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Brian’s Blog August 2017

Brian’s Blog

August 2017

Low oil price here to stay

Sadly our predictions for under $60.00 barrel oil for 2017 seems to be right on and perhaps a little optimistic. Never to worry, fracking and other new technologies has pushed the costs of recovering oil to new lows as well but our land locked position here in Canada is a problem and needs a quick remedy.

Even though commodity prices are tanking, or are still in the tank, the CAD seems to be rallying. As an old friend from my childhood would say “Hmmmmm, Expect that to change, I would”.

The Saud’s and the Russians are heading faster and faster down the path of civil discontent as oil prices are nowhere near a level to replenish there cash reserves and so pain is going to increase for those in charge.

It is interesting and worth a few moments to look at why we are in the oil slump that we are.

Drilling for shale oil costs less per project than conventional plays of years gone by. There are two general types of costs: capital costs and operating costs. Capital costs are the investment required to drill and complete the well and build the facilities onsite to manage it. Operating costs are the ongoing costs after the well has been drilled. These are measured either in dollar per thousand cubic feet or in dollar per barrel.

The total well cost – the entire amount of investment required to set up a new well, including land, permits, drilling and completion – varies by location but runs consistently in the low millions of dollars. A report by the EIA estimated that the average completion cost per well is around $5 million to $9 million, depending on the location of the deposits. Some companies, however, are able to drill and complete wells much more cheaply.

According to the EIA, drilling accounts for 30-40 percent of all capital costs. Completion costs, which include the actual fracking process, account for 55-70 percent. Facilities costs, which include erecting onsite buildings as well as road construction to transport oil away from the site, account for 7-8 percent of well costs.

The same EIA report analyzed well completion costs across a number of companies and locations and determined that average costs, in terms of dollar per barrel of oil equivalent – an approximation of energy released by burning one barrel of oil – declined 7-22 percent from 2014 to 2015 and 25-30 percent from 2012 to 2015.

Importantly, some wells are drilled but not completed when funds dry up or when oil prices dictate that the well is no longer economically viable for the time being. In this scenario, the oil driller has effectively used the low permeability of the sedimentary layer to store oil until it’s ready to frack the deposits.

Once the oil starts to flow, operating costs tend to vary. Gathering, processing and transporting can range from $2.25 to $5 per barrel for oil or higher, depending on how far and the mode it needs to be transported by. Water disposal can range from $1 to $8 per barrel. Other general and administrative expenses range from $1 to $4 per barrel.

New drilling techniques can expedite the completion process and thus drive costs down further. Several years ago, a new well might have taken 3-4 weeks to drill. Now it can take as few as 7-10 days. Not only does this cut down on the overall costs of producing a barrel of oil, it also gives producers flexibility to respond to higher prices and to expand their operations. In fact, now that so many shale plays are known to produce, exploration is less risky, so companies are more willing to operate there.

Since capital and operating costs are so varied, there is no single break-even price for shale oil. But if we average wells by location, we can get a sense of which prices generate profit and which do not.

Russia and Saudi Arabia can still produce oil cheaper than the US can, in the $10 to 15 dollar range. Their problem is that the Russians and Saudi’s are so dependent on oil to finance there economies that they literally need $100 oil to maintain the status quo.

US Recession

The US “IS” going to have a recession. It’s just anyone’s guess when that happens. Statistically it is due anytime. The US Federal Reserve is gently upping interest rates to have some dry powder available for when it does happen. It is however, the rest of the world that will suffer the most, as the US is self-sufficient in energy and is not nearly as dependant on others to drive its economy. It derives most of its GDP from its own consumption unlike many countries such as Germany and China.

ISIS

The Islamic State is looking more and more like it will fail in its bid to create a Caliphate in Syria. News of cholera and polio outbreaks are seen as a loss of control in their abilities to provide even basic services. It will now be of interest to see how ISIS regroups and where they pop up. Although before that there is still a bit of work to do routing them out of there strongholds. Now Israel, the US and Turkey will have to decide how they will deal with Assad and his band of terrorists. None of them wants a strong Syrian and Iranian alliance.

