Friday, November 6, 2015

Active Rigs Hit Record Post-Boom Low; 64 Active Rigs -- November 6, 2015

Active rigs:

Active Rigs64190181187196

Five (5) new permits --
  • Operators: EOG (3), Hess (2)
  • Fields: Robinson Lake (Mountrail), Parshall (Mountrail)
  • Comments:
Legacy Oil has four (4) Spearfish wells approved for "tight hole" status, all in Bottineau County, section 31-164-76.

Permit renewals:
  • Oasis, 5, all 5 are O M Erickson permits in Williams County; section 7-155-101;
  • Hunt, 2, a Palermo permit and a Nichols permit, both in Mountrail County; sec 10-156-90;
Fram Operating canceled the Peterson #1 permit in Renville County;

Two (2) producing wells completed:
  • 24773, 2,563, Statoil, Judy 22-15 2H, East Fork, t10/15; cum --
  • 29585, 746, Hess, EN-Kiesel-155-94-1918H-1, Manitou, t10/15; cum --

Tesoro Unveils Largest Multimillion Dollar Contribution In State History For Affordable Housing Projects; The Williston Wire -- November 6, 2015


November 7, 2015: I did not remember this until now. In the story below, it is reported that Tesoro made a record-setting donation for affordable housing in North Dakota -- $5.3 million. It would have been an opportunity for the writer to note that XTO also donated an almost identical amount back in July, 2015: $5 million.
Original Post

The Bismarck Tribune is reporting:
State officials gathered at the Capitol Friday to unveil the largest multimillion dollar contribution in the history of a state program to aid in the construction of affordable housing projects.
Gov. Jack Dalrymple and North Dakota Housing Finance Agency Executive Director Jolene Kline unveiled a $5.3 million contribution from Tesoro Corp. in Memorial Hall.
“This is a problem we knew needed to be solved,” said Dalrymple, of a lack of affordable housing. “This program has solved that problem.”
As of Friday, $21.5 million of the $30 million in private contributions authorized for the 2015-17 biennium have been gathered, which will lead to the construction of several large housing projects across the state, according to Dalrymple. Another $5 million was authorized by legislation from the Bank of North Dakota.
An additional $5 million from the Bank of North Dakota would be authorized if the bank’s 2015 profits exceed $130 million.
The Williston Wire

City of Williston begins acquiring land for new airport.

Amtrak unveils renovatiosn planned for Williston station; to better accommodate people with disabilities.

New clothing store opens in Williston: Real Deals Boutique; women's fashion.

CLR Corporate Update: 3Q15 Highlights; 4Q15 And 4Q16 Outlook

Link here (I assume this link will be broken in the next six months or so).

North Dakota/Montana
  • Bakken: 1,074,000 net acres; first stage of full-field development underway
  • SCOOP, Woodford: 445,000 net acres; expanding and de-risking
  • SCOOP, Springer: 210,000 net acres; "Best Discovery Award for 2014" -- Oil and Gas Investor Magazine
  • NW CANA JDA: 31,400 net acres, generating value from previously idle asset
  • STACK: 146,300 net acres; new resource play establihsed 2Q15 (includes 31,400 net acres rep CLR's Woodford Rights in NW CANA JDA)
Bakken: focusing on the core
  • average EUR up 45% from 2014
  • 2015 target: 800K boe/well
  • 2014 well: 550K boe/well
  • finding/development costs cut by 50%
  • entering full-field development: 60% of wells to be drilled 660' to 880' inter-well spacing
  • 8 operated drilling rigs through year-end
Bakken drilling efficiencies
  • spud-to-TD: 15 days
  • lateral drilling: 5.0 days
  • company records:
  • a 2-mile lateral drilled in 2 days
  • a 3-mile lateral drilled in 6.4 days 
Bothersome slide
  • cost savings counting on Sandpiper, 225K bopd; not a sure thing
  • Energy Transfer DAPL, 570K bopd; 4Q16; not a sure thing

