Monday, March 9, 2020

Just Announced: Italy On Complete Lockdown -- The Entire Country -- March 9, 2020

Comment: this is a little frustrating. The Trump administration should have established the same flight criteria for Italy that he put in place for China. Italy has been out of control for quite some time now. He either got bad advice about Italy or ignored good advice.

Whatever. Locking down the entire country is one way to stop illegal immigration. Although my hunch is that illegal immigrants have special exemptions for entering the country.

Anyway, back to the Bakken.

Gas Buddy, Oklahoma City: $1.65/gallon. 

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Evening Bakken Report

Active rigs:

$31.853/9/202003/09/201903/09/201803/09/201703/09/2016
Active Rigs5467594333

Six new permits, #37432 - #37437, inclusive:
  • Operator: Zavanna
  • Field: Stockyard Creek (Williams); Long Creek (Williams)
  • Comments: 
    • Zavanna has permits for a six-well Shorthorn pad in NWNE section 3-153-99, Stockyard Creek, just east of Williston
Trivia (perhaps of some interest): NDIC daily report said five wells had changed names. Based on the changes, it appears that four wells that had targeted the Three Forks formation were now going to target the middle Bakken.

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Meanwhile On The Slopes


I honestly do not know if she's in Utah or Colorado. I thought they were flying to Colorado but one of the other granddaughters said they were in Utah. Maybe Sophia will tell me when she gets back.

The good news: I know she is not skiing in northern Italy. Of course, that's too bad. The lines are probably pretty short there right now.

And, yes, I also saw that. Where are her gloves? LOL.

Saudi Arabia To Fine People Who Lie About Their Health Status Upon Entry To Kingdom -- March 9, 2020

Wow, it's impossible to keep up. I just blogged about how the Saudis are scrounging for cash (see this post) and now a reader sends me this headline story from Reuters: Saudi Arabia to fine people up to $133,000 for hiding health details on entry.

That's a crazy number, $133,000. I'm sure it's based on rials and today's conversion rate turned it into $133,000.

By tomorrow, the rials may be worthless. Just saying.

And, oh, by the way, $133,000, or even $150,000 is better than having your right hand cut off.

*******************************
Helloooooo? It's The 21st Century (Outside of Saudi Arabia)
Have You Considered A Video-Teleconference?

MDU Resources postpones its annual investor analyst seminar. The reason, if you have not guessed: coronavirus.

By the way, speaking of coronavirus, a staff worker at Disneyland, Paris, France, has tested positive for the little bugger.

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Breakfast of Champions


The most important thing to note about this photograph? The can of Spam is the original flavor, the real deal -- none of those specialty flavors -- back in 2012 there were thirteen varieties of Spam. I don't know how many there are today. Hormel occasionally comes out with "limited" seasonal varieties.

Someone, of course, came along and ranked them. I was completely surprised to see Portuguese Sausage; I did not know. I was thrilled to see Chorizo Seasoning -- Mex-Tex -- come out on top.

Italy Reports Almost 2,000 New Cases In 24 Hours -- March 9, 2020


Wow. The Italy numbers have been posted.

In the daily note earlier this morning I posted:
Italy: pending; the country usually reports late in the day; I'm betting at least 1,500 new cases if they're honest.
So, quick! How many new cases did Italy report for today, March 9, 2020?

A whopping -- are you sitting down -- 1,797 new cases -- by the way, we now have the explanation for Italy's high number of cases. The answer was provided at 12:30 p.m. Central Time today.

Anyway, the Italian numbers today, March 9, 2020:
  • new cases: a whopping 1,797
  • new deaths: 97
  • fatality rate: 463 / 9,172 = 5%; pretty much unchanged; 
Observations that should scare the heck out of Italy, the EU, Switzerland, and France:
  • 1,797 new cases in Italy -- just the new cases in one day -- exceeds the total number of cases in every country of the world, except China
  • 1,797 new cases in Italy is 40-fold greater than the number of new cases in China;
  • China has this thing under control; whether it stays that way or not is another question;
  • there were 199 new deaths total, around the world
    • at 97 new deaths, Italy accounted for almost 50% of all new deaths
The overall data points are going to look really, really bad when those results are posted later tonight.


A Parthian shot: my hunch this morning that Italy would report at least 1,500 new cases today was right on target. Whoo-hoo!

