Sunday, May 12, 2013

Platt's: What Is North Dakota Going To Do With All That Oil Money?

Platt's is blogging
It’s an enviable position for a state’s government—not only to be rolling in dough but having more dough to roll in than your wildest dreams.
The state of North Dakota, which began contributing to its newly-created Legacy Trust Fund from oil and gas taxes in July 2011, has already exceeded by 63% its initial target of having $618 million in its coffers by mid-2013—thanks to the state’s seemingly bottomless Bakken Shale oil field.
The Fund, which collects 30% of the state’s oil and gas revenues, is now tilting toward a revised target of $1.2 billion by this July. As of February 28, the Fund contained $1,005,676,512.
From the projected $1.2 billion target as of June 30, 2013, state officials now project the Fund to contain $2.983 billion exactly two years later.
$3 billion - $1 billion = $2 billion "exactly two years later." Hmmmm....$1 billion/year. It took two years to get to the first $1 billion. Now it's $1 billion/year.

So, Any Thoughts On The Price Of Oil Tomorrow? And A New Poll


May 15, 2013: Another story supporting my thesis that the Saudis are increasing production in the face of adequate demand. CNBC is reporting
The idea of an energy-independent United States-thanks to a revolution in the way North American shale is harvested-is reigniting vociferous debate about what it could mean for global markets, and especially the oil-rich Gulf states of the Arabian Peninsula.
"Reduced demand for oil from the US could undermine the oil price globally, thereby placing pressure on regional budgets which are increasingly reliant on the price of oil staying firm," Tim Fox, chief economist at Emirates NBD, Dubai's largest bank, explained to CNBC.
A downside pressure on prices would arguably come at an unfortunate time for countries like Saudi Arabia, still the world's top oil exporter, where government spending has risen in order to help keep the turmoil affecting the broader Middle East from hitting the country domestically. Saudi Arabia's budget is directly linked to the global price of oil.
My thesis is this: the Saudis want to remind folks who the "big man on campus" is. They will increase production, putting pressure on Canadian oil sands. I think the Saudis are honest when they say they want a stable price for oil. Canadian oil selling at a huge discount is not a "stable oil price" in the eyes of the Saudis.

May 14, 2013: North American shale revolution is displacing OPEC. Bloomberg is reporting:
The U.S. shale boom will send “shockwaves” through the global oil trade over the next five years, benefiting the nation’s refiners and displacing OPEC as the driver of supply growth, the IEA said.
North America will provide 40 percent of new supplies to 2018 through the development of light, tight oil and oil sands, while the contribution from the Organization of Petroleum Exporting Countries will slip to 30 percent, according to the International Energy Agency. The IEA trimmed global fuel demand estimates for the next four years, and predicted that consumption in emerging economies may overtake developed nations this year.
“The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15,” the Paris-based adviser to 28 oil-consuming nations said in its medium-term market report today.

The development of U.S. shale resources, enabling the nation’s highest level of energy independence in two decades, is creating a “chain reaction” in the global transportation, processing and storage of oil that may escalate as other countries try to replicate the American oil boom, according to the IEA. Crude futures for settlement in 2018 are trading at a discount to current prices, signaling expectations for increasing supplies and constrained demand.
Original Post

Two data points:
Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read at this site or think you read at this site.  


Time for a new poll. See linked story above.

But first the results of the current polls:

Should North Dakota charge a wind energy production tax:
  • yes: 65%
  • no: 35%
How will the president announce his Keystone XL decision:
  • in a long speech: 11%
  • in a press conference: 11%
  • through his press secretary: 8%
  • through a press release: 70%

Now, the new poll: why do you think OPEC boosted output to a 5-month high? See linked story above.

Some background:
The linked article suggests there is more than an adequate global supply of oil. Saudi says they increased output to ensure the price of oil remains stable. Japan is importing record amounts of oil ever since the nuclear accident. Japan is the 3rd biggest user of crude oil in the world; its 2012 increase in crude oil imports was the highest in nine (9) years. Some have opined that Saudi is increasing production in anticipation of the Syrian civil war spreading throughout the Mideast, disrupting the flow of oil exports. Others suggest that Canada is close to panic, not being able to get its Alberta oil to market; it already sells at a discount which questions whether continued production is economically feasible; increased OPEC output could be the death knell of Canadian oil sands; folks have suggested that OPEC is concerned about the North American oil/energy revolution. 
So, why do you think OPEC continues to increase oil production despite signs of adequate supply?
a) OPEC wants stable oil prices
b) OPEC needs the revenue
c) Saudi anticipates production interruption due to war
d) Japan's imports explain it
e) OPEC wants to hammer North American production
f) OPEC wants to show it still controls the price of oil
g) other

Must Reading For Those Following The Bakken: Platt's Weekly Wrap-Up: The WTI/Brent Spread And How It Is Afffecting The Bakken; Imports Vs US Production: And Then This: The Tea Leaves Suggest, As Of Right Now, The Keystone Would Be Approved If A Decision Had To Be Announced

Fascinating reading. At Platt's.

