Monday, March 6, 2017

Part III, The Energy And Market Page, T+45 -- March 6, 2017

Enbridge bigger.  From Houston Business Journal. I completely forgot all about this one. I assumed the acquisition would be blocked by the former administration on the last day in office or by Justin Trudeau ("we'll take refugees from the US").
  • Houston's Enbridge Energy Partners LP moving in with Spectra Energy Partners LP
  • near the Galleria
  • Enbridge closed the acquisition of Spectra at the end of February, 2017
  • created a $126 billion combined company
  • the "business entities" will remain "separate but close"
  • pretty cool
Spectra Energy: so what did Enbridge gain by buying Spectra? From wiki and Enbridge:
  • Enbridge is now North America's largest energy infrastructure company
  • natural gas: transmission and storage, distribution, and gathering and processing
  • a spin-off from Duke Energy, 2006
  • acquired Texas Eastern Pipeline (TETCO); brings gas from Gulf of Mexico to to NYC area
  • TETCO: one of the largest pipeline systems in the US
  • Spectra also operates three oil pipelines
  • 2007: Spectra shares dropped in price, spectacularly
  • by 2011: Spectra had rallied; nicely rewarded its shareholders 
  • pretty exciting
  • dividend: currently $2.12/share; 21st consecutive year of increased dividends for the company
  • anticipate annual dividend growth of 10% - 12% through 2019; dividend growth could exceed that level 
GM sold its perennial loser, Opel. Links everywhere. Not interested any more.

XOM: making America great again. Link here. $20 billion -- with a "b" '-- along the Texas gulf Coast. Whoo-hoo. One wonders how much the Saudi Aramco IPO is pushing these announcements. Twenty billion dollars is a lot of money, even for ExxonMobil, even for the US.

Odds of an IRS audit: 0.7%. One in 143. And, of course, the higher the dollar amount, the more likely the odds of an audit. It took my 40 years to figure this out, but if your taxable income is less than $75,000, the chance of being audited is about zilch. Nada. Nil. Zero. And if wondering about a grey area: if the amount you are concerned with would result in "small" amount of return to the IRS, it's unlikely to trigger an audit.

Futures. Hey, it's after 6:00 p.m. somewhere in the world. What are futures showing? Another 23 points down on the Dow; light crude (WTI) flat, at $53.17, right in the sweet spot for US producers and consumers.

It keeps getting better and better. Shell approves new Gulf of Mexico project, first since 2015.
  • Kaikias deepwater field
  • the first such project the company has approved in 18 months (thank you, Mr Trump)
  • will start production in 2019; will generate profits with oil prices less than $40/bbl (big doo-doo for Saudi Arabia)
  • direct result of its $54 bilion acquisition of BG Group last year (2016)
  • project is estimated to have more than 100 million boe recoverable resources

Whiting To Report Another Huge Rolla Federal Well -- March 6, 2017

Active rigs:


3/6/201703/06/201603/06/201503/06/201403/06/2013
Active Rigs4435114191186

Wells coming off confidential list Tuesday:
  • 25408, SI/NC, QEP, MHA 2-10-14H-149-91, Heart Butte, no production data,
  • 31704, 3,271, Whiting, Rolla Federal 31-3-1TFH, Twin Valley, t9/16; cum 120K in four months;
  • 32456, SI/NC, Hess, BB-Federal 151-95-1708H-8, Blue Buttes, no production data,
The Whiting Rolla Federal wells are tracked here.

Four new permits:
  • Operator: Crescent Point Energy
  • Field: Dublin (WIlliams)
  • Comments:
Three producing wells completed:
  • 29929, 1,487, Statoil, Paulson 36-1 4H, Briar Creek, t1/17; cum 3K first month;
  • 31039, 1,145, Statoil, Vachal 3-34F XW 1H, Alger, t1/17; cum 2K first month;
  • 31049, 1,020, Smokey 2-16-21-15H3, Pembroke, t2/17; cum --
****************************

31704, see above, Whiting, Rolla Federal 31-3-1TFH, Twin Valley:


Oil RunsMCF Sold
1-20171578646251
12-20161990153845
11-20162877376775
10-201646463102339
9-2016879312121

Part II -- The Market And Energy Page, T+45 -- March 6, 2017

Updates

Later, 3:32 p.m. Central Time: over at Platts, another article saying the same thing, that without more E&P, their will be a supply/demand mismatch by 2022. Near the end:
Birol said EIA projects global supply to grow by 5.6 million b/d through 2022, with the US representing about 1.6 million b/d of that growth. Brazil and Canada make up the second- and third-largest amounts of that growth, respectively.
I think they are grossly underestimating supply at $75 / bbl in "today's money."  At $75-oil is not particularly onerous. 
Original Post
 
A reader sent me a great link over at The Financial Times. IEA: oil investment drought threatens price surge. "Short-termism" will catch up with supply by 2020, agency warns.

