Monthly Archives: April 2008

The latest big oil discovery

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brazil_map As oil futures hit $115 per barrel late this past week, The Economist ran this article on the questions surrounding the recent announcement regarding the discovery of Brazil’s Carioca-Sugar Loaf Field, which could be one of the largest oil discoveries in history. Given the time, expense and risk involved in extracting the oil, the announcement of the discovery didn’t affect oil markets much, but The Economist article nevertheless concludes as follows:

The discoveries do suggest that the gloomiest pundits are wrong to predict that the world will soon run out of oil. It is not that there are still lots of huge oil fields out there: the number of mammoth discoveries is declining, Tupi (and perhaps Carioca-Sugar Loaf and Jupiter) notwithstanding. But the new finds do illustrate how the technology with which oil firms hunt for, extract and process fossil fuels is constantly improving. Petrobras’s recent success is only possible thanks to recent advancements in seismic surveys, drilling, and offshore platforms. Other technological developments are allowing a greater proportion of the oil found around the world to be recovered and are even expanding the definition of oil, as firms conjure liquid fuel from the solid tar-sands of Canada, for example, or from coal and natural gas.

As noted recently here, the recent increases in oil prices are making alternative energy sources economically viable. Thus, take note of what former ExxonMobil CEO Lee Raymond noted years ago in response to a question on oil prices:

Interviewer: "Some people think prices will keep going up?"

Raymond: "Maybe. I’ll bet they’ll be lower at some point."

Valuing the Stros

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Drayton McLane 041907 The Stros are not worth squat on the playing field this season, but the club continues to be among the dozen most valuable franchises in Major League Baseball.

Forbes’ annual valuation of MLB franchises is out and the Stros come in at a respectable 12th among the 30 MLB franchises, down one slot from last year. Forbes thinks that the Stros ($463 million valuation) are doing about as well financially as they can do in this market. A list of the values and operating income for all 30 franchises is here.

Interestingly, although the Yankees have by far the most valuable franchise in MLB, they were dead last among the 30 MLB franchises in operating income at a negative $47 million. The World Champion Boston Red Sox were 29th in operating income at a negative $19 million, although the club’s valuation of $816 million is behind only the Yankees ($1.306 billion) and the Mets ($824 million).

This post from last fall noted Forbes‘ most recent valuation of the National League Football franchise, which continue to be much more valuable than the MLB franchises. The least valuable of the 32 NFL franchises (the Vikings at $782 million) would be the fourth most valuable MLB club.

Providing good doughnuts in health care

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doughnut A frequent topic on this blog over the years has been the increasingly dysfunctional nature of the third-party payor health care finance system in the United States. This post from last year examined how my primary care physician changed his medical practice to a concierge model because of the financial risks involved in continuing to rely primarily on health insurance for his revenue stream, and this subsequent post touched on the developing crisis that is occurring in the financing of primary care practices around the country.

Albert Fuchs, a Beverly Hills internist, understands the problem quite well and has a straightforward solution: primary care physicians should require payments from their patients and not third party insurers:

For more than a year, I haven’t received a single dollar from any insurance company. I work for my patients. A few hundred doctors across the country are working the same way, some in blue-collar towns. Routine care should be affordable to the middle class, and as more doctors and more patients form relationships that exclude insurance companies, prices will drop. Insurance doesn’t make routine care affordable; it makes it more expensive by adding a middleman. I know that some patients can afford nothing, so two afternoons a month I volunteer at a clinic that cares for indigent patients, which I could not have done with the huge patient volume I was seeing a few years ago.

When doctors break free from the shackles of insurance companies, they can practice medicine the way they always hoped they could. And they can get back to the customer service model in which the paramount incentive is providing the best care. Only then can doctors reclaim the simple dignity of any businessman: These are my doughnuts; only I and my customers can determine their worth. (At the end of each week, I will donate some to the needy, but I will not let a third party set the price.)

Read the entire op-ed. Medical insurance should be true insurance from a catastrophic ailment or injury, not financial insulation from the routine costs of health care. Jonathan Kellerman, a clinical professor of pediatrics and psychology at USC’s Keck School of Medicine, advances the same idea in this recent W$J op-ed:

Physicians and other providers need to liberate themselves from the Faustian bargain they’ve cut with the Mephistophelian suits who now run their professional lives. Because many doctors are loath to talk about money, they allowed themselves to perpetuate the fantasy that "insurance is paying." It isn’t. There is no free lunch and no free physical exam.

If substantial numbers of health-care providers shook off the insurance monkey on their back, en masse, and the supply of providers was substantially increased by opening more medical schools, the result would be a more honest, cost-effective system benefiting everyone. Except the insurance companies.

What is Tiger thinking and has The Masters become a bore?

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Tiger Woods So, Tiger Woods is being forced to take a month off from the PGA Tour as he rehabs from knee surgery. I know that Woods’ workout routine is considered cutting edge, particularly for a professional golfer, but what on earth is he running seven miles per workout with a bad knee? Don’t his trainers know that long-distance running is not a particularly healthy form of exercise?