By the way, we now have that case study. Re-posting:
Case study: some time ago I mentioned that the Diamond Princess cruise ship would be a great case study. We now have that case study, over at Ice Age Now. It's a must-read article:
  • case fatality rate: 0.85 percent (of the 705 that tested positive, six died)
  • but look at this: of the 3,711 confined to tight quarters, six died, which converts to 0.25
  • transmission in that setting was incredibly low (or they stopped it pretty quickly through quarantines)
  • the article does not say if all have been tested, or only those symptomatic; there is such a thing as asymptomatic carriers in all (?) infectious disease outbreaks;
  • finally, not a single Diamond Princess patient under the age of 70 has died;

Who Will Show More Resilience? The Permian Or The Bakken In A WTI Beatdown? -- March 9, 2020

Updates

September 1, 2020: no way, Jose. Yes, way. Way overpaid

August 17, 2020: the August, 2020, dashboards; the Bakken beats the other two;

August 10, 2020: Permian oil shut-ins end at $40/bbl but a production decline looms. RBN Energy.

July 26, 2020: huge rebound for the Bakken; set all-time record for rig efficiency;

June 26, 2020: the big loser -- New Mexico

June 15, 2020: Argus Media calls it -- the Permian wins.

June 12, 2020: Bakken vs Saudi Arabia? XOM's decision.

 May 17, 2020: oilprice.com -- which state is hit hardest?

May 1, 2020: February, 2020, data -- EIA

April 13, 2020: the Bakken still has bragging rights

April 3, 2020: ProPetro launches mass layoff in Midland. Link to Rigzone here

March 17, 2020:  Apache, EOG. The former suspends all drilling (a Permian operator); the latter remains focused on the Delaware.

March 15, 2020: flaring triples in two years in the Permian

March 15, 2020: Oasis corporation presentation, February, 2020.

March 15, 2020: Oasis has had their play in the Permian for two full years. They have two rigs in each play. In the Bakken: 80,000 boepd. In the Permian, 8,000 boepd. And per their February presentation, Oasis has some of the best locations in the Permian.

March 10, 2020, OXY: cuts dividend from 79 cents to 11 cents. Major CAPEX cut. OXY left the Bakken years ago; if a pure Permian play (from my point of view). From Street Insider:

Occidental Petroleum Corporation announced today that its Board of Directors approved a reduction in the company’s quarterly dividend to $0.11 per share from $0.79 per share, effective July 2020.
The company also announced it will reduce 2020 capital spending to between $3.5 billion and $3.7 billion from $5.2 billion to $5.4 billion and will implement additional operating and corporate cost reductions. [A 30% cut in CAPEX.]
March 10, 2020, MRO: well, that certainly did not take long. The original post was posted yesterday. Today this:
From SeekingAlpha:
  • Marathon Oil pre-market after announcing an immediate capital spending reduction of at least $500M from its previously planned 2020 capital spending budget of $2.4B.
  • The revised capex of $1.9B or less represents a ~30% reduction from 2019 levels.
  • Marathon says it will suspend further resource play exploration drilling and leasing activity, suspend all operated drilling and completion activity in Oklahoma, and "meaningfully reduce" operated drilling and completion activity in the Northern Delaware.
  • The company says it maintains a strong financial foundation, ending 2019 with ~$3.9B of liquidity and no near-term debt maturities. 
 Original Post

This is really going to be interesting. [You are going to see that sentence/phrase/word many, many times over the next few weeks.]

This all began with a note from a reader when he/she sent me this Zero Hedge link.

So, everyone agrees: the price of WTI is going to drop significantly. Now what?

Disclaimer: I am really, really biased, and really inappropriately exuberant about the Bakken. Not from the investment angle, but from most non-investment angles. We've discussed this often on the blog. See welcome/disclaimer.

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

Disclaimer: I do not follow the Permian, except peripherally. I do not "know" the Permian; I do not understand the Permian; I have my own worldview (myth) about the Permian.

I replied to the reader who sent me that Zero Hedge link above with this "not-ready-for-prime-time" reply which I will now post and open to discussion:
By the way, this will give us a chance to see which is more resilient? The Bakken or the Permian?
I wonder if the break-even price for about half of the Bakken production is $20/bbl or less. In other words, if operators were to stop all drilling except in a few areas; complete the backlog of DUCs, re-frack older wells in Tier 1 locations, drop the number of active rigs in half (or maybe to a quarter) -- production might drop to half current production but break-even might be $20 or less.
We're talking survival here, weathering the storm for six months.

So, take that "not-ready-for-prime-time" reply and look at this morning's Bakken report.

