Sunday, September 9, 2012

Re-Pricing of Oil: New Floor -- $80

Updates

Later: another look at WTI/LSS/Brent pricing. Link provided by a reader. This may be the best line:
“We have all these sweet barrels in the Midwest that need to find a home, and they’re getting to the market by planes, trains and automobiles, you name it,” said Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania. “You compound that with increased production in west Texas and the Eagle Ford, and you have a template for LLS to move to a discount.” 
Investors: time to get back into refiners? (See disclaimer for this blog.)

Original Post

Remember that Barclays' projection that oil will hit $125/bbl within the next 12 months, and $180 by the end of the decade?

Barclays is not alone. There is a great article at the Oil Drum.

It is in two parts, Part I and Part II.

Part I is very, very long and provides an excellent foundation for the author's conclusion. The entire article, Part I, is free.

Part II requires a paid subscription but the executive summary is provided. My hunch is that the executive summary is more than enough for most blog readers.

I can't even begin to summarize what is said in the very long Part I, but two things jumped out at me:
  • the discussion of qualitative easing as it applies to the price oil
  • OPEC and spare capacity -- a topic I have talked about at length at this blog
Barclays said $125 and $180.

The linked Oil Drum article says the new floor for oil (average Brent/WTI) is $80; and the price is "marching toward $200."

So, we'll see. We only have to wait a year. Caveat: I've noticed that folks have been projecting $200-oil for several years.

China, Shale, Natural Gas, Schlumberger, HIWAY

It's all here - this article at the Oil Drum.

Data points in the article and in the comments:

  • China's consumption of natural gas will triple by 2020 -- that's about eight years from now
  • China hopes to find some of that necessary natural gas inside their own country
  • for a large part of their country, natural gas makes more sense that coal
  • Schlumberger has bought into a Chinese oilfield services company

Some of the folks who commented on the article got off-topic and started asking about whether HIWAY was cracked up (fracked up?) to be all that great. I'm just impressed folks know about HIWAY and even reference Petrohawk's publicized experience with the process.


Wind Power Update in England -- And, Yes, a Connection to the Bakken

Updates

November 27, 2013: the Atlantic Array is scuttled; it was to have been the world's largest; west coast of England. Would have provided enough electricity for 2.5 million homes (compare to half million for the London Array).

July 4, 2013: the world's largest off-shore wind farm, The London Array, is up and running.
The fleet of 175 wind turbines stationed in the salty waters of the outer Thames estuary, where the river Thames empties into the North Sea, boasts a nameplate capacity of 630 megawatts, which is enough to power nearly half a million homes.
Previously, the world’s largest offshore wind farm was the 500 MW Greater Gabbard wind power facility off the coast of East Anglia.
The UK currently boasts more than 3.6 gigawatts of total offshore wind power capacity, which is forecast to more than quintuple in size by 2020.
Be sure to put this story into perspective.  We'll see if the Brits follow through on increasing the number of off-shore wind farms at the huge expense they incur.

Original Post 

First electricity produced by the London Array. First phase should be completed by end of 2012; 151 of planned 175 turbines have been constructed. Phase II (another 166 turbines) has not yet been approved. The risk of Phase II to the red throated diver (a duck) is holding up the approval. October 29, 2012 (first link); October 26, 2012 (second link).

The London Array is almost ready to provide electricity to citizens in southwest England.
When the first phase of the London Array is complete by the end of this year, it will generate 630 megawatts of electricity – enough power for more than 470,000 homes, or two thirds of the homes in Kent. 
Onshore wind farms, heavily criticised for their visual impact on the landscape, have generated a great deal of vocal opposition in recent years. In 2010 32 out of 66 applications for onshore wind farms were rejected. Offshore wind power, however, is expanding rapidly. Britain’s first offshore wind farm, near Blyth in Northumberland, opened in 2000, and since then another 14 farms (about 570 turbines and counting) have been built around the country, including three others in the Thames Estuary between the Kent and Essex coasts. Another six are under construction; a further seven have planning approval.
The linked article was published in the (London) Telegraph on July 28, 2012.

Now this, posted on the internet at the Oil Drum on September 9, 2012.
On occasion, the British Government goes through an internal shake-up that leads to various pundits trying to explain to us lesser mortals what it all means. Thus, with changes in the Ministers who work in the Department of Energy and Climate Change, there is a suggestion that the UK is pulling back from their commitment to wind energy, and instead beginning to look more seriously at shale gas supplies.

