated shale. Now it lies like a buried blanket under much of the Williston Basin.
Amerada Petroleum Corp. roughnecks started drilling what would become the first well in North Dakota on Sept. 3, 1950. They went through the Bakken before producing oil from deeper Silurian dolomite on April 4, 1951. A year later, Amerada (now Hess) finished the Henry O. Bakken well. Cuttings from the hole showed the shale layers that are now known by the same name.
Finding Porosity
Exploration in the Williston Basin grew for a few decades after that, ebbing and flowing with the price of oil. Mostly, drillers pursued deposits deeper than the Bakken. Those who tried to exploit it usually failed. The oil wouldn't keep flowing. ``Bakken was a four-letter word,'' says Dick Findley, a geologist in Billings.
In 1996, Findley, now 56, had a revelation. The consultant-turned-oilman went out to his rig in eastern Montana one night to check on things. At 2 a.m., it hit the Bakken dolomite and produced an unexpected rush of oil. Oil expands as it forms, and the pressure drives it into rock fractures. In the past, the dolomite hadn't seemed porous enough or fractured enough to release it.
``We got porosity that I didn't know existed,'' Findley says.
Findley and his partner, a land man named Bob Robinson, thought they could re-enter old wells and blast the middle dolomite layer with pressurized water to make cracks for crude to flow. They produced oil but not enough. So they turned to horizontal drilling. The technique had been around for decades.
There is more to the article
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=ayj1uo_gdNI4
``That's a record for Montana and North Dakota,'' BLM spokesman Greg Albright says.
Among the biggest companies punching holes in the North Dakota Bakken are Houston-based Marathon Oil Corp., the fourth- largest U.S. oil company, and Hess Corp. of New York, which is No. 5. No. 1 Exxon Mobil Corp. isn't active in the Bakken. John Freeman, an analyst at investment bank Raymond James & Associates Inc. in Houston, says Exxon is looking for bigger deposits overseas.
``Now, there's no acreage left,'' he says.
The truest believer in the Bakken might be Reger, the CEO of Northern Oil. He's certainly the loudest promoter.
Reger is a fourth-generation oilman. His great-grandfather managed operations for Mobil Oil, now part of Exxon Mobil, in the Williston Basin, the 110,000-square-mile (285,000-square- kilometer) geological formation in the northern plains that holds the Bakken and other deposits. Reger's grandfather leased land atop all of them. His father, uncle and brother are in the business, too.
``It's our basin,'' Reger says.
Bakken Hunters
If it works out the way Reger says, he and his partner, a former derivatives trader named Ryan Gilbertson, will be the Sergey Brin and Larry Page of the Bakken. Like the Google Inc. founders, Reger and Gilbertson are young -- Gilbertson is also 32 -- and they aren't afraid to roll the dice.
The lanky, blue-eyed Reger wears cowboy boots and a saucer-sized belt buckle emblazoned with an ``R.'' He vacationed this year in the Maldives in the Indian Ocean and insisted on a stopover to see Dubai's building boom. Gilbertson, meantime, shot a 10-foot-tall brown bear at eight paces in Alaska in 2007. He has a picture of him and the dead bear on the wall in his office.
`Son o' *****es'
The future partners met while boating on Lake Minnetonka, outside Minneapolis. Gilbertson is from the area and traded derivatives for Piper Jaffray Cos. and a hedge fund firm named Telluride Asset Management LLC in nearby Wayzata, where Northern is based. Reger moved from Montana to St. Paul to attend the University of St. Thomas.
``We're both cowboy-boot-wearing, country-music-listening, gun-toting sons o' *****es,'' Gilbertson says. These days, they both drive black Cadillac Escalade SUVs and wear designer jeans.
Gilbertson says he knows more about interest-only mortgage bonds than he does about oil. But he says Northern will succeed because he and Reger weren't in business during the busts of earlier decades, so they aren't gun-shy today.
