Thursday, August 25, 2011

Drill, Drill, Drill. North Dakota Leads the Country With the Largest Growth of High-Income Taxpayers

 

"The map above [from the Tax Policy blog] shows the percentage growth of taxpayers earning over $200,000, minus the percentage growth of all taxpayers, over the decade-long period from 1999 to 2009. The $200,000 threshold is in nominal dollars, so all states will have had considerable growth, but the differences between the states demonstrate that certain states have had much stronger increases in wealthy taxpayers than others. North Dakota takes the top spot—returns with AGI over $200,000 increased 144.53%, while all returns increased only 7.1%—a considerable difference of 137.4%. Michigan is last—returns over $200,000 increased only 17.6%, while total returns actually decreased by 0.5%, for a final difference of 18.1%."

For the data in the map, visit this page.

18 Comments:

At 8/25/2011 5:25 PM, Blogger VangelV said...

With all of the drilling activity in the state it makes sense to have ND experience such growth. The problem is that the benefits of all of the drilling go to the workers and consumers. The investors are not seeing profits and with the exception of a few companies in the sweet spots of the formations the industry is destroying capital.

 
At 8/25/2011 5:49 PM, Blogger VangelV said...

I guess that I should have waited a few minutes. Google Reader just posted the following story. It looks as if my previous postings were too optimistic.

 
At 8/25/2011 6:18 PM, Blogger Sam Weatherby said...

"#2 South Dakota is way behind."
Isn't South Dakota #6 and Alaska #2?

 
At 8/25/2011 6:25 PM, Blogger Mark J. Perry said...

Thanks, Sam. My eyes are getting bad, and I was in a rush to post before leaving my office. It's fixed now.

 
At 8/25/2011 6:56 PM, Blogger Craig said...

The investors are not seeing profits and with the exception of a few companies in the sweet spots of the formations the industry is destroying capital.

If that's true, then they'll soon stop, won't they. Or, again, if what you write is true, do they see profits in the future?

After all, Keynesianism is wrong. Businesses expand long before consumer demand for the product shows up. Why do you think they're doing all that drilling up there?

 
At 8/25/2011 7:28 PM, Blogger VangelV said...

If that's true, then they'll soon stop, won't they. Or, again, if what you write is true, do they see profits in the future?

It is an SEC thing. If I were a big producer with declining reserves one way to hide that fact is to purchase shale gas producers. That way I could use the high EUR assumptions and the 6:1 ratio to inflate my reserves without being vulnerable to fraud charges. Some of the shale producers have no intention of making a real profit. They are hoping to prove up reserves by using some unjustified assumptions and to sell themselves off to larger players.

To see the reality go and take a look at the Chesapeake claims over the past few years. After hyping shale gas the company sold off assets and is now talking about transitioning to shale oi. In fact, if you look at the five year chart you will find that Chesapeake shares are lower today than they were in 2006. Given the fact that hundreds of millions were spent developing shale gas and oil it should have yielded some decent returns. It didn't.

 
At 8/25/2011 10:35 PM, Blogger juandos said...

"I guess that I should have waited a few minutes. Google Reader just posted the following story. It looks as if my previous postings were too optimistic"...

What's optimistic is you actually believing what some collection of federal parasites have to say...

I think I'll take my chances with the professionals...

 
At 8/25/2011 10:47 PM, Blogger juandos said...

The real question right now is will Obama's EPA attempt to kill Marcellus gas field with excessive regulations?

 
At 8/26/2011 2:12 AM, Blogger PeakTrader said...

High-income earners are the smallest but fastest growing group.

Over that 1999-2009 period, it's likely, more growth of high-income earners came from oil, mining, ranching, and farming.

In the 1990s, it's likely, more growth came from the tech boom (e.g. Microsoft creating 10,000 millionaires by 2000).

Also, I may add, tech firms in the 1990s had strong revenue growth, but little or no profits, while stocks soared, and in the 2000s, those stocks were much lower, while profits soared.

Moreover, using the 1999-2009 period may skew the data, because it begins near a peak and ends at a trough. To cover an expansion, it should begin at a trough and end at a peak, e.g. 1991-2000 or 2001-2007.

 
At 8/26/2011 8:30 AM, Blogger VangelV said...

I think I'll take my chances with the professionals.

Actually, many of the professionals are skeptical of all of the hype. They know that if you can't make a profit because the energy returns on the energy invested is negative there isn't much to get excited about.

It seems to me that you are only paying attention to the hype that the industry is pushing without looking at the actual numbers. So let us do that.

The past five year 10-K filings with the SEC show that the marginal cost of production is around $7.50. That means that a shale producer can't make money at anywhere near the current prices.

Technically recoverable resources are not the same as reserves. To have reserves you have to be able to extract the gas at a cost that is less than the market price.

Shale formations are not homogeneous. As Aubrey McClendon told Bloomberg, 'There was a time you all were told that any of the 17 counties in the Barnett Shale play would be just as good as any other county. We found out there are about two or two and a half counties where you really want to be.' There is your 'expert' admitting that much of what he has told investors over the past decade was not accurate.

Reports of profits at $5.50 gas require that one does not count expenses like interest, overheads, plug and abandonment costs, dry well write-down costs, etc.

The SEC revisions have allowed shale gas operators to overstate their proved undeveloped reserves but the pursuit of low value reserves have caused the total value of proved undeveloped reserves to go down.

