Friday, January 23, 2015

Week 3: January 18, 2015 -- January 24, 2015

Top story of the week
Harold Hamm sells Hiland to Kinder Morgan

Random look at some wells coming off DRL status just as price of oil plummeted
4/6 wells to DRL status; graphic of East Williston Annex
A snapshot of the 2014 oil and gas permits in North Dakota

Seaway double pipeline completed
Random update on Enbridge Line 61

Amount of crude oil shipped by rail through Nebraska triples

Slump in oil prices
Cliff's notes

Bakken economy
Williston Wire
Williston needs a new comprehensive city plan

Saudi King Abdullah, age 90, dead; brother, age 80, assumes throne

Twenty-Four (24) New Permits -- North Dakota -- January 23, 2015

The NDIC did not file the Friday daily activity report by Saturday morning. It appears the NDIC issued twenty-four new permits on Friday. Remember: permits are only issued if the NDIC feels the wells will be drilled in a timely matter.

Twenty-four (24) new permits --
  • Operators: HRC (12), CLR 4), MRO (3), OXY USA (2), Whiting (2), BR
  • Fields: Antelope, Eagle Nest, Brooklyn, Bailey, Fayette, Pleasant Hill, Croff
  • Comments: interesting, huh? In the old days one would have been looking at 12 - 20 operators being issued 24 permits, and an expectation that there would be 12 - 20 rigs drilling these wells; these 24 wells can probably be drilled with six rigs. But they still all have to be fracked (eventually); this is all pad drilling on established pads, as far as I know (did not confirm; it's called an educated guess)
I track permitting projections here. At the moment, the NDIC is on track to issue more permits in 2015 than they did in record-setting 2014. 

Seven Hundred Fifty Wells Waiting To Be Fracked -- January 21, 2015

Something to note about the monthly Director's Cut: some information is in real-time, such as the comment section and the number of wells waiting to be completed. At least, the wording suggests that the number of wells waiting to be completed is fairly current.

On the other hand, the production data is a full six weeks old.

As long as I've been following the Bakken, it seems there were always 350 - 400 wells waiting to be fracked.  It caught my attention when last month's Director's Cut suggested there were 600 wells waiting to be fracked, and then this month the news was staggering: up to 750 wells waiting to be fracked.

The March Director's Cut (data current as of the end of January) should be very, very interesting, where fracking stands.

I look at pricing of oil this way:
  • Saudi Arabia can affect the price of oil immediately (a simply announcement)
  • shale oil can affect the price of oil over 6 to 9 months
  • deep-sea drilling, off-shore drilling, large projects won't impact the price of oil for years
One has to ask the question, how fast can shale oil affect the price of oil?

Back in 2007: imagine the time it used to take to get the lease, get the permit, build the pad, build the road, get the rig on the pad, wait to get a frack team in place, to frack one well on one pad.

Now, 2015: the infrastructure is all there. The pads are built, the roads to the pads are built; there is an excess of rigs. Putting a rig on the pad and then drilling can take a couple of weeks. Fracking is measured in days, although it may take a week to get water and proppants on-site. And instead of fracking one well on one pad, operators can frack many wells on the same pad almost simultaneously, or certainly very quickly sequentially.

Data Points To Follow

January 22, 2015: a review of 1H14 wells that were on DRL status prior to the review.

January 19, 2015: based on daily activity reports, this is the date that it appears North Dakota operators began "circling the wagons." Obviously things were put in motion about 30 days earlier. The January dockets (released in December) were not particularly noteworthy with regard to activity slowing down.

January 15, 2015: number of permits being issued on a daily basis are dropping off but still averaging about six new permits daily.

January 15, 2015: wells waiting to be completed are most likely hitting a new record, well above the previous month's data; said to be around 750 wells waiting to be fracked.

November 30, 2014: new production record; numbers not known until Director's Cut released on/about January 15, 2015.

October 31, 2014: wells waiting to be completed continue to edge up; data in Director's Cut is pretty much real-time.

October 1, 2014: For my purposes I've pegged the slump in oil prices to have begun October 1, 2014. Operators may have seen it coming months earlier. Certainly new NDIC rules on flaring and conditioning were already in place or soon to be in place, a fact well known by the operators.

A Two-Fer For OIl And Gas Investors -- January 23, 2015

See disclaimer.