Protectionism

So there you have it, more of the same coming up. Growth is slow to non-existent and it is only growth that can increase the use of commodities. So the oil glut will remain until such time as production falls due to lack of revenues and any rise in revenues will result in a rise in production, a circle jerk if you will. The other way out is we somehow initiate growth, but the world is due to shrink in population in the near future so growth may be difficult. Our opinion is that even if we do see growth it may lack the longevity of past booms and will likely be spurred by India and North Africa and a few others. In any event we are a few years away from a demographic trend that will lead to any kind of recovery and nothing indicates that much else can change that. What will probably effect economies as much as anything in this stagnate climate is geopolitical issues arising from civil unrest and protectionism probably caused, at least in part, by the economic slowdown.

At Home

At home here, we are sitting on the boondoggle that is the North West Redwater Refinery that has blossomed from a 4 billion to an 8 or 9 billion dollar project. If this was a viable project in the first place industry would have built it, another reason why government should keep its nose out of business. The only profitable refineries are those that are built to serve the markets that surround them or those that are situated in a place that makes shipping easy like the gulf coast. Albertans will be paying for this for decades.

IR is beefing up its rental lines. Currently we are offering Sentinel 880, SCARPro Selenium 75 and 330 Cobalt 60 devices, Open Vision, Sonatest flaw detectors, Comet 300 Kev spot tubes, Vidar digitizers and we lease Armorlite RT labs. IR is now so much more than just a one stop shop for NDT products and services, and keep your eyes and ears open for other products and services soon to arrive like calibration of light meters, and x-ray tube repairs.

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Brian’s Blog July 2017

BRIAN’S BLOG

July 2017

Hello everyone!

It’s been awhile since I have sent out a letter but we have just wound up our open house event here at IR Edmonton and I wanted to thank everyone for the great turnout and support. It’s always great to see some old friends and make a few new ones.

Our open house was billed as “A Taste of New Orleans”. It was held in conjunction with our maintenance and source retrieval courses developed and run by QSA Global with Mike from the Houston office and Theo from the Baton Rouge office, as the instructors. Theo Ewing the maintenance instructor also brought his immense talents to the kitchen as he prepared his famous Jambalaya and Crawfish ÉtouffĂ©e and as promised it was the hit of the party and didn’t last long.

Mark Sermazeski with Cruelty Free Cartoons, mark@crueltyfreecartoons.com was with us again and as always he entertained like no one else can. Mark is warm, very social, humorous and a great caricature artist who is engaging the world with his exceptional talents. We were very thankful that he took the time out of his very busy schedule to come to our event (he had another event in Vancouver that same night).

Also in attendance was Rebecca Rudolf of Comet, Jeff Darby with Carestream NDT, Charles, (Buddy), Lehmann of QSA Global, and all the way from England James Denton and Steven Shepherd both with JME. Thanks guys and gals it was great having you and the technical information you provide to our clients is always a main highlight and one of the reasons these functions are always so successful.

James and Steven brought JME’s famed crawler, newly updated and redesigned, (I believe it’s the only crawler in the world that meets the RED Act) and their 6.5 MeV Betatrons for display. It is amazing how much power such a small generator can provide, the complete unit would fit in the trunk of most medium size cars. The new crawler incorporates X-ray and can also be converted to use an 880 exposure device as a Gamma crawler.

Rebecca was here to show off our new demo and rental tubes, The 300 KV EVO Smart tube, real beauties that will be ready to go very soon. These new tubes are rugged, and almost operate themselves.

Before I get on to other topics I want to thank our staff as well for all the hard work in preparing for this event, they take the time out of there busy days to help organize and then implement all the necessary arrangements and still put in a full day’s work. Thank you all, you are tremendous and make IR what it is.

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Brian’s Blog October 2016

BRIAN’S BLOG

October 2016

Jeffrey Gundlach of DoubleLine Capital said recently:

“Sell everything: the house, the kids, stocks, bonds, commodities
– everything looks overvalued.”

Jeffrey Gundlach, to be honest, hasn’t always been right. He predicted muni bonds to be a bad investment and their value to lose more than 20%. That was in 2011 and so far that hasn’t turned out as predicted, but in his defense, the markets have not been working in a predictable fashion either.