Sometimes it is nice that Joe Biden is so talkative. Maybe it would be "fun" to have him as president; he would certainly be less dour than the current president. "Dour": I haven't used that word in a long time. And he would be better looking than his most likely Democratic challenger.

Platt's has an interesting point to make:
Ultimately, The Barrel has argued repeatedly that what matters is a country’s net imports of crude and products. If the US refining industry is bringing in crude that it processes and ships out as higher-value products, that doesn’t count against a country’s import dependence.
That is why I don't get excited about the US banning oil exports.

As long as I'm rambling: when I am in "my investment arena," I would be against permitting the Keystone XL. All my past arguments "for" the Keystone have been in the "political arena." At least that's my story now and I'm sticking to it. If my story has changed, there have been less than 12 iterations of changes, and any changes have simply been sylistic, to quote Art Carney.

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

By the way, Mr Biden was in the minority on Iraq also when he suggested Iraq should be broken up into three factions (Shiites, Sunnis, and Kurds) under a Federalist government. His suggest to make Louis Farrakhan, President Obama, and Dick Cheney (the former head of Halliburton) honorary presidents of the three factions, respectively, was probably a bridge too far.

That last line about Farrakhan, Obama, and Cheney is not true; I made it up. At least, as far as I know, it is not true, but then "knowing" Mr Biden, anything's possible, I suppose.

A Note To The Granddaughters

I just sent the following e-mail note to my wife and our older daughter:
If you do not know who Freeman Dyson is,

He was never awarded a Nobel Prize, but I bet he came close. He was among the greats.

I am reading his memoirs: it begins --
A small boy with a book, high up in a tree. When I was eight years old somebody gave me The Magic City by Edith Nesbit. Nesbit wrote a number of other children's books, which are more famous and better written. But this was the one which I loved and have never forgotten. I did not at the age of eight read deep meanings into it, but I knew that it was somehow special. The story was a coherent architectural plan, covered with a surface frosting of crazy logic. The Wizard of Oz was the other book that I used to read over and over again. It has the same qualities. An eight-year-old already has a feeling for such things, even if he spends most of his waking hours climbing trees. The Magic City is not just a story about some crazy kids It is a story about a crazy universe. What I see now, and did not see as an eight-year-old, is that Nesbit's crazy universe bears a strong resemblance to the one we live it.
I will always have vivid and wonderful memories of Arianna climbing trees, and reading books while in the tree, along with me.

Kiri, thank you for letting me go tree climbing with Arianna. I return at the end of May. Arianna and I might have one or two more opportunities to climb trees and read books.

Wells Coming Off The Confidential List Monday; EOG, Whiting With Huge Wells; Also With Good Wells: Zavanna, ERF, And Fidelity

When you look at the wells below, some things to note:

1. Look at EOG's Fertile well, #22091. It is located in Parshall oil field. The Parshall oil field, when the Bakken boom began was (almost?) 100% 640-acre spacing. Now, the field is almost covered with overlapping 1920-acre spacing units. There are no -- repeat, no -- 2560-acre spacing units in the Parshall oil field, as far as I can tell. It appears most of the 1920-acre spacing units are L-shaped; there are very few lay-down or stand-up 1920's. An exception: #20037, #20038, #23958 which all run under the river; those three are "long reach" wells, over between 22,000 and 25,000 feet long (#23958 is still confidential). They are huge wells. The newest 1920-acre spaced well will be slightly longer than a standard long lateral, but not much. It is sited in section 4 and will end in section 10, and barely run through the southwest corner of section 3. One could argue it's nothing more than a "1280" except it picks up the oil that would be left behind in the corners of three sections if overlapping spacing was not allowed (in fact, it looks like it may come very, very close to the northeast corner of section 9 which is not in the spacing unit). The NDIC GIS map is a bit confusing because the spacing units don't line up with 3, 4, and 10, being a 1920-acre spacing unit. The Fertile well is still confidential, so I could be wrong on this, but that's how I see it. [After the well came off confidential: sections 3 / 4 / 10 -151-90.] The 1920-acre spacing unit in this area was #18844. If #22091 was drilled to pick up the oil that would have otherwise been left in the corners of three or four sections, this is a great argument for these overlapping units. Yes, one could have accomplished the same thing with small overlapping units, assuming the oil companies would have drilled on small spacing units.

