Tuesday, April 3, 2018

"Demand For The Ford Lincoln Navigator Is Off The Charts" -- April 3, 2018

Earlier today, Ford released its March sales data, along with this statement:
"Demand for our all-new Lincoln Navigator is off the charts, with some customers buying the SUV sight unseen."
I thought it was marketing hyperbole. I was wrong. From The Wall Street Journal:

To understand why the auto industry pushed the Trump administration to roll back emissions rules, take a spin in Ford Motor Co.’s flashy new Lincoln Navigator SUV.
Revamped for 2018, the hulking sport-utility vehicle is designed for an era of low gasoline prices. Customers flocked to Lincoln dealerships in March and shelled out an average $81,000 for its latest Navigator, Ford said, nearly 50% more than the outgoing model.
The Ford vehicle was among the biggest gainers in the U.S. auto market last month, according to industry sales reports published Tuesday, notching a 91% increase that mirrors results of other redesigned SUVs hitting the market—including Ford’s Expedition, Jeep’s Wrangler and Cadillac’s XT5. For instance, the pricey Wrangler, once a rough-and-tumble niche SUV, now outsells the entire eight-vehicle passenger-car lineup of parent Fiat Chrysler Automobiles NV.
Even as U.S. auto sales plateau, car companies stand to gain as consumers increasingly flock to the kinds of vehicles that would be less viable under emissions standards enacted by the Obama administration. The Environmental Protection Agency is easing those fuel-economy rules, making it more likely Detroit’s Big Three and foreign rivals will sharpen the focus on profitable pickup trucks and SUVs that achieve much lower miles-per-gallon than the hybrids and smaller cars favored by the old mandate.

Global Warming Hits NYC -- Not Even Mentioned On CNBC -- April 3, 2018

Had I not checked in with IceAgeNow,  I would not have even known -- was this reported on any mainstream media outlet?


The link is here. I am surprised it was not blamed on President Trump.

China's Move To Natural Gas -- April 3, 2018

Quick! Read the excerpt from this linked story and tell me what jumps out at you:
China’s seemingly endless thirst for natural gas is on a collision course with not only U.S.-based liquefied natural gas (LNG) project developments, but others as well, including Russia and Australia, in a move that is revolutionizing global markets for the super-cooled fuel.
Per China’s government mandate to replace coal-based power generation with natural gas, the cleaner burning fuel is set to make up at least 10 percent of the country’s energy mix by 2020, with further earmarks after that.
Not only is China’s pivot away from coal to natural gas changing natural gas market dynamics, both piped gas and LNG, it is also causing a knee jerk response among the country’s state-owned oil majors.
Yesterday, state-owed Sinopec Group said that it aims to more than double its receiving capacity for LNG over the next six years. The company will add new LNG receiving facilities along China’s east coast for a total of 26 million tonnes annually by 2023, up from the current 9 million tonnes. Currently, China has 17 LNG import receiving terminals.
The company also wants to increase its domestic shale gas production by two-thirds by 2020. Sinopec said it will have some 60 billion cubic meters (bcm) of gas capacity, which includes imports and also domestic production by 2023. In 2017, it produced only 27 bcm of gas.
What jumps out at you?

After years of talking about China replacing coal with natural gas one would think that China was farther along in this endeavor than this. After all this, after all these years .... Per China’s government mandate to replace coal-based power generation with natural gas, the cleaner burning fuel is set to make up at least 10 percent of the country’s energy mix by 2020.

10%.

10%.

10%.

There's another story line here, but let this sink in for awhile.

A Pretty Ho-Hum Daily Activity Report -- Is It Time To Start Blogging On The Bakken Once A Week? -- April 3, 2018

Active rigs:

$63.514/3/201804/03/201704/03/201604/03/201504/03/2014
Active Rigs57482994190

Five new permits:
  • Operator: Oasis 
  • Field: Elidah (McKenzie);Banks (McKenzie)
  • Comments: Oasis has permits for a 5-well Mildred Nelson / Nordeng pad in NWNE 25-152-98
Only two permits renewed and these were only SWD wells.

One producing well (a DUC) was reported as completed;
  • 33417, 1,118, Whiting, Sanish Bay 42-12TF, Sanish, from the file report, low gas units; pretty much unremarkable, t3/18; cum --

The Market, Energy, and Political Page, T+35 -- April 3, 2018

API: weekly crude oil inventory data -- a drawdown of 3.28 million bbls; no forecast provided. WTI up a bit, trading at $63.58 at the close. 

