How Low Will Price of Oil Go? Brent Won't Go Below $83/Barrel

Due to factors discussed before and which I won't go into again (at least for now), Saudi Arabia has the "power" to raise the global price of oil, but it no longer has the clout it once did to lower the price of oil.

That is a shift from the 1980s when Saudi Arabia had enough oil that it could affect the price of oil going up or coming down. Now, Saudi Arabia can only affect the supply of oil to result in increased price.


It turns out that Saudi Arabia's budget requires that oil stay at least above $83. This is what Saudi feels it requires to distribute enough money across the kingdom to prevent unrest being seen in much of the Mideast.

Many of OPEC’s biggest producers are using the price gains to increase public spending, partly to guard against popular unrest. Saudi Arabia announced a multiyear spending package of $129bn and is expected to spend about $35bn in 2011.

This largesse means the country now needs an oil price of $83 per barrel in order to balance its national budget this year. “The more they earn, the more they tend to spend. So the oil price they need is ratcheted up,” said Leonidas Drollas, chief economist at the Centre for Global Energy Studies in London.

$83. That's an important number to remember. Some time ago, EOG said the Bakken was "robust" at $40/bbl of oil  Based on the current delta, Brent $83 oil translates into about WTI $73 oil.

Investors Only: Yet One More Article Touting Natural Gas -- Wall Street Journal

Analyst: there is not one natural gas exploration and production company that I would recommend that investors stay away from.

That about sums it up.

Flashback: The Bakken Boom Began With Vertical Wells in Elm Coulee (Montana)

This article was published in 2007. It provides a bit of perspective to the current Bakken boom.

The first commercial Bakken well at Elm Coulee was completed in 1981 by Coastal Oil and Gas. Early wells were vertical completions and were often a fall-back position for an unsuccessful deeper well-test. After stimulation, vertical Bakken wells have historically exhibited a respectable initial production, but with high initial declines followed by long-term, low productivity. A typical economic vertical well would initially produce at more than 100 b/d of oil, but would soon decline to approximately 15 b/d to 20 b/d of oil.

Production thereafter exhibited a minimal decline and due to the low production rates, oil price was the major factor in economic operations. Gas/oil ratios were approximately 750 Mcf/bbl, however, no sales outlet was available, and casing-head gas was used on the lease. Superior productivity was dependent upon intersecting local fractures to double or triple the IP and the corresponding long-term productivity rates. The estimated ultimate recovery (EUR) of the typical economic vertical Bakken completion is estimated at 130,000 bbl of oil. Assuming a 30-year project life, however, that results in unfavorable project economics.

The first horizontal, Upper Bakken wells were drilled in Richland County in 1989 and 1990, but few were successful. The EUR rates for these horizontal wells were estimated at 21,000 boe. In 2000, Lyco Energy initiated the current horizontal activity by drilling the Burning Tree State 36-2H using an improved completion technique. The Lyco well’s IP was 196 b/d of oil, 85 Mcf/d of gas and 7 b/d of water, and the EUR is currently estimated at more than 300,000 bbl of oil. 

Although not addressed in this article, early on it was felt by some that horizontal drilling would obviate the need for fracture stimulation. How things have changed!

Enjoy!

Just When I Think I'm Going To Run Out Of Material, Rigzone Comes Through

What a great article to cross my computer screen a few minutes ago! A must read.

Enjoy.

It will be linked under "Publications" later.

The first paragraph:

Maybe you've seen the advertisements from various financial newsletters touting the investment potential of companies involved in developing the Bakken oil shale formation that spreads across North Dakota and Montana and into the neighboring Canadian provinces of Saskatchewan and Manitoba. The claims, which several years ago appeared outrageous, of the Bakken containing eight times the amount of oil as in Saudi Arabia or 21-times the reserves held by Kuwait seem less than fantasy today. 

"World-Class" Ethane Cracker in Louisiana? -- Not a Bakken Story

This is great news for Louisiana, hit hard by the moratorium and now the permitorium.