For investors with a long term horizon (20 years or so) this is a two-fer and very good news: first, oil companies say they will do what they can to "preserve" their dividends; and, using those dividends for reinvestment, one is buying shares at a great discount. Reuters is reporting:
Europe's oil majors will strike a sober note in their fourth-quarter results and investors will focus on companies' plans to maintain cherished dividends and their strategies to cope with the oil prices collapse that caught many unawares.
Having sold around $120 billion in assets in recent years to boost balance sheets and keep up dividend payouts, companies are expected to increase borrowing and further cut costs as they come to terms with oil prices that have more than halved since June to around $50 a barrel.
Just something I thought I would post.

EV Charging Corridor

Regular readers are aware of this challenge: building out a national EV charging corridor. Part of the problem is that Tesla is going it alone, and others are following suit: proprietary charging stations / proprietary charging systems in their vehicles. The issue has been posted more than once.

Apparently the manufacturers are listening. BWM and Volkswagen are joining hands. The WSJ is reporting:
Two German auto makers are jointly investing in a string of electric-car charging stations along two of the most heavily driven routes in the U.S.
BMW and Volkswagen agreed to work with ChargePoint Inc. to plant 100 chargers along Interstate 95 from Boston to Washington, D.C., and along routes between Portland, Ore., San Francisco, Los Angeles and San Diego.
I See, I See

It's so far under the radar I had forgotten ISIS was still in control of Mosul, Iraq. I wouldn't have thought about that except for the fact that there is now a story that Iraq and the US are planning a summer offensive to re-take the city. With that announcement, we might as well give ISIS our military plans for the offensive.

Statoil's New Long-Term Project Comes On-Line, Oh-Oh

The WSJ is reporting:
Amid years of high oil prices, Statoil spent $2.67 billion on developing the Gudrun field—a relatively small reservoir of crude buried more than 2 miles under the sea floor here.
But since Statoil approved the development in 2010, crude prices have fallen by 30%. Oil only started flowing last year, and the field is just barely profitable, according to Statoil projections from when the field was approved, and adjusted for current oil and currency prices.
That new math is threatening final investment decisions for several similar fields in nearby waters.
It's going to take some brave bankers to finance oil exploration for projects that take five years to come on-line. Look at that Gudrun field: approved by development back in 2010, and now five years later, production is now flowing (actually four years -- it began production last year).

Did you all see the note from a couple of days ago?
  • WPX slashing rig count from 18 to 7 (Bakken, Piceance, San Juan Basins). 5 rigs in Bakken going to 1 but says can easily ramp back up to peak of 30 (thirty)
I think this is all going to be very, very interesting, five years from now. 


I don't know if folks have been following this story, but it's very interesting. TurboTax tried to pull a "fast one" on its customers, and they were caught.  Now they are offering a refund. It will be interesting to see if they re-price their various editions.

So Much For Peak Oil -- We Will Never See $100 Oil Again -- Prince Alwaleed -- January 23, 2015; Now It's Sorghum In The News

Some talking points from the CNBC interview:
  • we will never see $100-oil again
  • OPEC will not blink first
  • 90% of Saudi's budget comes from oil
  • Saudi Arabia is not using the price of oil right now to impact the US fracking industry
  • there's an oversupply and demand is not so high
  • the road back to $60 - $70 range will not be easy, not that quick
  • global strength of OPEC has weakened
  • "I would not say that OPEC is dead, but ..."
If these three data points are true:
  • we will never see $100-oil again;
  • the road back to $60 - $70 will be difficult, slow; and, 
  • Saudi Arabia derives 90% of its budget from oil;
Three things necessarily follow:
  • Saudi Arabia is in deep doo-doo (and the rest of OPEC is in deeper doo-doo);
  • the US becomes the de facto mover in shaping global oil and gas policies; and,
  • US consumers are going to love inexpensive gasoline for quite some time.
For investors, it's a massive re-set, as Hillary would say. 

See disclaimer.

