Wednesday, March 6, 2013

Natural Gas Shale Wells Drilled Now May Be Viable Until 2030

Motley Fool is reporting:
Motley Fool .... some shale gas wells in the U.S. could remain commercially viable until 2030.
For Bakken oil wells, EURs and rate of return is more important than how long a given well lasts, but the general consensus is that Bakken wells will produce for 39 years.  The "Basic Analysis of the Bakken" accomplished some years ago suggested that wells will be drilled into the Bakken through 2030 and will produce through 2100.

China Looking To Buy Into North American Shale

With no confirmation of the story about Chesapeake selling its Bakken acreage that ran March 1, 2013, one starts to wonder about the story's veracity. However, this Bloomberg story might a) put it in perspective; and, b) explain what might be going on.
China National Petroleum Corp., the country’s biggest oil company, is seeking its first stake in the U.S. as Chinese explorers with $40 billion of cash try to join an energy renaissance unlocking billions of barrels of crude.
“We are currently studying” investing in U.S. oil, Jiang Jiemin, chairman of the state-run company, said yesterday at the National People’s Congress meetings in Beijing. Domestic rival China Petrochemical Corp. last month agreed to buy stakes in an Oklahoma field from Chesapeake Energy Corp. for $1.02 billion. 
Chinese oil companies using government loans want stakes in shale fields that are fostering the most crude production in the U.S. in 21 years and helping wean it off Middle Eastern imports. They’ll be guided by the experience of China’s CNOOC Ltd., whose $19 billion bid for Unocal Corp. was blocked by U.S. lawmakers eight years ago. CNOOC last month won U.S. approval for a $15.1 billion purchase of Nexen Inc., albeit with curbs on operating the Canadian company’s Gulf of Mexico fields in U.S. waters. 

EOG's Completion Design Is A Game Changer -- Mike Filloon

SeekingAlpha is reporting:
Over the past year, EOG has implemented a new completion design. It was first used in the Eagle Ford and Permian, and now it has found its way to North Dakota. In the Eagle Ford, EOG has used this and has a large number of short laterals with 24-Hour IP rates north of 3000 bopd. Its best completion, the Burrow Unit #2 produced 6331 bopd. In order to increase crude production it has not focused on long fracs but those that increase the surface area around the well bore. Essentially, it wants better fracs near as opposed to farther away as it allows the crude to flow in a radius around the well bore.
Another nice article by Mike Filloon. 

There's been a flurry of articles on well designs and completion design in the past few weeks. Along with "array" drilling in the Bakken, this is going to be quite a summer.

Fourteen (14) New Permits -- The Williston Basin, North Dakota, USA; An IP of 12,248 -- One Word: Unlikely!


March 8, 2013: The NDIC corrects the IP for #22194, see below; let's see how close I was; my "final" guess was 1,248 ... and the answer was .... drum roll .... 1,248. Yes!!!  It doesn't take much to make my day! Smile.

Original Post
Active rigs: 186 (steady, high side)

Fourteen (14) new permits -- 
  • Operators: Oasis (6), Whiting (5), Fidelity (3)
  • Fields: Gros Ventre (Burke), Zenith (Stark), Fryburg (Billings), Gaylore (Billings), Hoot Owl (Golden Valley), Cottonwood (Mountrail), Sanish (Mountrail)
  • Comments: Hoot Owl? Think Red River formation
Wells coming off confidential list were posted earlier; see sidebar at the right.

Producing wells completed:
  • 22935, 695, CLR, Salem 3-6H, Dollar Joe, t12/12; cum 16K 1/13;
  • 22194, 12,248, 1,248, QEP, Moberg 13-17/16H, Grail*, t2/13/ cum --
  • 22898, 462, Murex, Karen Michelle 13-24H, t2/13; cum 95 bbls (no typo)

*The Grail is good but not this good. An IP of 12,248 is not believable. More likely 1,248, but well file did not have data yet. For the "Helis Grail," it could be 2,248.

