Could Minnesota's Dithering Cost Them The Sandpiper? That's Very Possible If Dakota Pipeline Succeeds In Iowa -- June 16, 2016; PDX Pays $15,500/Acre In The Permian

Active rigs:

	6/16/2016	06/16/2015	06/16/2014	06/16/2013	06/16/2012
Active Rigs	28	78	187	185	214

RBN Energy: could the Bakken end up with too much pipeline capacity? From the article, which is the first of a 2-part series:

Assuming construction starts in early summer, the Dakota Access Pipeline (an Iowa issue) and Energy Transfer Crude Oil Pipeline (a pipeline reversal, Illinois to Texas) are planned to be operational late this year.

DAPL will give the Bakken sufficient pipeline (and in-region refinery) capacity to receive more than 100% of the Bakken’s crude output.

That won’t make the Bakken’s vast CBR capacity superfluous—far from it.

For one thing, only a few Bakken producers would have direct access to DAPL, and some don’t have access to existing pipeline out of the region either. For another, many producers that signed take-or-pay contracts for CBR capacity have time left on their deals, and would be unlikely to double-pay for takeaway capacity (that is, pay their CBR obligations and pay to use a pipeline). And one more thing: CBR, unlike pipelines, provides that destination flexibility we mentioned earlier. Still, DAPL (with its large capacity—nearly 45% of current Bakken production—and its access to the Midwest and Gulf Coast) is sure to further reduce CBR’s role in the Bakken. As of February 2016, only 42% of Bakken production was moving out of the region on the rails, down from a high of 78% in April 2013.

Perhaps the bigger question is whether DAPL’s completion late this year (again, assuming all goes well on its federal permits and during construction) will affect the need for another out-of-the-Bakken pipeline project—Enbridge’s proposed 616-mile Sandpiper Pipeline from near Tioga, ND, to Enbridge’s crude terminal in Superior, WI.

Sandpiper’s planned capacity varies by segment: It would be 250 Mb/d from Tioga to Berthold, ND; 225 Mb/d from Berthold to Clearbrook, MN; and 375 Mb/d from Clearbrook to Superior. From Clearbrook and Superior, Bakken crude could be transported by Enbridge and other pipelines to refineries in the Midwest and eastern Canada. Development of Dakota Access and Sandpiper had been running neck-and-neck for some time (each of them do sound like entrants at the Belmont Stakes), but DAPL pulled ahead in the stretch when changes in Sandpiper’s regulatory-approvals timeline in Minnesota slowed that project’s pace. (We understand that Enbridge now expects Sandpiper to come online in early 2019.)

Sandpiper would provide Bakken producers with access to a different set of refineries. Whether that is enough to push the Enbridge project over the finish line remains to be seen, given what may be an emerging surplus of Bakken pipeline takeaway capacity.

Flaring? From yesterday's Director's Cut, North Dakota is now down to 9% flaring which meets the April, 2020, target. The "red star" in the screen shot from an earlier post shows us where "we" are now with regard to flaring:

I always said that if they quit drilling, they would eliminate flaring.

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Other News

Pioneer Natural Resources buys Devon assets. Link here. 

Pioneer Natural Resources Co. is purchasing drilling rights from Devon Energy Corp. in a Texas shale field that’s home to some of the buyer’s biggest gushers.

Investors panned the $435 million transaction that is being financed with new Pioneer stock that will dilute the value of their holdings. Pioneer was one of the worst-performing oil producers in the S&P 500 Index on Thursday, declining more than 5 percent after announcing the deal late Wednesday to acquire Devon’s rights to explore 28,000 acres in Permian Basin in Texas. [$435 million / 28,000 = $15,500 / acre.]

Pioneer, which in recent years cast off a far-flung portfolio of international oil fields to concentrate almost exclusively on Texas shale, said most of the acquired rights lie adjacent to -- or in some cases, directly below -- assets the company already owns.

Pioneer expects wells it drills in those zones to generate pre-tax returns of 50 percent or more, according to the statement announcing the deal. The 28,000-acre package is in a section of the Permian known as the Midland Basin, where Pioneer has been drilling 2-mile-long oil wells expected to yield a million barrels each.

That's the "standard" in the Bakken, "2-mile-long" horizontals, with an EUR of one million bbls in the better spots.

As far as "investors panning the investment," the Alaska Purchase was also panned by the US population as Seward's Folly.

$15,500/acre, though, certainly speaks volumes.

See another note on PDX below.

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Update on Canadian Wildfires

Update on the Canadian wildfires, from Seeking Alpha:

• A shutdown of Suncor Energy's MacKay River oil sands facility near Fort McMurray, Alberta, is being prolonged by an Enbridge pipeline connected to the facility has clogged after heavy oil cooled in the system, Reuters reports.
• The pipeline clogged after last month's Alberta wildfire forced oil sands producers to shut facilities, including thermal projects that require ongoing heat to operate effectively.
• It is not yet clear how long repairs would take, but the extended shutdown is a setback for SU, which last week cut its full-year production guidance but said it expected all its operations in the area to be at normal rates by the end of June.
• Separately, ConocoPhillips  says 73% of wells at its Surmont oil sands project in Alberta are back in production or injecting steam, with no unexpected complications affecting the effort, after being shut down due to the fires.

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The Economy

CPI:

• forecast: 0.3%
• reported: 0.2%

But this will help: rising rents and healthcare costs will support underlying US inflation. I can't make this stuff up.

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Comments From Pioneer's CEO

Link here.

Sheffield said the industry has too much debt, and estimates more than $100 billion needs to be removed before balance sheets can get back in order.

“There’s been more bankruptcies [this cycle] than in any downturn I’ve ever seen – 77 North American E&P [exploration and production] companies have filed for $52 billion worth of bankruptcies,” said Sheffield. “The [oil] majors have more debt than I’ve ever seen, even though they’re in great financial shape.”

Sheffield said the Permian Basin is “set for explosive growth” in the next few years, with its players having the best balance sheets and the Permian currently having the most rigs. However, $50 oil isn’t going to get it done.

“Based on what we’ve done at Pioneer and looking at the entire shale play, if we had $50 oil flat, in my opinion, U.S. production will continue to decline,” said Sheffield. “We may grow for two or three years and a few independents may grow, but you don’t get enough cash flow.”

So what’s the magic number? What’s the inflection point?

“I think the world is going to need Permian Basin oil production, and it’s not going to grow until you get to $60 long term,” he said. “When oil moves toward $60 per barrel, I believe a good $10 of it for a lot of companies will go toward paying off debt, or they’ll start selling assets at decreased divesture prices. That extra $10 will be a huge difference for companies that have great balance sheets today. That’s why I’m a firm believer we’re in a $60 long term oil price environment.”

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Kurds: Our Oil Is Worth $1 Billion / Month

Link here.

Iraq's Kurds are ready to strike an agreement with the central government in Baghdad on a deal to increase oil exports, if it guarantees them a monthly revenue of $1 billion.

Iraq's central government in March stopped oil exports through a Kurdish pipeline to pressure the local authorities to resume talks about an oil revenue sharing agreement.

Iraq's state-run North Oil Company normally exported 150,000 barrels a day through the pipeline that comes out at the Mediterranean port of Ceyhan, in Turkey. The pipeline also carries oil produced in the Kurdish region in northern Iraq and sold independently from the central government.

KRG spokesman Safeen Dizayee said in an interview in the Iraqi Kurdish capital Erbil on Tuesday that the Kurdish authorities would be willing to sell the oil through Baghdad if they get a share from the federal budget amounting to a $1 billion a month.