Observations:
  • the number of active rigs is as high as ever, trending up over the past few days, and now at 55
    • comment: the "current" rig count has nothing do with "current" events
  • operators have a 10-year strategy; a 5-year plan; a one-year look-ahead CAPEX; a semi-annual re-set (usually tied closely to feedback from their lending institutions every six months);
  • during a crisis, the semi-annual re-sets contract to quarterly meetings, 
  • if things are really, really bad for any specific operator, those re-set meetings are held monthly
Two months ago we were in "normal" operating mode and companies were sticking to their one-year look-ahead CAPEX (their FY20 budget) and preparing for their semi-annual re-set meeting with their lenders and board of directors.

Two months ago, the rig count in North Dakota was set for June, 2020: rigs were moving; contracts were signed; roughnecks were checking their Google maps.

Today, those directors and their lenders are in panic mode. "Panic" may be too strong a word: perhaps "concern" is a more politically correct term.

My hunch is that the semi-annual re-set will occur earlier than usual. If there is a change in the number of active rigs based on current events we won't see that at least for another month.

Break, break. Or will we? This is very, very interesting. [There's that word again.] What is the cost of dropping rigs sooner than planned? The cost of getting out of the contract.

In off-shore drilling and in conventional drilling, the drilling time was significant. Once in place and drilling, the operator would complete the well. A snapshot would reflect that in the number of rigs operating at any given time.

Drilling in the Bakken? And I assume this is true throughout the shale plays -- they can drill to depth in six days. The average, I suppose, is closer to ten days. The outliers might move the median and the mean to the right (more days). So, all those 55 rigs that are active today -- two weeks from now every well that is being drilled by those 55 rigs will now be drilled to depth.

If the situation is not improving, or getting worse, heaven forbid. operators can start dropping rigs en masse over the next two weeks incurring only the cost of the contracts, write-offs, etc. It will be a financial decision (well, duh). By the way, another digression. Remember: operators contract with a refiner to provide a certain amount of oil on a given date. It is cheaper to buy oil on the open market for $25/bbl or drill that next Bakken well costing $65/bbl? This is not rocket science. Operators with $55-hedges/collars/whatever they're called for FY2020, could be looking pretty good. I don't know. Another digression.

Bottom line for newbies: shale operators can turn on a dime compared to those working off shore. The number of active rigs today reflects 10-year-strategies, 5-year plans, one-year budgets; and semi-annual re-sets but in a crisis, shale operators can drop rigs in two weeks.

Wow, that was a digression.

This is what I really wanted to talk about: this morning's Bakken report (which included the active rig count). Look at two things.

First, DUCs. What do you see? Since Thursday last, eleven wells have been released from confidential status. Of those eleven permits, only one was a DUC. Most of these wells were completed some months ago and are now reporting. Experts suggest that if we get into crisis mode, we will see more DUCs. We've talked about that before. Won't re-hash, except to say the experts were talking about the Permian, ignoring what was happening in the Bakken. I track Bakken DUCs here. In the big scheme of things, unlike what the experts were saying about shale, there has not been any real change in the number of DUCs in the Bakken.

What would the break-even be for Bakken oil if all drilling stopped immediately and operators used EOG's completion strategies to complete 900 DUCs.

What would the break-even be for Bakken oil if all drilling stopped immediately and operators used EOG's completion strategies to re-frack all wells drilled before 2014?

In both scenarios: minimal drilling costs; minimal G&A; minimal change in lease operating costs; -- in other words, the only real cost would be fracking. And the operators would be doing this in this climate:
  • unlimited water in the Bakken (compare with the Permian -- remember the original question);
  • really, really cheap and really, really lots of available sand;
  • low-cost fracking environment;
  • an incredibly favorable regulator and legislative climate; see recent pipeline story to see how fast operators get things done in the Bakken (time travel?);
Second, production effectiveness/efficiency.

Before I go further, for those that haven't paid attention to the EIA dashboards, here are the links again:
Now, back to production efficiency/effectiveness.