Sorghum In The News / The North Dakota Perspective

From the WSJ:
The grain, long overshadowed by more-plentiful crops, suddenly is in high demand thanks to China’s soaring appetite for animal feed and a shift in its buying preferences away from foreign corn. A 15-fold increase in imports of U.S. sorghum by China over the past year has pushed its price above corn’s in parts of the U.S., a rarity that highlights how policy shifts by Beijing can have a far-reaching impact on the global grain trade.
China’s buying pace has surprised many traders and grain merchants who deal in sorghum, a drought-hardy crop that also is known as milo in the Great Plains, its traditional growing region. Some Kansas grain elevators are offering farmers about 10% more for sorghum than for corn, inverting the roughly 10% premium corn usually fetches. There is no futures market for sorghum, so traders use corn futures to benchmark prices and manage risk.
“It’s unlike anything I’ve seen in my career, and I’ve been doing this for about 30 years,” said Charlie Sauerwein, grain-merchandising manager with
WindRiver Grain LLC, a Kansas company that ships grain by rail to U.S. ports
Check out the graphic at the linked WSJ article.

From Growing North Dakota:
Numerous factors, including water shortages, high feed prices and starch availability/requirements, are luring some dairy producers into planting alternative crops. “Sorghum silage, for example, is gaining attention as an appealing substitute for corn silage as people search for drought-friendly crop solutions."
Sorghum requires considerably less water than corn. This hardy, drought-tolerant plant can thrive even when rainfall and/or irrigation is limited, making it a logical choice for areas facing water supply issues. Sorghum seeds are much less expensive than corn seeds, therefore, the input costs for growing sorghum are lower than corn. Sorghum may also yield nearly the same tonnage per acre as corn. 
When it comes to overall forage quality however, there are differences and anyone planting sorghum silage needs to be aware, so the differences can be managed accordingly. Similar in protein but lower in energy, sorghum silage offers significantly less starch. This means it cannot serve as a full replacement to corn silage without additional ingredients or forages being added to the diet. The starch content of sorghum silage runs between 11 and 16 percent, whereas corn silage, known for its high energy and digestibility, provides starch levels between 25 and 35 percent.
Much more at the link.

Friday, January 23, 2015

Active rigs:

Active Rigs159189190203165

Reporting today (see disclaimer):
Starbucks shares are brewing up a fresh record, up 5% after the coffee chain posted an 82% jump in quarterly profits. That's a $1.30 a share on revenue of $4.8 billion. Worldwide comp-store sales also rose 5% on strong holiday sales. Not only that, CEO Howard Schultz named a new COO Kevin Johnson, formerly of Juniper Networks, whom Schultz compared to as a #1 draft pick during the earnings conference call. 

RBN Energy: Contango -- the Cushing trade
  • Combining the physical and futures trades we get a physical profit of $13.50 and a futures loss of ($5.61) or a net $7.89/Bbl – exactly the same as the contango spread at the beginning of the trade.
  • We estimate the typical term storage cost at Cushing is 40 cents/Bbl per month – under a long-term contract. At that rate the cost of storage for 12 months would be  $4.40/Bbl. Taking that cost off the $7.89/Bbl contango spread brings the gain down to $7.89 - $4.40 or $3.49/Bbl. There would also be other fees to pay including terminal fees to bring the crude in and out of Cushing storage and exchange commissions and margins to hold the futures contracts. Those costs vary but a conservative estimate would be $1.50/Bbl leaving close to $2/Bbl as the final profit less any borrowing costs to finance the trade.
  • The biggest constraint against putting on a storage trade like this is getting access to Cushing term storage at reasonable rates. Several oil trading firms have long term storage contracts at Cushing with rates at or under 40 cents/Bbl (and they would probably look at the cost as ‘sunk’ since they will pay for it anyway, thus increasing their motivation to do the trade). But if you don’t have a long-term contract you are probably stuck paying a higher walk up rate for storage – eating into the trade profit.
 Obama administration: local fracking bans is/are NOT the way to go; fracking is safe.

Apple's CEO Tim Cook's 2014 compensation grew to over $100 million.  Read this also.

Tired Of Fiction?

Politico is reporting record-low ratings for any SOTU address:
Nearly 32 million Americans watched President Barack Obama's 2015 State of the Union address on television, the lowest turnout since President Bill Clinton's final State of the Union address in 2000, according to newly released Nielsen ratings.
Obama attracted 31.7 million viewers. Viewership for Obama's State of the Union addresses has been in decline since 2009, when he drew 52.4 million television viewers. Subsequently, 48.0 million watched on television in 2010, 42.8 million in 2011, 37.8 million in 2012, 33.5 million in 2013 and 33.3 million in 2014. This year's speech replaces last year's as the second-lowest rated since Nielsen began recording viewership in 1993.
I love the last line: this year's low rating replaces last year's as the second-lowest rated since 1993 (also Bill Clinton's).