Flurry of Whiting Activity North of Belfield (Bakken, ND, USA) -- Lewis and Clark Prospect -- WLL

I am told that there are now traffic lights about a half-mile north of Belfield, about a half-mile north of I-94 where a county road intersects US Highway 85 (the north-south highway into Belfield). These are the first and only traffic lights in Belfield; if you want to see the next nearest traffic lights you have to drive to Dickinson, Williston, or Baker (Montana).

Unless there is some significantly increased traffic at this intersection, on first look it seems to be an unusual spot for first-ever traffic signals in Belfield.

A bit to the northwest, Whiting has recently opened a new prospect: their Lewis and Clark prospect which, according to a recent Whiting presentation, is centered around the Bicentennial field. The Lewis and Clark prospect is where the Three Folks pinches out -- or extends -- from the Bakken formation.

But the Bicentennial is quite a ways from the traffic lights just north of Belfield. Is something else going on?

Looking at the NDIC GIS map server just a couple miles to the east of this new traffic signal, I notice a rig on site, with permit number 99189, Mann 33-18. That's a very, very unusual permit number. In fact, it is the only 99XXX permit held by Whiting. It turns out it is a stratigraphic well. It is located in the four-section oil field called North Creek. Meanwhile in that same section (18-140-98) Whiting has almost completed another well, permit 19337, Mann 21-18TFH, a wildcat, even though it is sitting in a designated field.

Just to the west of this well, in section 13-140-99, is another Whiting well, on the confidential list, #18837, Kubas 11-13TFH, a wildcat.  It's another Three Forks well and is listed as "plugged or producing" on the NDIC website, as of September 29, 2010.

Less than a mile west of the Kubas well, closer to US Highway 85, is Whiting's permit 19819, another wildcat, Lydia 21-14TFH, and another Three Forks well.

Three miles and four miles to the west, on the other side of US Highway 85, are two more wildcats, #19623 and #19444, Obrigewitch 21-17TFH and Hecker 21-18TFH, both Whiting wells and both wildcats.

One last well to take a look at. This is another Whiting well, #19562, Brueni 28-1H. The Brunei is in the opposite direction, two miles southeast of the stratigraphic well, towards South Heart where there has been a flurry of activity lately. It does not have the TFH designation, so I assume it's a Bakken well, but don't know for sure. It would make more sense for it to be a TFS well. We'll see.

It doesn't take much to get my mind imagining things. In this case, the new traffic lights just a half mile north of Belfield, along with the only stratigraphic well that Whiting currently is drilling, and a number of wildcats in the immediate area targeting the Three Forks area suggest to me that a) Whiting is looking to find the southeastern limits of their Lewis and Clark prospect; and, b) Whiting is looking at putting in an operations center of some sort north of Belfield.

Updates

April 28, 2011: 19444, 3,106, WLL, Hecker 21-18TFH, huge story, click on link

February 26, 2011: WLL corporate presentation. This "flurry of activity" is now called the Lewis and Clark prospect by Whiting. Its objective is the Three Forks formation. It consists of 360K gross/235K net acres; 164 1280-acre units; 12 wells in 2010; 46 in 2011; $280 million CAPEX in 2011

November 2, 2010: This is most interesting. I posted the above on October 31, 2010. Just two days later there's a story in the Dickinson Press that Whiting is requesting Belfield to rezone agricultural land near Belfield to industrial use. The article did not say where the area of interest is, but it doesn't take a lot of imagination to think it might be a half-mile north of Belfield, where the city put in their first set of traffic lights.

Update on the Stroh Well With the Broken Casing Plug

This is what makes the blog fun.

Sometime ago I noticed that a Stroh well reported 25 barrels/day on initial production, and suggested that there would be an explanation.

Shortly after that someone left a comment explaining a problem with the well. That was back in September (2010).

Today, I received a comment updating that well. The problem was fixed and they are ready to frack the well. That alone was very interesting.  But the rest of the story: the unfracked well flowed at 960 barrels/day based on initial flowback.  So, they will frack later this week.

For whole story, click here.

No News From the Souris Oil Field (Spearfish, ND, USA)

Someone asked me why there is so little news regarding the Spearfish formation in northwestern/north-central North Dakota?

Here was my reply. I replied as a comment elsewhere but it was such a long reply, and because it might be of interest to a more general audience, here is my answer.  Again, this is just my opinion; maybe others have more insight.

Question: Why is there so little news regarding the Spearfish formation in Bottineau County?

Answer: I have been wondering the same thing, why so little news. 

This is what the NDIC website reports regarding the Spearfish play in the Souris field:

For all intents and purposes, the only operator currently in the Souris field (Spearfish formation) is EOG.

EOG has 16 permits/file numbers in the Souris field. Two of the wells are active (A) and have reported out, which I have posted on this blog. An additional three permits are confidential (C). None of these three have a date associated with them, which means the wells are not complete. I do not know if they have even spudded; EOG does not frack between November and March. If the wells are not fracked before December, they will not be fracked until the spring (unless EOG makes exceptions regarding fracking; or their policy has changed).

That accounts for five permits. The other eleven (11) file numbers are listed as LOC: locations with permits to drill but no activity.

Of all the operators in the Bakken, EOG provides the least information on their on-going operations (in my opinion); they are very, very good at holding things close to their chests, as they say. I have no problem with that. None whatsoever.

Since the wells will not be gushers (huge IPs), individual wells will not catch the attention of the local press, and there is little reason for EOG to issue press releases ahead of the confidential release date to tell folks how the wells are going.

EOG is a huge company. Its market cap is $24 billion. Unlike WLL (market cap, $6 billion), which has several presentations at their website to download, EOG has only one presentation. WLL presentations are exhaustive, up to 60 - 70 slides. EOG's presentation is 19 slides and devotes one slide -- one slide -- to the Bakken/Three Forks and none to the Spearfish.

Suffice it to say: a) oil companies are not in the business of telegraphing their on-going operations; b) the Spearfish is but a pixel on EOG's radar scope; and, c) for now, the Spearfish has local interest.

The best I can hope for is some local folks taking a drive out there and seeing if there is any activity on the three confidential well pads.

Updates

Update, November 2, 2010: the above summarized the 16 EOG wells in Souris oil field. There are others, including Boundary 4-27H, a wildcat, just a couple of miles south of the Souris. That well is "plugged or producing" (obviously producing). In the November hearing dockets, case number 13429, EOG has requested temporary spacing for Boundary 4-27H, which means they have struck meaningful amount of oil.

Using Google Earth to See Your Oil Well Location

You will be jumping back and forth between an application and your browser for this to work. It is amazingly simple. The key is to be able to download Google Earth on your computer.

1. Install Google Earth on your computer. Google Earth is an application. I leave the Google Earth icon in my dock at the bottom of my desktop (on an iMac).

2. Click the following and you will be back to your browser:  Convert section-township-range at this site. This is "Earth Point." It is free but you can pay for additional services. I am using only the free service.

• About 1/3 down the page is: "Convert Township, Range and Section to Latitude and Longitude"
• Use drop-down menu to click on "North Dakota"
• Fifth Meridian will automatically be there for North Dakota (that's what you want)
• Use drop-down menus to fill in township, range, and section
• Then click on the "VIEW" button
• Automatically, the longitude and latitude will show up
• Run your cursor over the centroid longitude, latitude; it will look something like this: 48.4377284, -102.8965553 and "copy" 

3. Now, go back to Google Earth, which is an application that you downloaded in step 1; it is not in your browser; it is an application. If you put the icon in your dock at the base of your desktop, simply click on the Google Earth icon.

4. At the very top, on the left, at the Google Earth application, click on "Fly me."

5. Right below "Fly me," paste in your centroid longitude, latitude, and then hit the search magnifying glass, and Google Earth will take you directly to your section-township-range.

6. To the best of my knowledge, the photos are not dynamic; like all photographs they are dynamic and will be updated periodically. I have no control over when they will be updated.

For Newbies: For An Overview of the Bakken, Start With a Whiting Presentation

For newbies: I have said this several times, but it bears repeating: Whiting has the best corporate presentations among the Bakken oil exploration and production companies.

Go to their website, and click on their latest corporate presentation. Not only will you learn a lot about Whiting, but you will also learn a lot about the Bakken. With a couple more clicks you can find Whiting's 2010 IPAA conference presentation. If you can find that one, it's even better than the latest corporate presentation. The "Q & A" slides holds some of the best information about Bakken wells I've seen.

Scroll through the slides.

