Tuesday, May 31, 2016

Seven New Permits -- Have We Turned The Corner? -- May 31, 2016

One well coming off the confidential list Wednesday:
  • 32200, SI/NC, Hess, BB-Budahn-LS-150-95-0506H-1, Blue Buttes, no production data,
Active rigs:


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Active Rigs2880189187214

Seven (7) new permits --
  • Operators: Newfield (4), Whiting (3)
  • Fields: Lost Bridge (Dunn), Truax (Williams)
  • Comments:
Three (3) producing wells completed:
  • 31753, 950, CLR, Maryland 2-16H, Catwalk, t5/16; cum --
  • 31984, 800, EOG, Austin 439-2326H, Parshall, t5/16; cum --
  • 32120, 871, EOG, Asutin 438-2635H, Parshall, t5/16; cum --

Homeland Security And UND Partner On Drone Research -- May 31, 2016

Officer.com is reporting:
The Department of Homeland Security (DHS) Science and Technology Directorate (S&T) and the University of North Dakota (UND) announced today they have signed a three-year cooperative research and development agreement to both examine the beneficial use of unmanned aerial systems/ unmanned aerial vehicles (UAS/UAV) and to mitigate their use for nefarious purposes.

“Through this agreement, we will develop a better understanding of the capabilities and vulnerabilities of UAS/UAVs and spur the development of technologies to counter the potential threats based upon their use,” said DHS Under Secretary for Science and Technology Dr. Reginald Brothers. “A better understanding will spur innovative ideas and approaches to reduce this new threat facing our homeland.”
Over at "Big Stories/The Next Big Thing," I track the North Dakota drone story

Saudi Missteps Continue -- May 31, 2016

This is one of those huge stories that anyone following the oil and gas industry already knows ... but I was late. I didn't figure it out until just a few minutes ago. Graphs are worth a thousand words, and some 140-characters tweets are worth a picture.

Quick, what did Prince Salman call his "strategic plan" for his country?

Vision 2030.

Quick, what does Prince Salman want to do?

Diversify his country's economy.

Quick, what is Saudi Arabia really good at?

Almost anything that has to do with oil and can be run by contractors (US, Indian, predominantly).

Quick, what has Prince Salman recommended for diversifying his economy?

Build refineries.

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Everyone pretty much agrees that Saudi Arabia, at some point in the future, will become a net importer of oil.

Quick: "on the street," when is it being said that Saudi Arabia will become a net importer of oil?

2030. There are many, many links for this issue; here is one: http://www.bloomberg.com/news/articles/2012-09-04/saudi-arabia-may-become-oil-importer-by-2030-citigroup-says-1-.

Again, quick, what did Prince Salman call his "strategic plan" for his country?

Yup: Vision 2030.

I don't think that Citigroup suggesting that Saudi will be a net importer of oil by 2030 and Prince Salman calling his strategic plan Vision 2030 were coincidental.

Saudi Arabia may be in more trouble than we realize.

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This is where I got it wrong. I had assumed Prince Salman was going to build refineries in his home country to export refined products. He will build refineries in other countries, notably the US and Vietnam, he has said. I don't recall if he has also said India. Hold that thought.

Prince Salman is not going to build refineries in his home country to export refined products. Those refined products will be needed for his own population. And that does not bring revenue into state coffers. In fact, if he follows the Venezuelan example, his kingdom will step into even deeper doo-doo.

As far as building refineries in other countries:
  • Vietnam: okay; perhaps not a bad choice; not great, but not bad
  • India: not going to happen (see Apple's experience)
  • US: Saudi Aramco can expand their one refinery in the US; buy others (subject to regulatory approval); but build more? In this politically correct / green environment? LOL.
So, we now have another misstep by Saudi Arabia: Vision 2030's emphais on building more refineries around the world. It won't be that easy. With US refineries operating at less than 100% capacity, I just don't see the need for more refineries.

But, hey, what about all that diesel and gasoline that China and India will need? Helloooo? I don't know about India, but China is now exporting (as is Japan) refined products (see earlier posts this morning). It turns out that Saudi Arabia does not have a monopoly on knowing how to refine oil.