When EOG hit oil, they leased as many mineral rights in Mountrail County as they could, even as prices rose.
``The fear of these busts has clouded the judgment of so many players,'' Gilbertson says. ``We just grabbed everything with both hands.''
Turning Over Leases
Northern makes money without actually drilling or operating wells. Its strategy is like the game of Monopoly: lease in promising areas and get paid when someone else uses the land to drill.
The strategy is possible because of the way land is assembled for drilling. Reger's grandfather, uncle and father had made their money as lease brokers: They'd lease the land themselves or buy leases already granted and then sell them at higher prices to exploration companies.
Reger and Gilbertson intend to keep their leases, pay a share of the drilling costs and keep a portion of the oil revenue. Gilbertson says it was his idea. ``I saw the family's model as flawed,'' he says.
Leasing mineral rights means finding mineral owners. That's not always easy, because the farmer who owns the surface may not own the ``minerals,'' as they're known. Farmers can sell land and retain the minerals. When a mineral owner dies, the rights are often passed in equal portions to his or her children, Reger says, making them hard to track down.
Hauling County Records
To find mineral owners in Mountrail County, land men spend months in the courthouse, poring over photo-album-sized books that show who owns mineral rights and whether they've been leased.
One day in April, there were 50 people lugging books around. They line up well before the courthouse opens to get a spot on the first floor so they don't have to haul volumes up the stairs to an old law library that's been filled with folding tables to accommodate the horde.
Reger started leasing land for oil and gas exploration in Montana at age 15. He carried a portable typewriter to bang out contracts on landowners' kitchen tables.
It takes more than mineral rights to drill. Most western states are divided into neat little squares called sections. Each is one square mile, or 640 acres. If you want to drill an oil well in a section, you lease the mineral rights inside it. You don't need all of them, but you have to find all of the rights owners in that section and offer to let them participate.
This is where Northern makes its money.
Watching Permits
Reger's favorite time of day is 4 p.m., when the North Dakota Industrial Commission posts the names of companies that have gotten permits to drill. Very often, a rig is heading to a section in which Northern has mineral rights. He knows then that it will be a matter of time before he gets a letter from the company asking if he wants to share the cost -- and the revenue -- based on the percentage of mineral rights Northern controls in that section. He almost always says yes.
Reger makes it look easy because the Bakken is hot, says Summerfield ``Sam'' Baldridge, a partner at Montana Oil & Gas Properties Inc., founded by Reger's uncle, Steve, in Billings, Montana. Bigger companies are eager to drill, their wells are producing and oil prices are high.
``If it goes bad, you can go broke really quick,'' Baldridge says. ``You have to have guts and capital.''
Booms and Busts
Baldridge, 51, knows from experience. He was leasing mineral rights for Mobil in Montana in February 1986 when he heard on the radio that oil prices had plunged. In two days, a barrel of West Texas Intermediate crude fell to $15 from $20.
``We knew it was history,'' Baldridge says. ``From Calgary to Houston, everything went south.''
North Dakota has seen booms and busts from an array of oil deposits. The Bakken began forming 360 million years ago from dead algae that sank to the bottom of an ancient sea, where they were buried by successive layers of rock. Heat and pressure turned the algae into oil-saturated shale. Now it lies like a buried blanket under much of the Williston Basin.
Amerada Petroleum Corp. roughnecks started drilling what would become the first well in North Dakota on Sept. 3, 1950. They went through the Bakken before producing oil from deeper Silurian dolomite on April 4, 1951. A year later, Amerada (now Hess) finished the Henry O. Bakken well. Cuttings from the hole showed the shale layers that are now known by the same name.
Finding Porosity
Exploration in the Williston Basin grew for a few decades after that, ebbing and flowing with the price of oil. Mostly, drillers pursued deposits deeper than the Bakken. Those who tried to exploit it usually failed. The oil wouldn't keep flowing. ``Bakken was a four-letter word,'' says Dick Findley, a geologist in Billings.