Look at the production data for the ten wells that came off the confidential list since Thursday last; these are huge wells:
  • they were all tested in September, 2019; 
  • they all started producing in September, 2019
  • production data was through the end of January, 2020
  • none of them would have had a full September month
  • so cumulative production is for less than five months
  • cumulative production for these ten non-cherry-picked wells; simply the last ten wells that came off the confidential list
  • note: not boe; does not include natural gas; this is only crude oil production;
  • file numbers / cumulative crude oil production, all in less than five months:
  • 36027: 107K bbls crude oil
  • 36026: 130K
  • 35821: 134K
  • 35820: 139K
  • 36146: 232K bbls crude oil -- EOG completion strategies
  • 36415: 282K bbls crude oil -- EOG completion strategies
  • 36413: 291K bbls crude oil -- EOG completion strategies
  • 23958: 178K bbls crude oil
  • 35064: 122K bbls crude oil
  • 35063: 165K bbls crude oil
These are huge numbers, folks. And they were not cherry-picked. They were simply the most recent wells that came off the confidential list since Thursday last.

EOG is reporting wells that produce 300K bbls of crude oil in less than six months. 

By the way, the one DUC among the eleven wells that came off the confidential list:
  • 35100, SI/NC, 77K bbls of crude oil in four months, 10 days;
Now the hard part: how to answer that question, whether the Bakken or the Permian will be most resistant to the current crisis?

What makes this so hard is this: how do we define "most resilient"?

I'm going to use the EIA dashboards that come out monthly. This should be fascinating.  The most recent EIA dashboards are dated "February, 2020" and screenshots can be found here.

EVs -- March 9, 2020

Sent to me by a reader.

I've included the comments in response to that Facebook photo.

Everyone has a point.

But after going through this little mini-debate, I think the individual posting the original photo/comments has the much, much better argument.

For the individual who has never been caught in a traffic jam, perhaps this will help: record 745,000 traffic jams on Germany's famed autobahns last year.


To answer the Facebook contributor's question: the contributor is correct. No one has thought this through.

The "OPEC+ Spat" -- Parts One And Two -- March 9, 2020

Updates


August 29, 2020: apparently the spat is over. Saudi Arabia won. Iraq falling into line. 

March 25, 2020: update.

March 16, 2020: hour-long energy podcast. Written summary here, with link to podcast.

March 10, 2020: hey, before we get started, can we clear up one myth regarding break-even prices for Saudi Arabia. One of my pet peeves is the meme/myth/worldview that Saudi has the cheapest oil in the world, that they can produce oil for $5 a barrel or some such thing. Not even close to accurate. According to S&P Global Platts the break-even price for Saudi Arabia is $83 for the Saudis, $51/Brent bbl for the Russians.]

Original Commentary

This is really, really cool.

Re-posting my initial comments from a few minutes ago:
This is incredibly cool. The OPEC+ spat between Saudi Arabia .... okay, break, break .... let's get one thing straight. There really is no OPEC+ --- there never was an "OPEC." OPEC was Saudi Arabia. So, there is not an OPEC+ spat. This is between Saudi Arabia and Russia. Period. Dot. Okay, I'm going to quit here. This requires a post of its own ---
Okay, so where was I?

How did we get here?
  • WTI drops from a high of $65 not so long ago to $31 today 
  • global equity and bond markets in meltdown
NOTE: due to the nature of my posting, the note below is confusing. I am talking about two different rooms. Hopefully that will make the note clearer (more clear?).

This is the snapshot taken today of the "second room," March 9, 2020, 9:30 a.m.: the snapshot has three players and one elephant --
  • the three players: 
    • Saudi Arabia
    • Russia
    • the US
  • Saudi Arabia and Russia see things fundamentally differently
    • it would be easier to explain this if Obama were president; it's more difficult to explain this with Trump as president -- unless one agrees that Trump made "the Obama mistake"
  • the elephant in the room, of course, is the coronavirus
For the past year or so, I've limited by Twitter account to "oil analysts" who really seem to be the best of the bunch. These appear to be the most followed "globally" focused analysts. They do not include US analysts focused on regional shale plays.

To say the least, I have found these "experts" incredibly lacking.

For the past two years these analysts have been quibbling over the impact Venezuela, Ecuador, Iran, and Libya will have on the (oil) market. Every time I saw a tweet on Libya it would almost make me go nuts. Ecuador? Are you kidding? Iran? It's been a non-player in this market for so long, I've almost forgotten about the country. But that's all those "analysts" were focused on.

They were missing the elephant in the room -- you know, the elephant before the coronavirus elephant. This time we're talking about the "first room." We're talking about the room the global oil analysts were watching: the room with Venezuela, Iran, Libya, and Ecuador. Sometimes, Brazil showed up. They were missing the room with Saudi Arabia, Russia, and the US. And that pesky elephant. It almost seems, in retrospect, that the most-followed experts on global oil markets were unaware of the "second room."