The UK is not unique. The success of the American development of long horizontal well drilling, with follow-on multiple fracture of the shale beds to release gas at economic volumes into the well, has caught the world’s attention, and with it a desire to emulate that success. Though it should be said that the American success comes in part with the volume of the release in supply and the consequent fall induced in the price of natural gas. That, in turn, is providing a less well-recognized boost to the US economy, through lower energy costs.
This sentence: The success of the American development of long horizontal well drilling, with follow-on multiple fracture of the shale beds to release gas at economic volumes into the well, has caught the world’s attention, and with it a desire to emulate that success -- that's the link to the Bakken.

Now, back to England. This was posted at Mail Online back in May, 2011.
Cash-strapped families face a stinging 50 per cent rise in their gas and electricity bills in the next four years, analysts warned last night. 

The hike in fuel bills is expected as Britain becomes more reliant on imported gas. 
It will also be needed to pay for the new generation of nuclear power stations, the upgrading of the national grid, and the creation of thousands of wind turbines to meet Europe’s tough climate change targets.
After the Japanese nuclear disaster, some countries are re-thinking nuclear. It will be interesting to check back on England's energy program during the next two years.

What You Will Be Talking About Monday; Frac and Trade; Wells Coming Off Confidential List -- Looks Like XTO Has a Nice Well, OXY - A Nice Well; Shipping NG To Europe? Already Happening - WSJ

School's Out in Chicago: summer vacation extended
Chicago teachers have the highest average salary of any city at $76,000 a year before benefits. The average family in the city only earns $47,000 a year. Yet the teachers rejected a 16 percent salary increase over four years at a time when most families are not getting any raises or are looking for work. Three months summer vacation? Liberal vacation during the school year -- all federal and state holidays; four-day Thanksgiving; two-week winter holiday; one-week spring holiday. What am I missing?
GOLF: BMW Champion -- Rory
NASCAR: Richmond short track -- Jeff Gordon, 3rd, and in the Chase! NFL: Peyton doesn't touch the ball for almost an hour (half-time included) and scores his 400th career touchdown pass in 36 seconds!

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Housekeeping: Stony Creek oil field has been updated.

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Energy Links for Monday; Other Links

Bakken buyout candidates, Part IV -- Mike Filloon
RBN Energy: Part II on natural gas processing economics.
Chevron's dividend: I generally don't care for this kind of article, but I assume some readers do
Japan's growth worse than that of France? Japan cuts GDP estimate to 0.7%; Hollande said French GDP will probably be 0.8% for 2013 (about 0.3 percent now)

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Wells coming off confidential list over the weekend and Monday:

  • 22421, drl, WPX/Dakota-3, George Evans 11V, Van Hook,
  • 21738, 536, Hess, BW-ABM 149-100-1819H-1, Ellsworth, t7/12; cum 9K 7/12;
  • 21861, 1,388, BEXP, Myron 9-4 1H, Squires, t5/12; cum 19K 7/12; 
  • 22080, 781, Hess, EN-Fretheim 154-93-0508H-2, Robinson Lake, t6/12; cum 41K 7/12; 
  • 22243, 1,313, Zenergy, Martin 16-21H, Trenton, t5/12; cum 34K 7/12; 
  • 20078, 632, OXY USA/Anschutz, Robert Sadowsky 1-2-35H-143-96, Manning; t3/12; cum 25K 7/12;
  • 21364, 130, CLR, Nordness 1-18H, Wildrose, t6/12; cum 5K 7/12; 
  • 22311, drl, XTO, Thompson 44X-20E, Blue Buttes; cum 60K -- no IP yet;
  • 21207, 182, Petro-Hunt, Stromme Family Trust 157-101-11C-2-1H, Otter; t5/12; cum 13K 7/12; 
  • 21737, 571, Hess, BW-KKMP-149-100-0706H-1, Ellsworth, t7/12; cum 14K 7/12; 
  • 21955, drl, BEXP, Cvancara 20-17 3H, Alger,
  • 22056, drl, BEXP, Wagenman 29-32 2H, Todd,
  • 22151, 1,538, Denbury, Tobacco Garden 41-18SH, Tobacco Garden, t6/12; cum 34K 7/12; 
  • 22226, 819, G3 Operating, Johnson 1-25-36H, Strandahl, t5/12; cum 24K 7/12; 
  • 22455, 1,780, MRO, Mylo Wolding 24-11H, Reunion Bay, t6/12; cum 29K 7/12; 

A lot of wells coming off the confidential list these last three days; noticeably absent: EOG.

