Saturday, June 14, 2014

Musings On A Saturday Morning: Random Look At Some Big (On-Going) Developments In The North American Oil And Gas Industry


Three minutes later, 11:10 a.m. CDT: I give up. I quit. I can't keep up. I spend untold hours writing the best posts of any blog on the Bakken that has no advertising and no sooner than I get it  posted, than someone sends me another link that proves the point or makes the post seem outdated. No sooner do I post the "musings" below and then Steve sends me a link to an article on yet another Bakken pipeline, from Reuters:
Costar Bakken, LLC, is conducting a binding Open Season for a proposed gathering system in McKenzie County, ND. Upon the successful completion of the Open Season process, Costar will immediately begin construction of the pipeline and associated facilities.  Initial operations are expected to begin in the 4Q14. (That's later this year, folks.)
The crude oil gathering system will have initial capacity of 40,000 bbls/d and will gather crude oil for delivery to the Tesoro Logistics pipeline NE of Watford City, ND.  
The Bakken project represents a significant expansion of the company's asset base which includes current facilities in East Texas and the Permian Basin.  Nation-wide, Costar operates 100,000 Mcfd of gas processing capacity, 8,000 bpd of NGL fractionation capacity, 20,000 horsepower of compression and 30,000 Mcfd of gas treating capacity.
I'm just joking about quitting. This is too much fun. Wait until you see what is going to make activist environmentalists sick -- from a linked article that Don just sent me, but it's going to have to wait. The granddaughters are stirring and I have all day with them: breakfast at cafe next door; geometry lessons for older one; 3rd grade math for the younger one; science session; park; bike-riding; and pool. The parents should be home early (about 4:30 pm today) and then I will be free again. No more soccer this weekend; next weekend, two soccer games back-to-back.

Original Post

It is absolutely impossible for one person to keep up with all that is happening in the oil and gas industry in North Dakota. But with:
  • a focus on the Bakken to understand the US shale revolution;
  • a daily dose of RBN energy for "US Oil and Gas 101"; and,
  • random updates of oil and gas business news in the US --
one starts to get a feeling for the oil and gas industry in the US and how it is changing.

Elsewhere I follow the "Big Stories" from a global perspective, I suppose.

But right now, if I had to list the "Big Stories" that relate to the oil and gas industry in the US, off the cuff, and in no particular order, perhaps:
  • the three great shale plays: the Bakken, the Eagle Ford, the Permian
  • shale and non-shale oil plays to watch closely: Tuscaloosa, Niobrara, SCOOP, Mississippi Lime
  • natural gas plays: Marcellus, Utica; and how natural gas "plays out" this winter
  • new plays in the Rocky Mountains (see below)
  • all the new development along the Gulf coast (see below)
  • all the new pipeline activity (off the radar scope; the Keystone XL is an outlier)
  • understanding the condensate story and feeder stock (see below)
  • EOG to become #1 domestic producer in the US 
What got me to thinking about all this were three stories readers sent me this past week. 

First, this was certainly one of the more interesting stories. Petroleum News was reporting that one of the Slawson brothers has taken his money to form a second "Slawson" company. This company, called Slawson Energy, will focus on four new plays:
  • The "Northern Rockies": 23,000 "thoroughly researched" net acres "in a 35-foot thick, thermally-mature, overlooked region of the Bakken kitchen" that he brought with him through a negotiated buy back from SECI (the "original" Slawson Exploration company). Note: 35-feet thick is about the same thickness as the middle Bakken in North Dakota (on average)
  • SPR, Northern Rockies: 37,000 net acres on a tectonic trend of fractured limestone; also prospective for the Lodgepole and the Red River formations 
  • PRB Whitetail Minnelusa, Wyoming: a waterflood project in the Powder river Basin involving a single injection and a single producing well; looking at doubling primary production
  • South Texas: a "very interesting province" of overlooked combo targets involving Buda, Eagle Ford, Austin Chalk, and Pearsall formations; like the Bakken, the South Texas play has source rock that expelled oil into surrounding formations and thus multiple targets (this is the basis for redefining stratigraphic limits in the Bakken, first proposed by Harold Hamm)
The second story was reported, of course, at multiple sites. I will link Zack's. Enterprise Products inks huge ethane deal (before the Bakken, I didn't even know what ethane was important for, and had last studied it in organic chemistry in my second year of college):
Houston-based pipeline company, Enterprise Products Partners, L.P. (EPD) has declared plans to build its new ethane export facility on Houston Ship Channel. Enterprise Products inked a 30-year agreement with the Port of Houston Authority for using its facilities, which are next to the partnership’s existing terminal at Morgan’s Point.

The terminal is scheduled to come online in the third quarter of 2016.

Enterprise Products intends to build a pipeline from its Mont Belvieu, TX, natural gas liquids fractionation and storage complex, which will provide ethane for export. The export terminal is designed to have a capacity to load fully refrigerated ethane at about 10,000 barrels per hour.
The terminal with a capacity to load 240,000 barrels of ethane per day for export is believed to be the world's largest ethane export terminal.
Again, just in case you missed it, this will be the world's largest ethane export terminal in the world. In the world.

The third story was sent to me by one of three or four regular readers who always send me more links than I can possibly keep up with. I posted the story earlier, and said I would clean that post up, but I think I will leave the post as it is. It is the story of multiple Enbridge pipelines that will finally get western Canadian oil all the way to the Gulf coast. The stand-alone post is hereThere may be errors at that post, but a) the links are there for readers to come to their own conclusions; and, b) the story will become more clear as the weeks and months go by.

It is easy to become cynical when one reads all the stories about how the government puts up obstacles to growth (or however you want to frame the issue) but a) if it were easy, everyone would be doing it, creating even more problems (see below); and, b) all the obstacles give investors time to study the opportunities.

With regard to "if it were easy, everyone would be doing it," as much as I dislike the Bill-Gates-public-person and the Microsoft story, one has to admit, the PC industry was fortunate there was only one operating system when the fledgling industry got started. It was bad enough that Apple was confusing matters with its own operating system (and there were others) but can you imagine the disarray if there had been a dozen equal and competing computer operating systems in 1984? It would have been total chaos. It was the right thing, at the time, for the US to simply not look at the Microsoft Monopoly. Things worked out very, very nicely. Likewise, the oil pipeline story. For whatever reason, there were folks who slowed oil pipeline development, and that left a vacuum for rail to fill. But, the pipeline supporters kept working at it and, off the radar scope, or perhaps not seen on the radar scope because of the blinding light called "Keystone XL" others were able to dream and to proceed. Meanwhile it gave slower investors time to digest what was going on.

Perhaps it is only because I am too focused on the Bakken (and the oil and gas industry in general) that I think there is a lot more business activity than usual in the sector but it certainly seems to be true. I said that to Don yesterday to which he responded: when you have two to three million more barrels of oil per day being produced than several years ago in Texas and North Dakota, one has to improve the logistics to ship it, the terminals to store it, and the refiners to process it.

One last thought: we are at the beginning of the "manufacturing stage" in the Bakken, but as long as we still still single- and two-well pads, we are not quite there yet. I define the "manufacturing stage" in the Bakken when all drilling takes place on four-pad wells or better.

A Note to the Granddaughters

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