I'm going to quit here, purposely let folks catch up and see if they can guess where I'm going. Hint: I've talked about his often on the blog: it's a recurring theme on the blog. In fact, I think I started mentioning it when I first started the blog; certainly within a few years after starting the blog.

END OF PART I

Part Two

A pet peeve of mine: reading tweet after tweet after tweet by global oil experts for the past several years talking about Libya, Ecuador, Venezuela, and Iran with regard to global supply. Of the four, the experts were most obsessed with Libya. At best we were talking about 500,000 bopd gain or loss. Again, a global demand of 100 million bopd, five-hundred-thousand bbls is a rounding error (0.5%to be exact). North Dakota produces three times that amount every day. 

The experts consistently avoided the real story: when the price of oil drops below a certain point, it becomes an existential issue for Saudi Arabia. 

Another pet peeve: "everyone" talks about how cheap it is for Saudi Arabia to drill oil. It does not matter how much it costs for Saudi Arabia to produce oil. The fact is that the entire Saudi Arabian budget is based on oil. For years, the Saudis budgeted for $100 oil. I went back through the blog looking for posts along that line. I quit after going back through 2017.

Quick: what was the break-even price for Brent oil for Saudi Arabia -- based on their budgetary needs?

Answer: $92. Saudi Arabia needed $92-Brent oil to meet its budget. I got such a kick out of tracking this. No one else was talking about it. When Brent oil went below $90, Saudi Arabia said there was no concern; they could live on $80 oil. Then they dropped to $70 oil, and finally they even said they could make it on $60 oil. I assume we will soon hear that they can make it on $20 oil. Because it only takes $5/bbl to produce crude oil in the kingdom. LOL.

I've not seen any articles recently on the "break-even" price for Saudi Arabia based on its budget. My hunch: Saudi Arabia will say $60/bbl; in fact, it's probably closer to $80. But let's give them $60, just for the sake of argument. Hold that thought.

Where was Brent at the beginning of the year (2020)? Around $70? I don't know. Somewhere in that 
ballpark. One month ago, early-to-mid February, where was Brent trending? Toward $60. And it looked like it was getting worse.

For most of February, OPEC+ was arguing about the necessity of holding an interim meeting to discuss quotas to hold the price of oil. That didn't go well, but they finally held a meeting. It devolved into chaos. And no agreement. For purposes of discussion, it doesn't not matter why there was no agreement; the only thing that matters is that no agreement was reached.

Now, we come to a fork in the road. One fork takes us down a reasonably, thought-out response. The other road takes us down an emotionally-laden response.

Quick: how much were Saudi Arabia and Russia arguing about? I no longer remember if the original argument was about opening the spigots, maintaining the same OPEC quotas, or cutting production. But it does seem we were talking about a "give-or-take" of one million to onepointfive million bbls of oil on a daily basis. I'm open to more specific numbers but I'm not going to take the time looking for them. For me, the number that stuck in my mind, those sitting at the table were quibbling over one to onepointfive million bbls.

At this point, one can get into any number of op-eds about who said what, who was willing to compromise, who was not willing to compromise, who was right, who was wrong. That's all behind us now. The question for me is this: Saudi's heir to the throne made the unfortunate statement, and I'm paraphrasing, "Fine, if you don't want to help me on this, Saudi Arabia will open the spigots. We might even go back to 12 million bopd."

Certainly Prince MBS had to know what would follow if he said that Saudi Arabia would open the spigots. They did that in 2014 (or thereabouts) -- their trillion-dollar mistake.

All of this has been talked about extensively on the blog.

Leaders of countries are not known to lash out emotionally. Prince MBS, it seems, has been as disciplined as any leader currently in power. What would cause him to respond emotionally -- to say that he would flood the world with oil?

I think there's only one thing. The kingdom -- i.e., his own family, his father and the prince himself, the very House of Saud itself -- is at risk, a question whether it can even survive.

This is not a pretty picture.



The charts are not only not pretty, they are not reassuring (for the Saudis).

From wiki:
The succession to the Saudi Arabian throne was designed to pass from one son of the first king, Ibn Saud, to another.
King Salman, who reigns currently, first replaced the next crown prince, his brother Muqrin, with his nephew Muhammad bin Nayef.
In 2017, Muhammad bin Nayef was replaced by Mohammad bin Salman, King Salman's son, as the crown prince after an approval by the Allegiance Council with 31 out of 34 votes.
The monarchy was hereditary by agnatic (paternal) seniority until 2006, when a royal decree provided that future Saudi kings are to be elected by a committee of Saudi princes.
The king-appointed cabinet includes more members of the royal family.
This is a stretch too far but this is pretty coincidental. In the news last week, Prince MBS rounded up a handful of princes and detained them, similar to what he did a few years ago. Quick: how many princes were rounded up in the March, 2020 round-up?

