Wednesday, February 27, 2013

Well Density in the Bakken; Horizontal Patterns in the Bakken; QEP Looking At Interference

Wall Street Cheat Sheet is reporting, excerpts from QEP earnings call, on cost:
Howard Weil: Couple questions on the Bakken, Chuck I think you talked about getting to $11 million or potentially below. Can you talk about where you are seeing the cost trends and kind of what’s the major effect and how low I mean can you get $10 million or where do you see the cost side going?  
Charles B. Stanley – President and CEO: When you said 10 million, Jim Torgerson started nodding his head. So, I’m going to say nine or less. Thank you for that, I’ll send you a gift card in the mail. So, I think several key avenues to driving down completed well cost.
On well density:
 I would tell you that we have de facto done that to the East on the reservation where we have drilled some fan-shaped pads because of the configuration of the pads in the lake bottom. So, we have drilled wells that are at the toe are well more than 80 acre spacing. But at the heel, the closest portion before the vertical part of the well, they are very close together because they all M&A from the same pad and have drilled out in a radio pattern from that pad. We are looking at the performance of those wells to see if we can see signs of interference. Obviously, it’s very difficult to determine exactly where in the wellbore we’re seeing interference or if we’re interference at all, but that is an example where we have drilled on closer density. From our original modeling of the acquisition on South Antelope and our analysis of oil in place versus recoverable oil, we think that the right well spacing as four wells per reservoir per 1,280 acre spacing, but obviously we remain open minded about increased density beyond that.

Motley Fool on The "Rig Count"

Regular readers know my opinion on "the rig count."

Here is Motley Fool's opinion:
As for the oil-directed rig count, while it started the year strong, it has declined every month since August. Meanwhile, the supply of crude oil has soared.
The primary reason for this has been incremental technological improvements that have allowed for greater efficiency in drilling.
For instance, Whiting Petroleum registered a massive reduction in drilling expenses thanks to a successful transition toward multi-pad drilling, which has allowed the firm to drill just as many wells but with fewer rigs. And numerous other operators have reported dramatic reductions in the number of days it takes them to drill and complete a well.
For instance, Kodiak Oil & Gas reported that the average number of drilling days from spud to rig release averaged between 20 and 25 days in the third quarter – a major improvement over an average of nearly 35 days a year earlier.

Chevron: Knee-Deep in Liquid Natural Gas -- SeekingAlpha

SeekingAlpha is reporting:
According to the Energy Information Administration, between now and 2030 global energy consumption is due to increase by 44% with oil and gas, along with coal, continuing to meet the largest part of that demand. And as demand for energy grows rapidly worldwide, natural gas, which is one of the cleanest burning fossil fuels, should play a critical role in supplying this demand. Most significantly, the International Energy Agency predicts demand for natural gas will grow by more than 67% by 2030.
Chevron Corp is pushing to become one of the world's largest producers of liquefied natural gas (LNG). With  three (3) LNG projects based in Australia and over $96 billion-net partnerships already invested, CVX is a leading natural gas supplier and liquefied natural gas operator in the Asia-Pacific region. Projects in the region are destined to supply some of the hungriest natural gas consuming continents on the globe, since Australia is just a stone's throw away from the demands of Japan and the rest of Asia.

XOM: Tying Up Loose Ends

Rigzone is reporting:
Exxon Mobil Corp. has won a legal victory in its effort to fight damages of about $1.5 billion stemming from a 2006 gasoline spill in Maryland.
In a decision released Tuesday, the Maryland Court of Appeals reversed more than $1 billion in punitive damages, awarded by a jury in 2011, and said residents and business who accused the energy giant of fraud hadn't sufficiently proven their case.
The court also reversed a large number of compensatory damages, which originally totaled about $500 million.
The case stems back to February 2006 when 26,000 gallons of gasoline leaked from underground storage tanks owned by Exxon Mobil at a fueling station in Jacksonville, Md. The gasoline moved into a water aquifer that supplied drinking water to many residents.

US Navy: $66/Gallon of Biodiesel Is Bad; But $4,455/Gallon of Jet Fuel?

Here's what the US Air Force thinks about such craziness, in an article at The Oil Drum.