Tesla: another executive move -- it has just been announced that Tesla's Model S&X Program Manager has recently left Tesla to head up VW's North American electric car rollout. Wow!

Tesla: bonds. I know absolutely nothing about bonds (well, maybe a little). Everyone is talking about "Tesla bonds" -- the ones that are now trading for around 88 cents on the dollar with a corresponding rising interest rate. Is it possible to find real-time trading regarding these bonds? I believe the "bonds" they are talking about are the "TSLA 4530907" bonds. These can be followed over at Morningstar at this site.  Today, those bonds rose a bit in price, now selling at about $90 with a coupon rate of 5.3%. I suppose this means that until they come due (8/15/25) Elon Musk will send you $5.30 for every $100 bond (coupon) you hold. So, if you buy one of those coupons for $90 today, well, you will be getting $5.30/$90 or 5.9%. Plus always the chance that these coupons could appreciate back to $100 -- netting you another $10/coupon.

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

Auto sales: huge month. Forecast: 17.8 million. Actual 18.4 million. EVs: about 20,000. Twenty thousand / eighteen million = 0.1%. I don't know: one out every thousand cars sold each month is an EV. Is that good? I don't know. Let's look at Ford's sales for March:
  • SUV sales +7.5% to 82,395 units, including a 19% gain Edge sales
  • truck sales +6.7% to 109,276 units. F-Series sales +7.0% to 87,011 units
  • SUVs + trucks + F-Series pick-ups = 278,682 units
  • just against "big" Ford vehicles, 20,000 EVs vs 280,000 = 7%
  • so, again, I don't know. Two EVs (all makes/models) sold for every 28 big Fords, or one EV for every 14 big Fords sold
  • I think the production / sales number is now "understood" by everyone; it's in the eye of the beholder if one EV for every big Fold sold is "relevant(?")" for lack of a better word
  • I think a lot of Tesla bulls argue that Tesla can be just like Amazon: continue to flourish without turning a profit year after year
  • the problem with that argument: Amazon has a huge positive cash flow which would drop to the bottom line as positive earnings if Amazon did not reinvest the money into their own operations; Tesla does not have a positive cash flow; Amazon operating cash flow: $20 billion / month; Tesla operating cash flow: -$70 million / month; Amazon's cash flow could pay off all of Amazon's debt in less than three months; Tesla's negative cash flow is leading to more debt

Dividends: from the Motley Fool a few days ago -- this 8%-yielder is setting up for big dividend growth in coming years: Targa.
Targa Resources Corp's ]8%-yielding dividend might look attractive, but at the moment it's hanging by a thread. The natural gas pipeline and processing company just managed to generate enough cash flow to cover it last year and expects razor-thin coverage again this year. That's well below the levels of its pipeline peers, which like a margin of safety of 20% to 50% (and above) of cash flow because it gives them a head start on financing expansion projects.
Because Targa Resources doesn't have the luxury of generating excess cash, it has had to be creative in financing expansion projects; it also can't issue more stock to raise money, as this would make its already-tight dividend coverage even worse. While that same scenario led rival Kinder Morgan to slash its dividend and divert that cash to fund capital spending a few years ago, Targa is using a variety of alternative funding sources to finance its growing slate of projects. If this plan works, those expansions could potentially support significant dividend growth in the coming years.
Targa Resources has lined up $3.215 billion of capital projects, which should enter service through 2020, including $850 million of new ones announced this week. That's a large funding requirement for a company that pays out all its spare cash in dividends. However, it has steadily chipped away at that number by partnering on projects with other pipeline companies and private equity funds.
Much more at the article.  

TRGP
  • share price, 52-week range: $39 - 60; currently: $43 and down a bit today
  • yield: 7.66%
  • 1-year target est, share price: $54
***************************************
Tesla: It Never Quits

From SeekingAlpha --
  • Tesla’s Q1 unit sales were flat compared to 4Q: 29,980 compared with 29,967. However, you have to look at the mix and compare with the promises and guidance
  • Model S and X combined were 21,800, down 23.3% from 28,425 last quarter. Those are the products with positive gross margin
  • Model 3, which carries negative gross margin, fell well short of the 13,800 consensus estimate, at only 8,180 units sold. That’s a miss of more than 40%
  • Tesla stated on February 21 that Model S and X were seeing an increase in demand. Considering a 23.3% sales decline, make of that statement what you wish
  • this 21% miss on the unit top line ought to mean that we will see reductions in analyst estimates in the coming hours
A couple of points:
  • it is my understanding that Tesla does not report "sales." Tesla reports deliveries. Big difference. And I do not know if "deliveries" includes/excludes "rejects." When a Tesla is "delivered" to a Tesla showroom for a customer to pick up, the customer does not have to accept the car. 
  •  there is some suggesting that rushing the assembly line to ramp up to 2,000 vehicles per week will have resulted in a lot of quality issues.  
**********************************
EV Data Starting To Be Reported

Link here.

