Goldman Ups Oil Forecast - WSJ.com

Consensus around higher oil prices is pretty solid now. Which reminds us of the mirror image of the industry truism quoted below: "The cure for high prices, is high prices."

See paragraph four:

"We believe that the market will continue to tighten to critical levels by 2012, pushing oil prices substantially higher to restrain demand," Goldman Sachs said in the research note.

Goldman Ups Oil Forecast - WSJ.com

As Natural Gas Prices Fall, the Search Turns to Oil - WSJ.com

Key stat in paragraph three: 40% of US natural gas production is sold below break-even.

Remember the old industry saying: "The best cure for low prices, is low prices."

As Natural Gas Prices Fall, the Search Turns to Oil - WSJ.com

CFO Blog: 5-18-11

I wanted to give everyone an update on our drilling program and clarify my comments in the last post regarding the wholesale fuel business. As I indicated previously, we're significantly increasing the pace of development of our E&P assets so let's start there.

We have completed the Leonard #2 well (cased, perforated, stimulated) and are installing production equipment today to begin testing. The fluids produced during the completion process look very good - much better than the early indications on the Leonard #1. I'm not going to guess at estimate a number for the 24 hour IP test, but I expect it to be substantially better than the Leonard #1. 

I've noticed a couple of comments about my last post that indicate that some investors may have taken what I wrote to mean that we are not pursuing opportunities in wholesale fuel distribution. This was not my intention. What I was trying to communicate is that we fully recognize the risks associated with this business and are being careful. This means we're looking for the right way to enter the business, for example through a JV. We could also monetize the asset and possibly retain some portion of the ongoing business. My point is that we're looking to maximize shareholder value without taking on risks that the company can't handle.

We are spudding in the Leonard #3 well today or tomorrow. The #2 well went from spud to completion in 12 calendar days - a vast improvement over our first well. As I wrote in my last post, the operational tempo is increasing substantially. Stay tuned!

Best,

-Shannon 

CFO Blog: 5-9-11

While we are all waiting for results from the Leonard #2 well, I wanted to take a moment to address investor questions regarding our plans for wholesale marketing of diesel fuel and other distillates. I understand that the Company has had significant aspirations in this area, so our plans are naturally of interest to our shareholders.

First, we need to understand a few things about wholesale fuel marketing. It is much more complicated than simply selling fuel through the terminal. The basic business (for a company like Adino) consists of purchasing fuel in bulk that is delivered via pipeline connection to the terminal and stored there for sale to fuel haulers and station owners. This can be an excellent business - buy a commodity in bulk at a discount and sell very large quantities at a small per-gallon margin. As long as you're able to consistently turn your inventory, returns on capital can be more than satisfactory.

However, as the old saying goes, there is no free lunch. The real risk in the business is that you have to purchase several days or weeks of inventory at once. Diesel fuel is priced daily (sometimes several times per day) so if you're on the wrong side of a price trend (declining prices) you can take some pretty big hits in short order. Over time these should balance out, but from month to month or quarter to quarter it can be very volatile.

So where does that leave our Company? At this point, we have a solid cash producing asset in the fuel terminal. Both revenues and cash flow are stable - a big plus for an early stage oil & gas exploration and production company. We are deploying this cash flow to build value in the E&P business and expect to continue to do so.

It's important to understand that we're always looking for ways to optimize our assets to maximize shareholder value. We could potentially get into fuel marketing through a joint venture or some other structure in which we would partner with an experienced commodity risk manager. We could also monetize the asset. We could continue to redeploy the monthly cash flow into the E&P business. Or we could take some other route that either hasn't yet presented itself, or that we aren't yet ready to discuss. But whatever we do, it will be designed to create the greatest possible value for our shareholders.

That's all for now. Look for press releases regarding the Leonard #2 well this week. It's going a lot faster than the first well - a pace that we intend to keep up!

Best,

-Shannon

CFO Blog: 5-5-11

It's been a couple of weeks since my last update, so there are several items I'd like to cover. First, there has been quite a bit of selling in ADNY stock recently. I want to be clear that none of these sales were done by management or other insiders. There are a lot of reasons that someone might get out of a position other than fundamentals around the stock. I can't speak for them, but our plans are to continue to develop the E&P business and otherwise maximize shareholder value through our other assets.

Which brings me to the sale of our drilling rig. For those not familiar with oil & gas drilling, a quick primer on drilling economics is in order. Drilling rigs are designed and rated for specific depths. The deeper the rating, the larger the rig. Larger rigs consume more fuel and require larger crews to operate. The thing to understand is that whether a rig is drilling at 500' or 5,000', it still takes the same crew and similar volumes of fuel. So a rig designed for 5,000' costs significantly more to operate than one designed for 2,000'. This makes it much more expensive to drill a shallow well with a bigger rig than with a rig rated for a depth closer to the planned depth of the well. The wells that we are drilling on our current leases were too shallow to efficiently drill with the rig we had, so when the opportunity arose to sell the rig for a good price, we did so.

Look for an acceleration of the operational tempo through the summer. Thank you for your confidence in our team and stay tuned - things are getting exciting now!

Best,

-Shannon

CFO Blog: 4-18-11

As you can probably tell, we've been very busy lately. We completed our first well on the Leonard lease, acquired a new lease, produced and released our 10K and many other things that I won't go into at this point. We're steadily building and developing our lease position, as well as our team, which together form the foundation of our growing oil & gas exploration and production company.

I'm sure by now everyone has read about the results on the Leonard #1 well. This is a great opportunity to discuss one of the key advantages to our early stage strategy: low cost, low risk development. Even wells that come in below 5 barrels of oil per day can be commercial. This is because these shallow wells have such low drilling costs, it doesn't take a lot of hydrocarbons to make them pay off. The numbers aren't sexy, but by you can build a company on the cash flow. Plus, every once in a while you can hit a really good well (even with low upfront investment), and then the economics are extraordinary.