I don't think the military will have any trouble finding areas to "cut" if the sequester kicks in.

This is what the US Navy spent for biodiesel fuel (this is per gallon in the far right column):

Feel free to send a copy to Senator Harry Reid, SecDef Hagel, or President Obama, if you think any of them is having difficulty finding places to cut spending. Three words: low hanging fruit.

Yes, Albemarle has a website. I didn't spend much time looking at it. Check out ALB's five-year share price.

Interestingly enough, the US Navy also brought us the $600 toilet seat.

Two Wells Coming Off the Confidential List Thursday

  • 22686, 771, Hess, EN-Jeffrey A-155-94-2734H-1, Alkali Creek, 4-sec sp; t1/13; cum --
  • 23301, drl, BEXP, Timber Creek 13-24 2H, Alexander,
Yup, just those two.


The Jeffrey well was spud August 28, 2012; began the curve September 16; and reached total depth on September 24. No problems. The 2560-acre spacing unit is vertical, the four sections running north to south (or south to north).

CLR's 4Q12 and Full Year Financial Report

From the press release:
Significant fourth quarter and full-year 2012 accomplishments included:
  • Net income of $1.19 per diluted share for the fourth quarter of 2012, compared with a net loss of $0.62 per diluted share for the fourth quarter of 2011;
  • Full-year 2012 net income of $739.4 million, or $4.07 per diluted share, a 72 percent increase compared with net income of $429.1 million, or $2.41 per diluted share, for 2011;
  • Record EBITDAX for the fourth quarter of 2012, which was 44 percent higher than the fourth quarter of 2011 and 21 percent higher than the third quarter of 2012;
  • Record production of 106,831 barrels of oil equivalent per day (Boepd) for the fourth quarter of 2012, a 42 percent increase from fourth quarter 2011 production.
Total production in February 2013 is on track to exceed 120,000 Boepd.

As a result of the Company's improved differential to NYMEX, Continental has reduced its 2013 oil differential guidance range to $5 to $7 per barrel, compared with previous guidance of $8 to $11.
Continental reported net income of $220.5 million, or $1.19 per diluted share, for the fourth quarter of 2012. Net income for the quarter included several non-recurring items, including a $42.7 million after-tax gain on sale of assets and a $4.3 million non-cash unrealized gain on derivatives. Partially offsetting these items were two after-tax adjustments – a charge of $18.1 million for property impairments and a small charge related to the relocation of the Company's headquarters to Oklahoma City. Without these items, adjusted net income for fourth quarter 2012 was $191.8 million, or $1.04 per diluted share, an increase of 18 percent compared with adjusted net income per share of $0.88 per diluted share for the fourth quarter of 2011.

Continental reported full-year 2012 net income of $739.4 million, or $4.07 per diluted share, an increase of 72 percent over net income of $429.1 million, or $2.41 per diluted share, for 2011. Adjusted net income for 2012 was $3.36 per diluted share, without the effects of gains on sales of assets, non-cash unrealized gains on derivatives, property impairment charges and relocation expenses.
So, what did "the market" think of this? Up 2% before the close; up almost 5% after hours.

Kent sent this in from the press release: the second TF2 well is even better than first
Continental's reported its second 3-Forks well (Angus 2-9H-2) in the second bench with initial production of 1,556 boepd, substantially better than the first (Charlotte 2-22H at 1,396 boepd). In what was a 27-mile step-out well, this should arguably strengthen confidence in the viability of deeper benches of the Three Forks as providing a second development area.
Separately CLR has initiated the first of four increased density pilot program targeting the middle & lower benches with 3 wells completed and 2 currently being drilled. Encouraging results from these tests could significantly increase future reserve bookings through down spacing. CLR currently has less than one well per 1280 acre spacing on average versus 4-8 wells per zone required for full development of the field.
Kent asked whether the "estimate of 50,000 wells was before the lower benches of the Three Forks." See this post.

Five (5) New Permits -- The Williston Basin, North Dakota, USA

Active rigs: 181 (steady)

Five (5) new permits --
  • Operators: BEXP (4), CLR
  • Fields: Todd (Williams), Cedar Hills (Bowman)
  • Comments: The four BEXP Todd oil wells will be part of the Field Trust
Wells that came off the confidential list were posted earlier; see sidebar at the right.