Jeffrey Gundlach is famous for TCW’s, Total Run Bond Fund and its 10 year finish in the top 2% of all bond funds. Which elevated him to oracle status and he has been orating ever since. He is often heard on CNBC, Bloomberg, and others. So could he be right this time? Is it time to “sell everything” and hide in the hills?

One way to get some insight on this is to look into what the “smart money” is doing vs what the “dumb money is doing. Smart money refers to those investors that more often than not get things (the trends right). They don’t always make tones of money but they usually are contrarian at the right times. These are the commercial investors, the guys whose companies depend on them being right. This might be airline investment advisor who buys fuel options at the right times, or another who hedges oil or sells their commodities while betting on future gains 12 months out.

The dumb money are those that continue into a trend until it ends and then try to get out, usually to late or hang on expecting things to turn around until the bottom. Once, at the bottom they often become so disillusioned that they bail only to see things begin to rise again. That’s me. We follow the heard right into the slaughterhouse.

According to one investment newsletter I receive it looks like Mr. Gundlach may be on to something. Apparently the smart money is at or close to record levels in shorting commodities, lumber, oil, stocks, and long bonds.

Even gold and silver are expected to fall according to smart money. They even short the USD, my favorite hedge for the last two years! And of course the Yen. Let’s look at what this may mean before we get all caught up and put the kids and dog in the garage sale.

So smart money is short commodities. If this is true and raw materials like iron, aluminum, copper etc. are about to fall some more, this would also mean that China will not be getting its mojo back anytime soon, US will continue to muddle along as is or fall into that overdue recession that has been eluding the cycle geeks. Shorts on lumber mean housing starts may be ready to turn down, and low expectations for oil would then just be a natural call. As economies would begin to stall even more than at the anemic pace we are seeing from the developed countries around the world. If we are to trust “smart money” then we must sell our gold and silver, the go to buy for gold bugs when crisis hits. I’m not surprised by this as gold and silver shot up just before the 2008 mortgage crisis but fell when stocks fell and the major crisis peaked. They have stayed down ever since until recently, as they have spiked up close to $1400.00 USD, Deja vu all over again?

The smart money is also close to record levels in short positions in the stock market. This is one market that has gained from central banker’s monetary policy in a big way. If bubbles always burst as some analysts contend, then this is one big bubble looking for a needle in the fiscal hay stack.

Japan has been rumored to be contemplating helicopter money, direct bond purchasing to provide monies for infrastructure, (they already have the best infrastructure in the world), or checks sent directly to the people as tax rebates or some other schemes. Shorting the Yen has been a favorite of some contrarians for many years but it has rarely paid off, a lot of money has been lost on this bet but it looks like a sure thing? Maybe, some day.

If all this comes to pass as smart money at the moment seems to be indicating then the USD could take a hit but my personal opinion on this is that the USD will continue to be in a better position than my home currency, it being commodities and export dependent in the eyes of the world.

So let’s summarize what has to happen-just for fun;

  1. The USD falls with the Yen as both counties fall into recession or stagnate further at a minimum
  2. China continues to slow putting deflationary pressures on commodities
  3. Japan’s helicopter money does not impress investors
  4. Oil continues to fall due to slowing world economies along with all commodities
  5. Housing starts falling, dragging economies and lumber prices with them
  6. The monetary policies of reserve banks becomes ineffective, the stock bubble bursts and gold and silver follow.

Hmmmm!  A lot has to happen for the smart money to win this one. There are things called Black Swans, one time or very seldom cataclysmic events, there are also unknown unknowns, the effects that something unknown produces that we couldn’t even conceive of, like mortgage derivatives in 2008. There is also the truism that the markets can stay irrational a lot longer that the average investor can stay solvent. You might not want to sell the kids right now but I’d have them dressed nice and if the dog isn’t behaving
well?