Chevron Phillips Chemical Company is mulling a "world-class" ethane cracker in Louisiana.

I was going to write what I really thought about this story but I was not ready to absorb all the arrows that would have been shot my way, so I will leave it at that.

I wish the Louisiana folks the best; they certainly deserve a better hand than they've been dealt.

******

On Luck, or Being Dealt a Good (or Bad) Hand

I am re-reading Tom Shippey's J.R.R.Tolkien: Author of the Century for the third time. In this book, Shippey discusses The Hobbit and The Lord of the Rings, as well as other Tolkien works. Shippey has a great section on "luck"and how Tolkien approached it:

As with the ironies of interlace, the logic of luck (or chance, or fate, or fortune, or accident, or even wyrd) seems in Tolkien's view to be this: there is no knowing how events will turn out, and it is certainly never a good idea for anyone to give up trying, whether out of despair or out of a passive confidence that some external power will intervene. 

It seems as if that line could have been written with New Orleans in mind.

IPAA Conference -- New York -- April, 2011

There are about 90 presenters at the IPAA conference next month. You can see the full list here (PDF).

The list is interesting. The following are in the Bakken, or have recently been in the Bakken (or in some cases simply mentioned at this blog).

• Rosetta Resources (Montana/Alberta Bakken)
• Denbury Resources
• Abraxas Petroleum
• Concho Resources
• Whiting
• Chesapeake (SSN/Niobrara)
• Samson Oil and Gas
• MDU Resources Group
• Oasis Petroleum
• US Energy
• SM Energy
• Petrohawk Energy
• LINN Energy
• Triangle Petroleum
• GeoResources
• Northern Oil and Gas
• Baytex Energy
• Kodiak Oil and Gas
• BEXP
• QEP

Six (6) New Permits -- Bakken, North Dakota, USA

Producers: Hess (2), Sinclair, Whiting, Ward-Williston, and Continental Resources.

Fields: Big Butte, Sanish, Park, North Westhope, and Antelope.

The two Hess wells will be on the same pad in Big Butte oil field.

There was no other information (no completed producing wells, for example) in today's daily activity report.

GE Continues to Diversify Into Energy -- Not a Bakken Story

I first posted comments about GE's rapid diversification into oil and gas some weeks ago. That observation has now become the lede in stories about GE investments:

General Electric Co. said Tuesday it will spend $3.2 billion for a controlling stake in French equipment developer Converteam as it continues to position itself as a major player in what's expected to be a 20-year boom in oil and natural gas demand.

Converteam, which serves a variety of industries including oil and gas companies, is the latest of $11 billion in acquisitions by GE's energy business. GE also has acquired Dresser Inc., Wellstream Holdings, Lineage Power Holdings and Well Support in the past six months.

The article goes on to describe GE's bullishness on natural gas.

******

I post about GE's diversification into energy for a couple of reasons. First, it supports my view that natural gas will eventually be a big story for investors. Second, I can't think of anyone who would have more insight into future government policies regarding energy than the president's economic czar. The president's economic czar is GE's CEO. Connecting the dots could be very profitable.

ATT - T-Mobile Deal -- Not a Bakken Story

One can see where this (the ATT/T-Mobile deal) is going.

Both ATT and VZ are up in the stock market. VZ hit a 52-week high today and ATT came within 2 cents of a 52-week high.

During the process, T-Mobile goes into a holding pattern. Both ATT and VZ should benefit during the process.

If the deal does not go through, T-Mobile becomes a niche player, and gradually disappears from the radar scope altogether. Both ATT and VZ win. They will split up the T-Mobile subscribers over time.

If the deal goes through, that allows VZ an opportunity to buy another telecom.

This is not an investment site. I just enjoy following the market, and I have interests outside the Bakken. Smile.

Cottonwood Oil Field Updated -- Bakken, North Dakota, USA

Cottonwood Oil Field has always fascinated me. It was "discovered" by Fidelity (MDU) back in the 2008 time frame.