A producing well is now completed:
  • 23393, 943, XTO, FBIR Baker 34X-25F, Heart Butte, t1/13; cum -- 


A Note To The Granddaughters

A long time ago, in another life, far, far away, I was awarded a low-interest-rate loan through the Alva J. Field Trust to help pay for college. Superintendent Leon B. Olson was somehow involved. I was quite fortunate to get the scholarship, and over time, I paid back the entire loan. Today, I see that BEXP's four permits in the Todd oil field are for the "Field Trust." I'm sure it is the same trust.

If history is any guide, these BEXP wells should be a great asset for the Field Trust.

Just one more way the Bakken is making a difference for so many. 

By the way, the only superintendent I really "knew" while growing up in Williston was Leon B Olson. I'm glad to see The Bismarck Tribune has not put this article in the archives, that it is still available on-line. It is impossible to overstate how much I thought of Mr Olson. He was truly incredible on so many levels.  To me, he was the "John Wayne of Public School Superintendents" in stature, sagacity, speaking, horse-riding skills, and love of the outdoors.

I do think he would have had mixed feelings about what the Bakken has brought to western North Dakota.

There are a handful of folks I have met over the years whom I will never forget, and Mr Olson is on that short list. Directly and indirectly he made a huge (positive) impact on my life.

Solar: Staggering -- There Goes The Sun

Start with The Oil Drum: The Price of Solar Power, posted February 26, 2013.
All across Europe, feed-in tariffs and subsidies for solar power are being cut or even scrapped. In Portugal and Spain, these actions are justified with the debt crisis, even though they expand these states' trade deficit. This month the Spanish government took a decisive move to scare investors away and expel most renewable energies from the electric grid, particularly solar. 
Inside that linked Oil Drum article is a Reuters article, posted February 14, 2013.
Foreign investors in renewable energy projects in Spain have hired lawyers to prepare potential international legal action against the Spanish government over new rules they say break their contracts.

The Spanish Parliament approved a law on Thursday that cuts subsidies for alternative energy technologies, backtracking on its push for green power.

That measure, along with other recent laws including a tax on power generation that hit green energy investments especially hard, will virtually wipe out profits for photovoltaic, solar thermal and wind plants, sector lobbyists say.
Then, MarketWatch: solar stocks whacked for second straight day.
There goes the sun. Investors took a club to solar stocks for a second straight day Wednesday following First Solar’s disappointing outlook and Trina Solar’s weak fourth-quarter earnings.
In Wednesday morning trade, First Solar tumbled 17% to $26.06. SunPower dropped 9% to $10.63. Trina Solar slid 4% to $4.05. SolarCity declined 4%.
The Guggenheim Solar ETFtan retreated 3% to $17.83, while the Market-Vectors Solar Energy ETF lost 3% to $41.35.
Solar stocks had a heady start to the year, far outpacing the broader U.S. market. But those gains are waning as industry executives warn there still are too many solar panels in the market and no let-up in aggressive price pressure to win new business.
Barron's: First Solar disappointment hammers Chinese solar stocks.

Motley Fool: First Solar showing signs of fatigue.

Disclaimer: this is not an investment site. Make no investment decisions based on what you read at this blog.

EOG and The Eagle Ford -- SeekingAlpha

Link here to

From the linked article:
The increases from 4% to 6% to 8% in recovery factors has all related to what will be recovered through primary development. The message that I see through this industry is that secondary recovery such as natural gas injection or waterflooding will be the really big prize.
Petrobakken which is a company that I follow very closely is already well into a natural gas injection secondary recovery project on its Bakken property in Saskatchewan. Petrobakken (and its main competitor Crescent Point Energy) both believe that secondary recovery will almost double the amount of oil recoverable.
The beautiful thing about the boost in recoveries that will come from secondary recovery efforts are the economics involved. For secondary recovery there is no additional land cost and a huge percentage of the infrastructure is already in place from primary recovery efforts.
A barrel of oil produced through primary or secondary recovery techniques will both sell for the same price in the market. The cost of producing that barrel using secondary recovery might cost half of what producing a primary barrel did.
For newbies, when the Bakken boom was first beginning, "experts" talked of 1 - 3% recovery of original oil in place (OOIP) but it was obvious from initial reports that operators were easily getting 4% and MillionDollarWay posted early that 8% recovery was being seen and/or being reported (directly or indirectly) by some operators. 