All We Have Are Tea Leaves, But Better Than Nothing: New Secretary of Energy; New EPA Chief

Bloomberg is reporting:
In their current jobs, both have supported natural gas, the production of which by companies such as Exxon Mobil Corp. and Chesapeake Energy Corp. has boomed with the adoption of a drilling technique known as hydraulic fracturing, or fracking .... and that’s proved divisive among environmentalists. 
From the linked article:
“In the very long run, very tight carbon constraints will likely phase out natural gas power generation in favor of zero- carbon or extremely low-carbon energy sources,” Moniz said while releasing an MIT report in 2010 about natural gas. “For the next several decades, however, natural gas will play a crucial role in enabling very substantial reductions in carbon emissions.” 
"For the next several decades?" That's beyond my investing lifetime. Probably my natural lifetime, also.

Moniz has backed expanded overseas sales of U.S. liquefied natural gas, something backed by companies such as Sempra Energy of San Diego and Dominion Resources Inc. of Richmond, Virginia, that are seeking export licenses. LNG is a commercial enterprise that the Energy Department regulates. A report he helped direct concluded, “the U.S. should not erect barriers to natural gas imports or exports.”
Those positions endeared him to industry, while drawing criticisms from groups fighting fracking.... 
But Moniz does want increased regulation on fracking.
Critics say fracking is fouling water supplies in communities from Pennsylvania to North Dakota and replacing one fossil fuel -- coal -- with another. Even before his pick was announced by Obama yesterday, Food & Water Watch, a Washington- based environmental group, circulated a petition against Moniz’s nomination.
Thinking of natural gas as a bridge to cleaner energy is a mistake, said Michael Brune, president of the Sierra Club. “We don’t think natural gas allows for increased use of renewable energy,” Brune said in an interview. “We should use as little of it as we can.”
Bottom line: another guy who likes more regulation but not a member of the fringe.

Random Look At Refiners: HollyFrontier, COP, PSX

Motley Fool is reporting:
What may be considered a great stroke of luck could potentially be one of HollyFrontier's greatest competitive advantages going forward.
Unlike large competitors Phillips 66 and Valero, which have a majority of their refining capacity in the Gulf of Mexico or on the coasts, HollyFrontier's five refineries are all located in the mid-continent, Rockies, and southwest regions, which puts them all smack-dab in the middle of the Mississippian Lime, Niobrara, Permian, and Uinta formations.
The linked article has three nice graphics; when you get there, note that the bottom-most graphic is of HollyFrontier.  The article goes on:
Second, most of these unconventional plays lack sufficient capacity. So E&P companies that have leveraged their entire portfolios into a single play -- think SandRidge Energy and its 1.85 million acres in the Mississippian Lime -- will need to rely heavily on local refiners to buy product. A bottlenecked market could lead to discounted prices for local crudes. Bad for E&P, very good for HollyFrontier.
As of right now, several of the younger shale plays, like the Mississippian lime and the Niobrara, have yet to deliver crude to HollyFrontier refiners, because the company's refineries are currently designed to handle Western Canadian Select blend and Christina Lake crudes. This is probably due to change, though. 
CEO Michael Jennings recently stated in a conference call that he believes the company will start to see opportunity from these basins within a year. What also makes this path so attractive is that Gulf refiners such as Phillips 66 and Valero seem more keen on processing heavy oil from the Canadian oil sands rather than mid-continent crudes because of the oil sands' similarity to its current feedstocks.

New York Farmers Will Probably Enjoy This Little Gem: The Bluegrass Pipeline; Meanwhile, New York Assembly Votes To Block Fracking Until 2015


March 6, 2013: New York Assembly votes to ban fracking until 2015
The New York State Assembly passed legislation on Wednesday that extends the moratorium on high-volume hydraulic fracturing in the state until May 2015 and requires further studies on the environmental impact of the practice better known as fracking.
A moratorium on fracking has been in place in the Empire State since 2008 due to concerns the process, which involves pumping chemical-laced water and sand deep below the surface to extract natural gas from shale, can contaminate water supplies.
The current legislation applies to the Utica and Marcellus shale gas deposits, some of the most significant in the country. It requires a full review process, including a new study to look at the potential public health impact.
Cue up Connie Francis.

Original Post

Another pipeline: this natural gas pipeline will take natural gas from infrastructure-constrained Pennsylvania and ship it to the US Gulf Coast, where this is an absolute boom of new petrochemical activity. This is quite incredible.