Recent completions and initial production figures
The first slide that might catch your attention is the one that updates their current year drilling program. Here are just a few of their latest examples (numbers in red are the initial production numbers):

• 19044, 2,110, Anderson 21-7H, Sanish
• 18953, 2,877, Lacey 12-10H2, Sanish
• 19069, 2,440, Strobeck 12-12H, Sanish
• 18947, 2,984, Dishman 13-19H, Sanish
• 18869, 1,080, Smith 44-26H, Sanish
• 18658, 2,973, Mayer 12-3H, Sanish, 22 stage frac
• 18965, 1,389, Satterthwaite, Sanish
• 18990, 1,236, Kinfe River State 21-16H, Sanish
• 18928, 2,137, Ogden 12-3H, Sanish
• 18876, 3,293, Rohde 14-6XH, Sanish, 22 stage frac; average 1,153 boe first 30 days
• 18743, 1,669, Miller 43-10H, Sanish
• 18926, 2,322, Hagey 12-13H, Sanish
• 18477, 1,875, Oppenboen 12-5H, Sanish
• 18711, 1,431, Fladeland 12-10H
• 18553, 1,910, Kannianen 43-31H
• 18882, 1,694, Peterson 13-4H, Sanish
• 18549, 1,211, Littlefield 21-7H, Sanish
• 18853, 1,611, Moore 14-7XH 

Location of Important Wells, Pipelines, Natural Gas Gathering Plants
Another slide that should get your attention is the slide that shows the completed wells in the Sanish and the Parshall oil fields, with the location of selected wells such as the Maki 11-27H (4,761); the Fladeland 12-10H (4,431); and the Hansen 12-20H (4,144).  That map also shows the location of the Robinson Lake Gas Plant, and the local pipelines connecting to major pipelines such as the Enbridge. Note the Behr 11-34H well (3,027): the Behr was one of the early wells, completed June, 2008, with 10 fracture stages, and as of June, 2010, two years later, had produced 580,000 barrels of oil (at $50/barrel --> $29 million at the wellhead).

Sanish Field Development Program
One of the new slides on Whiting's corporate presentations is a graphic explanation of the wells they are putting into the Sanish oil field. The slide is titled: "Sanish Field Development Program."

Initially, Whiting placed two long laterals parallel to each other, running northwest to southeast in each 1,280-acre spacing unit, targeting the Bakken formation. Then they added the Bakken cross-unit wells, long laterals, again parallel to the original wells, but capturing the southwest corner and the northeast corner of each section missed by the original two long laterals. In some places in the Bakken, instead of long lateral cross-unit wells, they put in short lateral wing wells which accomplished the same thing (capturing the southwest corner and the northeast corn of each section missed by the two original long laterals).

Meanwhile, in the Three Forks, the basic configuration is one long lateral flanked by two slightly shorter long laterals; all three horizontals running parallel to each other, northwest to southeast, as in the Bakken.

In a 1,280-acre spacing unit with horizontals in both the Bakken and the Three Forks formations, Whiting will have three long laterals in the TFS and two long laterals and two wing wells (short laterals), a total of seven wells in each 1,280-acre spacing unit, and the equivalent of about six short laterals in each section in the Sanish. When it's all completed, Whiting expects to have 534 wells in the Sanish oil field. Eighty-three of these will be wing wells (short laterals) but all the rest will be long laterals (or slightly shortened Three Forks long lateral wells ). 

Whiting estimates that the average estimated ultimate recovery (EUR) for each of these wells will be 850,000 barrels of oil equivalent (at $50/barrel --> $42.5 million/well). The cost to complete each of these wells is estimated to be $5 million, down from the $6 - $8 million quoted earlier in the boom.

So far, this discussion has been limited to the Sanish oil field, just one field that Whiting is operating in the Bakken, albeit its most prolific field. The Sanish is one of the most prolific fields in the Bakken; it is a relatively large field for the Bakken, encompassing about four townships, about 192 sections. Fields can increase in size if not hemmed in by other fields. The Sanish is pretty much hemmed in; it probably won't get any bigger; there are only about six sections abutting the Sanish that are not part of any named field.

Bakken Decline Rate
Do not be alarmed by the horrendous decline rate in the Bakken. This is a well-known phenomenon, and my hunch is that the operators are working hard at attenuating the decline. Two things to note: the high initial production which lasts for one to three months makes a nice dent in paying for the well. Second, where the production stabilizes is the important thing to note. A well that has paid for itself in the first six months may continue to produce at 200 barrels/day for years. Following the initial payoff, the estimated ultimate recovery (EUR) is the real number of interest.

Note
I do not hold shares in Whiting Petroleum Corporation (WLL). I missed this one when I first started investing in the Bakken a couple of years ago. I do hold shares in the Whiting Trust (WHX) for the distribution but that is a short term holding.

Some ridiculous back-of-the-envelope calculations

• WLL has mineral acreage and is operating in much more than just the Bakken
• Inside the Bakken, WLL has mineral acreage and is operating in more than just the Sanish
• As noted above: when completed, WLL plans to have 534 wells in the Sanish
• WLL's EUR for each well in the Sanish: 850,000 boe
• At $50/bbl: 850,000 bbls/well x 534 wells x $50 = $23 billion at the wellhead
• For me, it's hard to believe the price of oil will trend lower over the next 20 years
• Today, the market cap for WLL is under $6 billion (Yahoo!Financial)
• WLL's P/E is 24
• Yahoo!Financial reports WLL's EPS at $4.21 (I don't know if this is current)
• WLL reported $1.30 (excluding items)/share 3Q10 = $5.20/share
• I have said many times: I have no idea how to value these companies; the first question is whether they are value companies or growth companies; the P/E suggests a hybrid

Miscellaneous Data
According to the NDIC website, 231 permits have been issued for the Sanish oil field since oil was first discovered in North Dakota (in 1951)
WLL has 172 of those permits
Of the 172 WLL permits:

• 93 are actively producing oil and all were drilled in the current boom (since 2008)
• 28 are on the confidential list (C)
• 26 are still being drilled (DRL)
• 21 represent locations permitted to drill (LOC)
• 4 permits are now canceled (PNC)
• There have been no dry wells

Fidelity Foto! Near South Heart (Bakken, ND, USA)

This is Fidelity's Kostelecky well, permit 19264, Kostelecky 31-6H, Lot 2 6-139N-97W. This is a wildcat near South Heart. You can see the town of South Heart off in the distance: the water tower is off to the left.

Click on the photo to see an enlargement.

From the 3Q10 conference call, October 31, 2010:

Earlier this month we spudded the Kostelecky 31-6 well, this is our first well in the Heart River project, targeting the Three Forks Formation. We plan to drill a total of three wells on this acreage this year. We were pleased to see another producer in adjacent acreage report strong results from two recent wells, approximately 2,000 barrel of oil equivalence in the initial production, per day, per well.

The drilling rig is Nabors 108. The cylindrical containers have been painted in autumn colors as part of North Dakota's goal to attract tourists from Minnesota before the cold Minnesota winter sets in. Few people realize how wonderfully temperate northwestern North Dakota is during the winter. My dad refers to it as the "banana belt" of the north.

Four and a half miles west of this well is another Fidelity well,  permit 19688  the Wagner 11-4 well, in the Zenith oil field. The pad has been completed, but there is no metal on the pad yet.

Two miles straight north of the well in the photo is a Whiting well, permit 19562, Brueni 28-1H, with a rig in place, ready to start drilling.

South Heart is exactly midway between Dickinson to the east and Belfield to the west. State highway 85 intersects I-94 at Belfield.

On a completely different note, there are new traffic light signals just a half-mile north of Belfield on state highway 85; there are rumors that Whiting is putting in a local operations center there.

Froelich Fotos! Near South Heart (Bakken, ND, USA)

From 0.3 mile and 150 yards:

Click on photos to see them enlarged. Yes, that is snow in the ditch in the top photo.

Wow, isn't that North Dakota scenery pretty? You have no idea how much I enjoy looking at photographs of North Dakota. And, no, oil wells and natural gas gathering facilities do not spoil the view for me. Photographs of unemployed folks in run-down homes in dying towns bother me, however.

At times, the flare was higher than the neighboring tanks.

********************************
Mashed Potatoes

three large potatoes: diced and boiled for 15 minutes
1/2 cup milk
3 tbs butter
1/4 tsp salt
1/2 tsp pepper

The Value of High IPs

There is an article in today's Bismarck Tribune: The numbers are in! The first wells to report from the Niobrara in southeast Wyoming are promising but not earthshattering.