Per well estimates are too high. Chesapeake was estimating an EUR 6.5 bcf per Haynesville Shale area well. Its production data showed that a realistic number was 2.4 to 2.5 bcf. Given the costs of production and development that meant that Chesapeake was destroying shareholder capital for each well it drilled. The Barnett Shale data shows the same problem. And to justify the Marcellus Shale operations one needs to include the natural gas liquids, which have to be separated from the gas. The problem is a lack of capacity to do this in the near future. Wells have to be postponed or shut in and once again shareholder equity is destroyed.

Sorry but if you look at the numbers there is no case for the shale gas and oil boom. Citing hype and opinions of those who get paid a lot of money to participate in the hype does not change the reality.

 
At 8/26/2011 8:39 AM, Blogger VangelV said...

High-income earners are the smallest but fastest growing group.

Over that 1999-2009 period, it's likely, more growth of high-income earners came from oil, mining, ranching, and farming.

In the 1990s, it's likely, more growth came from the tech boom (e.g. Microsoft creating 10,000 millionaires by 2000).


I agree totally.

Also, I may add, tech firms in the 1990s had strong revenue growth, but little or no profits, while stocks soared, and in the 2000s, those stocks were much lower, while profits soared.

I agree that most of the tech companies that exploded in price did not have much in the way of profit but we cannot forget the good ones (like Microsoft) who did have large gains that were justified on the basis of actual profits and positive cash flows.

Let us keep in mind that we are seeing a slightly different picture today. There are some great natural resource companies that pay their employees very well who have made a huge amount of money because they have made massive amounts of profits. The share price for many of these companies have not done all that well and they are still selling at very low multiples. Some other companies have raised funds and found excellent exploitable reserves that can yield huge profits. While they have done all right as a group, most of these companies are still selling at low multiples to reserves in the ground.

What I have found interesting is the hype that has gone to promote companies that have destroyed shareholder value by going after low value reserves that may never be developed economically with the current technology. Most shale gas and oil companies are in this category.

 
At 8/26/2011 9:07 AM, Blogger juandos said...

"Actually, many of the professionals are skeptical of all of the hype"...

Why hype?

"Sorry but if you look at the numbers there is no case for the shale gas and oil boom"...

Sorry but you should've continued reading...

 
At 8/26/2011 11:44 AM, Blogger Marko said...

It's funny that MD and VA are #3 and #4. Give you one guess why, even with no oil there. Something even more valuable and much easier to get is found there - taxpayer dollars being spread around like mad!

 
At 8/26/2011 12:23 PM, Blogger Che is dead said...

"They are hoping to prove up reserves by using some unjustified assumptions and to sell themselves off to larger players ... Actually, many of the professionals are skeptical of all of the hype. They know that if you can't make a profit because the energy returns on the energy invested is negative there isn't much to get excited about." -- Vange

Usually it takes several posts before "Vange" contradicts himself. This has to be some kind of record. It seems that the smaller producers exist only to sell themselves off to those morons running the larger companies. Apparently the dufuses running the big companies are at once fooled by phony reserves and "unjustified assumptions", and "skeptical of all the hype".

The strange workings of a confused mind.


"Citing hype and opinions of those who get paid a lot of money to participate in the hype does not change the reality." -- Vange

That's right, and the reality is that companies with decades of profitable experience in the energy field are investing money hand over fist in shale oil and gas exploration and production.

 
At 8/26/2011 2:20 PM, Blogger Junkyard_hawg1985 said...

Marko,

Good point on Maryland and Virginia. Note that DC would also be in the top 10. They are drilling there, but it's not oil.

 
At 8/26/2011 2:32 PM, Blogger Larry G said...

much of the DC area is DOD - Pentagon, Quantico, Fort Belvoir, Walter Reed, David Tayor, Navy Yard, etc, etc....

DOD budget has doubled in 10 years...

The Washington Area is a gold mine for contractors... feasting on DOD "needs"....

There's actually a concern that Md and Va might have their credit ratings downgraded if serious progress is made on cutting the budget....

:-)

 
At 8/26/2011 7:58 PM, Blogger VangelV said...

Why hype?

Because the numbers do not work. The reported EURs are not supported by the production data and the industry is bleeding red ink.

 
At 8/26/2011 8:06 PM, Blogger VangelV said...

Usually it takes several posts before "Vange" contradicts himself. This has to be some kind of record. It seems that the smaller producers exist only to sell themselves off to those morons running the larger companies. Apparently the dufuses running the big companies are at once fooled by phony reserves and "unjustified assumptions", and "skeptical of all the hype".

You don't read well or have not followed the argument over the various threads on the subject. It is very possible that a few small companies can make huge profits from shale oil or shale gas. If they are in the right spot of the formation they can drill wells that have great economics.

But the problem is that the industry can't make a profit or generate positive cash flows. We have already seen the contradictions from Chesapeake as it began to hype shale gas but is now claiming to want to transition to shale liquids instead because it can't make money in gas. We have already seen AM admit that the claims that the shale formations were relatively uniform and productive are not true. And we have already seen the companies admit that they need $7.50 gas to have a hope of making a profit and that with sub $4.00 gas they are bleeding cash.

That's right, and the reality is that companies with decades of profitable experience in the energy field are investing money hand over fist in shale oil and gas exploration and production.

This is not exactly true. There is no profit in shale gas and oil for the industry. The profit comes from the ability of majors to hide their reserve declines thanks to SEC rules. This is why the big players who have plenty of production in conventional areas will continue to buy some of the shale developers and will quietly write down the losses over the next few quarters.

If shale gas were profitable Chesapeake would not be telling investors on conference calls that it is trying to become a shale liquids play.

 

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