8% of 500 billion bbls OOIP = 40 billion bbls.

8% of one trillion bbls of OOIP = 80 billion bbls.

Primary production.

I Don't Care For Motley Fool All That Much -- But Then This -- The Bakken Is A Beast

Motley Fool is reporting.

I generally don't care for the non-subscription posts on Motley Fool. The articles are generally short, superfical, and teasers for their reports. Having said that, the linked article has some interesting data points. The most important data point: the estimated recoverable oil in the Bakken. It might be in CLR's corporate interest to opine that the middle Bakken and the upper Three Forks could have 24 billion bbls of technically recoverable oil, but this is interesting:
Although a 2008 USGS study estimated the Bakken's recoverable reserves at 5 billion barrels, the CEO of the American Petroleum Institute recently estimated that there are 20 billion barrels in the Bakken.
Again, it is my understanding that these estimates are of the middle Bakken and the upper Three Forks. To the best of my understanding, it does not include the lower benches of the Three Forks. When one includes the lower benches of the Three Forks, the number is much, much higher.

The Motley Fool continues:
Takeaway capacity and problems with low prices are limiting proven reserves in the Bakken, but the Enbridge mainline extension with a Bakken spur will provide pipeline capacity, as will the Keystone XL pipeline from Canada. Rail investments, such as those spearheaded by EOG Resources, are additional positive signs.
Note that reserves can only be proven when they are commercially viable. Better takeaway capacity should bump prices up and hence bump reserves up, too.
Furthermore, if Valero, Tesoro, and Phillips 66 have their way with their rail investments, Bakken oil may supplant pricier Alaskan and Brent crude in both East Coast and West Coast refineries.
In short, the Bakken is a beast.

Big Decline In Gasoline Inventories Over Last Week -- CNBC Reporting

Heard on CNBC, there could be errors:
  • Oil inventories rose less than expected; oil inventories rose 1.1 million bbls; analysts had expected a rise of 2.6 million bbls.
  • Distillate inventories were up  0.5 million bbls.
  • But most interesting: gasoline inventories were down 1.9 million bbls (I believe she said "bbls").
She also referenced the huge Motiva refinery in Port Arthur, a 50-50 joint venture between Shell and Saudi Arabia. By the way, that Motiva refinery might account for increasing Saudi imports that will be reported by the government later today. From a December 3, 2012, post:
As part of the recently completed Motiva 325 Mb/d refinery expansion project, Sunoco built 2 MMBbl of crude storage for Shell and a new 30-inch connecting pipeline between Nederland and the refinery. The $10 B Motiva expansion project was delayed for 6 months by damage to the new crude distillation unit but is expected to come back online this week ( first week of December 2012) and increase the refinery capacity to 600 Mb/d.
I would assume oil from Canadian oil sands would compete with oil from Saudi Arabia for this refinery. 

Your Federal Government At Work: This Is Priceless

Bloomberg is reporting, data points:
  • the bureaucratic error occurred under President Clinton
  • Gulf of Mexico leases at issue were signed from 1996 - 2000
  • followed on the heels of a 1995 law intended to encourage drilling by dropping fees when oil prices were low; and reinstating them when prices rebounded (floors and ceilings)
  • bureaucratic error: leases signed in 1989 and 1999 failed to include price thresholds that would trigger royalty payments when prices rose
  • "100s of producers" benefited from this oversight
  • top winner: CVX -- avoided $1.49 billion in royalties; out of $2.62 billion total of all company royalty avoidance
Now, wouldn't you think the courts would agree that this oversight needed to be corrected? Nope, the Supreme Court blocked the government from collecting royalties on these leases. Wow.

