Tuesday, March 22, 2016

The Crude Oil Market Will Re-Balance This Year -- Rystad -- March 22, 2016

Updates

March 23, 2016: Outlook for The US Offshore Industry Is Darkening.
After enunciating an energy policy in March 2012 that was based on the concept of an “all of the above” resource strategy, President Barack Obama has abandoned it in his recent energy policy actions. First, he rejected the construction application for the Keystone XL pipeline, and now he is ditching the Atlantic Lease 260 sale from the proposed five-year offshore oil and gas lease sale program for 2017-2022.
Even more recently, President Obama has directed that the government tighten air pollution standards for offshore drilling. The removal of Atlantic Lease 260 is a reversal of President Obama’s previous policy calling for opening up the East Coast offshore to oil and gas exploration. This is the second time that acreage in the Atlantic Ocean has been bumped from proposed five-year lease sale programs. The first time was in 2010 when President Obama was siding with including an Atlantic lease sale in the 2012-2017 sale program, only to withdraw his support after the Macondo accident and resulting oil spill.
It should be noted that many of the media stories about the proposed Atlantic lease sale reported that the previous drilling off the East Coast some 40 years ago resulted in no successes. The reality is, as one story we read pointed out accurately, there were 51 wells drilled and hydrocarbon resources discovered, but they were not in sufficient quantities to be developed commercially.
The key in conducting more exploration would be as an aid in determining if there were sufficient resources that could be developed commercially.
While we watch the evolution of our offshore oil and gas leasing program, it is important to understand that there are other ways the offshore oil and gas business is being attacked in an effort to hamper operations and boost operating costs in U.S. waters. If successful, the efforts will reduce offshore activity and resource development. That outcome would go against two of President Obama’s key energy policy tenants – to produce economic and employment growth while also boosting U.S. energy security. 
Original Post
 
I think it's pretty well understood that in three to four years there may be a relative shortage of crude oil based on current data and current events. Most people are not looking that far out; most are trying to figure out what might happen in the next six months or even less.

It wasn't too long ago that Goldman Sachs was suggesting that oil would decline again, falling back as low as $20/bbl. I don't hear much of that talk any more, and it seems most folks think we're in a new trading range.

It also seems that most folks think that crude oil will be in the $40 - $60 range by the end of year.

But it seems even $40 - $60 may be on the very low side. Rystad (see below) has suggested that the market would "re-balance" by the end of the year. For me, $40 - $60 oil is not re-balanced. Others will disagree. Be that as it may, but Rystad's forecast is certainly in line with what Saudi Arabia has said. Saudi has based its budget on an average of $60-oil this year. I don't see how we get there from here, but that's what Saudi is basing their budget on and Rystad is pointing in the same direction.

I don't know if anyone has defined what is meant by "re-balancing" but before Saudi "opened the spigots in October, 2014," with supply and demand supposedly "balanced," oil had been in the $100 range. 

***************************************

BloombergBusiness has a most interesting article that continues the them: drillers are not replacing reserves.
For oil companies, the legacy of $100 crude is starting to run dry. 
A wave of projects approved at the start of the decade, when oil traded near $100 a barrel, has bolstered output for many producers, keeping cash flowing even as prices plummeted. Now, that production boon is fading. In 2016, for the first time in years, drillers will add less oil from new fields than they lose to natural decline in old ones.
XOM and Shell both made news in the past few weeks when it was reported that neither replaced reserves this past year.
With regard to reserves, BloombergBusiness is reporting that Shell posts worst performance on oil reserves since the 2004 scandal:
Royal Dutch Shell Plc said it depleted its oil and gas reserves much faster than it replenished them with new resources in 2015, its worst performance since an accounting scandal that engulfed the company 12 years ago.
Shell said its reserves replacement ratio -- the proportion of oil and gas production during the year that was offset by the addition of new resources -- was minus 20 percent. The company not only failed to replace any of the 1.1 billion barrels equivalent it pumped in 2015, but also wrote off another 200 million barrels to account for the plunge in oil prices.
Back on February 21, 2016, it was also reported that XOM failed to replenish its reserves (in 2015) for the first time in 22 years. Exxon Mobil’s so-called reserve-replacement ratio fell to 67 percent in 2015, much, much worse than Shell, if I read the numbers correctly.
Note the dates in the BloombergBusiness article:
“There will be some effect in 2018 and a very strong effect in 2020,” said Per Magnus Nysveen, Rystad’s head of analysis, adding that the market will re-balance this year. “Global demand and supply will balance very quickly because we’re seeing extended decline from producing fields.”
But look how minuscule some of these projects really are:
Royal Dutch Shell Plc is scheduled to start the Stones project in the Gulf of Mexico’s deepest oil field this year after approving it in May 2013. Benchmark Brent crude averaged $103 a barrel that month compared with about $41 on Monday. Stones will add about 50,000 barrels a day to Gulf of Mexico output at a peak rate, according to Shell.
50,000 bopd is trivial.
[Two other deepwater projects] will help boost production in the Gulf of Mexico by 8.4 percent this year to a record annual average of 1.67 million barrels a day, according to the U.S. Energy Information Administration.
1.67 million bopd is a record, but it's not much of an increase (8.4%) considering how fast other fields are declining.