From Yahoo! In-Play:
Williams Cos and Boardwalk (BWP) to pursue joint development of NGL pipeline system to transport Marcellus, Utica mixed NGLs to growing petchem and export markets: Williams and Boardwalk Pipeline Partners (BWP) announced that they have executed a letter of intent to form a joint venture that would develop a pipeline project to transport natural gas liquids from the infrastructure-constrained Marcellus and Utica shale plays to the expanding petrochemical and export complex on the U.S. Gulf Coast, as well as the developing petrochemical market in the Northeast U.S.
The proposed "Bluegrass Pipeline" design would provide producers with 200,000 barrels per day of mixed NGLs take-away capacity in Ohio, West Virginia and Pennsylvania.
The proposed pipeline could be increased to 400,000 barrels per day to meet market demand, primarily by adding additional liquids pumping capacity. It would deliver mixed NGLs from these producing areas to proposed new fractionation and storage facilities, which would have connectivity to petrochemical facilities and product pipelines along the coasts of Louisiana and Texas.
Williams and Boardwalk are also exploring development of a new export liquefied petroleum gas terminal and related facilities on the Gulf Coast to provide customers access to international markets. 
New York state still bans fracking. New York farmers are looking across the New York/Pennsylvania state line at all those new tractors being bought, all those farmsteads being renovated; meanwhile New York state dithers, mostly raising taxes, banning Big Gulp, and hunkering down for this weekend's global warming wallop.

Another pipeline that does not need SecState approval.

Meanwhile, more Utica infrastructure, from same source:
Crosstex Energy agrees to invest $50 mln in new Utica Shale natural gas compression and condensate stabilization facilities: Co and Crosstex Energy, L.P. announced that the Corporation has joined with the former management of Enerven Compression Services to form a new company (E2) that will provide services for producers in the liquids-rich window of the Utica Shale play. The initial investment of approximately $50 million will include new natural gas compression and condensate stabilization facilities. This investment will complement the Partnership's assets in the Ohio River Valley, which encompass crude oil, condensate and logistics operations in the Utica and Marcellus Shale plays.

As noted above, the US Gulf Coast enjoying a resurgence in economic activity.

From same source:
Oiltanking Partners announces LPG dock expansion in connection with new Enterprise Products Partners agreement : Co announced an expansion of the Partnership's relationship with Enterprise Products Partners and plans to significantly increase its ability to import/export liquefied petroleum gas ("LPG") at its terminal on the Houston Ship Channel. In connection with the agreement with Enterprise, which runs through 2026, the Partnership will construct a new vessel dock and add infrastructure to existing docks with the capability of handling significantly more LPG vessels at multiple docks. The $44 million expansion is expected to be completed by the end of the fourth quarter of 2014.

How About 20% Recovery in the Bakken? -- Array Fracking


Later, 12:49 pm: I finally got a chance to see the linked article in the original post. This is a really nice article, putting everything together in one spot. It is of interest that all of this has been posted in bits and pieces earlier on the Million Dollar Way, some of it quite awhile ago, some of it very recently: a) the CLR graphic on 14 wells on one 1280-acre spacing unit; b) a trillion-bbl Bakken reservoir (903 billion bbls OOIP); c) the lower benches of the Three Forks; d) closer spacing of horizontal laterals; e) KOG's Smokey and Polar pilot projects; and, f) Whiting's six or seven downspacing pilot projects. 

Whiting, by the way, provided an interesting data point in their most recent earnings conference call, regarding spacing of horizontals in various locations around the Bakken.

The comments, as usual, are very interesting. XOM has said that their production will actually decrease this year and then increase 2 to 3 percent in the out years; compare that with the production increases expected for the Bakken-centric operators. Today, at Yahoo, the forward P/E for XOM: 11; OAS, 11; KOG, 10; CLR, 13; WLL, 11; CVX, 10, COP, 10.

Disclaimer: this is not an investment. Do not make any investment decisions based on what you read at this site.

In addition, the article did not address cost savings Bakken operators will start seeing this year due to myriad of factors. Having said all that, the linked article in the original post will bring folks up to speed. The author, Richard Zeits, says an article on KOG is forthcoming.

Original Post

A reader sent this in as a comment. It's important enough to re-post as a stand-alone post. Lots of detail, explanations. So many story lines. A huge "thank you" to the reader for alerting me to the article:
The March 5, 2013 Seeking Alpha article by contributor R Zeits entitled, “The Birth Of 'Array Fracking' in the Bakken” Below are a couple of short excerpts from this very long and informative post that indicate why IMHO this is a must read for any Bakken investor.