Now the third Saudi misstep and this is a doozy. This misstep is bigger than Vision 2030 that calls for diversifying into refineries.

In October, 2014, Saudi agreed to open the crude oil taps. The price of oil plummeted. What did China do? It appears that China doubled down, tripled down, quadrupled down on refining.

I remember all those posts about Saudi "giving away their oil," and China buying it; folks wondered what China was doing with all that oil. I guess we now know.  They were refining it and exporting it.



Know what is so amazing about that graph? Two things. One you can see on the graph. One, you can't.

The "thing" you can see on the graph is how fast this happened. In less than a year! Only a couple of years ago, China was a net importer of diesel. The more one looks at that graph, the more incredible it looks. The first question one asks: who bought that Chinese diesel and at whose expense?

China's domestic consumption didn't decrease this past year; if anything it went up. So, China had to have increased utilization of existing refineries or completed new ones.

The thing one does not see in this graph: China's domestic demand for refined products.

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Saudi's Missteps
 
By letting oil go to $100 or more per bbl, Saudi opened the door for US shale revolution. US shale operators needed that kind of incentive to "crack the code." Now that US frackers have cracked the code, $60 oil is just fine. Not great, but fine.

Then, in an attempt to bankrupt US frackers, they said they would flood the market; oil price plummeted; and Saudi has a "trillion-dollar mistake" to remedy.

This incredibly cheap oil AND the global glut of oil gave Chinese entrepreneurs (like US frackers) the incentive to expand refining operations. In one year, China has made strides that simply amaze me. I would assume if oil stays this cheap AND this plentiful, China will continue to increase its refining capacity.

Saudi Arabia won't even have it's Vision 2030 finalized and presented to the Supreme Council until 2017? 2018? Later?  How much diesel and gasoline will China be exporting in 2020, ten years before 2030?

When China becomes a net exporter of diesel it speaks volumes.

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In An Attempt To Crush The US Shale Oil Revolution, Saudi Crushed OPEC

A couple things to get out of the way.

First, as I've often said, there never was any OPEC. It was always Saudi Arabia.

Second, I don't recall if I've blogged about this before, but over the past year or so, I've thought about the huge turmoil Saudi's action would cause in Africa because of its decision to open the spigots. And now we're seeing it. CNBC is reporting that Saudi's attempts to crush the US shale revolution backfired:
Saudi Arabia engineered OPEC's policy to kill off U.S. shale oil production. The plan was straightforward: Keep pumping oil, maintain market share and outlast the Americans.

But the plan is also producing casualties within the cartel itself: Angola, Nigeria and a Venezuela that's on the verge of implosion.

Six months after OPEC left its high-production policy in place, some of the cartel members who called loudest for output cuts are feeling the most pain. Inflation is soaring and currencies have plummeted in lesser petro states, as top exporter Saudi Arabia continues to dictate policy.

Huge Unexpected Treat For Everyone: New Batch Of Vern Whitten Western North Dakota Photos -- May 31, 2016

Enjoy and visit Vern Whitten's website. These are, again, incredibly great images of western North Dakota.

Link here: http://www.vernwhittenphotography.net/wes516/.

Contact:
Forty-five (45) photographs in this "Back to the Bakken" portfolio, spring, 2016. Highlights for me:
  • new road through New Town, ND (#4)
  • Williston High School, June, 2015 (#17)
  • Williston High School, one year later (#18)
  • bike and pedestrian underpass, State Highway 23, Watford City (#19)
  • Watford City High School, June, 2015 (#20)
  • Watford City High School, one year later (#21) -- words cannot describe this one!
  • landscape -- what a beautiful state (#24)
  • I've never seen Eagle's Nest Butte -- now I have (#26, #27)
  • the "Hill" (#31)
  • the landslide, before and after (#33, #34)
  • plant construction north of Killdeer (#36)
  • rig storage, Dickinson (#38)

Tuesday Morning Notes -- Catching Up On The News -- May 31, 2016

Venezuela -- tic, tic, tic -- Lufthansa suspends flights to Venezuela. I was wondering when this would start to happen. I'm sure it's costing them a gazillion dollars to refuel in Caracas just to get out of the country. And if they don't pay, the Venezuelan government will take possession of the planes on the tarmac. And finally, as things start to implode, security becomes a very real issue.