2. The Whiting well should be a huge well for a Madison well (#22634). [updated below]

3. There was no production data for Slawson's Waterbondwell, but it should be huge when it's finally reported. [updated below]

4. I don't associate Foreman Butte as a particularly interesting field, so it's nice to see Zavanna with a huge well there. I think some folks will be surprised by how good Fidelity's Corpron well is going to be.

5. True Oil targets the Madison in Red Wing Creek, mostly vertical wells, so it will be interesting to see what this horizontal well is all about. It's other horizontal well in this section, a Madison well, was not particularly interesting.

So, here are the wells that should be reporting initial production numbers tomorrow.

Remember: the wells that came off the confidential list last Friday still need to be reported:

Monday, May 13, 2013
22091, 537, EOG, Fertile 51-0410H, Parshall, 50 stages, 10.4 million lbs sand; t11/12; cum 88K 3/13;
22314, 864, Zavanna, Browning 28-33 1H, Foreman Butte, t2/13; cum 27K 3/13;
22634, 204, Whiting, BSMU 3108, Big Stick, Madison, t1/13; cum 41K 5/15;
23133, 2,004, BR, CCU Prairie Rose 41-30 MBH, Corral Creek, t2/13; cum 4K 3/13;
23415, 1,202, Fidelity, Corpron 16-21-22H, Stanley, t11/12; cum 234 5/15;
23648, 2,725, BR, Copper Draw 24-22MBH 3SH, Johnson Corner, t7/13; cum 186K 5/15;
23769, 827, Slawson, Waterbond 5-27-34TFH, Van Hook, t7/13; cum 196K 5/15;
24060, 256, CLR, Colter 3-13H-2, Bear Creek, t6/13; cum 65K 5/15;
24209, 2,854, QEP, MHA 5-04-33H-150-92, Heart Butte, t5/13; cum 150K 5/15;

Sunday, May 12, 2013
23371, 499, CLR, Atlanta 2-6H, Baker, t3/14; cum 38K 5/15;
23732, 1,078, Statoil, Boots 13-24 4TFH, Painted Woods, t7/13; cum 70K 5/15;
23741, 1,794, Statoil, Jerome Anderson 15-10 7TFH, Alger, t4/14; cum 80K 5/15;
23822, 697, Hess, HA-State 152-95-1621H-2, Hawkeye, t5/13; cum 139K 5/15;

Saturday, May 11, 2013
22102, 400, Petro-Hunt, Thorson 159-94-7A-18-4H, North Tioga, t5/13; cum 114K 5/15;
22664, 831, ERF, Arabian 149-93-29B-32H, Mandaree, t3/13; cum 161K 5/15;
23114, 626, Triangle, Gustafson 148-100-5-8-1H, Buffalo Wallow, t11/12; cum 36K 3/13;
23419, 1,556, Whiting, Becker 11-18PH, Bell, t11/12; cum 92K 3/13;
23420, 1,861, Whiting, Frank 14-7PH, Bell, t11/12; cum 94K 3/13;
23925, 1,624, Newfield, Staal 150-99-23-14-3H, South Tobacco Garden, t4/13; cum 165K 5/15;
24118, 670, True Oil, Gravos 42-13 13-14H, Red Wing Creek, t3/13; cum 8K 3/13;
24232, 1,678, XTO, Wood 21X-25AXB, Truax, t4/13; cum 158K 5/15;

Friday, May 10, 2013
21832, 795, OXY USA, Beatrice Kubischta 3-15-22H-143-96, Fayette, t11/12; cum 51K 3/13;
23731, 679, Statoil, Delorme 12-3 4TFH, Painted Woods, t7/13; cum 73K 5/15;
23768, 783, Slawson, Waterbond 7-27-34TFH, Van Hook, t7/13; cum 179K 5/15;
23777, 509, Triangle, Skesvold Trust 151-101-32-29-1H, Ragged Butte, t4/13; cum 123K 5/15;
24208, 2,573, QEP, MHA 7-04-33H-150-92, Heart Butte, t5/13; cum 176K 5/15;

22091, see above, EOG, Fertile 51-0410H, Parshall,

DateOil RunsMCF Sold

22314, see above, Zavanna, Browning 28-33 1H, Foreman Butte,

DateOil RunsMCF Sold

 23415, see above, Fidelity, Corpron 16-21-22H, Stanley,

DateOil RunsMCF Sold

22664, see above, ERF, Arabian 149-93-29B-32H, Mandaree,

DateOil RunsMCF Sold

23114, see above, Triangle, Gustafson 148-100-5-8-1H, Buffalo Wallow,

DateOil RunsMCF Sold

 23419, see above,Whiting, Becker 11-18PH, Bell,

DateOil RunsMCF Sold

23420, see above, Whiting, Frank 14-7PH, Bell,
DateOil RunsMCF Sold

Minnesota Companies Increasing Oil Specialty Services

The is reporting:
In two years, Minnesota’s stake in the estimated $50 billion energy-equipment sector has grown from less than $1 billion to more than $6 billion in annual equipment sales.
Driving orders for this high-tech gear are a growing demand for oil worldwide, a shift toward cleaner, cheaper natural gas, and innovative new drilling methods that make exploration easier. Improved hydraulic fracturing techniques have emerged in North Dakota, Oklahoma, Pennsylvania, Ohio, Canada and Europe.
Such processes demand billions of gallons of water, powerful pumps, filters and valves plus durable “frac sand,” which fractures shale rock to release gas and oil from the earth.

