Where Do We Stand in the Bakken, After a Particularly Tough Week

Where do we stand in the Bakken, or more accurately, where do we stand in "the oil patch" in North Dakota?

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"). I think you would be surprised to know who Gene Simmons really is. 

For Natural Gas Investors Only: Not (Really) Related to the Bakken - WMB

This is one of the reasons I enjoy the blog experience. A few folks send me links that send me in interesting directions.

This was sent to me, from a posting on the DNR board. I do not hold shares in DNR. Denbury recently bought Encore, a fairly big player in the Bakken. But that has nothing to do with the following, a comment found on the DNR Yahoo!Message boards. You should read the full message at the link, but these are the data points, as expressed by "Harold," who has a history of great posts:

• WMB offers a compelling opportunity for those who desire an inexpensive exposure to natural gas
• There is currently a natural gas glut, but like all gluts, it will end sometime
• WMB owns 84% of Williams Partners, WPZ
• WPZ will increase its distribution to about $3 next year (about 6% yield)
• Market value of WPZ will be about $13 billion; WMB's share is worth $19/share
• WMB's distribution from WPZ is worth about $6/share
• Therefore: WMB has about a $25/share value just for WPZ

• WMB has another $2/share of pipeline, midstream assets not in the partnership
• WMB has net debt of about $1/share
• Therefore, WMB value is about $26/share and is trading for $18.50

 But, it's probably worth much more. For the rest of the comments, go to the link.

I hold WMB for the long term, and continue to add to it.

Today's Daily Activity Report

Some interesting items from today's daily activity report:

• Jack Cvancara 19-18 1-H, previously posted elsewhere, shows a production of 81,000 barrels of oil in less than three (3) months; IP of 4,357; yup: BEXP. We've all known about this well (since the May 26, 2010, press release, but it's finally off the confidential list!)  For an interesting in-depth discussion of the Bakken in general, and the Cvancara specifically, click here.
• Two different companies reporting on wells targeting the Madison (which by the way, is still the leading formation in North Dakota for oil production, I believe)
• Ritchie reports a Spearfish well
• Hess granted three wells on a multi-well pad in the Robinson Lake oil field, EN-Weyrauch series, 154-93-1918. Since they will all run the same two sections, will this be two horizontals in Middle Bakken and one in TFS?  [See comments; I am wrong on how I said this. See this link for more about Hess multi-well pads. If these are true dual laterals like Hess has done before, we should see three more permits by Hess in these sections.]
• Slawson has a permit in the Elk oil field, south of the river, southwest of Williston. This is the field that BEXP reported an IP of 3,042 for the Papineau Trust 17-20 1-H located at NENW 17-151N-102W.  This well was reported out in July, 2010, just a couple of months ago. Slawson is an exciting operator. Slawson's well is directly north: SWSE 21-152N-102W, Bonanza 1-21-16H

This has not been a particularly good week for the oil patch, so it's nice to see this kind of daily activity report to close out the week.

Stimulus Money Creating New Jobs! California Dreaming: Pretend to Pray on a Winter Day

California Dreamin', The Mamas and Papas

Seldom have I found a more appropriate music video to go with a story.

Los Angeles City received $111 million in stimulus money.

The stimulus money is helping create jobs in California.

The city controller said the $111 million resulted in 55 new jobs. Not 55,000 new jobs. Not 5,500 new jobs. 55 jobs.

It would be interesting to get a breakdown of those 55 jobs. I assume they are city employees, probably some of them in the auditor's office.

That's $2 million/job.

With the additional 3.8 percent tax on almost all passive income starting next year to help pay for administrative costs associated with the new federal health care program, North Dakotans getting royalty money from Bakken wells may be able to help out California, a little bit.

And with 12% unemployment in California, any little bit will help. 

[I assume North Dakota will continue to receive more federal spending per dollar of tax paid but the rate should shift toward California, and it could shift significantly. With the 3.8% on royalty income it is no longer a given that North Dakota will receive more federal dollars than taxes paid. Remember, North Dakota is producing 10 million barrels of oil per month; at $50/bbl that's one-half billion dollars/month. Most recent data shows New Mexico is number one beneficiary in federal/state offset; North Dakota is number six; California, 43; and, New Jersey, last, at 50.]

Wouldn't it be easier just to send the royalty money (if that turns out to be the case) directly to California and bypass Washington, DC? It would be a bit more efficient.

Anyway, my rant for the day.

Update: I posted the above note earlier today/yesterday and now -- just minutes ago -- I checked in at LA Times.com and see that the 55 jobs was not enough to stem the unemployment problem in California. The LA TImes.com is reporting that unemployment in California has jumped to 12.4%, up from 12.3% the previous month. Actually, that change is statistically insignificant, but one would have assumed the increase in the number of jobs in Los Angeles would have stemmed the tide. Of the 2.3 million unemployed in California, almost one million have been unemployed for more than six (6) months.

This is not good, folks.

Another 1st (Perhaps Some Day) For North Dakota: Dinosaur Digs

Maybe not yet, but over time North Dakota may move up on the list of states with significant dinosaur discoveries.

This article from MinotDailyPress.com talks about a particularly good site near Marmarth, North Dakota, where the ND Geological Survey says that fossils of the following dinosaurs were found this past summer: Triceratops, duck-billed dinosaurs, raptors and a tooth from a Tyrannosaurus rex, often called "T. rex," the largest meat-eating dinosuar (sic).

Without doing any type of search, this is my hunch: California, Montana, Utah, North Dakota.

It's more than just oil in North Dakota.

(By the way, if a newspaper is going to do a story on dinosaurs, the editors should make sure they spell the word "dinosaur" correctly. I assume this will be corrected; if so, when  you click on the link, you will not see the same story I saw; if nothing else, the spelling will have been corrected.)

Oil Company Targets Lodgepole Near Dickinson (ND, USA)

This is not about the Bakken.

This is about the Lodgepole, which by the way, has produced the most productive oil well in the history of North Dakota, the Dinsdale 2-4 (when you get to that link, scroll down).

Halek Operating ND, LLC, is requesting a permit to drill a Lodgepole well, a vertical well, just outside of Dickinson.

This isn't the only well Halek plans to drill. Halek plans to drill 17 wells in North Dakota over the next 18 months. Halek is based in Billings, Montana. The Lodgepole/Dickinson well is one of the first wells they have drilled in North Dakota.