Tesla:
  • Tesla units:
    • Tesla Model 3: we all knew this -- up significantly
    • Tesla Model S: this surprised me -- based on media reports I thought deliveries would be lower; in fact, up to 2,922 from 2,050 last month
    • Tesla Model X: same thing; this surprised me -- based on media reports I thought deliveries would be lower; in fact, a huge jump, from less than a thousand to almost 3,000 units
  • Tesla overall: 10,020
Chevrolet 
  • Bolt: basically flat line -- last three month: 1,177; 1,424; 1,774
  • Volt: huge jump from 983 to 1,782
  • Chevy Bolt/Volt: 3,556
 Nissan Leaf
  • 1,500, up from 895 last year
Comment: regardless of the media reports; the twitter tweets; and, the financial situation for Tesla, one has to give bragging rights to Elon Musk based on these early numbers.

The Dow had a huge day, up almost 400 points; Tesla traded up almost 6%.

Productivity Per Rig -- Revisited -- April 3, 2018

Updates

April 5, 2018: In addition to all that is written below, this is another interesting item. Think about this when comparing "rig productivity" in the Bakken with "rig productivity" in the Permian. QEP, in its most recent corporate presentation, said they have found a way to leave neighboring wells on line while new wells are being drilled AND then completed. Meanwhile, in the Bakken, generally speaking, operators take wells off-line (sometimes for months) when a new well is being completed. This fact makes the delta between "rig effectiveness" in the Bakken compared to that in the Permian even more substantial, using BTU Analytics/EIA methodology. Imagine the increase in crude oil productivity if a well did not have to come off-line when a neighboring well was being fracked or re-fracked.

Having thought about all this again, there are a lot of unknowns regarding "rig productivity" comparisons.

Original Post 

In the Bakken, the two most interesting bits of "news" in the past ten days has been the news that QEP will exit the Bakken to focus on the Permian and the BTUAnalytics article regarding EIA's data on rig productivity.

At risk of being way out front of my headlights, some thoughts regarding rig productivity.

1. As I noted earlier, if the analysis is correct, and I bet it is, it is very, very troubling. If that's the methodology that's being used it suggests that like so many others, the EIA has not yet established new ways of thinking about tight / unconventional oil. If that's there methodology, they are using the same methodology for unconventional / tight / shale plays that has been used for decades to track conventional plays.

2. The methodology apparently being used does not take into account DUCs. It seems hard to believe that they would do this (without at least a footnote) but my hunch is that it is impossible to get accurate data unless analysts literally went through well by well. And even then, it probably would not be accurate. As it is, when the NDIC reports data every month, the number of completed wells is a preliminary figure that will be "finalized" the next month. The preliminary figure for completed wells is significantly less than the finalized figure (I just went through a year's worth of that data yesterday).

3. What does this mean? Using their methodology, initial production per active rig is far lower than what active rigs are really producing, once you remove DUCs from the equation. That's what BTUAnalytics says, and I agree.

4. As I wrote that last note, one could argue that the "whole issue" would be more accurate if one simply changed the data heading from "rig productivity" to field productivity or operator productivity, if that makes sense. It's sort of like Tesla's "ramp up." They may have 10,000 cars on the assembly line, but one only counts the cars that actually come off the assembly line completed (and delivered).

5. This is the bottom line for BTUAnalystics: operators are producing (or, better said, will be producing) much more oil than anyone is publicly forecasting. Not good news for Saudi Arabia.

6. That's all the report said. The report did not compare the Permian with the Bakken with the Eagle Ford as I was doing in my post the other day. My hunch is that my conclusions comparing the three fields was not wrong (and if it was, so what? I'm just trying to figure out the Bakken and probably only know 1% of all that is going on -- and BTUAnalystics was a huge piece of the puzzle).

7. But I digress. As I was saying, my hunch is that my conclusions comparing the three fields was not wrong. Although the actual numbers might be different, the story line is probably still accurate. The story line remains accurate if the percentage of DUCs across all fields is approximately the same. That's a huge assumption. The BTUAnalytics was released last July (2017) and the report was probably put together using data for several months prior to publication. In other words, the data is somewhat old (not terribly old) but things change quickly in the oil patch.