Manufacturers’ rapid growth in the oil market is much like their expansion into water 10 years ago. Companies such as 3M and Pentair snapped up water treatment firms and expanded their businesses tremendously. Now manufacturers are looking to oil equipment as the next frontier.
A Note to the Granddaughters

It was meant to be.

I am still in my Manhattan Project - Los Alamos phase of reading. it is interesting how things have worked out. After reading a couple of books on the science of the nuclear weapon and then the history of the "city" of Los Alamos, I am now reading the memoirs of Freeman Dyson.

In the first chapter:
I am trying in this book to describe to people who are not scientists the way the human situation looks to somebody who is a scientist. Partly I shall be discussing the future of technology. Partly I shall be struggling with the ethical problems of war and peace, freedom and responsibility, hope and despair, as these are affected by science.
Wow, this is exactly the order in which the books should have been read: the science, the city, and, now, the meaning of the science and the city. It was not planned. It just happened. It was meant to be.

The book has a copyright of 1979. Near the end of the first chapter:
Recently a new magus has appeared upon the scene: a writer, Robert Pirsig, with a book, Zen and the Art of Motorcycle Maintenance. His book explores the dual nature of science, on the one hand science as dedicated craftsmanship, on the other hand science as intellectual obsession. He dances with wonderful agility between these two levels of experience.
Who would have ever expected "a" Freeman Dyson to write about Zen and the Art of Motorcycle Maintenance. It remains one of my favorite books; I have read it three times, but not recently. I was quite surprised to learn the "rest of the story" after I read the book a second time. For those interested, the Robert Pirsig story does have an Easter egg.

The writing style of Freeman Dyson is very, very engaging. It has the feel of an author who wrote his memoirs on a yellow legal pad with a No. 2 pencil, and with/without many of his own changes/editing, it was not revised or edited in any way by his publisher or agent. It has the "feel" of Ulysses S Grant's personal memoirs which is said to be the best autobiography ever written. (Not the best military autobiography, but the best autobiography, period.) Whether it's the best or not, who knows; I would argue I have not read any that were better.

But I digress. It looks like this will be a great book, perhaps bringing my Manhattan Project - Los Alamos reading phase to an end. And he begins with a reference to Zen and the Art of Motorcycle Maintenance.

It was meant to be. 


From wiki: Zen and the Art of Motorcycle Maintenance: An Inquiry into Values. ZAMM is a 1974 philosophical novel, the first of Robert M. Pirsig's texts in which he explores his Metaphysics of Quality. The book sold 5 million copies worldwide. It was originally rejected by 121 publishers, more than any other bestselling book, according to the Guinness Book of Records.

Chiropractors On Site In The Oil Patch

The Dickinson Press is reporting:
After Las Vegas chiropractor Stephen Alexander had 65 patients relocate to North Dakota, it wasn’t long before his phone started ringing.
The men who moved to northwest North Dakota to work in the Oil Patch struggled to find chiropractors available and called “Dr. Steve” for help.
Alexander, 43, who practiced for 12 years as a chiropractic physician in Las Vegas, decided to develop a chiropractic rehab clinic on wheels. He invested $200,000 in a 57-foot RV that is customized with a digital X-ray machine, examination room and other technology.
Many, many story lines: the one that caught my attention -- 65 patients of his, from Las Vegas, relocated to the Bakken. I can't imagine every blue collar worker moving from Las Vegas to Williston needs a chiropractor, that's quite a statistic. Even if the figure is as high as 10% (which I would find hard to believe) that means as many as 650 workers from Las Vegas moved to the oil patch.

What a great time to take readers back to the IRS national relocation map. (There might be an ad first, and the link might take you through Forbes, but you will get there.) Type in Las Vegas or click on Clark County (southeast corner of Nevada). A lot of red (migration out of state). Look at the solid red from Clark County, Nevada, to Ward County (Minot), North Dakota. That data appears to be current only through 2010. If so, there has been a huge jump in folks moving from Las Vegas to the Bakken in 2011 and 2012 based on The Dickinson Press story.