Wednesday; This Is Not An Investment Site; US Overtakes Russia As Leading Fossil Fuel Producer; While WTI Has Risen $15/Bbl, Bakken Crude Has Advanced A Bit More -- June 10, 2015

We start the day with links to several articles on oil:

• US #1, overtakes Russia -- that link is no longer there; this says US is #1 in oil production;
• disappearing Bakken oil discount -- most interesting
• oil prices jump on US stock draw, easing production
• oil acquisitions continue, good news for Bakken producers -- Seeking Alpha
• the three seismic shifts that are shaking the world of energy -- Bloomberg (see below if link breaks)

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Not "Just" Oil Any More

Regular readers know this story: it's not "just" oil any more; it's the type of oil. And east coast refineries want Bakken oil. And that's deflating the discount spread (a theme that has been voiced by more than writer in the past 24 hours). A contributor over at Seeking Alpha is reporting:

Investors in Bakken oil producers such as EOG Resources, Chesapeake Energy, Continental Resources, Hess Corporation, Oasis Petroleum, and Whiting Petroleum should take note of the rise in Bakken oil prices and the deflating of the discount which has been associated with Bakken oil for some time now.

While oil prices in general are still down sharply this past year, it is worth noting that these producers have seen the prices paid for their oil rise as traders look for supply in certain parts of the country. So while oil prices have risen $15/barrel, the rise in Bakken produced crude is actually a bit higher.

What is causing this? Well at this point it is hard to say, but it could be the first signs of the market being impacted by decreased drilling in the Bakken field which many have thought would lead to actual production declines.

While many have joined the consensus in believing that decreased drilling and the lack of new wells would allow transportation capacity to catch up to production, the majority has not jumped on board with the belief that production could actually decline with the lower activity.

That certainly appears a real possibility now, and with producers having gotten smart about transportation over the last few years, it appears that they are no longer flooding certain delivery points.

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This Is Not An Investment Site

Do not make any financial or investment decisions based on what you read here or think you may have read here.

Target doubles stock buyback to $10 billion; raises dividend slightly (7.7%). That increase in the dividend sounds impressive (7.7%) but think about it. On the other hand, FedEx is raising its dividend from 20 cents to 25 cents. 5/20 = 25% increase. Speaks volumes about FedEx concern about coming recession.

Short interest in AAPL plunges. The change may have been related to rumors of successful sales of Apple Watch or forecasts about product or services announcements at the recent Apple Worldwide Developers Conference

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ERF From Yahoo!In-Play

Enerplus increases production guidance and capital spending for 2015 : The co says that year to date, it has been producing at the high end of its guidance range while maintaining cost discipline.

Additionally, the co has decided to accelerate the completion of eight North Dakota oil wells at a cost of $60 million.

As a result of the combination of operational success and the additional completions, the co is increasing its 2015 annual average production guidance range to 97,000 -- 103,000 BOE per day, and its crude oil and natural gas liquids to 43 -- 45% of the production mix. Highlights include:

• Revised 2015 annual average production guidance upwards from 93,000 -- 100,000 BOE per day to 97,000 -- 103,000 BOE per day. 
• Increased 2015 capital budget by $60 million from $480 million to $540 million. 
• The average expected rate of return for the completions (excluding the drilling capital already spent), using a flat West Texas Intermediate oil price of US$60 per barrel, is approximately 60%. The average expected payout period for the completions is less than two years under a flat WTI oil price of US$60 per barrel.
• The co expects to utilize its $1 billion bank facility, which was approximately 4% drawn at May 31st 2015, to fund the additional $60 million in capital spending. The well completions are expected to improve our 2015 and 2016 debt to funds flow ratios as a result of accelerating funds flow.

The co also says it added additional crude oil hedge positions in the fourth quarter of 2015 and for the full year in 2016 to help support the economics of the accelerated well completions. Its total crude oil hedge position in the fourth quarter of 2015, through a combination of fixed price swaps and option structures, is now 44% of forecasted net production after royalties, at a weighted average floor price of $80.09 per barrel.

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Bakken Wells Pay For Themselves In Two Years
Produce for Thirty

Something tells me ERF is not the only company that thinks a 60% rate of return is something to ignore. My hunch is that ERF is not the only operator in the Bakken that is focused on costs. I still go back to my analogy of buying a house: paying for a Bakken well in less than two years: not bad. Just a year ago EOG said it wouldn't drill a well in the Bakken if it didn't pay for itself in six months; see yesterday's daily activity report.

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Not My Three

In case the link above breaks, Bloomberg's three seismic shifts affecting the global energy market:

• explosive rise in US oil production (okay, I'll buy that one)
• China's energy slowdown (temporary; what about India?)
• global solar boom (the total amount of electricity from solar energy in the US rounds to 0% when rounding to nearest whole number); Bloomberg must be talking about those powerhouses, Germany and Spain