Halcon 3Q15 Transcript


Opening comments from CFO:
  • production for 3Q15 in line; 41K boepd
  • production guidance for full year: in line with previous despite all the shut-in or deferred wells
  • LOE plus workover expense: $7 per BOE; below our guidance; a 6% improvement
  • cash G&A: $4.85 per boe; toward the low end of guidance
  • taxes: $3.23 per boe; below our guidance
  • gathering, transportation, other: $2 per boe; in line
  • CAPEX: $84 million in 3Q15; in line 
  • $827 million in liquidity
  • bank group recently reaffirmed the company's $850 borrow base
  • reduced overall debt by more than $800 million
  • operating three rigs; hope to do the same next year (2016) also
  • three rigs should run about 25% less in CAPEX; production flat
Hold your horses, we'll get to El Halcon in a few minutes.

La Malaguena, Chingon
Sophia, in her minion language tells me this song is about the sad state of affairs in the oil patch.

Williston Basin
  • all wells coming on line this year exceeded published type curves; continue to set new drilling records
  • average drilling time: 14 days
  • CWC: $7.2 million / well
  • AFE's projected: $6.8 million / well
  • selling 95% of our natural gas
El Halcon, East Texas
  • spud-to-TD: 11.4 days
  • shortest time for a three-string well: just under 10 days 
  • fracking: four stages/day; record five stages/day
  • multi-well pads; $6.8 million / well
  • expensive design change: extend lateral leg by 500 feet to approximately 7,500 feet; 33% more proppant, now up to about 2,000 pounds/foot; old design a lot less expensive, but a lot less efficient
Q & A
  • drilling faster is putting pressure on CAPEX (note)
  • CAPEX: $325 million this year; 25% less year but maintain production
  • if things improve, we are not going to increase CAPEX
  • reiterating: will be starting multi-well pads in Texas this year/next
  • one rig in Texas; completing 2, 3 or 4 wells/quarter 
  • 660 feet between wells in the middle Bakken
  • when drilling TF, don't want to directly stack laterals; must be alternate stacking ("drainage issues")
  • everything in middle Bakken/TF is 660-foot spacing  

Enbridge Pays $6 Million / MW For UK Off-Shore WInd Project -- November 6, 2015

I think Enbridge's most recent decision is ill-advised, but I really appreciate that Enbridge sees itself as an energy company and not simply a pipeline company.

I first posted the wide-ranging interests of Enbridge back on July 23, 2010. Enbridge was one of the first, and one of the very few, companies I have followed in such depth. The company truly impresses me, as does Apple, Berkshire Hathaway, Amazon, and possibly Facebook. They are much more than they seem. But I digress. Back to Enbridge.

This is what caught my attention about Enbridge today: the company "buys UK offshore wind with eye on North American seas."
Enbridge Inc.’s investment in a U.K. offshore wind farm may help Canada’s largest pipeline operator bring giant turbines to North American waters.
Enbridge is paying C$750 million ($570 million) for a 25 percent stake in EON SE’s 400-megawatt Rampion Offshore Wind project off the coast of Sussex, England.
When completed in 2018, the project will generate returns in the “low double digits,” comparable to Enbridge’s pipeline investments in North America, Chief Executive Officer Al Monaco said.
Learning about the offshore wind industry in Europe may help Enbridge jump-start the barely existing one in the U.S. and Canada, he said.
So, how much does off-shore wind cost? For $570 million, Enbridge bought one-fourth of a 400-MW project, or $570 million / 100 MW = get out the calculator or simply move the decimal point two places to the left = $5.7 million / MW or almost $6 million / MW.

This is incredible. It's absolutely in line with everyone who estimates off-shore wind costs. The most recent example is at this post:

From an August 25, 2014, post, this is 30-second sound bite for "cost of renewable megawatt":
  • Solar: $3 million / MW
  • Wind: $2.5 million / MW
  • Natural gas: $865,000 / MW
The "wind" in the August 25, 2014, post referred to "on-shore wind."