The gist of the article: too like investment is being made now in crude oil exploration which will ultimately bite us in the butt, as demand will surely exceed supply in 2020.

There are two sides of this coin: the IEA is worried about a price surge due to lack of supply. Investors, on the other side of the coin, are worried if "this" will happen soon enough.

So, there you have it: IEA is worried; investors are worried, but for different reasons.

After I read the article, I replied to the reader:
  • short term (this year): bad news for Saudi (as suggested by the reader);
  • mid term (next year): not much better;
  • long term: after 2022 -- maybe it gets better; Financial Times thinks it will; 
  • I've learned that predictions are hard to make; no one saw a) the Bakken revolution coming; and, b) the trillion-dollar mistake that Saudi Arabia made. That's why a lot of oil companies went bankrupt over the past two years
Two items from the article:
In the short term, a deal to cut supply between OPEC and big producers outside the cartel such as Russia has spurred shale companies to increase drilling activity. A drop in their costs has also helped. US shale drillers saw reductions of 30 per cent in 2015 — double the global average — and 22 per cent in 2016. 
“This also gives a clear indication that many are capable of positioning themselves to raise production in a lower price environment,” the IEA said. 
Even energy major ExxonMobil has said it will put half of the company’s investment in oil and gas production into “short-cycle” projects, such as shale oil, that could generate positive returns within three years. President Donald Trump’s administration could also support policies that boost US oil production. 
In other words, because US operators can survive (and perhaps thrive in a low-cost / low-price environment), operators are not breaking down the banks' doors to acquire financing for large E&P projects.
And this, the last paragraph in the article which sounds to me like the editor asked the writer if all the EVs coming on the market would attenuate the 2020 shortage:
Meanwhile, the total stock of electric vehicles is expected to hit 15m by 2022, up from 1.3m in 2015. Despite robust growth, the IEA says electric vehicles’ share of the total number of vehicles remains small and will only replace 200,000 b/d of oil demand over the next five years.
Finally, the last paragraph puts the 15 million EVs in perspective: replaces 200,000 bopd. This is an EIA report so I assume they are talking global EVs, and 200,000 bopd out of 20 million bopd is a rounding error.

The bigger question for some investors like me: will XOM be able to hold on? 

So, according to the IEA, all eyes are on 2020 when we will all have the advantage of 2020 hindsight. 



****************************
This Didn't Take Long

Announced today in a press release: Secretary Zinke announces proposed 73-million acre oil and natural gas lease sale for Gulf of Mexico All available areas in federal waters will be offered in first region-wide sale under new Five Year Program.
WASHINGTON - U.S. Secretary of the Interior Ryan Zinke today announced that the Department will offer 73 million acres offshore Texas, Louisiana, Mississippi, Alabama, and Florida for oil and gas exploration and development.
The proposed region-wide lease sale scheduled for August 16, 2017, would include all available unleased areas in federal waters of the Gulf of Mexico.
“Opening more federal lands and waters to oil and gas drilling is a pillar of President Trump’s plan to make the United States energy independent,” Secretary Zinke said. “The Gulf is a vital part of that strategy to spur economic opportunities for industry, states, and local communities, to create jobs and home-grown energy and to reduce our dependence on foreign oil.”
Ryan Zinke was confirmed five days ago, March 1, 2017, or three business days. I assume his first day on the job was getting new keys to his office made and checking for wiretaps.

I see the only "tag" I have for the "Gulf" is "GulfMoratorium." Wow, how times have changed. 

The California Duck Curve -- Re-Visited -- March 6, 2017

See if you can find the word "dispatch" as in "dispatchable" on this page. 