There has been a lot of talk over the past two years regarding initial production numbers from the Bakken wells.

It has been said that some companies are more interested in high initial production numbers even if that means less ultimate recovery. Common sense seems to suggest that high production numbers will attract investors. I won't argue one way or the other; I think we are still a long way off sorting out the debate whether high IPs affect long term EURs.

Having said that, I do think the high IPs that were reported in the early Bakken boom attracted a lot of interest, and was one of six reasons why the Bakken developed as quickly as it did.

Hearing that the first numbers coming out of southeastern Wyoming are "promising but not earthshattering" may cause some operators to put their focus back on the Bakken. As a reminder, some have opined that it will take a lot longer, even under the best of circumstances, to develop the Niobrara than it took to develop the Bakken in North Dakota. American Oil (AEZ) was one of the first to act on that, by selling all their assets in the Niobrara and becoming a pure-Bakken play. It has since been bought by Hess.

Note: one thing that the Bismarck Tribune article failed to discuss was the cost of the wells in southeastern Wyoming. If they are not as deep as those in the North Dakota Bakken, they may not cost as much. There is a lot more to this than just the production numbers. The cost of the wells, the regulatory ease of drilling, and EURs mean a lot more than initial production numbers, to include the first several months of production.

Coal Benefication: A Huge Success Story -- No Thanks To .....

Updates

November 29, 2015: on eve of Paris global warming conference, BBC had a piece on India. Some data points: 

• unlike virtually every other country attending the conference, India has not set a future cap on emissions, let alone proposed cuts
• India proposes to treble CO2 emissions within the next 15 years
• china plans to open a gigantic coal mine every single month until 2020 as part of its strategy to double coal output to a billion tonnes a year
• India can maintain that output for the next 300 years; the county has 301 billion tonnes of accesible coal
• total global emissions since 1850: India accounts for just 3% to data; the US is responsible for a third; Europe and other developed nations account for 45%
• India with second greatest population; hundreds of millions still live in terrible poverty
• average Indian: 1.6 tonnes of CO2 every year; an average American - 16.4 tonnes; the Japanese, 10.4 tonnes; and the average European, 7.4 tonnes

November 18, 2013: Germany announces largest hard coal station build since 1998; at least ten new coal-fired plants coming on line over the next two years. 

October 14, 2013: coal will surpass oil as the key transportation fuel by 2020 -- Mail OnLine.

Coal will become more in demand than oil by 2020 driven by growth in China and India, despite campaigns to reduce carbon emissions across the globe, a new report reveals.

Marking a return to an era reminiscent of Britain's industrial revolution, the rapidly expanding economies in the East are turning to coal since it is cheaper and more reliable than oil or renewable energy sources, energy consultancy firm Wood Mackenzie said on Monday.

Rising demand in China and India will push coal past oil as the two Asian powerhouses will need to rely on the comparatively cheaper fuel to power their economies.

Coal demand in the United States, Europe and the rest of Asia will hold steady.'China's demand for coal will almost single-handedly propel the growth of coal as the dominant global fuel,' said William Durbin, president of global markets at Woodmac.

'Unlike alternatives, it is plentiful and affordable.' China - already the top consumer - will drive two-thirds of the growth in global coal use this decade. Half of China's power generation capacity to be built between 2012 and 2020 will be coal-fired, said Woodmac.

July 8, 2012: KMP to ship more coal through Gulf-friendly states; west coast environmentalists putting kabosh on shipping coal from the west coast. 

January 9, 2012:  a fourth extension; waiting to see if Obama administration is more favorable to the coal industry; not gonna happen; will have to wait for change in administration 'cause it doesn't look like hell will freeze over this winter; very, very warm in North Dakota this winter

• The state Industrial Commission in 2006 committed up to $10 million in state aid from coal tax collections to help weigh the project's potential. About $1.3 million has been used so far.

Notes In General

This is a summary of coal plants in Montana and North Dakota with regard to "haze" in the national parks:

• Three big coal plants in Coalstrip, Montana, 140 miles southwest from Bowman, ND
• Small coal generator in Glendive, Montana (MDU); so small, it is used only as a back-up unit
• All other coal power plants are well east of the parks, in Mandan, Center, Beulah, and Underwood, ND; and the wind generally blows west to east; these coal plants are not the cause of haze in the parks

Original Post 

With all the attention being given to the oil industry in western North Dakota, it is easy to forget that there is also a thriving coal industry in the state.

I have a very nice primer on three new technologies being developed in North Dakota which could revolutionize the coal industry around the world:

• coal beneficiation (drying)
• above-ground gasification
• below-ground gasification

Today there is an excellent story in the Minot Daily Press about the benefication process at Underwood, North Dakota. Underwood is literally halfway between Minot and Bismarck, about an hour's drive from both of these cities, on US Highway 83.

The coal benefication process removes water and contaminants like mercury and sulfur from the lignite; compresses them into briquets which makes it much easier to ship and much more energy efficient for electric power plants.

I would never have thought this process would have worked. Over the years a lot of money has been sunk into this project requiring the partnership of private investors, a lignite cooperative, and government agencies, including the federal government. This did not happen overnight. It took decades.

And it is a real success story, at least based on what I am reading about it today. Engineers from around the world, as far away as China, are coming to see the Creek Coal Station, owned and managed by a consortium called Great River Energy.

As I was reading that story it reminded me of a recent article in a national newspaper in which President Obama expounded on the (few) jobs that that wind energy industry had created under his watch. In fact, the wind energy programs had been in the works for years and begun and promoted under the auspices of the Bush administration. It took years just to get the environmental impact statements completed, resolve the legal disputes (in court), obtain the rights-of-way, and fund the projects. Erecting the towers was the easy part, and that was all done under the previous administration. President Obama did not give credit where credit was due.

This is what caught my attention in today's article:

In 2002, Great River Energy received funding help from North Dakota's Lignite Energy Council to establish a pilot project using a 2.5-ton-an-hour fluidized-bed dryer. When the coal bubbled across the dryer, as if in an old-time coffee percolator, the agitation caused denser material to fall to the bottom of the dryer. The process separated material containing a high percentage of sulfur and mercury from the lignite fuel.

The results of the study led the the U.S. Department of Energy and Great River Energy to enter a collaborative agreement for another phase of testing. The $31.5 million project was managed by the department's National Energy Technology Laboratory with support from Lehigh University, Electric Power Research Institute and several companies.

Let's say this project was still in its infancy in 2008. Would this project have gone forward under the Obama administration?  Is it likely that the Obama administration would have been interested in a fly-over state doing research on the dirtiest and least efficient coal in the world (that would be lignite)? I was not even convinced this could work. There's no way the Obama administration would have been interested.

It is being said in more and more venues: President Obama is anti-business. It began as a partisan mantra, but is becoming mainstream. He is definitely anti-coal.



I am reminded of a quote often attributed to Robert F. Kennedy:

"Some people see things as they are and say why? I dream things that never were and say why not?" (I don't have a clip of the actual speech. Sorry.)

Somehow I just don't see anyone in the current administration asking, "Why not? Why isn't the government more interested in promoting business? Why can't we make one of our nation's greatest resources (coal) clean and efficient?"  The Chinese must have translated Robert F. Kennedy's speech for their schoolchildren.

This is all the more perplexing during a economic slump with an unemployment rate at 10% and worse in some areas of the country.

Anyway, I digress. Congratulations to all the folks who have persevered in the coal industry under great odds favoring failure.

Updates

April 19, 2011: We're getting closer. The revised South Heart Coal application has less than 400 deficiencies.


January 13, 2011: South Heart Coal completes revision of application for coal mine and coal processing facility near South Heart, 25 miles due east of Medora, ND, center of the south unit, Teddy Roosevelt National Park; and about 14 miles from the entrance to the park on I-94.

December 1, 2010: PSC denies South Heart Coal's application to strip mine. Company remains optimistic, "getting closer." The state mining permit covers 4,581 acres near South Heart. The mine would fuel a proposed hydrogen-to-electricity factory that is expected to cost more than $1 billion.

November 5, 2010: South Heart Coal will re-submit its bid to strip mine coal three miles west of South Heart. South Heart Coal is jointly owned by Great Northern Project Development and Allied Syngas Corporation. There are indications that the coal will be used to power a new power plant similar to the Creek Coal Station using coal beneficiation technology.