Long-distance running is a fine form of recreation for folks who enjoy it. But as a method of exercise, I am hard-pressed to think of one that is more physically damaging. Woods would be smart to re-think his workout to delete long-distance running and concentrate on short sprints for the aerobic part of his workout.

The knee operation will prevent Woods from defending his title at the Wachovia Championship in two weeks or competing in The Players Championship at TPC Sawgrass a week after that.

By the way, Geoff Shackelford (see this Daniel Wexler post, too) is leading a discussion over at his blog on whether the design changes at Augusta National — which have clearly prompted players to play more defensively and less aggressively during the Masters Tournament — have undermined the excitement of the tournament for spectators. Geoff passes along the following interesting stat from Brett Avery’s Golf World stat package:

master's cool stat

Ripples of the Delta-Northwest deal

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Continental Airlines logo 041608 B The merger agreement between Delta Air Lines and Northwest Airlines (they were meant for each other) announced yesterday not only would create the world’s largest carrier if approved, but it has renewed talk (see this W$J article, too) in Houston over the fate of one of the city’s largest employers, Continental Airlines.

Continental’s future has been the subject of conjecture over the years. This post from a couple of months ago summed up the current situation in anticipation of the Delta-Northwest merger. Unfortunately, Continental’s most likely merger candidates — United Airlines and American Airlines — are not particularly attractive partners at this point. As airline consultant Adam Pilarski noted in this Scott McCartney/W$J column, "There’s no history of anything good that happens in [airline] mergers. Two drunks holding each other up is not a good idea." The W$J’s Holman Jenkins speculates as to why this is the case in the chronically-profitless airline industry, which Richard Anderson and Doug Steenland, CEOs of Delta and Northwest, argue the contrary position.

The proposed Delta-Northwest merger would create a behemoth company with more than $35 billion in annual revenues, a mainline fleet of almost 800 planes and a combined workforce of 75,000 people. Interestingly, the most successful US airline is the polar opposite of that structure.

 

An eternal optimist

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ray_kurzweil_01 Don’t tell Ray Kurzweil that we ought to be all gloomy about the prospects for mankind. This WaPo op-ed reflects that he is downright bullish:

MIT was so advanced in 1965 (the year I entered as a freshman) that it actually had a computer. Housed in its own building, it cost $11 million (in today’s dollars) and was shared by all students and faculty. Four decades later, the computer in your cellphone is a million times smaller, a million times less expensive and a thousand times more powerful. That’s a billion-fold increase in the amount of computation you can buy per dollar.

Yet as powerful as information technology is today, we will make another billion-fold increase in capability (for the same cost) over the next 25 years. That’s because information technology builds on itself — we are continually using the latest tools to create the next so they grow in capability at an exponential rate. This doesn’t just mean snazzier cellphones. It means that change will rock every aspect of our world. The exponential growth in computing speed will unlock a solution to global warming, unmask the secret to longer life and solve myriad other worldly conundrums. [.  .  .]

Take energy. Today, 70 percent of it comes from fossil fuels, a 19th-century technology. But if we could capture just one ten-thousandth of the sunlight that falls on Earth, we could meet 100 percent of the world’s energy needs using this renewable and environmentally friendly source. We can’t do that now because solar panels rely on old technology, making them expensive, inefficient, heavy and hard to install. But a new generation of panels based on nanotechnology (which manipulates matter at the level of molecules) is starting to overcome these obstacles. The tipping point at which energy from solar panels will actually be less expensive than fossil fuels is only a few years away. The power we are generating from solar is doubling every two years; at that rate, it will be able to meet all our energy needs within 20 years.

I just thought I’d toss in that third paragraph for those in the oil and gas industry that believe that a period like the mid-to-late 1980’s can’t happen again. Meanwhile, light, sweet crude oil futures for May delivery settled yesterday at $111.76, a new record, on the New York Mercantile Exchange.

Another one-planer wins The Masters

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trevor_immelman_swing_3 Last year it was Zach Johnson (see also here). This year, it’s Trevor Immelman. What’s the deal with all these one-plane swingers dominating the Masters Tournament? Could it have something to do with the fact that neither Johnson last year nor Immelman this year ever seemed to miss a fairway? Immelman hit 48 out of 56 fairways on Augusta’s 4’s and 5’s during the tournament; Johnson hit 45 last year.

By the way, Immelman tuned up for his Masters victory by shooting 73-72 and missing the cut last week at the Shell Houston Open.

Geoff Shackelford’s collection of links on the final day of the Masters is here and the link to his previous daily reports from the week is here.

Finally, Tiger Woods finished second for the second straight year after a relatively poor week of putting on Augusta National’s slick greens (interestingly, the dominant Woods has won only one of the last six Masters Tournaments). I know Tiger is popular and all, but the following excerpt from this Martin Johnson/Daily Telegraph article reflects that some Tiger admirers have gone completely over the top:

The Woods mystique is such that he can even cause a riot, or close to it, by eating a banana. When Woods peeled one on Saturday and threw away the skin, there was a mad stampede to grab it as a souvenir.