In 1996, Findley, now 56, had a revelation. The consultant-turned-oilman went out to his rig in eastern Montana one night to check on things. At 2 a.m., it hit the Bakken dolomite and produced an unexpected rush of oil. Oil expands as it forms, and the pressure drives it into rock fractures. In the past, the dolomite hadn't seemed porous enough or fractured enough to release it.
``We got porosity that I didn't know existed,'' Findley says.
Findley and his partner, a land man named Bob Robinson, thought they could re-enter old wells and blast the middle dolomite layer with pressurized water to make cracks for crude to flow. They produced oil but not enough. So they turned to horizontal drilling. The technique had been around for decades.
There is more to the article
http://www.bloomberg.com/apps/news?pid=20601170&refer=home&sid=ayj1uo_gdNI4
O
Ollie
ACCOUNT CLOSED
Wait, you mean the sky isn't falling? ****, nobody tell Al Gore, he'll cry
Don't worry. I am sure the Dems will figure out some way to screw it up.
From what I have been getting from the no drilling crowd, there is HUGE pressure building (even in the Dem party) to allow drilling in Anwar. The Dems are afraid the american people will turn on them if they don't start doing something about domestic production and the price of fuel and fuel oil.
I hope it happens.
i see on one of my newswires they are pressuring them on the daytrading on the nymex
Everyone knows that China has been under pressure for years, led by the US Congress, to allow the value of its currency, the RMB or yuan, to appreciate. But the “weak” RMB that hurts American exporters is not likely to be the main issue of concern to American voters. They’ll be more worried about $4/gallon (or higher!) gasoline.
China has price controls on diesel and other fuels, such that there is now an RMB6000 (US$870) disparity between what a ton of diesel goes for in China and what it goes for abroad. Chinese oil refiners like Sinopec are getting slammed, since their costs are rising but the sale price of fuel is controlled by the Chinese government. The government is responding with measures to import more oil to help ease pressures.
Why does China control prices?
Well, it’s obviously a good way to spur growth, and it’s been working as the country has been growing at 10%+ for over a decade. It’s also a way to over pollute the country and congest the roads. And it’s contributing to the skyrocketing oil prices worldwide, since 25% of the world’s population, the Chinese, are paying a lot less for the oil they use than everyone else.
SHTig adds (5/28 6:50pm PRC time)
To answer - yes, China buys oil on world markets at prevailing prices. But then, when that oil is sold domestically it is done so at a price lower than the prevailing world price. The government forces Sinopec and others to sell it on the cheap, and makes up for this by subsidizing Sinopec with the difference. This process allows everyone in China to get oil in all forms for less than the ‘true’ price, which results in more oil being consumed in China than what should be. We expect consumption to be inversely proportional to price - and when prices are kept artificially low, consumption is artificially high. With oil consumption artificially high in China, China demands more oil from the world markets than it should from an economic prospective and this is what adds to the upward pricing pressure on oil.
If your taxi driver had to pay the prevailing market price for gasoline, your taxi flagfall would be higher than RMB 11 (as it is in Shanghai), and you’d pay more per kilometer. The ride might cost you 50% or 100% more, and at the margins, some people would opt to take a bus instead. Multiply this behavior by 1,300,000,000 and remember that China is the world’s workshop, and we’re talking about a lot less oil being used, if only they - the end users - paid the prevailing price. That would reduce global demand and thus the price of oil as well, ceteris paribus.
Wonder if John McCain and Barack Obama will talk about this when asked what they plan to do about $4/gallon gasoline? If Chinese consumers paid the same price for fuel as everyone else, it might serve to put them on the same competitive playing field as other countries, and it might also serve to increase efficiencies within China.
Guess there would less things MADE IN CHINA
China has price controls on diesel and other fuels, such that there is now an RMB6000 (US$870) disparity between what a ton of diesel goes for in China and what it goes for abroad. Chinese oil refiners like Sinopec are getting slammed, since their costs are rising but the sale price of fuel is controlled by the Chinese government. The government is responding with measures to import more oil to help ease pressures.