The land plan described in the application has been designed to provide coal to a commercial scale gasification plant to be located adjacent to the mine, Deutsch said. GTLE has a coal beneficiation plant project less than a half a mile away from GNPD’s proposed project. “Yes there still is (sic) plans to build a beneficiation plant,” Southwick said. “It will be the same process that GTLE uses, in fact we’ll license GTL’s process, but it’ll be a much larger facility than GTL’s.” Southwick said a plant is planned for the property’s south end where the extracted and beneficiated coal would be gasified to make hydrogen to drive a turbine producing electricity. “Our plan is to still build that power plant,” Southwick said.

It's still a bit confusing to me, but it sounds like South Heart Coal will dry the coal and then use that coal for coal gasification.

Average BOPD Per North Dakota Well

This is raw data taken directly from the NDIC website; the graph charts the yearly average in barrels of oil per day per well in North Dakota.

It is a graph of the average number of barrels of well produced per well in North Dakota for each year since 1951 when there was one well. There is one exception: the last two data points are January, 2010, and June, 2010.

So, "1" on the horizontal axis = 1951 and "56" = 2007. The last data points are 2010.

Average BOPD/North Dakota well"1" = 1951

During earnings season, many of the oil companies operating in North Dakota update their presentations. As usual, we see the huge decline rate in Bakken wells. A typical Bakken graph will show an initial production of 1,000 barrels of oil in 24 hours, but it will decline rapidly and stabilize at 200 barrels of oil.

On January 1, there were 4,391 wells, and average daily amount of oil produced in January, 2010, was 236,175 barrels of oil. In June, 2010, there were 4,751 wells, and the average daily amount of oil produced in June was 314,602 barrels of oil.

The graph speaks for itself.

I was curious how the 200 bopd stacked up against historical averages, so I put the NDIC data into a graph.

Again: It's The Cost of Producing That Last Barrel That Drives the Price

The price of oil is not set by the cost of producing the first barrel (about $5/barrel in Saudi Arabia); the price of oil is set by the cost of producing the last barrel (about $60/barrel for Canadian oil sands). That puts the price of oil in a trading range between $60 and $80 based on the strength of the dollar.

I don't know where I first heard that, but I last posted that just a few weeks ago. 

I came across that maxim yet again tonight, reading that oil companies are ready to go back into the Gulf of Mexico.

Chevron, Exxon, Royal Dutch Shell are willing to endure the additional time to secure permits and extra costs that will result from new government regulations because they've come to depend on deepwater drilling to replenish their reserves.

These big oil and gas companies know the geology of the Gulf much better than other parts of the world.

Wells in the Gulf can be very profitable. Drilling projects there typically break even when oil sells for $50 to $60 per barrel. It's currently trading near $82 per barrel.

Yup, it's the last barrel of oil produced that drives the price of oil. With increased government oversight and regulations, the cost to produce oil in the GoM will probably increase.

By the way, most of the Bakken companies say it costs $14 - $20 to produce a barrel of Bakken oil. This may or may not include the $6 - 8 discount from West Texas Intermediate, the benchmark, and the cost of shipping the oil to the refinery. Reading "tea leaves" suggests the Niobrara cost may be less, at least in some areas.

COP and Bakken; 3Q10 Conference Call; Message Thread

From the Yahoo!Finance message board for Northern Oil and Gas (NOG), Oct 27, 2010:

HOUSTON (Dow Jones)--ConocoPhillips (COP) is looking for acquisition opportunities in the deepwater U.S. Gulf of Mexico and in the oil-rich shales in Texas and North Dakota, Chief Executive Jim Mulva said Wednesday. Nevertheless, ConocoPhillips is actively looking for acquisition opportunities in the area, where the company believes is its under-represented......is also shopping for acreage in the Eagle Forld and Barnett shales in Texas and in the Bakken shale in North Dakota, Mulva said. Those are the areas where the company is currently ramping up oil production and is eager to increase its position. Mulva said the $2 billion to $3 billion the company is expecting to spend in these acquisitions will be on top of the $10 billion it has budgeted for capital spending in 2011.

I think it's pretty exciting to hear the CEO of COP talking about the Bakken in this manner.

I opined some months ago that 2010 would be a watershed year for KOG.

I think 2011 will be the year of mergers, acquisitions, major acreage deals, etc., in the Bakken.

Updates

Update, November 1, 2010: I posted the above on October 29, 2010. Three days later my comment that the year 2011 will the year of mergers, acquisitions, major acreage deals, etc., in the Bakken seems to be validated by a well-researched analysis posted on the Bakken Shale Discussion Group board.

For Investor's Only: Seeking Alpha 10 Bakken Shale Stocks, 2010 Guide

I missed this article which was posted at Seeking Alpha back in August, 2010.  Better late, than never.

This is a nice list of ten Bakken shale stocks. I can't disagree with any of Hunter Austin's recommendations. He goes from big cap to speculative.

I don't know if his list is ordered in any way, but he lists Oasis as number one, then QEP, KOG, VYOG, WLL, EOG, XOM, CLR, MRO, COP, and AXAS.

I find it interesting that he includes XOM. XOM's position in Bakken is due to its purchase of XTO. It's hard to believe that the Bakken is even more than a single pixel on XOM's radar scope. It will be interesting to watch.

I don't have time to show all the calculations, but it might be fun to see where you would be if you had put together a market basket of Bakken stocks based on this list.

The story was published on August 6, 2010. Suppose you decided to study the list, make the decision to invest in those stocks, and raise the money. So, maybe about August 16th you would have gotten around to "pulling the trigger."  Had you placed $1,000 in each of those ten stocks on August 16, 2010,  for a total investment of $10,000, your portfolio would be worth $11,182 at the close of the market, Friday, October 29, 2010.  (These calculations were based on Yahoo!Financial interactive tables based on the closing price on those two dates.)

Almost all of the companies went up 10% in that period (about $100). KOG was an outlier, having gone up exactly $400 (on that initial $1,000 investment). OAS was second best with a $224 gain. VYOG was the only company to have gone down in share price, valued at $860 at the end of the period. EOG was up only $17.  Everyone else, about a $100 gain.

ERF: Recovering As Much As 20 Percent of The Oil in The Bakken?

Take a look at the current ERF presentation, specifically slide 19 (ERF's slide numbered "19").

Now, see if you can find some original estimates of recoverable oil from the Bakken (in percent). If my memory serves me well, USGS back in 2008 estimated that about two (2) percent of original oil in place (OOIP) would be recoverable, based on results to date and technology at that time. If I'm wrong on that, please let know (with links).

Then, Harold Hamm, CLR/CEO, said that he thinks some folks are already recovering at a rate of eight percent of OOIP. Two percent to eight percent may not sound like all that much, but it quadruples the original estimate in volume measured in barrels.

Now we have ERF estimating as much as:

• 12 - 16% in the Fort Berthold area, ND, Bakken
• 10 -14% in the Fort Berthold area, ND, Three Forks
• 15 - 20% in the Sleeping Giant, MT, Bakken
• 10 -15% in the several fields in Saskatchewan, Canada

In the Sleeping Giant, 20 percent. Twenty percent is ten times two percent. Just saying.

You all can do the math on EUR per section based on EUR per well and estimated number of wells per section as noted on slide 19 in ERF's presentation.

ERF estimates two (2) short lateral wells per 640-acre spacing and two long laterals per 1,280-acre spacing. Look at a Whiting presentation: they are putting in significantly more wells than this in their 1,280-acre spacing units in their best Bakken (the Sanish).

Ten (10) New Permits (Bakken, ND, USA)

Operators: Slawson (2), Whiting (2), Petro-Hunt, BR, Hunt, BEXP, Prima, and CLR.

Fields: Charlson, Haystack Butte, Sanish, Parshall, Cow Creek, Northeast Foothills, Medicine Pole Hills, and three wildcats.

Six permits expired: 17708, Penn Virginia; 17749, Penn Virginia; 17768, XTO; 17806, CLR; 18348, BTA; and 18397, Red Willow Great Plains.

On track for 1,567 new permits in calendar year 2010.

Construction of Bear Paw NG Facility on Hold

Details here.

Original story here. ONEOK had planned to start construction this month, but may have to wait until next spring, pending all "i's" are crossed and all "t's" are crossed regarding environmental and agricultural impact.

Thirteen (13) New Permits Today (Bakken, ND, USA); ERF Reports Two Great Wells on One Pad

Operators: Hess (3), CLR (2), Core 54, EOG, Encore, BR, North Plains, Newfield, Whiting, and, BEXP.

Fields: Manitour, Alger, Cedar Coulee, Corral Creek, Truax, Sanish, Cedar Hills, Banks, and two (2) wildcats.

The three Hess wells will be on a single pad in Manitou oil field, section 19-155N-94W.