The JV Team Strikes -- Again -- This Time In The Heart Of Europe -- March 22, 2016

 Updates

March 23, 2016: President Obama says he has "a lot on his plate" and that ISIS shouldn't interfere with everyday lives of Americans, after all, it's just the JV; it's not an existential issue. Whatever. Two weeks from now Brussels will be forgotten just like Paris has been forgotten. And Benghazi. And Yemen. And dozens of other Obama success stories.

Original Post

The Washington Post suggests that President Obama has some concern about the JV team in light of today's terror attack in Brussels.

This was posted almost exactly one year ago:

Fathomless Ignorance

In a nutshell: first from The Wall Street Journal:
Every president gets things wrong. What sets Obama apart is his ideological rigidity and fathomless ignorance....
Now turn to Yemen. In 2012, after the Arab Spring, the president singled out Yemen as a model for a prospective political transition in Syria. Mr. Obama was at it again just two weeks ago, citing the fight against al Qaeda in Yemen as the model for the war he intends to wage against the Islamic State in Iraq and Syria.
Whoops. "Over the weekend," noted McClatchy's Adam Baron on Monday, "the growing gap between administration rhetoric and reality came to a head, as the acerbically anti-American Houthi rebels—who American diplomats allege have close financial and military ties with Iran—took control of many areas of the capital, Sanaa, with minimal resistance from the U.S.-supplied Yemeni armed forces."
Keep going around the world. He declared victory over al Qaeda and dismissed groups such as ISIS as "the jayvee team" at the very moment that al Qaeda was roaring back. He mocked the notion of Russia being our enemy—remember the line about the 1980s wanting "its foreign policy back"?—just as Russia was again becoming our enemy.
That was back on September 22, 2014. Read that part about Yemen again. Now this from today, from Al Arabiya:
Houthi rebels on Friday seized power in Yemen and dissolved the country’s parliament as they announced a series of constitutional decrees drafted by the powerful shiite militia,.

The rebels, backed by Iran and influential members of the former regime of President Abdullah Saleh, have also set a two-year period in which the transition of power would be complete.
It just got a bit more tense for Saudi Arabia today. 

And that's the way it is, Friday, February 6, 2015. Only 713 more days (dynamic link).

OXY USA/OXY Little Knife Transfers 346 Wells To Lime Rock Resouces -- March 22, 2016

Active rigs:


3/22/201603/22/201503/22/201403/22/201303/22/2012
Active Rigs32107198187205

Wells coming off the confidential list Wednesday:
  • 31356, dry, Hess, BL-Davidson-LE-155-96-0211H-1, Beaver Lodge, no production data,
  • 31407, SI/NC, SM Energy, Eagle 1-28HN, Ambrose, no production data,
  • 31591, SI/NC, Statoil, Ruth 28-33 5H, East Fork, no production data,
No new permits.

Four permits renewed, all by Newfield: two Orvis State permits, one Gariety permit, and one Skaar Federal permit, all in McKenzie County

Five producing wells completed:
  • 30749, 1,873, XTO, Amundson 44X-22HXE, Siverston, t2/16; cum --
  • 30750, 1,656, XTO, Amundson 44X-22D, Siverston, t2/16; cum --
  • 30751, 912, XTO, Amundson 44X-22H, Siverston, t2/16; cum --
  • 31663, 968, Hess, AN-Evenson-152-95-0310H-12, Antelope, Sanish pool, t2/16; cum --
  • 31664, 1,066, Hess, AN-Evenson-152-95-0310H-11, Antelope, Sanish pool, t3/16; cum --
Operator Transfer:
  • OXY Little Knife transferred four (4) oil & gas wells to Lime Rock Resources III-A, LP; these were all very old wells in Dunn County
  • OXY USA transferred ~338 oil & gas wells to Lime Rock Resources III-A, LP; oldest permit was #15824; the most recent was #32048; almost all of them were in Dunn County; a fair number were in Burke County; and a few were in Billings County; I didn't see wells in any county other than those three
  • These would be the wells announced in a December 9, 2015, briefing by Lynn Helms, NDIC 
    • OXY USA has sold off 346 wells to Lime Rock Resources—which had previously disclosed it was buying all of its Bakken assets— the 346 wells included several SWD wells also
    • source here: Oil Patch Hotline
  • Previously announced but takes awhile for NDIC to process this large number of wells 
  • Activity in the Bakken by operator is tracked here 

Top Tier Plays In US Tight Oil -- March 22, 2016

This was taken from a CLR presentation, March 22, 2016, so it highlights CLR, but it provides the "break-even" cost of tight oil plays throughout the US.


