Wednesday, May 7, 2014

Active Rigs In North Dakota Surge: 191; This Month's Issue Of Foreign Affairs -- The US Energy Revolution

I blogged about this just a few weeks ago and even had a poll, about where folks thought the number of active rigs would go, up or down?

This caught my attention today:

Active Rigs191184212177111

I thought we might go over 200 this summer. The tea leaves suggest we should for at least three reasons:
  • more operators than ever in the Bakken
  • the bigger operators have said they are increasing their focus (and number of rigs) on the Bakken
  • infrastructure keeps getting better to support more rigs
Again, in the big scheme of things, whether there are 150 active rigs or 250 active rigs in North Dakota means nothing to me in terms of production. I've talked about that before. For me, the number of rigs gives one a snapshot of the activity in the Bakken. Remember, it takes 2,000 truckloads of sand or water or something (I forget if it's just water, or just sand, or both) but it takes 2,000 truckloads of material for every well. Even if there are 14 wells on each pad, it took 2,000 truckloads of material for each well. The more active rigs, the more folks employed, the more trucks on the road. But one might not see an increase in production for quite some time. I think it was almost 18 months between the pad was build, first well spud, the fourteenth well completed, and oil produced and sold on CLR's 14-well Atlanta pad in Baker oil field southwest of Williston. So, trying to correlate active rigs and production is difficult. For me, it's all about activity.

With 191 rigs today, Red River Supply, all things being equal, is going to be busier today than it was last week when the number of active rigs was in the low 180's.

The biggest story of the day? Canadian oil price is surging -- Canada is getting their oil to the market despite all the obstacles. What does that tell me? If Canada can get their stranded oil to the market, operators can get Bakken oil to the market.

By the way, Bakken oil is not the best fit for American refineries. Canadian heavy oil is. What does that tell me? That is huge for the Bakken. They need to mix heavy oil with Bakken light oil to make it work at a lot of US refineries in Texas, Louisiana. The more Canadian oil that gets to Cushing, the better it is for the Bakken.

There are some great stories coming out of the oil patch today.

Speaking of which, here's another great story.

When I was a student and an instructor at the US Air War College one of our major sources was Foreign Affairs. This bi-monthly (?) journal was required reading for all of us, and certainly any policy wonk in Washington, DC, who is worth his/her salt in the business subscribed to Foreign Affairs. This month's cover has a huge picture of a "flare" of sorts to accompany this month's subject: the US energy revolution. Here is the cover story: "Big Fracking Deal: Shale and the Future of Energy."
The shale revolution in oil and gas production is here to stay. It will spread more rapidly than most think. And all of that is a good thing for the world. -- Edward Morse
Here are the articles:
  • "Power to the People," Gideon Rose and Jonathan Tepperman
  • "Welcome to the Revolution," Edward L. Morse
  • "The United States of Gas," Robert A Hefner III
  • "Don't Just Drill, Baby -- Drill Carefully," Fred Krupp
  • "Electric Avenue," David M. Levinson
  • "Nuclear Freeze," Per F. Peterson, Michael R. Laufer, and Edward D. Blandford
  • "Powering the Pentagon," Sharon E. Burke
If you are a reader and if you are interested in the macro-Bakken, this is a must read. If you don't subscribe, I can't imagine any library not having a copy. Hopefully, down the road, this issue and/or the individual articles will be wildly available.

For investors, there was a throwaway line in the last day or two, over at SeekingAlpha that Bakken operators (or at least some of them) will replace biotech as Wall Street's darlings this year.

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

As long as I stumbled into the arena, let's see how the market is doing today. It opened high, and then Janet Yellen spoke. The market fell and then it rose quickly. So what is it doing now, around lunch time: the market is up an incredible 114 points. This was not unexpected when I saw the earnings reports coming out this morning. And the other news. Oil is up almost 2%, folks. We're going to see some new highs today in the oil and gas sector. I hope you all remember what Saudi announced the other day regarding pricing (again, a huge "thank you" to Ed for alerting me to that; other than Ed noting it, I doubt many people have noted it; I would have missed it).

So, back to the market:

Fourteen (14) companies announce increased dividends or distributions. Again, this is longer list than usual. The list includes Baxter, with a significant increased, from 49 cents to 52 cents.

Trading at 52-week highs: BRK.A, BHI, CHK, CLR, COP, ECA, ENB, NRG, OKE, STO, WMB, XOM, SRE, That's an incredible list, and, of course, many other energy companies are trading near their 52-week highs. And, 10-1, I bet CNBC talking heads are not talking about the oil and gas surge, or the US energy revolution. Why? It doesn't fit the Obama game plan.