This is pretty cool. This has to do with the post of just a couple of days ago regarding $1,000 / MWH electricity in California (vs the typical $30 / MWH cost). We've talked about incredibly high spikes in the cost of electricity in New England during the winter due to misguided energy policies; I forget, but I think we were talking of $300 - $800 / MWH spikes in price that can often occur overnight during cold snaps in New England.

In California, because of the reliance on solar and wind energy, those spikes can go upwards of $1,000/MWH.

Today, a reader sent me this link from The Economist of all things. Bottom line is this:
  • California peak electricity use is between 3:00 p.m. and 10:00 p.m.
  • solar energy "prematurely" peaks out at noon
  • peak wind energy doesn't kick in until later in the evening /night
This is called a "duck curve." We talked about the "CALIFORNIA DUCK CURVE" on October, 22, 2015.

That was from Bloomberg. It looks like the folks over at The Economist finally got around to reporting it.

The Political Page, T+45 -- March 6, 2017

The clamor for Attorney General Sessions to resign seems to have gone to the back burner; replaced by the Obama wiretaps, real and imagined.

GM: cuts a product line at Lansing, MI. Cuts 1,100 jobs in Michigan; creates 800 jobs in Tennessee.

For Pocahontas in Boston, on charter schools, a screenshot from The Boston Globe. I think this is called "voting with your feet"; Betsy DeVos, take a bow:



Voting with their feet: there are a number of stories out there today that suggests the Canadians are "struggling" with surging numbers of refugees fleeing from the US. I honestly did not know that many Hollywood cupcakes were following through on their promises to leave the US if Ivanka Donald was elected president. But there you have it. I also don't know why the Canadians are "struggling" with all the refugees: a) it was predicted; and, b) Justin Trudeau welcomed them with open arms. It looks like the refugees might be getting a cold reception in more ways than just the weather.

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The Vital Question: Energy, Evolution, and the Origins of Complex Life
Nick Lane
c. 2015

Three domains:
  • archaea
  • bacteria
  • eukaryotes (includes archezoa)
The lexicon of biology is incredibly difficult for me; I need to keep reading and re-reading to remember it.

A huge problem is that once words get into the lexicon of biology (or any discipline, I suppose) they come to mean different things for different people over time, or they are used inappropriately or without "precision."

 Everyone who graduated from high school after 1969 now knows the Lynn Margulis hypothesis, that "bacteria" "ingesting" mitochondria led to eukaryotes.

Where we are today, at least as I understand it from Nick Lane.

Carl Woese in 1977 studying ribosomal genetics identified three domains of life: archaea, bacteria, and eukaryotes.

Archaea and bacteria appear morphologically very similar, neither having a nucleus, therefore both being prokaryotes but their chemistry / genetics is very different.

Eukaryotes, the third domain have nuclei and dozens of traits that characterize "complex" life and are not found in prokaryote (bacteria or archaea).

Break, break.

That's the "evolutionary niches": prokaryotes (archaea and bacteria) and eukaryotes.

Now, we move to "ecological niches."

Prokaryotes and eukaryotes each occupy distinctive ecological niches.

At some point during the evolution of life, it appears that a "subset" of very simple, single-celled eukaryotes "filled" in an ecological niche that bacteria/archaea (prokaryotes) failed, for some reason, to occupy (I'll call it the "third" ecological niche). These simple, single-celled eukaryotes now go by the name of "archezoa" -- which, of course, makes things very, very confusing. But archezoa ("zoa" for "animal"; like "protozoa" - "first animal" to describe motile organisms like amoeba) are clearly eukaryotes. At one time, the archezoa were mistakenly considered the "missing links" between bacteria and the more complex eukaryotic cells.

Nick Lane argues that the origin of complex life depended on the acquisition of mitochondria. Said another way: mitochondria triggered complex life. Said yet another way, the mitochondrial-acquisition event was the origin of complex life.

The gap between bacteria and complex life is huge. Nick Lane will explore what "drove" complex life.

Nick Lane also asks the question why archezoa and not bacteria filled that "third" ecological niche. He will argue that something "constrained" bacteria from being able to fill that niche.

Along the way, he will discuss the relationship between eukarotes and archezoa.