Note that the Bakken 900,000 boe EUR is not shown. These wells (Bakken 900,000 boe EUR) would be ranked #1 or #2.

The North American Shale Energy Boom -- Is It Worthwhile For The US To Continue To Protect Everyone's Trade? -- March 22, 2016

Atlantic City first appeared on my list of "troubled cities" in December, 2013. Today, it is being reported that the city is likely to shut down for three weeks starting April 8, 2016.

Tweeting now: Britain's road traffic is growing at the fastest two-year rate since 1996/97.

********************************
Book Suggestion, From A Reader

Accidental Superpower.

From a Wall Street Journal review:
The Coming Hobbesian World: The North American shale energy boom raises the question of whether it is worthwhile for the U.S. to continue to protect everyone’s trade.
The review begins:
Peter Zeihan begins “The Accidental Superpower” by declaring that he has “always loved maps.” From this unremarkable claim springs a lively, readable thesis on how the success or failure of nations may rest on the very ground beneath their feet. Rather than focusing on charismatic leaders or lofty ideals, Mr. Zeihan stresses the more prosaic forces that shape world events: topography, soil quality, access to water. Water especially, he says, sorts winners from the rest. It can be a highway, a barrier, a larder and a battery. Rivers make it cheap to transport goods and people, enabling the efficient mixing of ideas and markets. The capital that might otherwise be spent on, say, building a road may be used for other purposes.
It happens that the United States—the “superpower” of Mr. Zeihan’s title—is blessed with 12 major navigable rivers, including the Mississippi. Much else flows from this happy accident. A less pressing need for grand, land-based infrastructure projects, for example, may lessen the need for centralized coordination, encouraging small government.
Other great powers, or former ones, have enjoyed one or two geographical advantages—think of Egypt’s mighty Nile or Britain’s status as an island nation, from which its great naval tradition comes. But no nation combines America’s easy navigability, abundant cropland and a moat the size of two oceans. The geographical underpinning of America’s global role makes it likely that U.S. supremacy will endure for some time to come. Just don’t expect it to be easy, Mr. Zeihan says, at least not for the next couple of decades.
The bulk of “The Accidental Superpower” peers into the future as Mr. Zeihan, a former analyst at the geopolitical security firm Stratfor, tries to imagine where the world, and particularly America, is headed. Conjecture is de rigueur in the geopolitics genre—sometimes to its peril.
Take “The Next 100 Years” by George Friedman, Mr. Zeihan’s former boss at Stratfor. Mr. Friedman’s 2009 book got some things right, notably a renewed standoff between the West and Russia. Eventually, though, it veered into Tom Clancy territory by imagining orbiting “Battle Stars” and a midcentury Thanksgiving Day sneak attack starting a world war.
The last paragraph:
Only in the conclusion to “The Accidental Superpower” does the author overreach, declaring that “the world is indeed going to hell, but the Americans are going to sit this one out.” After his having done such a good job of explaining the nature of U.S. power and the threats to global order, the triumphalist tone of the final pages is jarring. Still, anyone seeking a cogent, and provocative, take on where the world is heading should start here. Even if you don’t fall in love with maps, you’ll never look at them the same way again.  
"... but the Americans are going to sit this one out."

Very, very interesting. Very, very prescient. Remember, this book was written in 2014 (paperback available, 2016). There is a great article in this month's issue of The Atlantic on how President Obama has shaped the world: the 30-second soundbite I took from that article: President Obama has decided to sit this one out.

Amazing.

CLR Has Just Released A New Presentation -- Dated March 22, 2016; Look At The Number Of DUCs Projected For Year-End 2016

Disclaimer: this was done quickly; there will be typographical and factual errors. I often use shorthand, round numbers, etc. Do not use this information on which to base decision-making. If this information is important to you, go to the source: http://phoenix.corporate-ir.net/phoenix.zhtml?c=197380&p=IROL-Presentations. This is the March 22, 2016, presentation.

Sixteen slides.

Some numbers rounded; ranges may differ.