8. Back in mid-2017, anecdotally, it seemed that on any given day, 30 - 50% (sometimes more) of the wells coming off the confidential list in the Bakken were being reported as DUCs. It's hard to believe that the Permian operators were reporting, as a percentage, even more DUCs than 50%.

9. So, I guess it comes down to this:
  • the methodology to determine rig productivity is wrong because the methodology does not include DUCs
  • due to this methodology error, the potential for overall basin production is grossly underestimated (BTUAnalytics conclusion); very, very bad news for OPEC-Russia
  • the disparity between the Permian and the Bakken is so wide, it's hard to believe that this is only due to DUCs -- but we will know more two years from now -- maybe
10. Having said all that, there is an even bigger problem. It's generally thought that once a well is drilled, operators maximize production. Nothing could be farther from the truth. Operators manage their overall assets on a monthly basis and they manage each well just as closely -- for any number of reasons, operators will increase/decrease individual well production remotely.

Example. I quit posting the data below because it did not appear anyone really cared, and it took a bit of time. But look at this, this is January, 2018, data, in the spreadsheet below.

The spreadsheet has 20+ oil fields listed in the far column to the left. The spreadsheet is "ranked" based on the percentage change in production month-over-month (column 10). The first two fields had a significant change in the number of producing wells, so ignore those two fields. Go to the third field, Clear Creek, not a particularly good field. Note that month-over-month the number of producing wells remained the same (76). I would bet that these were the very same wells from month-to-month (in other words, the operator in Clear Creek did not shut in five old wells and bring on five new welsl -- although that's possible). If these are the very same wells, month-to-month, look at the change in production.
  • in December, 2017, production for this field: 109,385 bbls
  • one month later, January, 2018, production in this field: 156,278 bbls, a 43% increase in production with the same producing wells
Although the increase was not as much, one sees the very same thing in the next four out of five fields.

The Bailey field, an incredibly good field, added six producing wells and yet the increase in production month-over-month was not that great. Why? For one reason, when they bring on a new well, the production is generally atrocious -- simply because some new wells have only been producing one full day when they are included in the monthly numbers.

Field
Dec 17 Prod
Dec Wells
Dec Oil / Well / Month
Percent Change Dec-over-Nov
Change in # of wells
Jan 2018 Prod
Jan Wells
Jan Oil / Well / Month
Percent Change Jan-over-Dec
Change in # of wells
Truax
415,877
190
2,189
16.80%
9
710,783
198
3,590
70.91%
8
East Fork
242,137
123
1,969
-16.75%
1
366,905
128
2,866
51.53%
5
Clear Creek
109,385
76
1,439
-6.01%
1
156,278
76
2,056
42.87%
0
Westberg
165,756
102
1,625
-4.31%
2
201,800
102
1,978
21.75%
0
Lost Bridge
292,199
73
4,003
-18.70%
0
352,464
73
4,828
20.62%
0
Beaver Lodge
131,958
79
1,670
3.74%
0
154,971
79
1,962
17.44%
0
Bailey
640,292
157
4,078
-2.80%
0
742,278
163
4,554
15.93%
6
West Capa
41,150
38
1,083
-3.31%
0
47,214
38
1,242
14.74%
0
Painted Woods
126,353
59
2,142
41.99%
0
142,986
60
2,383
13.16%
1
Little Knife
345,021
161
2,143
6.93%
7
390,388
162
2,410
13.15%
1
Antelope-Sanish
1,503,780
215
6,994
28.63%
12
1,693,577
218
7,769
12.62%
3
North Fork
458,644
73
6,283
16.51%
3
513,087
74
6,934
11.87%
1
Cow Creek
117,841
45
2,619
0.45%
0
130,760
45
2,906
10.96%
0
Sanish
1,300,074
624
2,083
10.94%
6
1,430,162
629
2,274
10.01%
5
Corral Creek
488,558
167
2,925
-9.59%
2
533,834
167
3,197
9.27%
0four o
Stockyard Creek
184,181
89
2,069
-24.87%
1
200,522
90
2,228
8.87%
1
Alkali Creek
621,626
166
3,745
20.37%
3
675,693
166
4,070
8.70%
0
Ross
67,793
74
916
-5.16%
0
72,288
74
977
6.63%
0
Banks
912,593
213
4,284
-9.93%
1
971,819
222
4,378
6.49%
9
Squaw Creek
170,189
47
3,621
-2.23%
0
178,847
47
3,805
5.09%
0

Bottom line: I have to sign off. My battery power is almost gone. I have to find a Tesla charging station to re-charge my MacBook Air.