Why does China control prices?
Well, it’s obviously a good way to spur growth, and it’s been working as the country has been growing at 10%+ for over a decade. It’s also a way to over pollute the country and congest the roads. And it’s contributing to the skyrocketing oil prices worldwide, since 25% of the world’s population, the Chinese, are paying a lot less for the oil they use than everyone else.
SHTig adds (5/28 6:50pm PRC time)
To answer - yes, China buys oil on world markets at prevailing prices. But then, when that oil is sold domestically it is done so at a price lower than the prevailing world price. The government forces Sinopec and others to sell it on the cheap, and makes up for this by subsidizing Sinopec with the difference. This process allows everyone in China to get oil in all forms for less than the ‘true’ price, which results in more oil being consumed in China than what should be. We expect consumption to be inversely proportional to price - and when prices are kept artificially low, consumption is artificially high. With oil consumption artificially high in China, China demands more oil from the world markets than it should from an economic prospective and this is what adds to the upward pricing pressure on oil.
If your taxi driver had to pay the prevailing market price for gasoline, your taxi flagfall would be higher than RMB 11 (as it is in Shanghai), and you’d pay more per kilometer. The ride might cost you 50% or 100% more, and at the margins, some people would opt to take a bus instead. Multiply this behavior by 1,300,000,000 and remember that China is the world’s workshop, and we’re talking about a lot less oil being used, if only they - the end users - paid the prevailing price. That would reduce global demand and thus the price of oil as well, ceteris paribus.
Wonder if John McCain and Barack Obama will talk about this when asked what they plan to do about $4/gallon gasoline? If Chinese consumers paid the same price for fuel as everyone else, it might serve to put them on the same competitive playing field as other countries, and it might also serve to increase efficiencies within China.
Guess there would less things MADE IN CHINA
WASHINGTON -(Dow Jones)- The chairman of a Congressional energy panel said Thursday that oil and products markets were being "manipulated" by the biggest trading houses in the futures markets, though he said a probe hasn't uncovered illegal activity.
Bart Stupak, D-Mich., named Goldman Sachs (GS) and Morgan Stanley (MS) as two of the trading houses. He said the U.S. House Energy Oversight Committee hasn't subpoenaed the banks and is basing its findings on data from the Commodity Futures Trading Commission.
Stupak said initial results of his committee's investigation into skyrocketing oil and product prices had found loopholes in current laws were allowing the biggest traders in the futures market to "game the system." He said the committee would hold a hearing to announce full results of the investigation on June 23.
"As our investigation goes further, we are really starting to unravel quite a web of - I am trying to say collusion, but I wouldn't quite go that far - but you can certainly see manipulation of the price in places we've never seen before," he said.
Asked if the biggest trading houses were Morgan Stanley and Goldman Sachs, Stupak said: "Yes, it's them," again stressing the lack of any evidence of illegal behavior.
"It's not that they are doing anything criminally illegal...they are taking advantage where no one has ever looked before and when someone does take a look, there may be something illegal."
Spokespeople at Goldman Sachs and Morgan Stanley couldn't immediately be reached for comment.
Stupak said current laws allowed excessive speculation that created artificial prices in energy futures markets.
"My subcommittee will continue to identify the driving forces causing excessive speculation in oil markets which has inflated prices to a point where they are no longer tied to the underlying supply and demand theories," Stupak said.
The lawmaker made the revelations at a press conference, where he and other congressmen unveiled legislation to curtail speculation in the energy markets.
Though many analysts see considerable fundamental support for high oil prices, regulators and legislators alike are increasingly placing the blame for crude's scorching run above $100 a barrel on what they perceive may be excessive financial speculation - a charge that's hard to prove.
Unlike stock markets, where trading on information unavailable to the broader market is illegal, commodities markets often turn on proprietary information known to a limited number people. An oil company can take advantage of inside information about its own production outlook when it makes trades. However, if traders intentionally create an artificial price and use it to make money, market manipulation charges may arise.