Core 54: I had not heard of this operator before. New? When?

Core 54 is putting "Longshot 10-23 1" in as a wildcat in Stark County. This is another one near South Heart, where Whiting, Tracker, Fidelity, and Oil for America are putting in several new wells.

I reported one of these wells earlier this week, but today it's on the daily activity report:

• 18752, ERF, Henry Bad Gun 17A-20-1H, 2,194, Moccasin Creek
• 18753, ERF, Henry Bad Gun 8D-5-1H, 1,594, Moccasin Creek

On track for 1,570 new permits this calendar year. 

Week 42: October 19 - October 25, 2010

Update on the Keystone XL Project

Scenario for Spike in Price of Oil

Update on TransCanada's MarketLink Pipeline: Bakken to the Gulf Coast, a First

Update on Potash Story in North Dakota

Enbridge to Increase Takeaway Capacity

A Niobrara Update/Primer

Anschutz Finds Buyer for Bakken Assets. But Who Is It?

A Dry Eco-Pad Well?

KOG Acquires Significant Amount of New Acreage; Huge Story

Enerplus Completes Acquisition in the Bakken

Q & A For A Glass Bluff / Zavanna Well

The following permit was issued today:

#19849 - ZAVANNA, LLC, KEPNER 9-4 1H, SWSE 9-151N-103W, MCKENZIE CO., 220' FSL and 2600' FEL, DEVELOPMENT, GLASS BLUFF, 'Tight Hole', 2121' Ground, API #33-053-03336.

Someone wrote in with several questions about this permit, but the questions are general enough that I will post my reply here which might be of help to others.

Here are the questions:

1. There are several numbers at the end of the official listing of the permit which appear to refer to feet. What do these represent?

2. Is the next step for there to be something filed regarding a spacing unit? Or does that not happen until a well is drilled? Where can I track the spacing unit issue?

3. Any comment on the normal turn-around time in today's climate between issuing a permit and drilling? I think Zavanna has two active rigs at present. Is there any way I can determine how many open permits they currently have?

4. Finally, is there somewhere to track when a well initially started? I know that wells get placed on the confidential list. Is that at the beginning of the drilling process? Is that information also contained on the daily activity reports.

Answers:

1. Starting with the last number. I believe the API stands for "American Petroleum Institute." I'm sure that number is for administrative purposes only.  The "2,121'" number is probably the elevation of the surface of the earth on which the well will sit. The three-digit and the four-digit numbers are feet from the south and east, respectively, of the section line.

2. It is my understanding that once the permit is issued, the company can drill at its convenience. The permit is for an established field, the Glass Bluff field, so spacing has been determined. It is 1,280-acre spacing. You can find spacing by going to the NDIC GIS map server. If you need help using that app, let me know. By the way, this is considered a "Development" well since it is being drilled in an established field.

3. There is no easy way to track the movement of the rig that is likely to drill this well. You say that you think Zavanna has two rigs. Tonight, the NDIC website shows Zavanna with only one active rig. If they have another one, it is moving and not active. However, when I've looked before Zavanna has only had one rig.  Zavanna's rig is Nabors 688 and it is currently in Stockyard Creek, east of Williston, #19328, Earl 1-13H; the permit for that well was issued July 28, 2010, which means they got on that well within 2-3 months after getting the permit.

4. The good news is that Zavanna knows what it has in Stockyard Creek and may be eager to move to Glass Bluff to see what they have there. On the other hand, to save money and time, Zavanna may continue drilling out their permits in Stockyard Creek before moving to Glass Bluss.

5. Zavanna has 18 wells on the confidential list. Zavanna has ten permits from 2009 that have not yet been reported on and seven permits from 2010 that have not been reported on. That doesn't mean they still have 17 wells to drill; some of them have already been drilled and are confidential status. I don't know the specifics.

6. The "confidential" clock is tricky. When this permit was issued, it was granted "tight hole" status which is the same as "confidential" for all practical purposes and will stay in that status until the well is completed. The "confidential" clock doesn't start ticking until the well is complete, and that can vary from operator to operator. Some do not consider a well completed until it has been fracked. Some companies do not frack during the winter. You can see how long a well could remain "tight" or "confidential." Once the well is completed, the "confidential" clock starts ticking which is six months in North Dakota. If it's a really good well, the company or one of its partners on the well could issue a press release early, but it still keeps its original confidential date, because there is additional confidential information that might not be released in the press release. For more information, go to my FAQ tab at the top of the website and search for "confidential."

7. Even after the well is completed and producing, it can be several months before you get the first royalty check. Search "royalty" or "checks" at the Bakken Shale Discussion Group to see much chatter about that issue.

8. The Glass Bluff field is fairly "new" for this boom. Zenergy has several relatively "new" and "older" permits. BEXP has one permit: #18653, Tjelde 29-32 1-H, in section 29-151-102. It had a nice IP, as many BEXP wells do: 2,802 barrels of oil. The Zavanna permit issued today is in section 9-151-103 about 6 miles northwest of the BEXP well.  Go to the NDIC home page, and click on "Well Search" on the sidebar on the left. Use the drop down menu to type in Glass Bluff for field and then "submit." That's all you have to put in to find out what's been going on in the Glass Bluff field. Likewise, clear everything, and place "Zavanna" in the "Operator" field to see what Zavanna is doing overall. Or you can place "Zavanna" and "Glass Bluff" in the same submission and find out only what Zavanna is doing in the Glass Bluff.

9. My hunch is that Zavanna won't get to the Glass Bluff until next spring. If I'm wrong, and it's sooner, great! If I'm wrong, and it's longer, the wait will be excruciating. But Zavanna will eventually get there.

10. Disclaimer: all the above is based on my status as an amateur, only what I've gleaned from public sites elsewhere. I could be wrong in any number of places, and any number of people will comment to point out where I'm wrong. Smile.

11. The folks over at the Bakken Shale Discussion Group would know this much better than I. Many members of that group own mineral rights and many have wells. I do not have any mineral rights. That group is very, very helpful. Check in with them periodically and use the search engine at their site to look for Glass Bluff activity.

Highlights of Whiting's 3Q10 Earnings Report

There is simply too much to report; I recommend you go to the report itself, but here are a few things that have me excited about Whiting (and the Bakken in general). 

Based on results of the Company’s microseismic studies and reservoir pressure monitoring in both the Bakken and Three Forks formations, not only do reserves continue to pleasantly surprise us, it also appears that additional infill drilling is warranted in the Sanish field. As a result, Whiting has increased by 152 the total number of gross operated wells that it expects to drill in the Sanish field to 534 gross wells from 382 gross wells. 

Remember: the Sanish field has about 194 sections; this means almost one more well in each section than originally planned. Also 534/194 = 2.75 gross wells/section

Data points

• 83 of the 152 additional wells: "wing wells" which are 7,500-foot laterals drilled primarily in the northeast and southwest portions of the field's 1,280-acre spacing units
• Whiting has asked to drill three (3) TFS wells per 1,280-acre unit as compared to its previous plan of two (2) TFS wells per unit
• Additional TFS well in each unit will add 80 potential gross well locations in the Sanish field
• Whiting estimates 323 gross wells remain to be drilled in the Sanish field as of October 15, 2010
• In calendar year 2010 to date, Whiting as completed 57 wells in the Sanish
• The average IP for Whiting Bakken wells increased 21 percent since the beginning of the year, from 2,102 boe to 1,433 boe
• The average IP for Whiting TFS wells increased 42 percent since the beginning of the year, from 1,012 boe to 2,541 boe

Fracking:

Whiting believes that additional frac stages have contributed to the higher initial production rates for wells completed in 2010. In 2010, the Company has fracture stimulated its wells with between 15 and 30 separate fracs, averaging 20 frac stages per well. Prior to 2010, most of Whiting’s wells in the Sanish field were fraced in 10 stages. The Company is also using more proppant and frac fluid in its fracing operations. For a 30-stage frac, Whiting is currently using 46,000 to 50,000 barrels of frac fluid and 3.6 to 4.0 million pounds of sand. 

Whiting has contracted a full-time dedicated frac crew at Sanish that the Company estimates is capable of fracture stimulating 100 wells per year.

Twelve (12) More Permits Today (Bakken, ND, USA)

Operators: Oasis (3), MRO (2) , Hunt, AEZ, Newfield, Petro-Hunt, Whiting, Cornerstone, and Zavanna.

Fields: Antelope (2), Camp (2), Parshall, Ray, Charlson, Alkali Creek, Pleasant Hill,  Glass Bluff, and two wildcats.

