Saturday, May 8, 2010

Update on Rail Shipments of Oil

EOG is currently running two 100-unit BNSF trains from Stanley, ND, to Stroud,OK, every week. Each unit train can carry 65,000 barrels of crude oil; each tanker car holds 650 barrels of crude oil.

One unit train can be loaded in one-half day in the covered facility in Stanley. The facility has 14 automated loading arms arranged on a 1.5 oval circuit.

A round trip from Stanley to Stroud is over 2000 miles and takes eight (8) days.

The oil is shipped by a 17-mile pipeline from Stroud to Cushing,OK. The pipeline was built by EOG.

According to an industry spokesperson, a ballpark figure to ship oil by rail is $9 - $12 a barrel vs $5 - $7 per barrel by pipeline. The differential for 65,000 barrels could be as much as $450,000.

Meanwhile, Nustar Energy LLC continues to look for drillers/suppliers to ship oil from Dore, ND, to St James, Louisiana. Whether the recent oil spill in the gulf will interfere significantly with sea-going tanker off-loading of oil in Louisiana is still open to question.

Information for this post was obtained from several sources including the "Oil Patch Hotline" available by subscription with occasional posts at the Bakken Blog.

Increasing Acre Spacing

An agenda item for the North Dakota Industrial Commission back in March, 2010, was whether to increase acreage spacing in general in Williston Basin. The cases in question were 12244, 12245, and 12246. I have not heard how those cases turned out but there's currently an indication that this is indeed what is happening. Leases in areas that were once 640-acre spacing, are now being permitted for 1280-acre spacing and 2560-acre spacing.  I also noted this for the hearing dockets scheduled for later this month (May, 2010). I didn't place all that information in my summary but when you go to the NDIC hearing docket, it is easy to spot: the increased number of requests for larger spacing units.

Mineral rights owners are concerned but the NDIC has a number of interests to consider. My understanding is that the farmers, even those who benefit from oil royalties, are concerned too much land is being taken out of wheat/other grain farming for oil pads. It doesn't seem like much -- at least to me it didn't seem like much until someone with a farmer's interests in mind wrote me and brought up that issue. What I appreciated most about his/her comments was that "we" need to make this a win/win for both farmers and non-farmer royalty owners.

Something tells me "we" could learn something from Oklahoma and Texas.

Something tells me in the big scheme of things, if one can get about the same amount of oil out of the ground with fewer wells, the decision shouldn't be all that difficult. My gut feeling is that the initial production numbers may be different, the first year of production may be different, but the EUR will probably be about the same whether it's a 640-acre spaced well or a 1280- / 2560-acre spaced well.

KOG First Quarter, 2010, Results

Financials
1Q, 2009: (2 cents/shr)($1.6 million)
1Q, 2010: 1 cent/ share, $1 million

Net Income EBITDA
1Q, 2010: $3.3 million

Cash Used For Operations
1Q, 2009: $2.5 million
1Q, 2010: $2.4 million

Oil and Gas Sales
1Q, 2009: $0.8 million
1Q, 2010: $5.7 million

Oil Sold
1Q, 2009: 16,000 bbls
1Q, 2010: 77,000 bbls

Comment: I haven't looked at KOG from an investing point of view lately, but if KOG was a "buy" earlier this month or last month, it has to be a "better buy" now with the overall stock market pullback, the decline in price of oil which will go back up, and the fact that this year will be an even better year for KOG based on planned activities.

Wildcat in a Designated Oil Field

I assume everyone but me knew this, but just in case, here's a bit of trivia.

A well in a designated field is still identified as a "wildcat" if it's a "test well" into a "new" formation.

This is the case with CLR's 18498. Obert 1-13H is listed as a wildcat by NDIC, but it is clearly in Hebron oil field northwest of Williston. Obert 1-13H is a TFS test well. It came in with an IP of 896. CLR now uses best 24-hour flow rate in the initial seven (7) days of production to determine IPs.