There are several story lines in this announcement:
  • Enbridge continues to see itself as an energy company, not a pipeline company
  • Enbridge is hedging its bets
  • these guys are much, much smarter than I am; this suggests they know something about off-shore wind I do not understand or see
  • these guys have huge access to government leaders; this suggests they know what US and Canadian governments are talking about for the long term when it comes to energy
  • the costs for intermittent energy as posted on the blog remain about right
  • off-shore wind is about 2.7 x more expensive than on-shore wind

The amount of money countries are willing to spend on intermittent energy is staggering. One gets the feeling that many buyers think that once they've paid for the turbines, there are no other costs. In fact, the turbines have a finite lifetime (20 years) and have operating costs just like any other utility. The wind is free but when the turbine are not blowing, they need back-up conventionally-source (coal, natural gas, oil) electricity.

I'm looking at the story out of the Philippines. This is the country's largest wind farm and it's all of 150 MW and it will cost $320 million or slightly more than $2 million / MW. And this is in the Philippines where a dollar will get you more than what it gets you in the US.

The Philippines will get up to $20 billion from the Asian Development Bank, but the rest from their own coffers. Learn more about this wind farm at wiki.

Kerry Kills Keystone; LA Times On Rising Crime In California -- November 6, 2015

Kerry Kills Keystone XL

AP says "Obama Administration" kills Keystone XL. It only took seven years to review. The "Obama Administration" still has no strategy on Syria, either.

SecState John Kerry (who served in Vietnam) kills the Keystone XL pipeline. President Obama says regardless of climate change issues, oil is so inexpensive now, the Keystone is not needed for national security. Very, very clever. Sort of a "present" vote.  

Based on the amount of oil flooding this country, the Keystone XL is not needed.

Based on the type of oil the Keystone XL would have delivered to the Gulf Coast, one could make the case for the Keystone XL.

But then the data doesn't support the argument. More Canadian oil is reaching the US today than what would have been moved by the Keystone XL.

The question becomes: has the Keystone simply become a decision on who gets to move oil to the US: TransCanada or Enbridge and the railroads?


Stories That Caught My Attention 
In The Print Edition Of The Wall Street Journal

Almost missed; at the very bottom of page 2, section A: first-time home buys near 1987 level.
The share of US homes sold to first-time buyers this year declined to the lowest level in almost three decades, a potential sign that young people are being left out of an otherwise strong housing market
First-time buyers fell to 32% of all purchasers in 2015 from 33% last year, the third straight annual decline and the lowest percentage since 1987, when it was 30%. The historical average is 40%, going back to 1981.
Take a look at the graphic at this link: Europe sees slower growth. Pay particular attention to Greece. Deep doo-doo. Again. Is bail-out hypenated?

House passes highway bill, along with restoring Ex-Im Bank. No link; reported everywhere. Another stimulus package. Senate already passed a highway bill; they will be reconciled. Call it "great."

Syria regime opens Aleppo supply route. When did Russia first become actively involved? A few weeks ago. Shock and awe.

Kurdish militants take war stance. Okay.

Top Story Over At Los Angeles Times

Lead story over at The Los Angeles Times: most non-violent crimes in California are now misdemeanors and many are saying that is why crime rate is rising in the state.
Semisis Sina has kept sheriff's deputies busy in the last year.
The 30-year-old has stolen bicycles from his Hacienda Heights neighborhood. He has skipped out on drug treatment and kept up his meth habit.
He has racked up 16 arrests, earning himself a place near the top of the Los Angeles County Sheriff's Department's list of repeat offenders picked up for theft or drug use. And he says a new law has made it easier for him to commit crimes.
"Now, you can get away with it because of Proposition 47," Sina said recently in an interview at his parents' home.
One year after voters approved the landmark ballot measure, Proposition 47 has dramatically altered California's criminal justice landscape.
The proposition, which downgraded drug possession and some theft crimes to misdemeanors, made good on its pledge to reduce prison and jail populations by thousands of inmates. Tens of thousands more people with older felony convictions have been able to wipe their records clean, giving them the chance to qualify for new jobs and other benefits.
But law enforcement officials and others have blamed Proposition 47 for allowing repeat offenders like Sina to continue breaking the law with little consequence.
Crime has risen in the state's largest cities, setting off debate over whether the proposition is responsible. In some areas, street cops are making fewer narcotics arrests.
And without the threat of a felony conviction and a lengthy stint behind bars, fewer drug offenders are enrolling in court-ordered treatment in Los Angeles and other counties.
"Proposition 47 was good and bad," said Thomas Loversky, a Manhattan Beach-based criminal defense attorney who has clients in drug court. "The good part is we have people who shouldn't be spending time in jail not spending time in jail. The bad part of Proposition 47 was there was no hammer to force people who needed treatment to get it."
Along with theft (excluding auto theft), the following are now simply misdemeanors: these offenses include shoplifting, writing bad checks, and drug possession.