Slide 3: emphasis on STACK/SCOOP

Slide 4:
  • 2016 - CAPEX slightly less than $1 billion to maintain 200,000 BOEPD
  • cash flow neutral at ~ $37 WTI
  • $200 million cash flow impact +/- $5 move in WTI
  • 19 operated drilling rigs (32% reduction from 2015 average)
  • 2.5 completion crews in South; 0 to 1 in the Bakken
Slide 4, continued:
  • over-pressured STACK shows 3X production uplift compared to normally-pressured wells
  • enhanced completions in SCOOP generating 35% increase in 180-day IP rates
  • Bakken DUCs provide catalyst for high ROR with lower incremental cost in 2017
Slide 5, non-acquisition CAPEX:
  • Bakken drilling: $320 million
  • SCOOP/STACK drilling: $400 million
  • Slide 5, continued, DUCs:
  • Bakken: 195 year-end 2016; compare to 135 year-end 2015
  • Oklahoma: 50 year-end 2016; compare to 35 year-end 2015
Slide 6:
  • Bakken: 1,045,000 acres
  • Oklahoma: 850,000 acres
  • Slide 13, the Bakken
  • average EUR up 13% from 2015
  • 2016 target average EUR: 900,000 boe/well
  • 2015 target average EUR: 800,000 boe/well
  • finding/development costs cut by 50% in 2015 (per boe)
  • increasing DUC backlog (see above
  • year-end DUC EUR average of 850,000 boe
Slide 14: costs and drill times
  • company records:
  • two-mile lateral drilled in 2.2 days
  • three-mile lateral drilled in 4.7 days
  • completion cost reductions
  • fresh water: down 55%
  • water handling: down 55%
  • stimulation services: down 55%
  • perforating: down 30%
Slide 15: balance sheet
  • no near-term debt maturities
  • earliest is $500 million 11/2018
Break-even costs as posted by CLR at the above presentation:

There's More To North Dakota Than Oil -- March 22, 2016

The location is nowhere near the Bakken, but since folks in Manhattan and on Wall Street don't know that, I can tag this with the "Bakken economy." The Dickinson Press is reporting:
Construction is expected to begin in July on the long-awaited $2.3 million Pembina-Walsh Livestock Processing Plant.
The meat locker, which will be owned by area producers and other investors, should be operational by February or March of 2017.
When it reaches full production, the plant will have an annual capacity to slaughter 1,500 head of cattle, 1,000 hogs, 150 bison, 100 elk, as well as sheep.
With 42 investors, Wangler expects the number to increase to 55, including 30 livestock producers from around the region. Investors have committed about $350,000 toward the project. The group still is seeking additional investors.
The remaining part of the financial package is a mix of private and public funding, including $500,000 loans from Citizens State Bank of Lankin and the Bank of North Dakota.
Pretty cool. 

This is in the far northeast corner of the state, not all that far from the Canadian border, south-southeast of Winnipeg. Once they get the financing, things move along pretty quickly.

******************************
Honey Of A Deal

Speaking of which -- there's more to North Dakota than oil -- how is the North Dakota honey industry doing? First, from Montana, The Great Falls Tribune is reporting:
In the world of honey bees, Montana is a haven, a refuge, a place for bees to recuperate and regain their strength after hard duty in the almond groves of California.
And along the way they make honey — a lot of it.
For decades, Montana has consistently ranked as one of the nation's top 10 honey-producing states. Long, warm summer days followed by cool nights, coupled with a diverse landscape of flowering crops, weeds and wildflowers makes Montana prime habitat for honey bees.
In the mid-1970s, Montana hives produced around 7.3 million pounds of honey annually. The state ranked seventh in the nation for honey production, well behind states like California and Florida with a nationally recognized reputation for honey.
In 40 years the state's honey production has more than doubled, making Montana the nation's second-leading honey producer, one slot back from North Dakota. According to U.S. Department of Agriculture statistics, in 2013, Montana beekeepers harvested nearly 15 million pounds of honey — a harvest worth more than $31 million.
Today, honey ranks as Montana's 10th most valuable crop — more valuable than the state's entire production of canola, oats and cherries combined. And yet it is only a drop in the bucket.
Montana honey production is a mere sideshow to a global, multibillion dollar industry with its roots deep in Southern California soil.
"It's all about almonds," said Cam Lay, natural resource manager for the Montana Department of Agriculture. "Honey might pay some of the rent, but pollination makes the money."
Do you know why Montana moved to the #2 position behind North Dakota? We talked about it a long, long time ago. Global warming. I'm serious.

From the state government:
North Dakota is the #1 honey producing state in the nation. In 2014 North Dakota bees produced over 42 million pounds of honey valued at over $84 million.
I might provide some data points from this article later. It's a great article. Enjoy:

Honey in California and North Dakota, Part 1:
We made a mealy 100,000 pounds of honey on 10,000 hives and then made this epic walk in the wilderness, and made ¾ of million pounds off fewer hives. We made a little more and a little more and then went off this cliff where we couldn’t keep our hives alive and we couldn’t produce a honey crop. We got our count up and our crop went down, which began a series of really awkward conversations with my banker.
We spent a lot of time in North Dakota trying to pave it with corn and the areas that weren’t paved with corn we tried paving with soybeans. There 200,000 square miles of soybeans in America! It’s a lot. 128 million of acres, or 10% of that, of that in North Dakota is thin, poorly suited, highly erodible soil. A lot of it is native prairie. If you put $400 an acre into it, it can be corn. It almost covers their inputs. Those acres need to go back into a program like CRP (Crop Reduction Program), which is really good for the animals and the bees.
These poor prices for corn and soybeans may be driving farmers to make decisions about land use, but corn acreage in America is decided by Congress in America — not such a great idea. Things have changed inside the hives. In my career, it’s been the most tumultuous path of beekeeping since bees arrived in North America. We lose track of that because sometimes it feels like politics. You know that 123 pound average was tampered by 43 cent honey, which isn’t nearly as fun as $2 honey, right? It all works out.
Honey in California and North Dakota, Part 2:
Things have changed and here’s what we do now: the 10-wheeler moves 216 hives, which is exactly half of a semi and you can do it pretty quick if they all stay on the truck.
But I’m not doing a lot of the things mentioned earlier because I’m an industrial beekeeper. This is not a purgaric (sic) term. Two or three weeks ago, I had supper with Hannah Nordhaus — she wrote the book, The Beekeeper’s Lament — and she refers to American industrial beekeeping as not purgative (sic), it’s just what we do here that’s industrialized agriculture.
Drones and agriculture didn’t exist five years ago. We put a GoPro camera on a drone and put it up in the air, it documented the unloading of bees. It was May in North Dakota. If you look at the covers, there’s no paint! You can buy a cover from Used Pallet Company with a crappy pleat on the end for $1.70 and it’s made out of culled tomato bins so the paint won’t stick to it. You get ten years out of it for $1.70, which is 17 cents a year for this cover that I’m not going to repair. I used to drive to Arcada, CA to pick up 14-foot pieces of tongue and groove Redwood and we would make gorgeous bottoms and covers out of them. They lasted forever. Some are still in the outfit. They’re beautiful! But, they can’t compete with $1.70? Also, the question is: can they keep the rain out? The $1.70 does just as good a job as the $37.50 and the bees don’t care.
That must have been a helluva small GoPro camera to put on a drone -- those male hoenybees are incredible small, but they probably attached an auxiliary battery to the bees knees. LOL.

Don't say you never learn anything from this blog. 

Halo Effect, Can The Halo Effect "Stretch" Across A Drilling Unit? Part II -- March 22, 2016

Before reading this post, read Part I regarding the Bridger wells. The same disclaimer applies as the one in Part I.

Now in Part II, we look at the production profile of another well. Note the huge jump in production between June, 2015, and August, 2015. It is startling. This well was drilled and fracked in 2010 and by 2015 it was an "old well" as far as Bakken wells go.

PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare
BAKKEN1-201631303633062380364023811259
BAKKEN12-201531564957895098637244171955
BAKKEN11-20152235373205402028542043811
BAKKEN10-201523742977717373873656263110
BAKKEN9-20153013506130791406216404635110053
BAKKEN8-2015261330613330161611574197835958
BAKKEN7-201592312252224434430
BAKKEN6-2015301276133346019251817108
BAKKEN5-2015311390133546817861631155
BAKKEN4-2015301395133652718921569323
BAKKEN3-201531163917955852142209052
BAKKEN2-2015282021206768319931761232
BAKKEN1-201593682402583483480
BAKKEN12-20143115241788632214221420
BAKKEN11-201430160615976122110208723

This is the production profile of this well:
  • 19013, 399, CLR, Bridger 2-14H, Rattlesnake Point, 4 sections, runs north, Three Forks, 21 stages, 2.3 million lbs, t12/10; cum 205K 1/16;
The graphic again of this area (and the description of this area at the linked post above):




#19013, I believe, is the horizontal labeled A-1 in the graphic above. Note that it is a Three Forks well. The horizontal tagged A-2 is a middle Bakken well and shows no increase in production over time; it shows the typical decline/plateau Bakken curve we have come to expect. 
 
Now look at this:
  • 29554, 1,018, Bridger 4-14H2, Three Forks, 30 stages, 6 million lbs, t1/16; cum 78K 1/16; fracked 7/11 - 7/20.
Yup. The horizontal tagged B-1 is #29554, a Three Forks well, and a Three Forks well that was fracked just prior to when A-1 had that surge in production.

I cannot explain why the A-2 (middle Bakken) well did not show a halo effect after two middle Bakken wells were fracked to the east. There may be other things going on with that well; it has a slightly strange production profile. 

The Pipelines Carrying Transportation Fuel(s) From Texas/Louisiana To Northeast -- RBN Energy -- March 22, 2016

See the introduction here.

The heavy lifters are the Colonial Pipeline and the Plantation Pipeline. Of these two, the Colonial is by far the largest, and even so, is remarkably congested.