Answer: three.

I always wondered what happened to the three members of the Allegiance Council who voted against the King and against his son, the current heir to the throne.

Another digression. I apologize.

Let's cut to the chase so we can bring Part 2 to a conclusion.

Prince MBS's decision to flood the world with oil was an emotional outburst in response to one of two things:
  • the survival of the House of Saud; and/or, 
  • his own survival as heir to the throne
When one needs $90 oil to survive, and willing to cut the budget to make it on $80 oil. that's one thing. But when the very kingdom is at stake, when Brent oil is headed toward $50 oil, drastic measures are necessary.

Either the Prince knows exactly what he is doing and this will someday be seen as a well-thought out, rational response to an existential crisis or this was an emotional response to an existential crisis which will only make matters worse.

Back to that fork in the road noted earlier.

Sort of reminds me of Robert Frost's "the road not taken."

END OF PART 2 

Part Three

It is amazing how the global oil experts were obsessed with the first room all these years: the room occupied by Libya, Ecuador, Venezuela, and Iran. They completely missed the second room with Russia, Saudi Arabia and the newly-arrived unwelcome elephant in the room.

By the way, in the current spat has anyone talked about Trump's sanctions on Russia. Perhaps it is not only Saudi Arabia that is reeling from the depressed price of oil. Perhaps Russia is in deeper doo-doo than we realize. That would go a long to explaining why Russia and Saudi Arabia were so far apart in their negotiations. From October 1, 1939, from one of the greatest orators ever who also suffered with stuttering as a child:
I cannot forecast to you the action of Russia. It is a riddle wrapped in a mystery inside an enigma; but perhaps there is a key. That key is Russian national interest.
Wow, this opens a whole new area of inquiry.

But I have to leave that -- Russian national interest -- for another day. I want to get to the elephant in that second room. It's very possible things were going badly for both Russia and Saudi Arabia by November last year, 2019, just four or five months ago. Oil demand growth was forecast to fall a bit in 2020, and sanctions were still taking a bite out of Russia's apple.

But things really turned nasty in January, 2020. A seven-gene RNA virus related to the common cold escaped from the high-biosecurity lab in Wuhan, Hubei, China.

That changed everything.

While global experts were watching the trivialities going on in the room with Libya, they completely missed what has been going on in Saudi Arabia the past ten years which began with the Bakken.

And then the elephant showed up.

The elephant, of course, was the coronavirus.

Prince MBS was aware of the trajectory before the elephant showed up. He was taking responsible actions to turn things around:
  • internal reforms of which we would be unaware;
  •  beginning to put his "2020" strategic plan into operation
  • launching the Saudi Aramco IPO
  • raising money for that IPO in unorthodox ways (extorting money from hundreds of princes)
  • curtailing/canceling "pie in the sky" renewable energy (wind and solar) projects
But nothing was working. US shale production was continuing to grow.

About two months ago, OPEC (not OPEC+) debated calling an earlier meeting to discuss extending the quotas which end in a couple of weeks (March 31, 2020). Russia balked.

OPEC (not OPEC+) seemed rudderless, unsure, definitely not united which gave Russia the opportunity to push back.

Who knows what happened when, but what began as a rational discussion resulted in an irrational response by Saudi Arabia.

It may be personal. I assume it was, to a greater extent than being reported.

For sure, it might have ended up the way it did regardless. But with coronavirus, the banning of flights from China, the almost-instantaneous realization that crude oil demand was going to plummet, Prince MBS knew that the timeline for the existential crisis that he saw coming has contracted, from perhaps ten years (if one was really, really optimistic) to less than two years.

He really had nothing to lose. He could see that the price of oil was going to drop this year. His country's breakeven is $83/bbl (Brent). Brent was headed for $60 for the foreseeable future.

At $60, Saudi Arabia will be -- for all intents and purposes -- financially broke in five years to ten years. Opening the spigots will drop the price of oil to much less than that.

I honestly don't see a way for Saudi to navigate this disaster.