Of course, sending folks to jail didn't change anything anyway; it simply took them off the street for six months to a year or so. 

Random Post On State Of The Bakken Relative To Recent Mainstream Media Stories -- November 6, 2015

A string of links that are of interest as we end the week. Let's start with this one:

Apache -- From Reuters/Rigzone, November 5, 2015:
Apache Corp reported a much smaller-than-expected quarterly loss and joined a growing list of US oil producers in raising full-year production forecast even as many of them cut spending. 

Increased efficiencies, a drop in service costs and low break-even levels in core US shale fields are all helping US oil companies increase production on reduced budgets. 

US producers ranging from Oasis Petroleum to Devon Energy have forecast higher production in their latest quarterly reports. 

Then, this one from Forbes that says less than 1% of the Bakken is viable at these prices: Only 1% of the Bakken play breaks even at current oil prices.

Then this upbeat report from SM Energy drilling Divide County in North Dakota: This is a most interesting and unexpected story. The Dickinson Press is reporting that SM Energy has opened a new Williston office complex; located north of Williston.

Indonesia: And then this Reuters/Rigzone story on Indonesia:
Indonesia's state-owned energy firm Pertamina plans to process more domestic crude oil in a bid to limit the impact on the country of declining production, a plight that is also affecting oil-rich neighbours Malaysia and Brunei.
All three countries, which rely heavily on energy revenues, are running out of oil. Reuters research based on government, industry and consultancy data shows they could run dry within the next 25 years.
Number of new permits issued by the state (North Dakota) so far this year. On November 5 for each of the following years, the number of oil and gas permits issued (does not include permits for salt water disposal wells). The numbers may be off, but not by much:
  • 2015: 1856
  • 2014: 2555
  • 2013: 2254
  • 2012: 2197

Jobs Report Friday, November 6, 2015

Jobs report for October:
  • 271,000 jobs added (remember the magic numbers)
  • unemployment rate at 5.0% (down from 5.1%)
  • forecast: 180,000 jobs with an unchanged unemployment rate
  • NY Times calls this a "very strong showing"
  • unemployment "rate close to full employment"
  • after strong gains of well over 200,000 jobs each in May, June, and July, the pace of job creation slackened considerably in August and September, falling well below 150,000 and far short of Wall Street had expected
From CNS News:
  • labor force participation remains at 38-year low
  • a record 94.5 million Americans not in the "visible/observable/measurable" labor force
  • unemployment ticks down to 5.0%
From US News two days ago:
A preliminary indicator for monthly jobs numbers dipped in October, potentially setting the stage for a third consecutive month of underwhelming employment data that could force the Fed to delay a long-deliberated interest rate increase into 2016.
The ADP National Employment Report released Wednesday showed the private sector of the labor market expanded by 182,000 jobs last month, down from September's revised 190,000 additions. Small businesses with less than 50 employees led job gains, adding 90,000 positions and accounting for nearly half of October's growth total. Such firms nearly doubled the 47,000 additions they posted in September.
Large companies with at least 500 employees, meanwhile, added only 29,000 jobs last month. In September, the small subset of firms with at least 1,000 employees added 100,000 jobs alone, and that huge jump in large-firm employment had alarmed analysts, as smaller companies have historically led monthly post-Great Recession gains.
Regardless of what the jobs report shows today, the fact is that the private sector of the labor market expanded by 182,000 jobs last month, down from September's revised 190,000 additions. Small businesses with less than 50 employees led job gains, adding 90,000 positions and accounting for nearly half of October's growth total. Such firms nearly doubled the 47,000 additions they posted in September.