Interestingly enough, the industry raised the issue.
“We renegotiated these leases at the time that the concerns were first raised,” Davy Kong, a spokesman for ConocoPhillips, said in an e-mail. “That agreement terminated when the courts ruled that under the law authorizing royalty relief -- the Deep Water Royalty Relief Act of 1995 -- the department did not have the authority to impose price triggers. ConocoPhillips accepts the court’s decision and has no further plans to address the issue.” 
And it gets better. You all know about "leases held by production." It is estimated that the five companies who profited most from this bureaucratic oversight may yet produce the equivalent of 1.6 billion bbls of oil. And no royalties to be paid.

The Bush government, in 2006, asked that the companies voluntarily re-negotiate the leases.

Apparently that offer is still on the table. As my daughter would text, LOL. 

[For "anonymous," if you want to defend the government's actions, write your congresswoman. Or the Supreme Court.]

Ethane Rejection


February 27, 2013: if folks want to see how low price of ethane and propane are affecting the industry in real time, read pages 5 and 6 of ONEOK 4Q12 earnings call transcript.  ONEOK says things will improve when the price of ethane and propane improve (rise in price). Everything I've read suggests that things will get worse (lower ethane and propane prices) before they get better -- and it could last a long, long time.

Original Post 

Yesterday, a reader sent in a great comment on "ethane rejection." RBN Energy has also written extensively on this subject. For those who missed it, I highly recommend you look at the linked post, and, if you have time, explore the site for RBN Energy stories on "ethane rejection." It's a huge story for investors and the US economy. There will be winners and losers. And plenty of investing opportunities.

The Rise in the Price of Gasoline Continues

Long rambling on CNBC, again, about another rise in the price of gasoline. Cue up Connie Francis. And this rise in gasoline has occurred even as WTI has dropped from almost $100 to now, almost $92. Usually when oil drops this much, the neighborhood service station lowers her price on regular gasoline. That hasn't happened this week.

Nationwide average: $3.75. I've talked about the "average" in the past. Doesn't tell the real story. This is where one should follow price of gasoline: California (Los Angeles, specifically); Chicago; and, New York City. Los Angeles would love to see $3.75 gasoline.

California Girds for Electricity Woes -- WSJ: California is Weighing How To Avoid A Looming Electricity Crisis That Could Be Brought On By Its Growing Reliance On Wind And Solar Power

The Wall Street Journal is reporting, three words: "no plan bee."

(I think of The Oil Drum story on the Precautionary Principle which has a lot more relevance than it's "Red Queen" story. Also relevant to this article: Europe's renewable energy woes.)

From the linked article:
Regulators and energy companies met Tuesday, hoping to hash out a solution to the peculiar stresses placed on the state's network by sharp increases in wind and solar energy. Power production from renewable sources fluctuates wildly, depending on wind speeds and weather.
California has encouraged growth in solar and wind power to help reduce greenhouse-gas emissions. At the same time, the state is running low on conventional plants, such as those fueled by natural gas, that can adjust their output to keep the electric system stable. The amount of electricity being put on the grid must precisely match the amount being consumed or voltages sag, which could result in rolling blackouts.
And then this:
Electricity systems need some surplus, so they can cover unexpected generator outages or transmission-line failures, but having too much can depress the prices generators can charge for electricity. In part because of low power prices, many gas-fired generation units aren't profitable enough to justify refurbishments required by pending federal regulations under the Clean Water Act. That means they are likely to be shut by 2020, adding to the state's power woes.
For investors only, speaking  of solar, one of two biggest decliners on today's market:
First Solar Inc.  shares fell 15%. The solar-energy-farm developer estimated first-quarter sales below Wall Street estimates after hours on Tuesday.
Enbridge has a big position in solar. After hours Enbridge fell significantly last night; I suggested it was due to imminent Keystone XL announcement; with huge hit at First Solar, I'm wondering if that might not be the reason.  [Update: with regard to "huge" after-hours drop in ENB yesterday; never mind. ENB is up slightly from yesterday's close. The after-hours drop appears to have been a one-off, but we will see how the rest of the day goes.] Be that as it may, the linked post has always been one of my favorite posts, putting the pieces together regarding Enbridge: pipelines, rail, wind, solar. With pipelines, I assume storage also.

Disclaimer: this is not an investment site. Make no investment decisions based on what you read here. 