Bakken: The Downspacing Bounty And Birth Of 'ARRAY Fracking' - Mar 5 2013, 14:41, includes: CLR, COP, EOG, ERF, HES, KOG, MRO, NFX, NOG, OAS, QEP, STO, TPLM, WLL, WPX, XOM

What is the motivation behind the effort to downspace? According to Whiting Petroleum's CEO Jim Volker:

And so the idea here is to drill a series of pilots - and we're going to be doing that in both Hidden Bench, Pronghorn, Sanish, possibly Missouri Breaks as well - to go in and drill on higher densities, essentially doubling the density in the better reservoirs in there, TO DEMONSTRATE OUR ABILITY TO INCREASE THAT RECOVERY EFFICIENCY, get it up from 10% or 11% UP TO SOMEWHERE AROUND 20%.

And what that means is breaking up more rock.
And we don't believe that with the current spacing that we are on, that we are getting all of the oil that's out there. So that's really what this is all about.

The majors, Exxon Mobil (XOM) and Statoil (STO), and super-independents, ConocoPhillips (COP), Marathon Oil (MRO) and Hess Corporation (HES), as well as privately held operators - the companies that account for a large portion of drilling activity in the Bakken - rarely share sufficient details of their operation in the play. However there are multiple indications that the downspacing evaluation and deeper Three Forks testing by this group of companies is also ongoing.

See for the full article.
There are many, many story lines here. I can't even begin to think of all the posts that could come from this article. It looks like I will have a long, long weekend.

But to just get started: remember in the early days of the Bakken boom, folks were talking about 1 - 3% recovery? Among the amateur sites, MDW was one of the first to note that recovery looked a lot closer to 8% based on corporate presentations. Whiting confirms that in this conversation, suggesting they are already at 10%, and looking to 20%.

That would be doubling their recoverable reserves. 

Wednesday Links: Warren Buffett to BNSF -- Use Natural Gas

RBN Energy: Brent futures, pricing, part II.

WSJ Links

Section D (Personal Journal): the calendar of fast food

Section C (Money & Investing):

Section B (Marketplace): 
Huge article -- railroad tests switch to gas
BNSF Railway Co., one of the biggest U.S. consumers of diesel fuel, plans this year to test using natural gas to power its locomotives instead.
If successful, the experiment could weaken oil's dominance as a transportation fuel and provide a new outlet for the glut of cheap natural gas in North America.
The surplus, spurred by new technologies that unlock the fuel from underground rock formations, has sent natural-gas prices plummeting. That has prompted industries from electric utilities to tugboat operators to switch to gas. If freight rail joins the parade, it would usher in one of the most sweeping changes to the railroad industry in decades.
"This could be a transformational event for our railroad," BNSF Chief Executive Matt Rose said of the plan, which hasn't been publicly announced. Shifting to natural gas would "rank right up there" with the industry's historic transition away from steam engines last century, he said.
Transformational for the railroads? How about the natural gas industry? This is huge. And you know it's gonna work. 

Diesel for Warren's locos: $3.97 last year, probably trending up; natural gas, 48 cents at industrial prices, and probably trending down.


Wal-Mart is increasing the number of its smaller-format stores ... and making inroads. Local communities attempt to stop Wal-Mart by banning stores greater than so many square feet; it was only a matter of time that Wal-Mart decided to beat them at their own game.

Section A
Public university costs soar. North Dakota singled out -- look at the graphic at the linked story. Up 30%.

Speaking of the sequester, which we weren't, but harkening back to an earlier article the other day, from an op-ed today in the WSJ:
In its bid to make the sequester as painful as possible, the White House announced Tuesday it is canceling all visitor tours of the White House 'during the popular Spring touring season.' This fits President Obama's political strategy to punish the eighth graders visiting from Illinois instead of, say, the employees of the Agriculture Department who will attend a California conference sipping 'exceptional local wines' and sampling 'tasty dishes' prepared by 'special guest chefs.'

You have got to be kidding. After all those Obama speeches telling corporations to quit holding conferences in Las Vegas, the president shuts down the White House but sanctions government employees taking wine-tasting trips to Napa Valley. With regard to White House tours for eighth graders: I guess this is a 'democratic' move. Eighth graders in Williston could never afford this luxury; might as well make it "equal" for all. Incredible. He continues to come across as a angry young man with a chip on his shoulder. Slightly less than four years and counting.