Colonial Pipeline

Current events: this pipeline is congested; line-space trading has been the subject of shipper concerns and the FERC.

Pipeline:
  • 2.5 million bbls/day (transportation fuels)
  • 5,500 miles of pipe
  • primary line: Houston to Linden, NJ
  • terminus alongside the New Jersey Turnpike, just west of Staten Island
  • several injection points at the southern end; several spurs as it goes north
  • started operating in 1963
  • co-owned:
    • Koch Industries
    • KKR
    • a Quebec pension fund
    • Royal Dutch Shell
    • Funds Management (Australia)
  • runs through or near many of the East Coast's major population centers
    • Atlanta
    • Charlotte, NC
    • Washington, DC
    • Baltimore
    • Philadelphia
    • New York City (terminus)
Plantation Pipeline (about 1/4th the size of the Colonial)

Pipeline:
  • 0.7 million bbls/day
  • jointly owned: Kinder Morgan and XOM
  • Baton Rouge to northern Virginia (near Washington, DC)
  • both pipelines (parallel each other for the most part)
  • dates back to WWII
  • several spurs; many to regional/national airports
    • Birmingham and Montgomery, AL
    • Columbus, Macon, Atlanta, GA
    • Knoxville, TN
    • Charlotte, NC
    • Greensboro, NC
    • Virginia
Buckeye Partners

Pipeline system:
  • connects Central Atlantic-area refineries with the northern portion of the Colonial
  • delivers transportation fuel to the east, west, and north
  • system extends into Corpus Christi area
  • provides jet fuel to NYC area's three airports
Sunoco Logistics Partners LP
  • Philadelphia area: refineries, terminals, and ports

All In? -- March 22, 2016; Petrobras Records Huge Second Consecutive Financial Loss

This is pretty cool. This can be seen only as good news for the beleaguered oil and gas industry. Iran may play ball. Reuters is reporting:
Iran may join other oil producers planning to freeze production to support prices at a later date, OPEC's secretary general said on Monday, since the country is seeking to raise its exports. Producers from the Organization of the Petroleum Exporting Countries and non-members are due to meet on April 17 in Qatar discuss the output freeze.
But Iran is seeking to increase exports, following the lifting of Western sanctions in January.
"I hope the result of the meeting will be positive," Abdullah al-Badri said at a news conference in Vienna. "They are not objecting to the meeting but they have some conditions for the production and maybe in the future they will join the group," he said of Iran.
The comments are a further sign that Iran's position will not derail a wider agreement on the output freeze. Gulf oil exporters including Saudi Arabia had previously maintained that all major producers should participate.
Reuters is also reporting huge losses for Petrobras:
Brazil's state-controlled oil company PetrĂ³leo Brasileiro SA posted a record loss in the fourth quarter after booking a large writedown for oil fields and other assets as oil prices slumped.
Petrobras, as the company at the epicenter of Brazil's massive corruption scandal is commonly known, had a consolidated net loss of $10.2 billion in the quarter.
The bigger-than-expected shortfall was 48 percent larger than the 26.6 billion-real loss a year earlier, the previous record. The largest fourth-quarter loss expected in a Reuters survey of analysts was for a 9.7 billion reais.
The April 17 OPEC meeting can't come soon enough.

US Shale Gas -- Ethane -- First American Shipment To Europe -- Tuesday, March 22, 2016

Another top story of the week.

The Wall Street Journal reports:  New Market for U.S. Shale Gas Opens in Europe Swiss company Ineos to accept the first American shipment of a type of shale gas to Europe.
Swiss petrochemicals giant Ineos Group Holdings SA plans to accept the first American shipment of a type of shale gas to Europe on Wednesday—a milestone that marks the opening up of a new market for American energy producers trying to sell a glut of the fuel.
The ship is carrying a type of natural-gas liquid known as ethane that was extracted from the Marcellus Shale in western Pennsylvania, where companies such as Range Resources Corp. and Consol Energy Inc. have been looking to diversify the markets for their ethane because of pipeline and storage limitations.
The shipment is the first seaborne export of ethane to Europe from the U.S., Ineos said, another sign of how the North American shale boom has transformed the global energy map.
The recent ramp-up in U.S. shale oil production has challenged Saudi Arabia’s sway over international oil markets, while an earlier shale-gas boom sent prices to record lows and upended coal’s dominance in the power sector.
*****************************************
Politics

Hours after the Brussels blast, the Drudge Report continues to be the link to the Bill Clinton video in which he "slams the awful legacy of the last eight (8) years." I assume he's talking about the Obama administration and not his wife's successes the past year, starting with the Benghazi attack.

Mr Clinton's remarks were either deliberate or a slip. If the remarks were deliberate it suggests that he and his wife are publicly separating themselves from the Obama administration.

