Friday, November 15, 2013

Three Observations On Today's Director's Cut

Three observations on today's Director's Cut.

1. Despite the record number of producing wells, a new natural gas production record, and a new crude oil production record, the percent of natural gas flared in North Dakota in the most recent reporting period actually decreased over the previous month.

2. This comment from the director:
Crude oil takeaway capacity is expected to be adequate as long as rail deliveries to coastal refineries keep growing
Is the director telegraphing his concerns over the recent CBR derailments/spills, or is he seeing something the rest of are not seeing? With regard to takeaway capacity, I only know what I see based on corporate presentations and past NDIC comments. [Update: see first comment -- I think the reader has "hit the nail on the head": BNSF CBR is competing with grain shipments, etc. As the economy recovers, rail other than CBR will also continue to increase, putting pressure on rail. Great comment.  The reader provides this link for more:,3233439.]

3. Finally, this. Regular readers know that larger operators hedge and collar the prices on the crude oil they contract to deliver on a specific date. The floor for these hedges and collars has been between $90 and $95 based on the corporate presentations I have reviewed. This means, that while the contract with this hedge/collar and floor is in effect, the Bakken operator will get "at least" $90/bbl upon delivery, regardless of the spot price of oil. Hold that thought.
The October sweet crude price quoted by the director: $85.

Today's sweet crude price quoted by the director: $71.

If an operator runs into a production glitch and can't meet the delivery contract, the operator can buy crude oil for the spot price of $75 and sell it to the refinery for $90. It's been my impression that quarterly earnings are often adversely affected when the spot price of oil has been higher than the hedge/collar/floor for which the operator has contracted.

This is very, very idle chatter. I am way beyond my comfort level and expertise but per my "disclaimer/welcome" I will throw it out there just for the fun of it. My thinking could be very wrong.
Update: Don points out, in response to the above, that the $71 would be after trucking/local pipeline/rail expenses have been deducted, so the $71 is probably the net Bakken operators would get for spot. Don is correct; I am wrong; I had forgotten those pesky little transportation costs.
North Dakota farmers, by the way, are very, very familiar with similar issues involving grain.

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or what you think you may have read here. 

Despite the precipitous fall in the price of oil (NYMEX/WTI) from $104 to $94 over the past few weeks, almost all oil and gas companies I follow are "green" today, and some by a significant amount.

In addition, regular readers know what RBN Energy has to say about "netbacks" (CBR) for Bakken operators (the WTI-Brent spread -- the wider the spread, the better for CBR); and, about the reason for the recent decline in the price of oil, and what it likely means.


  1. He may be worried about how much more rail deliveries to the coasts can increase at this point because the BNSF line from Minneapolis to Spokane, and Spokane to either Seattle or Portland, is struggling to cope with the present amount of traffic. With now being the prime time for shipping grain and consumer products (think Christmas presents), any additional crude oil train added to the mix just brings the railroad that much closer to a complete breakdown, the likes of which the country probably hasn't seen since a Union Pacific debacle between El Paso and Los Angeles in the late 90s that left the the company's relationship with shippers and investors damaged for years. Not that BNSF isn't still trying to ramp up the crude shipments, though. Last week, the entire BNSF network hauled 10,695 carloads of petroleum, the largest one-week total in the railroad's history.

    There's some more insight about the current BNSF situation from some employees in the know on the first page of the thread at,3233439

    1. Great comment. It's always interesting to see what those in the trenches are seeing.

    2. I've also noted your comment in the post itself; easier to find / search. A lot of folks may not read the comments. Thank you very much for taking time to post a great comment.