American Oil is in the same area it has other nice wells.

Two of the Oasis wells (in Camp oil field) are on the same pad. Is this Oasis' first multi-well pad?

Petro-Hunt is in Charlson, one of my "favorite" fields.

Ten more wells listed as "plugged or producing."

On track for 1,560 new permits this calendar year.

US Highway 1 in North Dakota? Video That Has Absolutely Nothing To Do With The Bakken

This will only make sense to those of you who have driven one of the most beautiful highways in the country: US Highway 1 up the California Coast, along the Pacific Ocean, and appropriately known as the Pacific Coast Highway.

Apparently we missed the news earlier today that the big one (as in: earthquake) finally hit the west coast overnight and the entire western US fell into the ocean.

US Highway 1 now runs smack dab through the middle of North Dakota, previously known as ND State Highway 57 (through Devils Lake):




And another video:

Nice Well For ERF: Henry Bad Gun 8D-5-1H

A nice well for ERF?

The IP has not yet been reported but this looks like a great well based on production (Update: IP is now reported, Oct 28, 2010: 1,594.

18753, ERF, Henry Bad Gun 8D-5-1H:

First nine days: 12,880 barrels
Next 31 days: 34,542 barrels
Cumulative for first 40 days: 47,422
Daily average, first nine days:1,431 bopd
Daily average, next 31 days: 1,114 bopd
Cumulative average: 1,185 bopd

Note the field: Moccasin Creek.
Remember: ERF converting to corporate structure by end af calendar year, I believe.

In addition to this well, ERF has three more Henry Bad Gun (HBG) wells in the immediate area. Here are the four:

• 18753, 1,594, HBG 8D-5-1H, 47,422 barrels of oil, cumulative in 40 days
• 18752, 2,194, HBG 17A-20-1H, being drilled now (October 27, 2010)
• 18627, HBG 9C-4-1H
• 18790, HBG 16B-21-1H

Each of the pairs (18753 and 18752) and (18627 and 18790) are about 100 feet from each other, suggesting they are on the same pad.

What other company has huge presence in Moccasin Creek and is now starting to put in multi-well pads? KOG.

Alaska's Oil Reserves Cut By 90% (Non-Bakken Story)

This is a most interesting story: Alaska's oil reserves cut by 90 percent.

The U.S. Geological Survey says a revised estimate for the amount of conventional, undiscovered oil in the National Petroleum Reserve in Alaska is a fraction of a previous estimate.

The group estimates about 896 million barrels of such oil are in the reserve, about 90 percent less than a 2002 estimate of 10.6 billion barrels.

It will be interesting to see the stories that follow. This story has to have huge geopolitical implications. You think?

CNN reports this story today. It makes me wonder: when did the oil companies know this? It explains a lot.

For example, back in August, 2010, the federal lease sale was "disappointing" for the reserve. Only five bids were submitted, all from ConocoPhilips (COP) and totaled less than $800,000. It costs that much just to frack one well in the Bakken. That's incredible. But now we know why: lousy EUR projections and onerous federal regulations.

Can you imagine the talk around the coffee tables today up in Anchorage?  Is this the beginning of the end for Alaskan oil? All of a sudden, in my simple mind, the Canadian oil sands become a bit more important.

More to follow.

Absolutely Nothing To Do With The Bakken

This has absolutely nothing to do with the Bakken but for reasons that will be obvious to those who follow this blog and my other blogs, this is a most exciting story for me.

Arrowhead Elementary School in Billings, Montana (I believe) is getting a technology grant from Qwest, and it will be used to buy iPads for the classroom.

I do not invest in Apple Corporation.

Oh, I don't invest in Qwest, either.

This is purely about the iPad as a great investment for students.

Eleven (11) New Permits in North Dakota (Bakken, ND, USA)

The operators: KOG (2), MRO (2), BEXP (2), Tracker,  Oasis, American (AEZ), EOG, and CLR.

Fields: Mandaree (2), Reunion Bay (2), Little Knife, Todd, Lake Trenton, Squires, Rosebud, Ranch Coulee, and one wildcat.

The two KOG wells will sit on a multi-well pad (same as yesterday). It appears KOG is really stepping up its drilling program.

Likewise, the two MRO wells will sit on a multi-well pad.

"We" are on track for 1,550 permits for calendar 2010.

By the way, a big thanks to Rory for telling me how to bring over NDIC spreadsheets, such as the confidential lists, to an Excel spreadsheet. [I had tried it some time ago, couldn't get it to work; thought it couldn't be done, but Rory said it was possible and that was enough to get me to try again.] Once it's on an Excel spreadsheet, one can sort the data any number of ways. The number of wells on the confidential list is now 1,115. I assume this is pretty much a record, although I haven't kept track of that number on a regular basis.

WOW! North Dakota Breaks Oil Production Record (Bakken, ND, USA)

Oil jumped to number 4 among oil producing states in the United States this past year.

Last year (2009) North Dakota set a record in oil production for the state: 80 million barrels.

2010: we've already surpassed that level of production and it is estimated that North Dakota will produce 110 million barrels in calendar year 2010. This represents a 38 percent increase over 2010, and everything suggests 2011 will be even bigger.

How big is the Bakken? North Dakota oil production now represents six percent of total US production, up from one percent less than three years ago.

Seeking Alpha: BEXP (Bakken, ND, USA)

Nice update regarding BEXP.

Update on the Keystone XL Project (Not a Bakken Story)

Well, this is interesting, very interesting.

Just a few days ago (October 18, 2010), I posted on this blog that the TransCanada's Keystone XL project had been stopped in its tracks.

Speaker of the House Nancy Pelosi and Massachusetts Congressman Edward Markey oppose the project -- although there is also evidence that the Speaker might be less firm than headlines would suggest. Be that as it may, Ms Hillary Clinton, Secretary of State has voiced support for the project. She was criticized for her remarks but she stands by what she said.

From the Bismarck Tribune:

Because both pipelines (Keystone and Keystone XL) cross the U.S.-Canadian border, presidential permits from the State Department are required. But department officials have given no signal about when they might approve the final permit for Keystone XL, despite enthusiastically touting the Keystone pipeline as a project with little opposition when it was at this stage three years ago.

The Keystone XL project,  a massive pipeline project -- about five times the length of the trans-Alaska oil pipeline -- is projected to move up to 1.1 million barrels of Canadian oil each day to U.S. refineries. This project should not be confused with TransCanada's Keystone project; oil began flowing through that 36-inch pipeline this past June (2010).

Interesting, very interesting.

Scenario for Spike in Price of Oil (Not a Bakken Story)

Note: I posted the blog below on October 25, 2010. Today, one day later, October 26, 2010, I stumbled across this article: further pressure on OPEC to keep oil prices high. This is one further data point that supports my view below.

Original Blog

Back in late September, 2010, I wrote a long piece why I was bullish on oil as an investment. My basic premise is this: the price of oil will bounce around pretty much tied to the strength of the dollar until the global economy turns around and oil consumption starts moving up.

It has been shown, and I'm not going to go through all the links again, but it has been shown, that regardless of the price of oil, global daily production of oil has not changed much over the years. Even with the spike to $150/barrel, daily oil production remained fairly stable. There was a flurry of increased drilling activity but the actual amount of oil production did not change much. With all the activity in the Bakken, has the daily global production of oil changed much? No. Not even.

Others argue, and I agree, that the reason oil production has not changed much over the years is because "it" can't. Some argue this is because it has to do with declining fields, and some even suggest "peak oil" theory. That may be true, but that's not the reason that production has not increased. The biggest reason, in my humble opinion, and I don't have data to back it up, is the fact that infrastructure can only find, produce, ship, and refine so much oil on a daily basis. [Enbridge announced it will be forced to ration oil shipments next month due to over-supply and under-capacity due to pipeline repairs, as just one very minor example.]

Whatever the reason, why daily production does not increase over time does not change the fact that daily production does not change much.

Once the global economy turns, and most economists and "talking heads" think the economy will eventually improve, the demand for oil will go up. There may be a slight increase in production, but close observers of the situation will notice that demand will start to rise faster than any change in global production. At a certain point, a tipping point will be reached, and whether you want to call it speculative or not, the price of oil will start to rise dramatically based on concerns that production can't be ratcheted up. And once the spike begins, the price of oil will move up quickly.

I wrote all that back in September, but tonight there was yet another article that supports my contention. Brietbart reports that "Chinese Investment Soars in Brazil, With Eye on Resources," dated October 25, 2010.