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Two Stories On Dante's Inferno 

From Forbes: is ObamaCare failing on purpose?  One of the dumbest questions I've seen posed, ever. A program doesn't fail on purpose. The folks driving it might be working to make it fail, but the program itself doesn't fail on purpose. Whatever.

How ObamaCare has affected the 57 US states.

The GOP needs to run, not walk, away from this debacle. Let the Dems solve this one.

Trump: "Let's Make America Great Again."

Hillary: "Let's Re-Visit ObamaCare."

Gary Johnson: "Let's Elect Hillary."

Idle Rambling: Where We Will Be In 2020 -- May 31, 2016; China, Japan Will Compete With Prince Salman For Refined Exports; Look At Australian, Asian Demand

A reader sent in a nice link on "how low oil prices are easing the glut" with a lookback of the past few years. I've added the link at this post because it seems to fit pretty well here.

Big picture: with regard to the oil and gas industry, I think we are in a "valley" of inactivity, with minor ebb and flow among the upstream, midstream, and downstream sectors. We will be in this valley for about two years. It will take all the "energy" I have to remain interested in following the story, but if I quit for even a day, I start to lose track of what is going on. Even in a "valley" of inactivity, there is enough stuff going on that that behooves folks to follow it, if for no other reason than to try to read the tea leaves.

Less than five years from now, in 2020, the excitement and activity in the oil and gas sector will be at levels I have seen only a few times in my lifetime. The only question is whether "we" get to that level of activity through slow and steady progress, or whether we see some shocks to the system, resulting in short term spikes, taking us to this new level of activity.

My hunch is that we reach the new level of activity in 2020 with sharp spikes upward. Probably in 2018.

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Unrelated Rambling

At this post, I have added this:
Update: Bloomberg has a long, long article on Saudi financing US debt through Treasury bonds going back to Richard M. Nixon. This is one more reason why I think Saudi's Supreme Council will be hesitant to go through with the IPO: the kingdom is going to have to divulge a lot of information in exchange for a few billion dollars. 
Prince Salman's Vision 2030 includes building more refineries in an attempt to diversify Saudi Aramaco which is predominantly an upstream company. It looks like Prince Salman will have some competition. It appears China is already beating him at his own game. This also explains why China has been such a huge importer of oil over the past few years. China may be a "Communist" country but it sure acts like a western company when it comes to oil and gas:


Meanwhile, it's being reported that Japan's import of Saudi Arabian crude oil hit a new record in April: 1.42 million bopd.

In addition, Japan will be exporting refined products at new levels.
Japan's largest refiner, JX Nippon Oil & Energy, plans to process 769,452 bopd of crude oil in June for the domestic market, down 6% from a year ago.
But JX plans to export an all-time high of 220,143 b/d of oil products in June, mainly to Asia and Australia, up 72% from a year ago amid supportive overseas demand.
JX's monthly oil product exports will rise to more than 210,000 bopd for the first time next month. The boost in exports comes after JX had said on April 27 that it will start exporting gasoil from its 145,000 bopd Sendai refinery in May, following the start of gasoline exports from the Mizushima plant, which has a combined refining capacity of 380,200 bopd, in April.

Big Butte Update -- May 31, 2016

A reader asked about the Big Butte oil field. 

I track the Big Butte oil field in North Dakota here

No new permits in Big Butte so far in 2016.

No Big Butte permits in 2015.