By the way, the price of oil is rising, hardly due to the strength of the dollar.

This should be huge. It's taken a long time to climb that wall, but CVX is back to near its all-time high:
Chevron reaches settlement agreement with Patton Boggs Law Firm; Patton Boggs to pay $15 mln to Chevron, withdraw from Ecuador litigation: Co announced it has reached a settlement agreement with Patton Boggs LLP, a lobbying and law firm headquartered in Washington, D.C. Chevron had filed counterclaims in federal court against Patton Boggs for its role in a lawsuit against the company in Ecuador. In today's settlement, Patton Boggs has resolved those claims by withdrawing from the fraudulent Ecuador litigation, issuing a statement of regret, assigning its interests in the litigation to Chevron, and making a payment to Chevron of $15 million. Chevron, in turn, has agreed to release all claims against Patton Boggs and its partners.
Is WPX a sleeper today? I have to go back and look at that. The earnings suggest a huge story, but I didn't hear much about it. So, what do investors think? They must be seeing what I thought I saw: WPX is surging, up over 3% today. Any analysis? None yet. The announcement and the conference call. Hopefully someone will contribute something worthwhile over at SeekingAlpha on WPX this week. Here's the blurb from "Business Wire" (by the way, there's no hidden agenda on my fascination with WPX today; I don't recall if I "hold" any WPX; I can't remember if I invested in this one or note, but I don't think I do. For a disclaimer, I'll simply say I don't think I invest in WPX and I certainly have no plans to do so in the near future, if ever):
WPX Energy today announced its unaudited operating and financial results for the first quarter of 2014. First-quarter net income attributable to WPX of $18 million benefitted from a 52 percent increase in the company’s net realized average price for domestic natural gas sales and a 35 percent increase in total product revenues.
Domestic natural gas production was nearly identical to the sequential quarter, while domestic oil production climbed almost 40 percent vs. a year ago to 19.3 Mbbl/d primarily from increased volumes in the Williston and San Juan basins.
Consistent with WPX’s guidance and goals for 2014, the company now has 16 rigs deployed across its growth areas and has announced a transaction that bridges the majority of the company’s 2014 capital funding gap. 
WPX reported unaudited net income attributable to WPX Energy of $18 million for first-quarter 2014, or income of $0.09 per share on a diluted basis, compared with a net loss of $116 million, or a loss of $0.58 per share, in 2013.
A 44 percent increase in domestic natural gas revenue, a 34 percent increase in domestic oil revenue and higher gas management margins drove the net profit.
Excluding unrealized mark-to-market gains (losses) and the impact of New York tax reform legislation enacted in the first quarter, WPX had adjusted income from continuing operations of $44 million, or income of $0.21 per share on a diluted basis, for first-quarter 2014, compared with an adjusted loss from continuing operations of $51 million, or a loss of $0.25 per share, for the same period in 2013. 
I think the expectations were a two-cent/share income before the report. So, I don't understand how the analysts could be off that much (actual: 9 cents or 21 cents) if I'm reading the reports correctly. In addition, the surge in income needs to be compared to a loss of almost 60 cents/share same quarter one year ago. 

By the way, what stands out in the story above? This:
" ... while domestic oil production climbed almost 40 percent vs. a year ago to 19.3 Mbbl/d primarily from increased volumes in the Williston and San Juan basins."
And what stands out in that one phrase? Two things. First, it's all about oil. Second, California is not mentioned. The announcement that OXY USA is moving its corporate headquarters from Los Angeles to Dallas is another tea leaf telling us how incredibly unimportant California has become with regard to the US energy revolution now that the activist environmentalists have won in the land of fruits and nuts. 

From Heffner's essay in Foreign Affairs:
The United States' growing economic advantage could last until the middle of this century of beyond.
Unless, that is, it is squandered. In California and New York, two of the country's largest economies, antifracking (note how they spell "fracking") activists and state politicians have managed to slow the development of shale resources to a snail's pace. Both states contain large shale formations (the Monterey in California and the Marcellus in New York), the developmetn of which would provide a major boost to both state and national economic growth. Politicians need to recognize ...
Los Angeles and California are each desperately courting the OXY California spin-off to remain in California. So, we'll see. OXY California will be the most interesting company to watch over the next five years. It will start to trade publicly in 3Q14, I believe.

A pretty picture:

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