If that is accurate, then it is likely a "trail balloon" to see how it plays in Peoria polling. If it plays well, then the attacks will increase, but (to continue the alliteration) the proof in the pudding will be if Hillary picks up the pace by doing the same.

If Hillary does push the envelope -- "slamming the legacy of the last eight years" -- it suggests that internal polling shows Hillary struggling.

Note: Bill's speech aired at the same time there were media reports that Hillary was beginning to organize her national race against Trump.

The Brussels blast this morning won't help Hillary; the blast won't hurt Trump.

Yes, It Appears To Be A Terrorist Attack -- US Official -- March 22, 2016

Two almost-simultaneous explosions in Belgium, at the international airport and a metro station near the airport, at least one by a suicidal bomber, with reports of someone yelling "Allahu Akbar" just before the explosions, were reported overnight following the capture of the mastermind being the Paris terrorist attacks last year. The US response:
A U.S. official said the explosions appeared to be a terrorist attack. It comes days after the arrest of Salah Abdeslam, one of the alleged Paris attackers who was captured in Brussels on Friday after a four-month manhunt.
I'm glad we have that cleared up.

************************************
Back to the Bakken

Active rigs:



3/22/201603/22/201503/22/201403/22/201303/22/2012
Active Rigs32107198187205


RBN Energy: Transportation Fuel/Heating Oil Pipelines To The East Coast. More in-depth notes here.
The East Coast consumes more than 200 million gallons of gasoline, diesel, heating oil and jet fuel a day, but produces only one-fifth of that total, most of it at New Jersey and Pennsylvania refineries.
To keep the region’s cars, trucks, trains and airplanes moving (and many of its homes and businesses heated) huge volumes of fuels need to be delivered from elsewhere, mostly via two pipelines from the Gulf Coast and the rest by ship—some from Gulf and other U.S. ports and some from overseas. Today, we continue our examination of the infrastructure that moves gasoline, diesel, heating oil and jet fuel to the nation’s largest fuel-consuming region with a look at four major pipelines.
The aim of this series is to describe the logistics involved in moving refined petroleum products like gasoline, diesel, heating and jet fuel (which we have dubbed GDHJ) to the East Coast from their primary production region—the Gulf Coast, also known as Petroleum Administration for Defense District (PADD) 3.
Because the East Coast (PADD 1) produces only one-fifth of its GDHJ needs and depends on a mix of piped-in fuel, fuel shipped (by Jones Act vessels) from Gulf Coast ports, and fuel imported from overseas, this series also considers the PADD 1 ports that receive shipments of fuel from PADD 3 and foreign countries, and the smaller pipelines that move fuel from those ports to PADD 1 consumers.
As we said in Episode 1 of our series, PADD 3 produces about 7.5 MMb/d of GDHJ (the equivalent of 315 million gallons), but consumes only one-third of that (about 2.5 MMb/d). In sharp contrast, PADD 1 produces about 1 MMb/d of these fuels, but consumes five times that amount (about 5 MMb/d). According to the U.S. Energy Information Administration (EIA) about 2.8 MMb/d of GDHJ is moved, on average, from PADD 3 to PADD 1, accounting for nearly three-fifths (58%) of the East Coast’s total consumption of transportation fuels. Of that 2.8 MMb/d PADD 3-to-PADD 1 transfers, 82% (2.3 MMb/d) is moved by the two primary refined products pipelines between and through the two regions: Colonial Pipeline and Plantation Pipe Line.
Given their significance, let’s zero in on these two pipelines first.

Case Study: Halo Effect, Can The Halo Effect "Stretch" Across A Drilling Unit? Part I -- CLR Bridger Wells In Rattlesnake Point Oil Field -- March 22, 2016

The CLR Bonneville / Bridger well are tracked here

Updates

December 1, 2018: see this post for an example of an halo effect between a middle Bakken well and a Three Forks upper bench well.   

 Original Post

This is going to be one of those long notes and there are likely to be major typographical and/or factual errors. Some of the geological reports are not yet filed for the wells under discussion. A reader alerted me to this, and I'm not sure the reader and I are talking about the same thing, but if we are, this is quite interesting.

**************************************
Case Study: Possible Halo Effect

This is what got us wondering. Look at the production profile of this well. This well is an "old" well. By January, 2015, it was producing about 400 bbls of oil/month. It was taken off-line for several months in mid-2015; when it returned to production, production jumped 6-fold, up to almost 3,000 bbls of oil per month by January, 2016, one year later. Also, look at the surge in water production. What happened?

PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare
BAKKEN1-2016312849292210903370373333
BAKKEN12-201527260226781158306503065
BAKKEN11-20153321227823820382
BAKKEN10-201531219820141407261002610
BAKKEN9-201530210122272428251302513
BAKKEN8-20152112199112978136401364
BAKKEN7-201500990000
BAKKEN6-20150000000
BAKKEN5-20150000000
BAKKEN4-20150000000
BAKKEN3-20151003000
BAKKEN2-20150000000
BAKKEN1-20152833542911219214745
BAKKEN12-2014314824371533393318
BAKKEN11-201430533687158392252140
BAKKEN10-201422407222345461110351
BAKKEN9-20143044367018343836672
BAKKEN8-201431474448150378243135
BAKKEN7-20143150645214336427985

Regular readers know that if I see a huge jump in production that can't be explained from the well file, I start looking for the halo effect. Especially if that surge in production includes a jump in water production as well.

This is a screenshot of the area under discussion. The production profile above is for #17089:




In this area, the Bridger wells run north, the Bonneville wells run south. For purposes of this discussion, ignore the Bonneville wells.

Trying to keep things simple, "A" wells come from the same pad; "B" wells come from the same pad; "C" wells come from the same pad. The one "D" well is the index well, #17089.

The horizontal that would most likely exert a halo effect on #17089 would be "C-3." But the "C" wells are all DUCs -- they have not been fracked (confirmed by checking FracFocus which has no record of the "C" wells being fracked yet).

In addition, C-3 is a Three Forks well; the index well is a middle Bakken well (but that is irrelevant for now).

That leaves the "B" wells -- look how far away the "B" wells are from the index well. But the "B" wells were all fracked in July, 2015. The index well was taken off-line when the "B" wells were fracked; and when the index well, #17089, came back on-line, it had a significant bump-up in production. 

***********************************
The Wells In The Graphic Above

A-pad: a 2-well Bridger/2-well Bonneville pad in the graphic:
  • 19009, 651, CLR, Bonneville 3-23H, Rattlesnake Point, 4 sections, runs south, middle Bakken, 24 stages, 2.5 million lbs, t12/10; cum 268K 1/16;
  • 19011, 725, CLR, Bridger 3-14H, Rattlesnake Point, 4 sections, runs north, middle Bakken, 21 stages, 2.3 million lbs, t12/10; cum 275K 1/16;
  • 19012, 365, CLR, Bonneville 2-23H, Rattlesnake Point, 4 sections, runs south, Three Forks, 24 stages, 2.5 million lbs, t12/10; cum 137K 1/16;
  • 19013, 399, CLR, Bridger 2-14H, Rattlesnake Point, 4 sections, runs north, Three Forks, 21 stages, 2.3 million lbs, t12/10; cum 205K 1/16;
3-well Bonneville pad in the graphic (ignore)
  • 29549, SI/NC, CLR, Bonneville 6-23H1,
  • 29550, SI/NC, CLR, Bonneville 5-23H,
  • 29551, SI/NC, CLR, Bonneville 4-23H,
B-pad: a 3-well Bridger pad in the graphic:
  • 29552, 1,977, CLR, Bridger 6-14H1, runs north, middle Bakken, 30 stages, 6 million lbs, t9/15; cum 98K 1/16; permit shows Three Forks B2, geologic report not yet filed; fracked 7/20 - 7/27;
  • 29553, 1,160, CLR, Bridger 5-14H, runs north, middle Bakken 30 stages, 3.3 million lbs, t9/15; cum 94K 1/16; fracked 7/11 - 7/20;
  • 29554, 1,018, Bridger 4-14H2, Three Forks, 30 stages, 6 million lbs, t1/16; cum 78K 1/16; fracked 7/11 - 7/20
C-pad: a 3-well Bridger pad in the graphic:
  • 31847, SI/NC, CLR, Bridger 9-14H1, Three Forks B1, runs north,
  • 31846, SI/NC, CLR, Bridger 8-14H, middle Bakken, runs north,
  • 31845, SI/NC, CLR, Bridger 7-14H2, Three Forks B2, runs north
Two singletons: index well -- #17089
  • 17089, 400, CLR, Bridger 44-14H, open hole frack, 1 million lbs, t4/08; cum 128K 1/16;
  • 17088, 267, CLR, Bonneville 41-23H, open hole frack, 1 million lbs, t4/08; cum 122K 1/16;
************************
What About #17088

What about #17088? It does not show any bump-up in production. And guess what: the "B" wells that run to the south (Bonneville wells) are DUCs, they have not been fracked.

The Bonneville wells that run from the "A" pad have been fracked but they are either a) too far away from #17088 to have an effect; or, more likely, the small amount of sand used in these wells (2 million lbs) vs the larger amount of sand used in the other wells (6 million lbs) was not enough for a halo effect.

********************************

Anyway that's what I see. Again, I may be seeing things that don't exist. In a long note like this there will be typographical and factual errors. A huge "thank you" to the reader for alerting me to this.

*************************
There's More

And even with all that, there's more. See Part II for perhaps another example of the halo effect in the very same area.