Only four Big Butte permits in 2014:
  • 25-Jun-14 28719 Hess Mountrail Big Butte loc EN-Neset-156-94-0706H-5 
  • 25-Jun-14 28720 Hess Mountrail Big Butte loc EN-Neset-156-94-0706H-4 
  • 25-Jun-14 28721 Hess Mountrail Big Butte loc EN-Neset-156-94-0706H-3 
  • 25-Jun-14 28722 Hess Mountrail Big Butte loc EN-Neset-156-94-0706H-2 
Like all operators, Hess moved quickly early in the boom to hold leases by production. See graphic below. Most drilling units in this area have at least one producing well.


Hess seems to be a "steady Eddy" in the Bakken. Nothing flashy, just going about its business. Hess appears to have five rigs in the Bakken, three in McKenzie County, two in Mountrail. Back in October, 2013, Hess had 16 rigs in North Dakota.

I can't imagine Hess going back into Big Butte until we see oil significantly higher. But eventually, there will be no less than 12 wells on every 1280-acre drilling unit in Big Butte. That, of course, is complete conjecture on my part based on what I've seen in the Bakken over the years. Holding minerals in the Bakken is "money in the bank."

Disclaimer: this is not an investment site. Do not make any investment, financial, travel, relationship, or job decision based on what you read here.

Starting The Day With 28 Active Rigs -- May 31, 2016

Great Plains will buy utility Westar for almost $9 billion. Bloomberg story here. Data points:
  • Westar: largest utility in Kansas
  • power companies across the US facing weak demand and rising operational costs, looking to consolidate
  • Great Plans will pay $51 per share in cash; $9 per share in stock
  • obviously needs regulatory approval
Active rigs:


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Active Rigs2880189187214

RBN Energy: easing crude pipeline constraints to St James.
The reversal of Shell’s Zydeco Pipeline (formerly Ho-Ho) in 2013 was a big deal. It enabled eastbound flows of a wide range of crude streams from the Houston area to the storage and distribution hub at St. James, LA and from there to a dozen nearby refineries. Soon, though, Zydeco (named for the region’s Creole music) was running full and shippers were competing for space, spurring midstream companies to consider further enhancements. New pipeline capacity being developed is planned to come online later this year and in 2017, but—with ever-changing market dynamics—will it all be necessary? In today’s blog, “Take the Long Way Home—Easing Crude Pipeline Constraints to St. James,” Housley Carr begins a series on new pipeline capacity to St. James, and whether it will meet (or exceed) market needs.
Since the Golden Oldies days of the RBN blogosphere, we’ve paid a lot of attention to how crude oil gets from where it’s produced to where it’s stored and (ultimately) refined because—to put it bluntly—there are few things more important in the world of U.S. hydrocarbons. And, thanks to geology, history and the grace of God, the epicenter of that world is the central Gulf Coast between Houston and New Orleans. As we first discussed three and a half years ago, the flow-reversals of the Houston-to-Houma (LA) pipeline and a connecting pipeline between Houma and the mammoth crude storage complex in Clovelly, LA, was part of a wholesale change in Gulf Coast pipeline infrastructure aimed at facilitating the flow of domestic crude to market from growing shale production basins in the Bakken, the Permian Basin and the Eagle Ford to Houston and from there, to the hub at St. James.
As we said more recently in, St. James (located on the Mississippi 60 miles upriver from the Big Easy) serves as a critical storage and distribution hub. It receives crude by pipeline, by barge and tanker, and by rail; it has more than 30 MMbbl of storage capacity; and it sends crude out to area refineries with a combined capacity of 2.6 MMb/d. St. James also feeds the 1.2 MMb/d Capline pipeline, which transports crude and condensates north to Patoka, IL (but which has been running at far less than full-capacity). Much as Taylor Swift, The Eagles and Dolly Parton each draw a wide range of fans, the St. James hub serves as an oil mixing bowl, receiving regionally produced crudes such as the Gulf Coast benchmark Light Louisiana Sweet (LLS), Heavy Louisiana Sweet (HLS), medium sour crude Mars (produced offshore in the Gulf of Mexico, or GOM), and West Texas Intermediate (WTI), as well as ultra light crude from the Eagle Ford (condensate) that is piped north through Capline, connecting through other Canadian pipes to Alberta for use as a diluent in heavy Western Canadian oil sands.