Fidelity never had any great wells in the Cottonwood and eventually sold their acreage in that field and others to Oasis. It appears that that deal was the beginning of Oasis as a major player in the Bakken.

I just updated the results of all the wells in the Cottonwood oil field.

Since the last update, there has been minimal activity. There are no rigs on site in the Cottonwood (according to the GIS map server) although one well is being completed.

The wells spudded/tested in 2008/2009 have been uniformly unremarkable, with one or two exceptions, but even the exceptions don't live up to Bakken expectations. Some wells are clearly stripper wells, and it appears some wells are kept going just to hold the lease.

The wells spudded/tested in 2010 are significantly better but still unremarkable. Rule of thumb for the Bakken is that the well is on its way to being paid for (at the well head) when it reaches 100,000 bbls of production. None of the wells in the Cottonwood have reached the 100,000-barrel threshhold. The best is about 70,000 bbls.

Overall, the Cottonwood does not yet impress me. 

Thompson Lake Field Update -- Bakken, North Dakota, USA

Thompson Lake oil field is a very small field in the Williston Basin. It is only seventeen (17) sections. It is immediately east of the Cottonwood oil field, fairly north and east as far as the Bakken goes.  It is north of Kittleson Slough and Clear Water oil fields.

Thompson Lake caught my interest on March 28, 2011, when EOG was issued four permits in section 26 of T159N-R91W.

As of today, there are three producing wells in Thompson Lake:

• 17205, 197, EOG, Vanville 1-14H, spudded 9/08; tested 11/08; 60K; short lateral
• 18862, 164, EOG, Vanville 6-25H, spudded 6/10; tested 9/10; 22K; long lateral
• 18483, 110, Petro Harvester, LLC, Kallberg 1H, spudded 12/09; tested 5/10; 23K

Permits pending:

• 20076, EOG, Vanville 15-1102H
• 20662, EOG, Vanville 22-2623H on same pad as 20663, long lateral runs north
• 20663, EOG, Vanville 21-2635H on same pad as 20662, long lateral runs south
• 20664, EOG, Vanville 24-2623H, on same pad as 20665, long lateral runs north
• 20665, EOG, Vanville 23-2635H, on same pad as 20664, long lateral runs south

Comment:
This is another example where initial production numbers don't look all that good, but yet the operator continues to put in more wells. This speaks volumes. Several things I take away from this:

• A reminder that there are "no" dry holes in the Bakken; 
• Even mediocre wells in the Bakken will eventually pay for themselves;
• For EOG, the Bakken was "robust" at $40; oil at $104 looks sustainable;
• Holding leases by production is undervalued; once production established, leases are held for "eternity" -- expectations that Bakken wells will produce 30 years
• Regardless of initial production, analysts still predict EURs of 400,000 for even the most mediocre Bakken wells (at $50/bbl --> $20 million; at $100/bbl --> $40 million);
• Depletion allowances, depreciation amortization, tax considerations, et al, need to be factored in; and,
• There's always a chance for a gusher

COP Ramps Up CAPEX in North America -- Bakken, North Dakota, USA

Investopedia.com link here.

Nice comprehensive update.

With regard to the Bakken:

COP  has 460,000 net acres under lease prospective for the Bakken and plans to drill more wells during the year. Continental Resources is another major operator active in the Bakken; the company drilled 222 gross wells in 2011 on its North Dakota acreage.

If that figure (460,00) is accurate (and I have no reason to doubt it), it means the analyst's estimate of 251,000 on December 31, 2010, was off by quite a bit. I will update the "FAQs" data to reflect this new estimate.

Coates RV: Grand Opening in Williston

Link here. (Regional links break often and break early.)

Coates RV, a Minnesota-based RV, camper, motorhome, travel trailer and cabin dealer, has opened up shop in Williston.

According to the story Coates RV has a new product for oil field workers: an all-season living unit. Apparently it's the first of its kind in the nation.

This is the first time Coates RV has opened a location outside of its home in Minnesota. That's how big the Bakken in.