It’s impossible to tell how all of this will play out but through it all we have to put food on the table. At IR we are continually working to find you the best deals and give you the best service we can. We have recently launched our new ecommerce website loaded with prices so you can compare (if you want) but we are confident that what we offer goes beyond just price, it is people. People like Jenna, Pieter, CJ, Vanessa, Byron and Robbie, who know you, who you can trust to give you great service and advice or just bounce an idea off of. Our new website is a convenience for you, not a replacement for personal service, we still want you to call or come in and see us. We hope you like the new site and that you will give us your comments, likes or dislikes because it is for your benefit that we have spent countless hours putting it together.

So have a look, go to www.irss.ca and remember “For the Unknown there is NDT, for NDT there is IR”!

Cheers

Brian Sargent

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What You Need To Know About WD40

WD40: The Facts

From time to time our WIRC Shop sees equipment that has been lubricated with WD40. WD40, when exposed to large doses of radiation, turns into varnish. Those of you who remember the Pneumat-A-Ray devices may also remember that the transformation of WD40 to a hard varnish was discovered back then. Sources and guide tubes were becoming coated with the stuff and it was causing a lot of problems.

It is also not approved for any exposure device equipment that I am aware of, and should never be used with Sentinel exposure devices or related equipment.

WD40 Is NOT A Lubricant

WD40 is a solvent and rust dissolver. The name WD stands for “water displacement.” Any lubricating properties you may get comes from it dissolving the dried lubricants already present, along with any other foreign materials. Using WD40 creates a cycle of dissolving dirt and grime with some remaining lubricant, just to have it reform over time as more is added. When equipment gets dirty it needs to be cleaned properly and lubricated.

WD40 may get equipment working again but it is a dangerous, quick and temporary fix that will damage equipment and cause excessive wear over time.

Equipment that is not working freely needs to be removed from service for maintenance with approved cleaning and lubricating products only. We operate in some of the toughest conditions on earth, I understand that. But that only means controls and exposure devices need more maintenance than what is recommended by the manufacturer. We recommend, at a minimum, that every time you change your source you should perform a complete maintenance on both the device and the controls and guide tubes. It has been proven time and time again that manufacturers recommended maintenance is usually not enough and lead to premature wear of S-tubes and drive cables.

Contact us if you have questions about proper maintenance or upkeep.

— Brian

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QSA Service Bulletin: Source & Pigtail Connectors

IR was recently sent a bulletin by QSA Global. It describes the unusual wear of the source and pigtail connectors from using non-OEM equipment. Though we have not seen any competitor’s equipment in a long time, it is our policy to share this information with our clients as soon as we hear of it. It is, however, a good example of what can happen if equipment is not monitored properly and parts begin to wear.

IR is the only QSA/Sentinel authorized repair and distribution center in Western Canada. We are current on all the latest requirements and updates as a result. We urge you to contact us if you have any equipment questions at any time.

Read the bulletin here: Service Bulletin – QSA June 2016

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When is the Best time for Lab Maintenance?

Here’s A Little Secret…

The summer holiday season is the perfect time for you to get your lab and trucks into us for annual maintenance, while you and your crew are on holidays. Getting your units ready for fall and winter work is essential, so why not get it done when you know it’s not in use?

As we all know darkrooms are high humidity and chemically corrosive so mag, alarm and other switches and controls are subject to fouling. Squeaky motors for fans, leaking hoses and hinges and door hardware need to be repaired and/or replaced to ensure reliable service through the busy winter season.

Door hardware is probably the most neglected items we see and this stuff is positioned where it gets the greatest abuse from road dirt, salt, and snow.

Constant pounding from driving on potholes and gravel-heavy roads  is damaging to doors and hinges. Don’t worry – our WIRC Shop can have them straightened up in no time. Under the hood, solenoids and breakers are subject to more heat and greater electrical needs these days due to less air space and more gadgets. In all honesty, they need to be replaced yearly to ensure reliable performance.

Heater hoses are another problem, especially in units that are in extreme off-road conditions. They need to be inspected for wear at rub points and for loose connections.

As they say, “a little maintenance goes a long way.” In the long run maintenance is a cheap way to ensure equipment reliability and that leads to happy customers, content workers, and less work for you and me (but don’t tell the bosses I told you that).

Thanks for listening! We look forward to seeing you down at the WIRC shop this summer.

— Brian