That said, investors should understand that we're growing our reserves both through the drillbit and through acquisitions. Stay tuned on both fronts.

Best,

-Shannon

CFO Blog: 3-4-11

I expect everyone is anxious for results on the Leonard #1 Well. We should be ready to release testing results next week; however, I'd like to update you on progress.

As discussed in previous posts, completion of the first well on a lease can be time consuming. If done correctly, it requires the application of various completion techniques (acids, chemicals, fractures, etc) in discrete steps so as to isolate their effects. This is what we've been doing with the Leonard #1. As our friends over at iHub so helpfully pointed out, I did indicate that we would have preliminary results last week. Indeed, we do have preliminary results. But we will not release preliminary results because they are precisely that: preliminary.

That said, we will apply what we expect to be the final stimulation to the well on Monday. Final testing should take 24-48 hours, so we should be ready to report solid data soon after that. In the mean time, please keep the comments coming. Constructive feedback from our investors is always welcome.

Best,

-Shannon

CFO Blog: 2-25-11

With the recent global tension and accompanying volatility in the oil markets, it can be tempting for even seasoned energy professionals to shorten their time horizon and focus on the next piece of news. Whether prices are high or low, it is precisely these moments when it can be most valuable to take a step (or possibly several steps) back and remind ourselves of the nature of our business.

Market volatility can make it seem that price signals happen in seconds or minutes, but the fundamentals don't work that way. Supply and demand adjustments happen over much longer cycles, mostly measured in years. It reminds me of one of my favorite axioms of the oil & gas business: The best cure for high oil prices is high oil prices, and the best cure for low oil prices is low oil prices. In other words, supply and demand will balance and are most responsive at the extremes. 

I've attached an excellent interview from last week's Barron's. Charles Maxwell (currently with Weeden & Co) has been in the energy business since 1957. When someone with that kind of experience is willing to talk with you, it usually pays to listen. Enjoy.

Best,

-Shannon

CFO Blog: 2-19-11

As the recently appointed CFO of Adino Energy Corporation, I'd like to take a moment to introduce myself and open the conversation about the Company and our plans for the future.

You can read my bio on this site, so I won't rehash it here. I'd like to focus on why I decided to join the Company. I've worked with Adino's team since 2008 when they were clients of one of my previous employers. I developed a solid understanding of the Company, its history and have had the privilege of helping to develop plans for the future. I know the people and the assets and have great confidence in both. I'm very, very excited about Adino's future and look forward to helping the team succeed.

That said, I'm sure everyone would like an update on the Leonard #1 well. After we made the completion decision we ran into a couple of weeks of frigid weather. Extreme cold makes production very difficult and accurate testing almost impossible. (I know, oil is produced in much colder places, but it doesn't make sense to invest in extreme cold weather production equipment when it's not necessary for the other 50 weeks of the year). We finally moved into the testing phase this week and the results so far are very encouraging. We completed an acid treatment yesterday and we're installing a larger pump to move more fluid. We should have preliminary results next week.

This is a good time to discuss our approach to a new lease, in this case the James Leonard lease. When drilling the first well, a good operator invests time and capital in learning as much as possible. We examine the mud during drilling, we try various completion techniques and treatments. And we do it methodically so that we can isolate the effects of each technique. This way we know exactly what to do with each subsequent well to maximize production on the lease. That's what we're doing right now on the Leonard. We'll announce the numbers when they're finalized, but in the mean time it's important that our stakeholders understand the process and why we're doing what we're doing. I've posted pictures from the acid treatment on the Leonard #1.

I hope this is helpful for everyone. I plan to post general updates, add color to our story and comment on the industry in general. Please feel free to post comments and questions. I'll try to address as many as possible. In the mean time, you can follow me on Twitter @energy_finance or email me at smcadams@adinoenergycorp.com. I look forward to the conversation. 

Best,

-Shannon

Reaganomics Vs. Obamanomics: Facts And Figures - Peter Ferrara - On The Cutting Edge - Forbes

The following piece makes some excellent points about government policies and the debate about whether they should be pro-growth or simply re-distributive. The summary of the economic expansion of 1982-2007 is extraordinary.

Reaganomics Vs. Obamanomics: Facts And Figures - Peter Ferrara - On The Cutting Edge - Forbes

Donald J. Boudreaux: If Supermarkets Were Like Public Schools - WSJ.com

Sometimes it takes a good analogy to cut through the obfuscation and get to the core of the issue.

Donald J. Boudreaux: If Supermarkets Were Like Public Schools - WSJ.com

Breaking News: The Climate Actually Changes! - Larry Bell - The Bell Tells for You - Forbes

The recent failures to reach agreement for global emissions limits appear to be shifting the climate debate in meaningful ways. There appears to be a gradual realization that the entire debate about anthropogenic climate change is pointless. Even if human activity is causing climate change in measurable and predictable ways (the predictability claim being particularly dubious), there will be no global agreement to restrict growth in order to reduce emissions of GHGs. This leads us to a simple logical conclusion: if we are unwilling or unable to control the causes of climate change (and the climate does change - a perfunctory look at the geologic record tells us this) then the best we can do is prepare for it.

The article below provides an interesting list of important historical events that were, in large part, driven by changes in climate. It provides a good jumping off point for consideration of how to prepare for inevitable climatic changes. Give it some thought and feel free to share in the comments section.

-E_F

Breaking News: The Climate Actually Changes! - Larry Bell - The Bell Tells for You - Forbes