Crude futures have fallen more than $10 from their highs above $135 a barrel, but prices are still dramatically above levels around $66 a barrel a year ago and are up over 30% since the beginning of the year. Crude oil's ascent and gasoline's jump towards $4 a gallon in the U.S. has sparked a chorus of complaints on Capitol Hill and a slew of legislative proposals. At the same time, the CFTC has moved to raise its own profile in overseeing energy markets, increasing reporting requirements from traders and investors and disclosing a broad investigation into crude-oil markets.
Congressional aides say any deeper review of the large traders in the energy markets will involve a closer look at the investment banks.
Goldman Sachs and Morgan Stanley are major players in the world of commodities, which range from trading to hedging and even owning electricity plants and oil barges. In the first quarter, Morgan Stanley calculated that it took more risks in commodities on a daily basis than in stocks.
Article from DOW JONES or what I like to say ... WHATS NEWS
Bart Stupak, D-Mich., named Goldman Sachs (GS) and Morgan Stanley (MS) as two of the trading houses. He said the U.S. House Energy Oversight Committee hasn't subpoenaed the banks and is basing its findings on data from the Commodity Futures Trading Commission.
Stupak said initial results of his committee's investigation into skyrocketing oil and product prices had found loopholes in current laws were allowing the biggest traders in the futures market to "game the system." He said the committee would hold a hearing to announce full results of the investigation on June 23.
"As our investigation goes further, we are really starting to unravel quite a web of - I am trying to say collusion, but I wouldn't quite go that far - but you can certainly see manipulation of the price in places we've never seen before," he said.
Asked if the biggest trading houses were Morgan Stanley and Goldman Sachs, Stupak said: "Yes, it's them," again stressing the lack of any evidence of illegal behavior.
"It's not that they are doing anything criminally illegal...they are taking advantage where no one has ever looked before and when someone does take a look, there may be something illegal."
Spokespeople at Goldman Sachs and Morgan Stanley couldn't immediately be reached for comment.
Stupak said current laws allowed excessive speculation that created artificial prices in energy futures markets.
"My subcommittee will continue to identify the driving forces causing excessive speculation in oil markets which has inflated prices to a point where they are no longer tied to the underlying supply and demand theories," Stupak said.
The lawmaker made the revelations at a press conference, where he and other congressmen unveiled legislation to curtail speculation in the energy markets.
Though many analysts see considerable fundamental support for high oil prices, regulators and legislators alike are increasingly placing the blame for crude's scorching run above $100 a barrel on what they perceive may be excessive financial speculation - a charge that's hard to prove.
Unlike stock markets, where trading on information unavailable to the broader market is illegal, commodities markets often turn on proprietary information known to a limited number people. An oil company can take advantage of inside information about its own production outlook when it makes trades. However, if traders intentionally create an artificial price and use it to make money, market manipulation charges may arise.
Crude futures have fallen more than $10 from their highs above $135 a barrel, but prices are still dramatically above levels around $66 a barrel a year ago and are up over 30% since the beginning of the year. Crude oil's ascent and gasoline's jump towards $4 a gallon in the U.S. has sparked a chorus of complaints on Capitol Hill and a slew of legislative proposals. At the same time, the CFTC has moved to raise its own profile in overseeing energy markets, increasing reporting requirements from traders and investors and disclosing a broad investigation into crude-oil markets.
Congressional aides say any deeper review of the large traders in the energy markets will involve a closer look at the investment banks.
Goldman Sachs and Morgan Stanley are major players in the world of commodities, which range from trading to hedging and even owning electricity plants and oil barges. In the first quarter, Morgan Stanley calculated that it took more risks in commodities on a daily basis than in stocks.