[As you read this, remember, the Chinese have bought resources in Canadian oil sands and have taken a huge position in Chesapeake's Eagle Ford oil assets in south Texas. That Texas oil is fungible; anyone can contract to buy it, but I would assume that whoever finds, produces, and ships it will have first chance at contracting for it. Remember also, that China has significant presence in Africa, specifically Sudanese oil: it is estimated that China imports 50% to 60% of Sudan's oil.]

Now back to the Breitbart Brazilian story:

• Chinese investment is expected to reach $30 billion this year
• This investment is aimed at securing access to Brazilian oil
• Prior to the end of 2009, Chinese investment was less than one-half billion dollars
• In the first half of 2010, Chinese investment exceeded $20 billion
• Two-thirds of that investment will be invested in the oil secor
• China has privileged access to Brazilian oil after extending a $10 billion credit to Petrobras
• China's Sinopec bought the Brazilian subsidiary of Spain's Repsol for $7 billion dollars
• In 2009, China became Brazil's top trading partner, overtaking the United States

The perfect storm: when the global economy turns, and there is a psychological (speculative) upward pressure on the price of oil, it will be exacerbated when there is a realization that global daily production will not change much, regardless of the price of oil. But it will be the headlines that China has secured oil assets around the world, oil that may not be available to the market if China needs that oil.

The price of oil is not set by the cost of producing the first barrel (about $5/barrel in Saudi Arabia); the price of oil is set by the cost of producing the last barrel (about $60/barrel for Canadian oil sands). That puts the price of oil in a trading range between $60 and $80 based on the strength of the dollar.

If the global recovery comes around slowly, at best there will be an orderly upward trend in the price of  oil. Once folks realize that daily production cannot be increased significantly, the price of oil will start to rise more quickly. Once more Breitbart-like stories come out, showing who controls the oil, the price of oil will spike.

That's just my humble opinion.

[I would love to see an exhaustive report detailing Chinese oil activity in 2010 compared to 2009. For all the talk about how big ExxonMobil is, in 2008 this company produced about 3 percent of total global oil production, which is less than several of the largest state-owned petroleum companies. According to Wikipedia, when ranked by oil and gas reserves ExxonMobil is 14th in the world with less than 1 percent of the total.]

[By the way, the opposite is not true. As the price of oil rises, global production does not change much. However, if the price of oil drops below $60 for any length of time, production will be held back.]

Updates

November 8, 2010: OPEC sees increasing demand for oil starting in 2012, but due to "bad image" of fossil fuels, governments may restrict its use. OPEC warns developers from rushing into big oil-related industrial industrial initiatives.

November 5, 2010: More and more difficult to find oil to meet global needs.

October 26, 2010: Average price of gasoline today is $1.01 more than when President Obama took office.  Despite severest recession since the depression which one would think would keep prices down. Moratorium on Gulf of Mexico drilling; de facto moratorium continues; global economy starting to turn; Keystone XL project dead / delayed / maybe (choose one); dollar at lows (driving price of oil up).

EPD Update in Eagle Ford (Not a Bakken Story)

EPD is one of my holdings, so this update caught my interest. Too much to report here, so go to the link; suffice it to say, this (the Eagle Ford) is going to be a huge story. Before it's over, and I hate to say this, it's going to be bigger than the Bakken, at least in my humble opinion.

Although EPD is not in the Bakken (as far as I know), there are a number of Bakken oil service companies in the Eagle Ford.

To keep it straight in my mind, there are currently three big oil stories using Bakken technology: the Bakken (ND); the Niobrara (north central Colorado and southeastern Wyoming); and, Eagle Ford, south Texas.

Fourteen (14) New Permits for North Dakota Today (Bakken, ND, USA)

Fourteen new permits for the following companies: Whiting (4), KOG (3), Zavanna (2), Slawson, XTO, North Plains Energy, Oasis, and Burlington Resources.

Fields: Gaylord (2), South Fork (2), Murphy Creek, Elkhorn Ranch, Glass Bluff, Corinth, Elidah, Mandaree, Sand Creek and three wildcats.

These include two more Whiting wells in the South Heart area. They also include a 2-well multi-pad for KOG.

On track for 1,542 permits this calendar year.

BEXP Announces Another Nice Owan Well West of Williston (Bakken, ND, USA)

Click here for link. IP = 2,640.  One of several Owan wells in this immediate area.

Ten miles west of Williston, 320 feet south of US Highway 2. If anybody drives by, tell me what it looks like. Thank you.

Human Interest Story: Stanley, ND -- "Bakken Central" (Bakken, ND, USA)

A nice human interest story on Stanley, in the middle of the Bakken oil excitement.

Funding for Minot Bypass Project Could Increase Railroad Oil Capacity (Bakken, ND, USA)

I had not planned to post this link or cover this story because I thought it had limited interest. However, I was sent a nice note pointing out this link and alerting me to "Tiger II" funding by DOT. The individual asked what additional impact DOT funding might have, I assume, in this geographic area.

The reason I post this is because the metric in the story is very useful. The Minot bypass project will improve railroad oil shipment efficiencies.

The Minot oil facility, which is located at the intermodal facility, has the ability to receive and ship 30,000 barrels of oil per day, equivalent to 136 truckloads. With the improvements proposed as a part of the Minot Bypass project, the facility will be positioned to dramatically expand its capacity. 

And that's the key metric: 30,000 barrels/day = 136 truckloads of oil.

I cannot answer the question how much more Tiger II funding from DOT will impact the Bakken. Time will tell.

Update on TransCanada's Marketlink Pipeline (Bakken, ND, USA)

This is really cool.

TransCanada announces update on its Marketlink Pipeline. 

TransCanada is looking for firm bids from those who want to ship oil on its Marketline Pipeline project. The "open season" for bids ends November 10, 2010.

This pipeline is part of TransCanada's Keystone Gulf Coast project and --- this is why it's really cool -- it will be the first first direct link between the Bakken oil-producing region in the Williston basin and key US markets near Cushing and along the Gulf Coast.

The project is expected to commence in first quarter of 2013.

By the way, did the "red light" just go "amber" on TransCanada's Keystone XL project?

Seeking Alpha on "Peak Oil"

Seeking Alpha article on "peak oil": "The End of Oil's Golden Age."

From the article:

The concept of energy return on energy invested:

A major problem with all sources is decreasing EROEI ratio (energy return on energy invested). For oil it used to be 100 a long time ago and now it is somewhere below 20. EROEI for biodiesel is roughly 3 and for ethanol it is not much more than 1. Depending who to believe, EROEI for oil sands is between 2 and 4. Basically anything above 1 makes sense, but because we are used to a high ratio (= cheap energy), we may have a serious problem when the average EROEI of all supplies of oil goes below 5.

This is just one more reminder that ethanol is one of the most inappropriate uses of a food source. Absolutely incredible.

 Now, even Al Gore, the guy who first promoted it at the presidential level, says ethanol subsidy program was a mistake, but once implemented, next to impossible to kill it due to lobbyists. I guess Al has made all the money he expects in this market and is moving on, trying to regain some credibility. 

Photograph and Video of a Continental Resources Eco-Pad (Bakken, ND, USA)

To see some of the nicest North Dakota landscape and a Continental Resources Eco-Pad, click here, and then go to slide #45 of this series of 79 slides. I assume over time, the corporate presentation will change, and this particular photograph will move to a different location within the presentation.

This is an incredible photograph.

Here is a promotional video of a CLR Eco-Pad.

Rundown on Potash: Exploratory Well Should Spud in Next Couple of Weeks (North Dakota, USA)

NEWS

October 21, 2012: quiet, but not quite dead; Sirius Minerals writes down investment in North Dakota; no plans to drill in the near future
 
August 13, 2011: Based on e-mail correspondence from a state representative, it is estimated that it will be at least another 3 - 5 years before potash development begins in North Dakota. 

April 17, 2011: North Dakota state potash lease sale scheduled for April 26, 2011.

January 11, 2011: Dakota Salts unlikely to be mining for three to five years. 

December 9, 2010: The well should be completed sometime next week.

November 22, 2010: Sirius has announced that it has acquired a further 1,220 net mineral acres of lease areas adjacent to its existing properties in North Dakota. No update on the well they are currently drilling. 

November 9, 2010: drilling has commenced.

Cut to the chase:

• This story has international interest. Since posting this story early Sunday morning (October 24, 2010), I have had an unprecedented number of "hits" from England and Scotland.