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US Shipping Natural Gas to Europe (sort of)
The first new plant to export natural gas from the US may not be completed by 2015, but yet the WSJ (p. C14) suggests it's already happening -- it's a stretch and the kind of circuitous thinking of which I am often accused.
Here are the dots:
a) US switching from coal to natural gas --> excess coal
b) Europe switching to coal
c) US sends excess coal to Europe (this is the "NG export)
d) natural gas costs $9 per mcf in Europe; $2.50 in the US
e) Europe's coal-fired plants generate margins five times higher than those burning gas (wind/solar?)
f) US coal exports to Europe were up almost 30% yoy in 1Q12, and up more than 70% than the 4Q10
On the same page, there is an article suggesting oil supplies are not all that tight. The SPR holds 700 million bbls; by international agreement, Citi sees the US requiring only 117 million bbls by 2020; between now and then the US could dump a fair amount of oil on the open market; at $100/bbl could help with US budget. Hey, more spending. Deficit? What deficit?

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What the president's fracking regulations will cost us: $1.5 billion/year.
The Obama administration’s plan to tighten regulation of hydraulic fracturing for natural gas on public land may cost more than 20 times U.S. estimates, energy companies and local governments said.
The $1.5 billion is manageable. What will be frustrating to the hundreds of thousands of small mineral rights owners:
“The proposed rule will also place undue economic burdens and time delays on independent oil and natural- gas producers that will inevitably drive many smaller companies away from exploring for oil and natural gas on federal lands.”
Note: the article was posted exactly 2 minutes after the end of the business day on the last day of the business week. A reader noticed that; I did not. Little matter: even had this been posted during the news cycle, the mainstream media would not have picked up on it.

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For Chester.

There's a long story how I came back to this video, but I will spare you the pain of reading. Enjoy:

Extreme Sheepherding

It seems to me this video was removed from YouTube at one time; regardless, it is here.

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School's Out, Alice Cooper

Graphic of the Day -- A Non-Bakken Story: Avoid This Post If You Came Here for The Bakken

Graphic of the day for source, or go directly to the graphic:

http://www.ijreview.com/wp-content/uploads/2012/09/Screen-shot-2012-08-02-at-10.45.36-AM.png_.jpg

So you don't miss the point, be sure to scroll to the bottom of the graphic; it can be easy to miss.

WARNING: the link will take you to a non-Bakken story. If you came here for the Bakken, scroll down, and avoid this link.


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Bill Clinton: Fool you once, shame on me; fool you twice, shame on you. 

Barack has already raised taxes. See ObamaCare.

The Russian Bakken -- Re-Visited

Updates

January 3, 2017: Gazprom Neft strives to go it alone in Russian shale oil
There is nothing outwardly remarkable about oil well cluster number 933 in the South Priobskoye field: Siberian marshland stretches out to the horizon, dotted with birds and drilling rigs. But beneath the surface, this spot is at the forefront of the Russian oil industry’s efforts to deliver a shale energy revolution that could be just as transformative as the one witnessed in the US over the past 15 years.
Gazprom Neft, the oil division of state-controlled gas giant Gazprom, set a Russian record in the summer by completing 30 hydraulic fractures along the length of one well at cluster 933.
June 2, 2015: update. References the Bakken

December 8, 2012: an update on the Bazhenov, and comparing it to the Bakken. Quite a story. 

Original Post

There have been a lot of headlines at Rigzone, others regarding Rosneft, most of which I don't follow. My mistake. Here's a story I missed:
Bazhenov’s geology is similar to North Dakota’s Bakken shale, where crude oil production has more than doubled in two years.  
As part of the alliance with Exxon, Moscow-based Rosneft in April said it acquired a 30 percent stake in a Texas tight oil project to gain experience with the technology.  
“The in-place potential is enormous -- billions of barrels,” Exxon CEO Rex Tillerson said in an April 18, 2012, conference call. “The real issue is can we develop it in a cost effective way? -- same as the issue we have with tight oil and unconventional resources in North America.”  
Exxon will be able to book reserves in a mature oil province without taking on the exploration or environment risk it faces in its offshore projects with Rosneft, which will require an initial $3.2 billion investment to explore in the Arctic Kara Sea and the Black Sea.  
While Exxon and European rivals such as Statoil ASA have generated more media interest in their projects to develop virgin deposits in the Arctic by the 2020s, fracking Soviet-era Siberian wells may yield crude sooner.
I posted a story about the Bazhenov in June, 2012.