Article from DOW JONES or what I like to say ... WHATS NEWS
The manipulation continues
Oil prices shot up more than $11 to a new record above $139 Friday after Morgan Stanley predicted prices would hit $150 by the Fourth of July. nThis makes sure gas will be over $4 a gallon national average by Monday.
15:15 Nigeria says OPEC ready to intervene on oil prices - Reuters
According to Reuters, OPEC is ready to intervene to cool world oil prices, which the cartel insists are not driven by market fundamentals, but sees no immediate need to increase supply, Nigeria's Oil Minister Odein Ajumogobia said on Friday.
Well I guess OPEC is starting to get nervous saying " Its not me causing the price to go up" (but I can dump and make it go down.)
I think they call that "pump and dump"
Oil prices shot up more than $11 to a new record above $139 Friday after Morgan Stanley predicted prices would hit $150 by the Fourth of July. nThis makes sure gas will be over $4 a gallon national average by Monday.
15:15 Nigeria says OPEC ready to intervene on oil prices - Reuters
According to Reuters, OPEC is ready to intervene to cool world oil prices, which the cartel insists are not driven by market fundamentals, but sees no immediate need to increase supply, Nigeria's Oil Minister Odein Ajumogobia said on Friday.
Well I guess OPEC is starting to get nervous saying " Its not me causing the price to go up" (but I can dump and make it go down.)
I think they call that "pump and dump"
Last edited:
C
CBX
Well-known member
what a racket
what a deal isnt it. morgan stanley and Goldman sachs are some of the biggest swingers on the NYMEX.
who wants to bet that prior to the annoncement of "his prediction" that a bunch of dudes put in some major futures orders........... and problably made huge change on the margin......i encourage everyone to learn how the commodites exchange works........or maybe not. it'll just piss ya off more.......what a bunch of fuks........... to me thats insider trading... but, thats what commodites is all about. full on open do what ever trading. long as you've got the money to cover the basis they dont care.
i say let it ride. i sure hope some sorry bastage lost his shorts today with the 11 dollar surge. i imagine the basis call on that would be a forturne for anyone who trades any big volume. i hope it gets totally out of hand. and let these trading outfits really suffer. i'm waithing for the day it plumets. and the multi-billion dollar margin calls are made.
then and only then will things get back to normal. forget all the hype. what your seeing has nothing in the world to do with supply and demand. the fed and IMF wont be able to bail out everyone this go round. they cant take the prime rate much lower. mortage and dirivatives is a no no these days with the posted losses, auto industry is gonna burn at the stake. (anyone see the 20k jobs GM put together a severance package on) and manufactureing in general is waiting to see how this cap and trade B.S. pans out.
whats next. a rally on deptarment stores? ....... bout the only entity that hasnt had a bubble in the last 15 years or so.
all the gas stations around here seem pretty quiet these days. i cant remember the last time i've seen one station here in town have all the islands being used.
i actually had drinks with a paper trader the other day. i told him you boys keep it up and your gonna all break your backs when the judgement day/bust happens.......... he said yep. but till then we're gonna ride the wave.......lousy ***ger........ i made him buy the drinks......
what a deal isnt it. morgan stanley and Goldman sachs are some of the biggest swingers on the NYMEX.
who wants to bet that prior to the annoncement of "his prediction" that a bunch of dudes put in some major futures orders...........
and problably made huge change on the margin......i encourage everyone to learn how the commodites exchange works........or maybe not. it'll just piss ya off more.......what a bunch of fuks........... to me thats insider trading... but, thats what commodites is all about. full on open do what ever trading. long as you've got the money to cover the basis they dont care. i say let it ride. i sure hope some sorry bastage lost his shorts today with the 11 dollar surge. i imagine the basis call on that would be a forturne for anyone who trades any big volume. i hope it gets totally out of hand. and let these trading outfits really suffer. i'm waithing for the day it plumets. and the multi-billion dollar margin calls are made.