The Math Doesn't Add Up

The very first time I posted about wind, I mentioned that with regard to wind, "the math doesn't add up." That was not an original thought; it was what one of the most knowledgeable energy experts had said: with wind (and even more so with solar): the math does not add up.

Now, Harvard has come to the same conclusion. In a report you won't find in the mainstream media, a Harvard study suggests that, yup, with regard to wind, the math does not add up. From CarpeDiem, here's the link.
“It’s clear the theoretical upper limit to wind power is huge, if you don’t care about the impacts of covering the whole world with wind turbines,” says Keith. “What’s not clear—and this is a topic for future research—is what the practical limit to wind power would be if you consider all of the real-world constraints. You’d have to assume that wind turbines need to be located relatively close to where people actually live and where there’s a fairly constant wind supply, and that they have to deal with environmental constraints. You can’t just put them everywhere.”
“The real punch line,” he adds, “is that if you can’t get much more than half a watt out, and you accept that you can’t put them everywhere, then you may start to reach a limit that matters.”
But with enough tax credits, the future for wind farms is unlimited. Except in Europe.

Another Great Way To Start Off the Day -- RBN Energy on Bakken Crude-By-Rail Terminals

RBN Energy with part II of its look at the Bakken crude-by-rail terminals.

Wells coming off the confidential list have been posted. I think OXY has hit a personal low; if not, very close.  And folks worry about setback rules to minimize waste.

The Wall Street Journal has not had a lot the last few days worth linking; let's see if tomorrow is different:

Section D (Personal Journal):

Section C (Money & Investing):
For investors: the day of divergence for US, Europe (link to same story in WSJ, but not a WSJ link); US markets rise; Europe all red; I caught a snippet (less than 30 seconds of Jim Cramer at some point yesterday, and I think he is exactly right: folks focused on Italy, are missing much bigger stories in the US; and clearly a) the energy story; and, b) the ethane rejection story are just two stories that are going to separate the US from Europe at an even faster pace.

Section B (Marketplace):

Section A:
Quietly, but on the front page, Hagel confirmed as SecDef; no link; story everywhere
Internet gambling scores its biggest win; New Jersey approves; huge
Page 3 and we've talked about page 3: California girds for electricity woes; I follow this story closely for two reasons: a) California's energy policies often lead the Fed's energy policies; and, b) with energy investments in California, I have a dog in this fight -- and interestingly enough, California has proved to be very, very rewarding. More on the linked article at this post.

Bernanke: easy money "forever." No link; story forever. For investors only.

Kerry hits bumpy road in world diplomacy; dog-bites-man story; it looks like the president has two winners at the top: SecDef Hagel and SecState Kerry. Huge fodder for talk radio. Speaking of which, I don't think I've listened to Rush in over a year, maybe longer. I quit listening to H. many, many years ago. And #3, what's his name...... overweight, and getting heavier....Fox contributor if I recall...left to start his own show....anyway, I forget his name....reminds me of the Christmas Story movie about the BB gun. I don't miss any of them. But I digress.

Remember all my posts peri-election about foreshadowing the Great Recession of 2013. It still wouldn't surprise me -- to have a recession -- but I am much more optimistic (see above: a) energy; b) ethane rejection). I'm looking for a huge 2013. But having said that, a WSJ op-ed: was the story about Wal-Mart sales in February a harbinger of a recession later this year?

Op-ed: NASCAR's creative destruction. I read the editorial. I learned a bit, but didn't really get excited about the point the author was trying to make.

A must-read: The sequester revelation -- the president -- that would be Mr Obama -- has the legal power to avoid spending-cut damage. But I thought everyone knew that. And, oh, by the way, regardless of what Nebraskan faux environmentalists say, he also has the power to approve/disapprove an international pipeline permit.

Another long op-ed on the sequester. As soon as I saw the author, I did not read the article.

A pretty good day for the WSJ.

And now, from the Daily Mail: Miss Teen USA gives up her crown -- porn video surfaces. She is said to have denied the video earlier, but apparently she misspoke. Perhaps she didn't understand the question. However, many, many story lines if one was so inclined. But, as it is, I digress too much as it is.  Wanna bet her video goes viral -- wherever such videos go viral (speaking of which, HIV, comes to mind).