1. Takeaway capacity: yes, takeaway capacity exceeds production in the Bakken -- UNTIL an Enbridge pipeline gets shut down. Then we see how narrow the gap is between production and shipping. It's already been announced that the pipeline shutdown is going to cost some producers significantly: missing their third quarter production targets, and, in a worse case scenario, could result in producers missing their full year production targets. For investors, that spells a bad end for 2010. North Dakota hit a production record in July; if that record is NOT broken in August it will be due to the Enbridge pipeline breaks (yes, two of them in one quarter, both of which caught national attention); this will be (painfully) interesting to anticipate. That TransCanada Keystone XL pipeline can't be put in soon enough (scheduled to be operational in 2013, if I remember correctly). The Keystone will take Bakken oil to the gulf coast for the first time and offer an alternative to Enbridge.
2. Increased density wells: We are now seeing more and more wells in one section. Some (Hess and CLR) are doing it from multi-well pads. Others (Whiting) are doing it the old-fashioned way: just a lot of individual wells in one section. I think EOG is doing it the Whiting way. If I'm wrong, someone may point it out to me.
3. Drillers are expediting their expedited CAPEX programs. CLR and BEXP are each raising $300 million or more in senior note offerings. The BEXP offering generated enough interest that the company increased the offering from $250 to $300 million.
4. Record number of rigs drilling in North Dakota. There are 146 active rigs in the North Dakota Bakken. (For newbies, that link will take you to the current rig count in North Dakota. that number may vary from day to day, and may be as low as 139 on any given day, but the day this note was first posted, there were 146 active rigs in North Dakota -- the record.) What is surprising is that this record number of rigs is holding despite the fact that there appears to be the beginning of a new boom where it all started in Elm Coulee on the Montana side of the Bakken, and increased interest farther north in Montana, again along the North Dakota border. Drillers are moving some of their rigs to the Montana side, but the all-time high (146) for active rigs in North Dakota held this past week.
5. Concerns: a) global economy continues to sputter putting pressure on price of oil; b) oil supply surplus continues; worse, if anything; c) strength of dollar puts pressure on price of oil. Risk of federal takeover of fracking regulations looms larger than ever. The story may start and finish in the Marcellus in Pennsylvania. In the big scheme of things, Pennsylvania has more to do lose than North Dakota, although it would be hard to imagine anything more painful than the Bakken shutting down for two to three years while regulatory language is written. North Dakota would remain solvent. But if the nascent shale natural gas industry is stopped in Pennsylvania, the city of Harrisburg will go bankrupt, and the state will be in deep doo-doo.
6. Speaking of fracking. For those who may have missed the story, we are now in the third generation of fracking. The first generation was single-stage stimulation. The second generation was taking that to high single-digit and low double-digit stage stimulation. Some companies moved quickly from 14-stage stimulation to 40-stage stimulation, called "super-fracking" by some. It will be interesting to see what the new "normal" will be. I don't think we will know until we listen to corporate earnings presentations next time around, or maybe one more earnings cycle after that. Watching the cost of a well might give us some indication whether super-fracking was used.
7. For investors: if I were a trader, I would be looking at selling into strength right now, raising cash in expectation of further price pressure on oil and Bakken-related company shares in the near term. I'm not a trader, and I will ride this out. I have been putting extra cash into high-dividend and/or high-distribution Bakken companies to raise cash. There are some reports that the majors may have to increase their dividends to give support to share price.
8. Wells coming off the confidential list in October: 74. This compares to 76 wells that came off the confidential list in September.
Military Tribute, Gene Simmons (bassist for "KISS").
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