then and only then will things get back to normal. forget all the hype. what your seeing has nothing in the world to do with supply and demand. the fed and IMF wont be able to bail out everyone this go round. they cant take the prime rate much lower. mortage and dirivatives is a no no these days with the posted losses, auto industry is gonna burn at the stake. (anyone see the 20k jobs GM put together a severance package on
) and manufactureing in general is waiting to see how this cap and trade B.S. pans out. whats next. a rally on deptarment stores? .......
bout the only entity that hasnt had a bubble in the last 15 years or so. all the gas stations around here seem pretty quiet these days. i cant remember the last time i've seen one station here in town have all the islands being used.
i actually had drinks with a paper trader the other day. i told him you boys keep it up and your gonna all break your backs when the judgement day/bust happens.......... he said yep. but till then we're gonna ride the wave.......lousy ***ger........
i made him buy the drinks......
Maybe we should get our own hedge funds and get some spreads on OIL contracts?
Buying oil stocks to maximize on the rising oil ... maybe you should do a mutual fund.
Play it safe don't go off trail follow the pack.
Last edited:
5 Jun 2008
Indonesia, Taiwan and Sri Lanka have also recently raised fuel prices.
In Malaysia — which had some of Southeast Asia's lowest gasoline prices — gasoline jumped from the equivalent of $2.32 a gallon to $3.31 a gallon.
In India, gasoline was raised 5 rupees per liter. In New Delhi, that lifted the pump prices to 50 rupees a liter, or $4.56 a gallon. Fuel prices vary between states, which also impose their own taxes. Singh has urged states to lower taxes to ease the burden for the people.
The fuel price hike is expected to send prices of food, transportation and other essentials higher across the board, piling further inflationary pressure on India and Malaysia. India's inflation is currently at 8 percent and Malaysia at 3 percent.
Protests over the price hikes may further weaken Prime Minister Manmohan Singh's government ahead of an election in India by the middle of next year, analysts said.
In Malaysia, Prime Minister Abdullah Ahmad Badawi faces increasing risks as he fights for his political survival after shock election losses in March.
"It's going to be hard for people to accept. There will be an immediate adverse effect on (Abdullah's) popularity," said Ibrahim Suffian, director of independent think-tank Merdeka Center of Opinion Research.
Indonesia, Taiwan and Sri Lanka have also recently raised fuel prices.
Taiwan's domestic fuel and electricity prices are to rise in June and July, with the new government deciding to end the rate freeze set in December by the previous regime.
The decision by the Nationalist Party Cabinet led by Prime Minister Liu Chao-shiuan comes in the face of soaring international oil prices that have severely hit Taiwan's state-owned companies.
The new fuel prices will be effective June, while the new electricity rates will start from July, Minister of Economic Affairs Yiin Chii-ming announced, the Taipei Times reported Friday.
The actual hikes were not announced under a convention requiring their disclosure only on the first of the month they become effective, the report said.
There have been media reports that gasoline prices could go up by more than 20 cents per liter and diesel prices about 22 cents a liter, but they have been denied by the government. One U.S. gallon equals 3.78 liters.
To soften the impact of the price increase on economic growth, the government will add $3.747 billion to this year's budget.
The additional money will go to keep the public transport rate at current levels for six months, compensate taxi drivers for the higher fuel costs and help finance local governments to complete public infrastructure projects.
The prime minister, citing actions taken by the previous Democratic Progressive Party, was quoted as saying, "The previous policy of freezing the prices has had consequences, which has made it necessary to adjust the prices."
Liu said the consequences included a failure of utility prices to reflect their actual costs, which violated the "user pays" rule and huge losses for the state-owned refiner CPC Corp. Taiwan and the Taiwan Power Co.
The new government has estimated that without the price adjustments, CPC and Taiwan Power together would lose up to (U.S.) $3.95 billion this year.
"After adjusting the prices, Taiwan's oil prices will still be the lowest of Asia's four little dragons, and the electricity rate will be slightly higher than South Korea's, which has frozen its electricity price," the prime minister said. The other two little dragons are Hong Kong and Singapore.