England Swings, Roger Miller

• The drive for potash, as a fertilizer, is being driven by the Chinese.
• A small portion of North Dakota sits on 33% of all the known potash reserves in the world.
• It is the same basin that allows Saskatchewan to produce 90% of all potash produced in North America.
• Dakota Salts LLC, a subsidiary of Sirius Minerals, London, England, got the first permit in decades to drill for potash in North Dakota.
• Sirius Minerals shares are considered a "penny stock." Shares have tripled in price in the past few weeks (see comments below).
• The funding is being provided by a Chinese company.
• Schlumberger will drill the well. Spudding is expected to commence during the first week in November, 2010.
• The rig is being brought up from Mexico. There are a record number of rigs in North Dakota but they are all contracted to drill Bakken oil.
• The potash well will be a deep well (3000 meters) near Lignite, ND; to see aerial imagery, click here. (When you get to the link, draw a square around Burke County, upper left county in North Dakota. If you do it right, the town of Lignite will jump right out at you. To see aerial imagery, click on the "show layers" tab sitting at the very center on the far right; otherwise, everything should make sense; there is a tutorial if needed. You won't see the well, yet, but you're going to see how close the railroad is!)
• Once brought to the surface, best way to ship potash: railroad. Warren Buffett's railroad, the Burlington Northern Santa Fe, runs right through the middle of Lignite.
• Drilling for potash will use the same technology as drilling for Bakken oil (except no fracturing).
• Links for everything noted above will be found in the original blog below.

Most incredible dots:

• Schlumberger will do the drilling; and,
• Warren Buffett's railroad is right in the middle of this story.

ORIGINAL BLOG

The "potash well" you've been reading about in local newspapers should be spudded within the next couple of weeks. 

If you are at all interested in another potentially huge story for the Williston Basin, take a look at these sites:

• Potash in North Dakota (a PDF file)
  
• CBS News, October 20, 2010: Potash Drilling in Northwest ND
• Washington Post, October 20, 2010: Same story
• Marketwire, August 16, 2010: Dakota Salts: Exploration Permit Granted
• Bloomberg Businessweek, August 16, 2010: ND Issues First Potash Permit in Decades
• Similar stories in the Fresnobee (Fresno, CA); The Street; The (London) Telegraph; San Francisco Chronicle, and others. This story obviously has international interest. 
• Local -- Kenmare Website, May 4, 2010, ND: Dakota Salts With 6,000 Acres; Goal: 30,000 Acres
• Wikipedia entry for Lignite, North Dakota (economy) has been updated (by me)

Remember my post regarding the Warren Buffett connection with the potash story? I posted that back in August. Pretty neat story.

Click here for a "source document" titled Potash in North Dakota by C. G. Carlson and S. B. Anderson, North Dakota Geologic Survey, 1966.

• At the time of this report, the US led the world in potash production with 90 percent of domestic production coming from Carlsbad, New Mexico
• The authors predicted that as the potash production declined in New Mexico, interest would move to Saskatchewan if potash industry did not develop in North Dakota (this prediction back in 1966 turned out to be right on target)
• Canada is now the world's number 1 producer of potash, producing 90% of North American production (another source)
• Canadian potash deposits are the highest grade known potash deposits in the world
• In North Dakota, the thinnest seams of potash are most shallow; the thickest seams are deeper
• Shallowest seams of potash are found in northeastern Renville and western Bottineau counties (5,800 to 6,200 feet)
• A thicker potash seam is deeper in Burke County; the seam will be thicker but cost of drilling will be greater
• The Divide County seam of potash is probably similar to that in Burke County
• Burke, Renville, and Bottineau counties border Saskatchewan, and run west-to-east (Burke is westernmost, directly north of Mountrail County (home of the prolific Sanish and Parshall oil fields). Renville and Bottineau counties may be familiar to you -- this is where EOG is drilling into the Spearfish formation for oil.

From the Kenmare link:

• North Dakota may hold up to 33 percent of world's reserve of potash
• North Dakota may hold 50 billion tons of potash

Dakota Salts LLC first exploratory well will be in Burke County, near Lignite, North Dakota.  According to the press release, the first well will target a seam 34 feet thick at 8980 feet. The funding will be provided by the Chinese (whatever that means).  Other than that link, I can't find additional background to the Chinese connection, and that link will not download this morning.

Dakota Salts, LLC, is interested in drilling in Renville, Bottineau and Burke counties. From their website:

• North Dakota salt beds are estimated to contain 50 billion tons of potash
• The Prairie Evaporate Formation in the Williston Basin yields over 33% of the world's potash supply
• Depth to potash: 3,000 feet at Saskatoon; 4,800 feet near Regina; and 9,000 feet in North Dakota
• Potash drilling is greatly benefited by the oil industry -- how closely related these two industries are is very, very interesting
• Following extraction of potash, Dakota Salts LLC is exploring the possibility of creating caverns for the storage of natural gas and other hydrocarbons or the storage of compressed air for electricity generation

Some opine that potash may be may profitable than oil for mineral rights owners in North Dakota. The price for potash spiked to $1,000/ton in 2008; has since fallen back significantly; world demand being driven by Chinese market for fertilizer.

Dakota Salts LLC is busy buying up potash mineral rights in North Dakota. When this story first broke, DS said it had 6,000 net acres; now it has 7,425 acres. 

More trivia: for the past few days, I have had a number of stories involving Schlumberger. Well, here's another dot to connect. Dakota Salts LLC will drill their first exploratory potash well in North Dakota with Saskatchewan-based North Rim Exploration Ltd. (NREL) and Schlumberger Water Services USA. I have accumulated shares in SLB for three decades, and remains one of my favorite holdings. Yes, I do fall in love with some of the companies in which I invest, breaking a cardinal rule in investing. Smile.

From the Sirius Minerals website press release, October 19, 2010:

• Schlumberger will act as the contractor responsible for the execution and completion of the well drilling.
• NREL will serve as the overall project manager: site preparation, interface with SLB, and provide well-site geologist.
• It is expected the drilling rig will arrive on site during the week beginning November 1, 2010; drilling and core logging is expected to take two months to complete.
• The core will be sent to NREL's lab in Saskatoon for analysis.
• Dakota Salts holds in excess of 7,425 net mineral acres in the Williston Basin in North Dakota

From other sources:

A rig is being moved from Mexico to drill the potash well. According to the AP, "spare rigs are scare in North Dakota, where a record 153 rigs were drilling on Wednesday."

For investors:

• Sirius Minerals, a penny stock headquartered in London; share price has more than tripled in the past few weeks (see comments below). I don't invest in speculative or penny stocks.
• SLB: the first well is being drilled by Schlumberger; if successful, SLB has inside track to develop Dakota Salts LLC acreage in North Dakota. You think?

It is amazing how inter-related the oil industry and the potash industry are. They both use the same geologic information and North Dakota is unique in having one of the best, if not THE best, geologic information library in the world regarding its mineral resource. In addition, look at how they plan to produce the potash:

"They plan to drill horizontal wells into the potash formation, use waste oil-field water, dissolve the potash, bring it to the surface, take it out of the water, put it in rail cars and ship it to the West Coast,"  according to Lynn Helms, director, state Department of Mineral Resources. 

There is no mention of fracturing. Wouldn't this be a hoot if the EPA stepped in to regulate fracturing, putting the oil industry on hold for two years: all those oil rigs would be used to drill for potash.



Addendum  
Disclaimer: The information in this addendum has not been verified, and I have not done the research to sort it out. I say that because a very reliable source (see comments below) has questioned some of the information in this addendum. I will update the addendum as more information comes in. I have removed some of the original information that was sent in, trying to minimize unknowns.

The original addendum: I was sent a very nice note about how the potash industry is different than the oil industry. Here's a summary of that note.

There will be two (2) holes drilled per every 12-20 townships (basically a whole county). One hole will be used to pump salt water in, the other hole will be used to collect the “brine.”

The brine will then be filtered/refined to extrapolate only the potash. The location that the brine will come up at will be a very large location (20+ acres with full filtering capabilities, etc.) whereas each OIL well site is typically only four (4) acres. Royalties are generally two percent of the final product. It is not clear to me exactly who is due the royalties: surface owners, mineral rights owners, etc.

Thus, my statement about "all those rigs" was hyperbole. There will be far fewer potash rigs; perhaps a handful or so, if the above is accurate.

"Exact" location: near the seven mile corner of Highway 52 (near Lignite). The site is one mile east on the north side of the road. Seven mile corner is the junction of State Highway 52 and 84th Avenue NW; location is just prior to 83rd Avenue NW on north side of Highway 52.

Project status: Burke County Tribune: project status, November 4, 2010.