I believe "Bazhenov" (pronounced "Baa-ze-nof" with stress on first syllable, least stress on middle syllable) is Russian for "Bakken."

Just joking.

Did QEP Overpay for the Bakken?

Not if you think Barclays might be right.
Growing global demand for oil will push prices to $125 a barrel sometime next year and possibly to $180 by the end of the decade, according to a Barclays research report Thursday.  
While domestic oil production has increased with the discovery of new ways to extract oil from shale and other tight formations, the decline in new production from existing fields internationally will continue to drive up prices, according to Barclays.  
Production is declining each year by close to four million barrels per day, while annual global demand is rising by more than one million barrels per day, even in the weak economic environment. Political tensions in the Middle East could disrupt supplies further, worsening the shortfall in the coming years.
So, those are the data points:
  • lousy global economic environment
  • annual global oil demand rising by one million bopd 
  • annual global oil production decreasing by four million bopd
  • unrest in the Middle East is a footnote; will it become a story?
How soon might we see a tipping point? In 3Q12 -- at the link. Wow.

If either the first or the last data point changes ....

Only In Boston: Home of 25 Universities/Colleges

On announcements throughout the city:
PlanetFitness: $10/month or $199.99 for 18 months. 
Scroll down for Bakken stories.

More on The PN - EOG Article; Recovery Rates in the Bakken

Before reading this post, be sure to read the earlier post on same subject.

That story is full of data points for the Bakken. Consider this:

Pointing to a chart that shows U.S. horizontal oil growth by play from 2005 to 2012 (adjacent to this article), Papa said, “The point we make is, there are only two plays that make a difference on a national scale — the red and the turquoise. The Eagle Ford and the Bakken.

There’s been a lot of sell-side news and specific company news about plays like the Woodford, the Mississippian, the Niobrara, and so on and so forth but they barely make a spec on this chart.”

“Our prediction is that over the next five years they (non-Bakken, non-Eagle Ford plays) will barely make a spec on this chart. And so for all the news that they are generating, they’re not going to be significant players on a national scale,” he said.

Next, he pointed to a chart that showed which companies produced the most crude from horizontal plays in the U.S. EOG topped the list. “As it stands right now, by a 2 to 1 ratio, EOG is the largest producer. … It’s no horse race at this point in time,” Papa said.
And then this:
He did, however, talk about oil recovery rates in the Bakken, putting them at approximately 10 percent versus 6 percent for the Eagle Ford.
In an earlier post (yesterday) I reminded readers that Harold Hamm thinks "the Bakken" has 900,000 bbls OOIP and has 45 billion bbls recoverable oil. That's a 5% recovery rate. I was going to point out that Bakken recovery rates seem to be closer to 8% than 5% but I've been warned about "gilding the lily." And I'm just an amateur at all this.

Of course, that 5% is across the entire Bakken, but it's still interesting to note that EOG suggests the recovery rate is significantly higher in the Bakken than the Eagle Ford.

Where Is EOG Headed?

This is a "cut and paste" from one of my earlier postings. It's that important (the PN link was sent to me by a reader: a huge "thank you.")
A reader sent me this story. It supplements an earlier EOG story: very important. 
In the latter link, Papa says there are only four plays worth discussing (the rest are all "insignificant"): the Bakken, the Eagle Ford, the Permian, and the Barnett.

In this newest link, Papa has revised his opinion: there are only TWO plays that are important: the Bakken and the Eagle Ford. 
This is an incredible story -- everyone needs to read.
EOG Resource’s top executive Mark Papa raised a few eyebrows Sept. 4 when he told attendees of Barclays energy conference that only two horizontal liquids plays in the U.S. matter — the Eagle Ford and the Bakken.  
The rest are “insignificant” in terms of future U.S. production, Papa says, including those his company is invested in, such as the Wolfcamp, Permian and Barnett plays. 
In fact, in 2013, it is “likely” the Houston-based company will be “stealing some capital from the Permian and … Barnett combos” for company operations in the Eagle Ford and Bakken, Papa said. 
This story, by the way, is at odds of so much that has been published about the Permian lately (one example). It appears Papa, like Wayne and Steve, is skating to where the puck will be. Again.
Now some comments.