Chen Tian-jy, chairman of the council of economic planning and development, said the price hike is expected to result in a 0.5 percent drop in economic growth but said the additional budget, along with an anticipated increase in tourism from China and weekend charter flights across the Taiwan Strait, should help offset that.
He forecast Taiwan's economic growth this year would be about 4.8 percent, up slightly from last year.
————————
Associated Press reporters Manik Banerjee in Calcultta and Julia Zappei in Kuala Lumpur contributed to this report.
Indonesia, Taiwan and Sri Lanka have also recently raised fuel prices.
In Malaysia — which had some of Southeast Asia's lowest gasoline prices — gasoline jumped from the equivalent of $2.32 a gallon to $3.31 a gallon.
In India, gasoline was raised 5 rupees per liter. In New Delhi, that lifted the pump prices to 50 rupees a liter, or $4.56 a gallon. Fuel prices vary between states, which also impose their own taxes. Singh has urged states to lower taxes to ease the burden for the people.
The fuel price hike is expected to send prices of food, transportation and other essentials higher across the board, piling further inflationary pressure on India and Malaysia. India's inflation is currently at 8 percent and Malaysia at 3 percent.
Protests over the price hikes may further weaken Prime Minister Manmohan Singh's government ahead of an election in India by the middle of next year, analysts said.
In Malaysia, Prime Minister Abdullah Ahmad Badawi faces increasing risks as he fights for his political survival after shock election losses in March.
"It's going to be hard for people to accept. There will be an immediate adverse effect on (Abdullah's) popularity," said Ibrahim Suffian, director of independent think-tank Merdeka Center of Opinion Research.
Indonesia, Taiwan and Sri Lanka have also recently raised fuel prices.
Taiwan's domestic fuel and electricity prices are to rise in June and July, with the new government deciding to end the rate freeze set in December by the previous regime.
The decision by the Nationalist Party Cabinet led by Prime Minister Liu Chao-shiuan comes in the face of soaring international oil prices that have severely hit Taiwan's state-owned companies.
The new fuel prices will be effective June, while the new electricity rates will start from July, Minister of Economic Affairs Yiin Chii-ming announced, the Taipei Times reported Friday.
The actual hikes were not announced under a convention requiring their disclosure only on the first of the month they become effective, the report said.
There have been media reports that gasoline prices could go up by more than 20 cents per liter and diesel prices about 22 cents a liter, but they have been denied by the government. One U.S. gallon equals 3.78 liters.
To soften the impact of the price increase on economic growth, the government will add $3.747 billion to this year's budget.
The additional money will go to keep the public transport rate at current levels for six months, compensate taxi drivers for the higher fuel costs and help finance local governments to complete public infrastructure projects.
The prime minister, citing actions taken by the previous Democratic Progressive Party, was quoted as saying, "The previous policy of freezing the prices has had consequences, which has made it necessary to adjust the prices."
Liu said the consequences included a failure of utility prices to reflect their actual costs, which violated the "user pays" rule and huge losses for the state-owned refiner CPC Corp. Taiwan and the Taiwan Power Co.
The new government has estimated that without the price adjustments, CPC and Taiwan Power together would lose up to (U.S.) $3.95 billion this year.
"After adjusting the prices, Taiwan's oil prices will still be the lowest of Asia's four little dragons, and the electricity rate will be slightly higher than South Korea's, which has frozen its electricity price," the prime minister said. The other two little dragons are Hong Kong and Singapore.
Chen Tian-jy, chairman of the council of economic planning and development, said the price hike is expected to result in a 0.5 percent drop in economic growth but said the additional budget, along with an anticipated increase in tourism from China and weekend charter flights across the Taiwan Strait, should help offset that.
He forecast Taiwan's economic growth this year would be about 4.8 percent, up slightly from last year.
————————
Associated Press reporters Manik Banerjee in Calcultta and Julia Zappei in Kuala Lumpur contributed to this report.
Similar threads