The block of the chip passes away

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Arnold Kling 041208B Arnold Kling of EconLog has long been a Clear Thinkers favorite, particularly in the area of health care finance. That was the subject of this recent post regarding Arnold’s coordination of health care for his elderly father, Merle Kling, who passed away on Tuesday.

Take a moment to read Arnold’s touching post on his father, who was quite a remarkable fellow. Arnold is a chip off a very solid old block.

America’s slipping grip on golf

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Dubai-golf First, PGA Tour events had to worry about the Tiger Chasm. Now, this W$J article reports that they also need to worry about competition from tournaments in foreign venues:

The U.S. has, for decades, held sway over the international golf calendar. Three of the four most-prestigious tournaments happen in the U.S. (in tennis, no nation has more than one of the four Grand Slams). The PGA Tour also has long been the world’s most-lucrative circuit, with an estimated $278 million in prize money this year.

As golf explodes in popularity throughout the world, especially in developing nations, an increasing number of tournaments are popping up in places such as Dubai, Qatar, Shanghai and Singapore. On the subcontinent, the Masters and the Johnnie Walker Classic — two recent events sanctioned by the European Tour — attracted several top stars, including South African Ernie Els, Fijian Vijay Singh and Australian Adam Scott.

As these events draw richer and more-aggressive backers, they have been offering more prize money. In November 2009, Dubai will host the Dubai World Championship, which will feature a prize purse of $10 million, making it the most-lucrative golf tournament ever for players.

Meanwhile, the declining dollar has lowered the relative value of purses at U.S. tournaments, making these Asian, Middle Eastern and European gigs harder for players to ignore. When asked during his stay in New Delhi whether he expected more top players to play outside the U.S., Mr. Els quipped, "The way the dollar is going, I’m sure."

On top of that, many newer Asian and European tournaments are paying large appearance fees to some top pros to guarantee that the field will be competitive (such fees are banned in the U.S.). That means marquee names can make big sums even when they blow their chances of winning — as Mr. Els did at the Indian Masters with a nine on the final hole of the first round. Tiger Woods reportedly received $3 million to play in the Dubai Desert Classic in February. (Mr. Woods’s agent declined to comment.)

The top flight of golfers is itself becoming more international. In 1999, 33 of the top 50 players in the world came from the U.S. Today 34 of the top 50 players come from outside America. The Qatar Masters, a European Tour event in January, attracted nine of the world’s top 25, the same number that the U.S. tour’s Buick Invitational in San Diego drew the same week. Spain’s Sergio Garcia, America’s Scott Verplank and Mr. Scott, the world’s No. 5 player, all chose Qatar over California.

"I think the majority of players look on the world as a global competition," said South African golfer Gary Player. Within five years, Mr. Player predicted, international events will be just as important as the PGA Tour.

With such heightened foreign competition, the Shell Houston Open’s decision to accept being scheduled the week before The Masters looks like a stroke of genius. Few of the best players who like to prepare for The Masters by playing in a tournament the week before will want to play in a tournament overseas because of the long travel that would be required immediately before playing in The Masters.

Remember Kelo?

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Brooklyn NEts Check out this recent Second Circuit decision (H/T to Robert Loblaw) as an example of how the appellate courts are applying the U.S. Supreme Court’s controversial 2006 decision in Kelo v. New London. Kelo allows the state to seize private property to facilitate private re-development as a legitimate form of "public use" under the U.S. Constitution.

Kelo has been widely criticized for creating perverse incentives for politically well-connected real estate developers to exercise their political clout where negotiation with private property owners didn’t generate the developers’ desired result. The Second Circuit case involves the huge redevelopment plan in downtown Brooklyn that will primarily benefit Bruce Ratner, a wealthy New York real estate developer. In addition to the ubiquitous office buildings and high-rise condos involved in such deals, the redevelopment will include a new arena for the New Jersey (soon to be Brooklyn) Nets NBA basketball club. Although most of the property to be contributed to the development is public land, the redevelopment plan also requires the state to seize several tracts of private property through exercise of its eminent domain power.

The private property owners sued and argued that the state’s claim of public benefit is a facade, as the Second Circuit puts it, "to benefit Bruce Ratner, the man whose company first proposed it and who serves as the Project’s primary developer. Ratner is also the principal owner of the New Jersey Nets. In short, the plaintiffs argue that all of the ‘public uses’ the defendants have advanced for the Project are pretexts for a private taking that violates the Fifth Amendment."

The Second Circuit upheld U.S. District Court dismissal of the property owners’ claims, explaining that the massive private benefits to Ratner do not trump the state’s judgment that the project will also benefit the public. Moreover, even though the costs to the property owners may far outweigh the public benefits, the Second Circuit concludes that type of cost/benefit analysis is irrelevant under Kelo:

At the end of the day, we are left with the distinct impression that the lawsuit is animated by concerns about the wisdom of the Atlantic Yards Project and its effect on the community. While we can well understand why the affected property owners would take this opportunity to air their complaints, such matters of policy are the province of the elected branches, not this Court.

Given such dubious "public" ventures as this, the implications of the foregoing interpretation of Kelo are downright frightening.