I wonder if he's forgetting about the Utica?

When I posted the earlier story about Papa stating only four plays were discussing, a reader noted that was in EOG's best interests. Well, of course.

However, in his most recent remarks, he is even dissing a couple of EOG plays. Interesting.

Another data point: Mr Papa retires retires in mid-2013.  For some CEOs there is not a lot of difference between fading away and retiring. Something tells me that Mr Papa is not going to fade away. I look for him/EOG to make a move in the Bakken. It's possible the move will be in the Eagle Ford, but two other data points to consider:
a) EOG has been relatively "status quo" in the Bakken for the past two years; predictable and not particularly exiting for a blogger or an investor; and,
b) the QEP/Helis deal raised the bar both in estimated value of Bakken assets and in urgency to acquire such acreage
Remember: updates of "all" Bakken players can be found at the 2Q12 earnings page.  EOG must be doing something right: in 2Q12, EOG beat consensus estimates by 18 cents.

As long as I'm rambling, two more data points:
a) it's hard for me to believe that Chesapeake won't sell its North Dakota acreage;
b) although Congress may sort it out later, there's no guarantee: don't forget the "fiscal cliff" which will impact the wealthy significantly
Disclaimer: this is not an investment site; do not make any investment decisions based on what you read at this blog. This is certainly not a recommendation to trade in EOG. It's just idle rambling by someone who gets a kick out of the Bakken.

Three Pages of Beautiful Photographs of Southwest North Dakota -- And, Yes, Even a Bakken Story

Link here.

These photos are from 2011, but I came across them while looking for stories about this year's event: the 10th annual Medora Balloon Rally.

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CarpeDiem on jobs, jobs, jobs ...

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From the front page of the LA Times (this is a dynamic link, and will change), at the very top, no editing:
Higher taxes on top earners would be a major 2nd-term goal for Obama
By Christi Parsons, Kathleen Hennessey and David Lauter
Other priorities would include Iran, healthcare and immigration. Jobs probably wouldn't be high on the list.
This link will take you to the story. Incredible, isn't it?

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Speaking of jobs, which the administration is not, here's an interesting story about a boom in Bakersfield, California. Regular readers probably already knew this:
The state's economic recovery has largely been concentrated on the coast, leaving behind much of the hard-hit San Joaquin Valley. But Bakersfield, perhaps best known for oil, agriculture and country music, has reclaimed an old title: boomtown.

Bakersfield has been adding population and jobs at a brisk pace and is a few thousand jobs from matching its peak employment level of five years ago. A price-fueled energy bonanza, low corporate operating costs and an advantageous location are contributing to the area's good fortune.

Employment has grown across many sectors, including manufacturing. Even construction, which suffered mightily statewide during the housing bust, has strengthened. And unlike many struggling municipalities, in Kern County officials have recommended a budget increase that would allow hiring of more than 150 people.
Here we go!
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Random data points flash across my mind:
  • 1917 to 1991: a country's potential was set back more than a century, and is still struggling
  • 2008 to 2016: another revolution in the making, albeit peaceful, and be elected leadership


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A reader sent me this story. It supplements an earlier EOG story: very important. In the latter link, Papa says there are only four plays worth discussing (the rest are all irrelevant): the Bakken, the Eagle Ford, the Permian, and the Barnett.

In this newest link, Papa has revised his opinion: there are only TWO plays that are important: the Bakken and the Eagle Ford. This is an incredible story -- everyone needs to read.
EOG Resource’s top executive Mark Papa raised a few eyebrows Sept. 4 when he told attendees of Barclays energy conference that only two horizontal liquids plays in the U.S. matter — the Eagle Ford and the Bakken. 
The rest are “insignificant” in terms of future U.S. production, Papa says, including those his company is invested in, such as the Wolfcamp, Permian and Barnett plays.  
In fact, in 2013, it is “likely” the Houston-based company will be “stealing some capital from the Permian and … Barnett combos” for company operations in the Eagle Ford and Bakken, Papa said.
This will be re-posted as a stand-alone post. It was sent to me by a reader: a huge "thank you." This story, by the way, is at odds of so much that has been published about the Permian lately (one example). It appears Papa, like Wayne and Steve, is skating to where the puck will be. Again.