END OF PART THREE

Part Four: Posted March 24, 2020

Facts or at least what I think are the facts (folks can fact-check me on these). Maybe I should call these observations:
  • Saudi Arabia and Russia were quibbling about less than a million bopd one way or the other
    • the argument was whether to extend the quotas after they expire at the end of March, 2020 (one week from now)
    • the argument was less about the quotas (and price) and more about protecting one's market share
  • a digression:
    • 30% of the market share at $70/bbl vs 35% of the market share at $20/bbl -- but we need to move on
  • Saudi Arabia's budget is based on $83-oil and that is after a cut in the budget; 
    • at one time, not many years ago, Saudi Arabia's budget was based on $100-oil;
    • Saudi Arabia cannot print rials (as opposed to the US which can print dollars) -- actually the country can print rials but you get the point
  • so far, no increase in crude oil has reached the US from Saudi Arabia;
  • to meet its export goals, Saudi Arabia will first empty its crude oil storage tanks;
  • after Saudi crude oil in storage is exhausted, Saudi has to increase production to:
    • increase exports by one to two million bbls /day to achieve its rhetoric to flo
    • od the world in oil;
    • increase production for domestic use (occurs every summer to run air conditioners)
    • increase production from the fields to replace oil for storage
All of this just in time for Wahun flu to hit the mideast. Saudi often fell short of production goals in best of times; it will be interesting to see what the kingdom can do with the threat of Wuhan flu looming

It's hard for me to believe that the world will remain in "lockdown" past April 30th. If the world returns to normal / begins to return to "normal" by May 1, 2020, oil demand will increase significantly.

At that time, one could see:
  • max oil demand in the US; summer driving season; economy gets back on track;
  • China injects $7 trillion in stimulus;
  • Saudi storage depleted;
  • Russia can't make up the difference (for any number of reasons);
  • Saudi production stressed (see above) 
END OF PART FOUR

The Daily Note -- March 9, 2020

MRO and EOG reported huge wells over the weekend. I will talk about that later, and will update RBN Energy as usual later, but I want to get started on "the daily note."

Last week I changed the format for the blog slightly; no one seemed to notice. That's what I was hoping.

I am going to try my darndest (for Harvard elites, look it up) to keep focused on the Bakken and energy-related posts and not clutter the blog with politics, coronavirus, celebrity clickbait, and geo-politics, except as it relates to energy. I will combine those non-Bakken comments in one daily note, and update that note throughout the day. The daily notes are linked by date at the sidebar at the right.

I'm hoping that most of the blog posts will focus on the Bakken and energy-related posts by making this change. There will be exceptions to include but not limited to:
  • global warming;
  • electric vehicles;
  • Minnesota hair flow.
So, let's get on with it, today's daily note so I can get back to MRO and EOG. Wow, they reported some huge wells -- which have huge implications.

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Geo-Politics

This is incredibly cool. The OPEC+ spat between Saudi Arabia .... okay, break, break .... let's get one thing straight. There really is no OPEC+ --- there never was OPEC. OPEC was Saudi Arabia. So, there is not an OPEC+ spat. This is between Saudi Arabia and Russia. Period. Dot. Okay, I'm going to quit here. This requires a post of its own ---


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Coronavirus

Coronavirus: statistics. By country.
  • only one country and one continent matter today: 
    • the country: Italy
    • the continent: Europe
  • later, the only country that will matter: the US, but that's a story for another day;
  • today, by country:
    • China: has it under control; another day with less than 50 new cases; only 23 new deaths;
    • South Korea: it appears the country is "turning the corner;" less than 200 new cases; 165 to be exact; only three new deaths; 53 / 7,478 = 0.7% fatality rate; has anyone compared the demographics of South Korea with, let's say, northern Italy? or the weather?
    • Italy: pending; the country usually reports late in the day; I'm betting at least 1,500 new cases if they're honest; [later: 1,797 -- see comments at this post.]
    • Iran: out of control, but maybe doing better than Italy, if one can call 595 new cases in Iran better than Italy; with 43 new deaths, Italy has not reported yet, but of the 79 new deaths today, Iran reported 43 of those new deaths, or slightly more than 50%
Bottom line: Bill Maher is 1000% correct. President Trump needs to replace VP Pence with Bill Maher as the administration's spokesman on coronavirus. "Pence, you're fired." Just joking. But we need someone like Bill Maher to tell America, "get a grip."