Dots to connect:
  • ObamaCare premiums are soaring.
  • Firms with less than 50 employees are exempt from ObamaCare; the employees are not, but the firms are.

Friday, November 6, 2015; Getting LNG Out Of Alaska's North Slope

Active rigs:

Active Rigs67190181187196

RBN Energy: An LNG Fix For Stranded North Slope Gas?
There’s been at least some progress the last two years on Alaska’s ambitious plan to pipe huge volumes of North Slope-sourced natural gas to the state’s southern coast, supercool it into liquid form, and ship the resulting LNG to Asia. Over that same period, however, the international LNG market has been rattled by weak demand, rock-bottom prices and an impending supply glut. Alaska is itching to become a major LNG supplier by the mid-2020s, but is anyone willing to buy what it’s selling? Today, we provide an update on Alaska’s LNG plan, including a newly approved state buy-out of TransCanada’s interest in key elements of it.
Alaska’s first oil well was drilled in 1898—yes, 117 years ago—but it was not until the mid-1970s that Alaskan oil started making its mark. Then, with the construction of the $7.7 billion Trans-Alaska Pipeline System from 1973 to 1977, oil production at Prudhoe Bay started in earnest in 1978 and quickly ramped up. As shown in Figure #1 below, North Slope oil production peaked at 2.0 MMb/d in 1988 and has been sliding ever since, falling below 1 MMb/d in 2000 and below 500 Mb/d in 2014. By July 2015, North Slope production was down to 431 Mb/d, less than one-third the production rate in the Eagle Ford and barely one-fifth the output of the Permian Basin. 

California Crude

There's a story making the rounds about Governor Brown of California tasking state workers to determine if there is any oil on / under his land in northern California. I don't care one way or the other; it's a perk of being in office.

For me the bigger story is noting Brown's attitude regarding the oil and gas industry in his home state. He did not ban fracking like the governor of New York has, and considering the opposition to the oil and gas industry in California, one can argue that he has been about as fair as he can be on drilling in his state. I'm sure many will disagree with me. Whatever.

From the AP (same link):
Brown's request to oil regulators points to the complex way that the governor, an internationally known advocate of renewable energy, approaches oil and gas issues in his own state.
While spearheading ambitious programs to curb the use of climate-changing fossil fuels, Brown also has sought to spur oil production in California, the country's No. 3 oil-producing state.
Even if his far-left supporters don't want to admit it, the state relies heaving on oil revenue, and Jerry Brown knows it. California's ranking is irrelevant if oil production overall is decreasing.

At its peak, back in 1985, California was producing around 35 million bbls of oil per month (about what North Dakota produces now in a highly choked-back environment).  California is now producing less than half that amount, below 17 million bbls of oil per month. Couple that with the huge price decline and California's oil revenue must be cratering. Throw in lost state income tax from oil workers laid off in the state and the situation must look a bit depressing for the governor.

XOM seems to be leaving California -- they sold their refinery in Torrance. OXY spun off its operations in California and moved its headquarters to Texas. Back in 2013, CVX moved 400 employees from its HQ in San Ramon (CA) to Houston; building a new building in Houston; says they are keeping HQ in San Ramon (CA).

The Monterey shale looks like a bust, but even if there is a lot of oil there, it's not going to be produced in this price environment. All of that is probably just the tip of the iceberg.

All of that is upstream.

California remains an "island" when it comes to oil. Midstream, risks of earthquakes minimize opportunities to bring oil into the state via pipeline. And downstream, California has uniquely interesting requirements for gasoline blends. [I would imagine California is VW/Audi's biggest market in the US -- but that's another story for another time.]

Jerry Brown looks at all of that, and then looks at the Alaska crude oil production graph, as seen above. Like most of us, Jerry Brown probably doesn't like movie sequels.

My hunch: before the end of 2016 we are going to see some shocking graphs of California oil production.