Other definitions:
  • protists: single-celled eukaryotes, some of which can be very complex
  • protozoa: a subset of protists, "first animals," such as amoeba
  • bacteria: generally used to refer to both "bacteria" and "archaea" but the latter represent two of three domains (the third domain being eukaryotes)
But most critical: do not confuse archaea and archezoa.
  • archaea look a lot like bacteria, but differ genetically and biochemically; discovered by Carl Woese to be the third domain; like bacteria, archaea are prokaryotes (no nucleus; no complex life traits)
  • archezoa may look a lot like bacteria but they are true eukaryotes (having a nucleus and similar complex traits as all eukaryotes).
Finally, the third domain, eukaryotes were divided into five (5) supergroups by Carl Woese. Archezoa are found in all supergroups. I believe the supergroups are genetically determined.

I have to go through this over and over so I can keep up with Arianna and Olivia.

The Market And Energy Page, T+45; The Permian Still Trading For $35,000/Acre -- March 6, 2017

Williston prepares for Bakken 2.0: from The Billings Gazette.

Resolute Energy inks $160 million deal to expand in Delaware Basin. From Zacks:
  • 4,600 net acres of undeveloped and producing property; Reeves County, TX
  • half of this acreage is adjacent to the company's operating area in Reeves; produces 800 net boepd 
  • increases the company's holding in Reeves by almost 30% to 21,000 net acres
  • $160 million / 4,600 net acres = $35,000 / acre
Saudi Aramco IPO: yet another story on the IPO. From Reuters. I did not read it.  But I think Saudi is in deep doo-doo. There are two stories out there today about the growing realization that oil may not move much higher than the current $53 - $56 (WT - Brent). Saudi needs $100 oil; really, really needs $80-oil; says it would like to see $60 oil this year; and, now, well into the 1Q17, stuck at $55 (at best).
The Market really wants to go up. I am quite surprised. The market surges to 21,000 the past few weeks and despite the following, the market opens about 60 points down, and gradually coming back up:
  • North Korea fires four more missiles into "the" ocean over the weeeken
  • the Drudge headline: "Dems smell blood in the water"
  • Trump goes on a tweet ramp
  • oil and reality (see above)
  • Janet Yellen suggests she may move Fed rates a lot higher a lot faster
And yet the market hangs in there. Color me surprised.

**********************************
Marathon's $2.2 Billion CAPEX For 2017

Link over at Emergent Group.Data is broken out for MRO's involvement in three plays: SCOOP/STAC; Eagle Ford; and, the Bakken. For the Bakken:
In the Bakken, Marathon’s Maggie pad in Mountrail County, brought online in Q3, continues to lead the basin in 90-day production rates. Since December the company has mobilized four rigs to Mountrail and McKenzie Counties to support its development program.
Marathon is expanding on its 2016 Mountrail wells with enhanced completion designs that utilize 6–15 MMLBS of proppant with 45–50 stages. In Dunn County, the company is using slickwater with plug and perf technology and reports a >100% increase in proppant use as well as a >60% increase in stage count.
A graph at the link suggests that MRO's production in the Bakken remained fairly flat from 4Q15 to 4Q16 but the number of new wells (gross wells/net working interest wells) dropped throughout the year, down to zero by 4Q16).

Of its $2.2 billion CAPEX, one-third will be spent in each of three plays mentioned above, or about $660 million in the Bakken.
In the Bakken, Marathon plans to focus on its highest-return areas, Mountrail and McKenzie Counties, where it completed several wells in 2016. The company will continue to focus on optimizing base production while bringing 70–75 gross company-operated wells to sales. Marathon expects to average approximately six drilling rigs in the Bakken in 2017.
Unless I missed it, this particular article did not mention Marathon's re-frack program which has been mentioned elsewhere. 

For articles on MRO and re-fracking:
Another article on MRO with much background, but nothing about re-fracking, conference, 2014;

How Might The DAPL Affect Bakken Production -- RBN ENergy -- March 6, 2017

Active rigs:


3/6/201703/06/201603/06/201503/06/201403/06/2013
Active Rigs4435114191186
 
RBN Energy: how the DAPL may impact Bakken production.  In an earlier post, it was suggested that the pipeline might start flowing oil as early March 6, 2017. Hey, that's today.

Scott Adams: is he predicting or influencing? Sounds like a bit of delusional thinking.