Case study: some time ago I mentioned that the Diamond Princess cruise ship would be a great case study. We now have that case study, over at Ice Age Now. It's a must-read article:
  • case fatality rate: 0.85 percent (of the 705 that tested positive, six died)
  • but look at this: of the 3,711 confined to tight quarters, six died, which converts to 0.25
  • transmission in that setting was incredibly low (or they stopped it pretty quickly through quarantines)
  • the article does not say if all have been tested, or only those symptomatic; there is such a thing as asymptomatic carriers in all (?) infectious disease outbreaks;
  • finally, not a single Diamond Princess patient under the age of 70 has died;
March 8, 2020: the most recent data available. This was a bad, bad day globally. But if one removes Italy, the numbers would look a lot better.





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US Politics

Senile Joe: it's getting much, much worse. His childhood stuttering -- he can no longer pronounce the name of his former boss. Bless his heart. The rest of us have tried forgetting Obama, without success and senile Joe has done just that.

Klobuchar: the Dem's new savior -- as VP.

Hillary: re-calculating, re-calculating, re-calculating. What we need to be watching -- news stories that start to paint Klobuchar in a bad light.

The Bakken Morning Report -- March 9, 2020

Hey, y'all -- I'm trying to avoid watching the market and "everyone" is sending me screenshots of CNBC. All I want to know is this: is Rick Santelli on the trading floor? His comment(s) about coronavirus a couple of days ago ... I didn't see it live, but networks are reporting it ...

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Back to the Bakken

Active rigs:

$32.663/9/202003/09/201903/09/201803/09/201703/09/2016
Active Rigs5567594333

The wells that have come off the confidential list today since last Thursday --
Monday, March 9, 2020: 16 for the month; 187 for the quarter, 187 for the year:
  • 36027, 3,823, MRO, Pletan 11-13TFH, Bailey, t9/19; cum 107K 1/20;
  • 36026, 5,560, MRO, Herbert 41-14H, Bailey, t9/19; cum 130K 1/20;
  • 35821, 4,081, MRO, Bryden 11-13H, Bailey, t9/19; cum 134K 1/20;
  • 35820, 4,967, MRO, Maher 41-14TFH, Bailey, t9/19; cum 139K 1/20;
Sunday, March 8, 2020: 12 for the month; 183 for the quarter, 183 for the year:
  • None.
Saturday, March 7, 2020: 12 for the month; 183 for the quarter, 183 for the year:
  • 36416, 2,859, EOG, Clarks Creek 105-0719H, Clarks Creek, t91/9; cum 232K 1/19;
  • 36415, 3,519, EOG, Clarks Creek 18-0719H, Clarks Creek, t9/19; cum 282K 1/19;
  • 36413, 2,058, EOG, Clarks Creek 106-0724H, Clarks Creek, t9/19; cum 291K 1/19;
  • [36414 is still on loc status]
Friday, March 6, 2020: 9 for the month; 180 for the quarter, 180 for the year:
  • 35100, SI/NC, Oasis, Kellogg Federal 5297 12-30 8T, Banks, t--; cum 73K in less than five months;
  • 23958, 2,719, EOG, Liberty LR 107-1109H, Parshall, t9/19; cum 178K 1/10;
Thursday, March 5, 2020: 7 for the month; 178 for the quarter, 178 for the year:
  • 35064, 687, Enerplus, Hawksbill 152-94-33D-28H, Antelope-Sanish, t9/19; cum 122K 1/20;
  • 35063, 1,291, Enerplus, Tortoise 152-94-33C-28H-TF1, Antelope-Sanish, t9/19; cum 165K 1/20;
RBN Energy: crude prices tumble, OPEC+crumbles as COVID-19 spreads. What's next? Link here.
On Friday, global energy markets entered uncharted territory. Already facing declining demand due to the impact of COVID-19, markets then were dealt a body blow with the collapse of the OPEC-Plus alliance and the resulting prospect of a significant increase in supply. Saudi Arabia wanted to manage supply to balance against lower demand, but Russia was having none of it.
Instead, reports from the OPEC-Plus meeting indicate that Vladimir Putin has declared war on U.S. shale. Then on Saturday, the plot thickened. Saudi Arabia made huge cuts in the price of its crude oil, presumably in a high-stakes move to bring Russia back to the negotiating table. Even though we are witnessing unprecedented market conditions, it’s not Armageddon. Crude oil will continue to be pumped, piped, shipped and refined. Most infrastructure projects under construction before the collapse in oil prices will be completed. The big question is, how will the market adapt? In today’s blog, we’ll begin an exploration of that question.
Important article. It will disappear behind a paywall. Archived