Now I know why some of the super-rich aren't worried about the administration's plan to increase taxes on those with earned income greater than $250,000.
The following all receive annual salaries of $1.00. Their earned income as CEOs of their companies is one buck.
Apple (AAPL) CEO Steve Jobs
Citigroup (C) CEO Vikram Pandit
Google (GOOG) CEO Eric Schmidt
Yahoo (YHOO) CEO Jerry Yang
Oracle (ORCL) CEO Larry Ellison
Berkshire Hathaway (BRK.A) CEO Warren Buffett.
I wonder if pensions will be considered earned income. Some of the very richest also have nice pensions.
My rant for the day.
Update: the information was taken from another (reliable and trusted) site, but not fact-checked. I know the information is accurate for some, but might not be accurate for all names listed. See comments below, as folks "keep me honest."
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Tuesday, September 28, 2010
Whiting's Average Cost Per Bakken Acre
There are several good posts today. Don't read just this one. Scroll down to see some very interesting posts, especially the one on the TFS wells by Whiting, announce today.
But I didn't want to lose this little bit of trivia.
Remember the $9,600/acre Enerplus recently paid for acreage in the Fort Berthold Indian Reservation, and the $12,000/acre at a recent North Dakota state lease auction (albeit, a very small tract of land)?
I was checking out the Whiting presentation for recent Enercom 2010 conference. In a footnote, WLL noted the average price it has paid for acreage in the North Dakota / Montana Bakken: ...
.... drum roll .... drum roll .... drum roll ....
... Whiting says they acquired current North Dakota / Montana Bakken acreage at an average price of $168/acre. That is not a typo. The decimal is in the correct location. Less than $200/acre. Whiting has been acquiring acreage since this boom began back in 2006 or thereabouts.
Sure, WLL might have some lousy acres (which I doubt), but WLL practically owns the Sanish, one of the most prolific oil fields in the Williston Basin, where it is putting in four to five wells / section.
But I didn't want to lose this little bit of trivia.
Remember the $9,600/acre Enerplus recently paid for acreage in the Fort Berthold Indian Reservation, and the $12,000/acre at a recent North Dakota state lease auction (albeit, a very small tract of land)?
I was checking out the Whiting presentation for recent Enercom 2010 conference. In a footnote, WLL noted the average price it has paid for acreage in the North Dakota / Montana Bakken: ...
.... drum roll .... drum roll .... drum roll ....
... Whiting says they acquired current North Dakota / Montana Bakken acreage at an average price of $168/acre. That is not a typo. The decimal is in the correct location. Less than $200/acre. Whiting has been acquiring acreage since this boom began back in 2006 or thereabouts.
Sure, WLL might have some lousy acres (which I doubt), but WLL practically owns the Sanish, one of the most prolific oil fields in the Williston Basin, where it is putting in four to five wells / section.
Three Forks Formation Starting to Shine: WLL Announces Two Nice Wells; More On the Way
From a Whiting press release, dated September 28, 2010:
Whiting completed two new producers at its Lewis & Clark Prospect in Stark, Billings, and Golden Valley Counties, North Dakota (USA).
For those who know North Dakota, the Kubas is about 5 miles northeast of Belfield, and the Froehlich is about 1.5 miles southeast of Belfield.
The Froehlich was on the very, very tiny Zenith oil field; the Kubas was a wildcat.
A third well, the Ellison Creek 11-1TFH is currently being completed, located about three miles east of the Federal 32-4TFH well. The results of this well and three other Lewis & Clark wells will be released in mid-November.
WLL has four operated drilling rigs in the Lewis & Clark and plan to add a fifth operated drilling rig by mid-November.
Whiting completed two new producers at its Lewis & Clark Prospect in Stark, Billings, and Golden Valley Counties, North Dakota (USA).
- Three Forks Formation: Froehlich 44-9TFH, 1,832 bopd (24-hour test); 28 fracture stages
- Three Forks Formation: Kubas 11-13TFH, 1,780 bopd (24-hour test); 29 fracture stages
For those who know North Dakota, the Kubas is about 5 miles northeast of Belfield, and the Froehlich is about 1.5 miles southeast of Belfield.
The Froehlich was on the very, very tiny Zenith oil field; the Kubas was a wildcat.
A third well, the Ellison Creek 11-1TFH is currently being completed, located about three miles east of the Federal 32-4TFH well. The results of this well and three other Lewis & Clark wells will be released in mid-November.
WLL has four operated drilling rigs in the Lewis & Clark and plan to add a fifth operated drilling rig by mid-November.
Comment: this was an exciting press release --
- Three Forks formation wells near the WLL discovery well
- One was a wildcat, potentially opening up a whole near TFS area
- Remember: this is very southeast North Dakota, and where the Bakken ends in the southeast, the TFS continues to extend
- WLL has even more wells soon to be announced
- WLL going to add another rig to this area
North Dakota Bakken Acreage
ERF
CLR (total Bakken acreage)
Thoughts on long term investing in the Bakken and acreage.
- 71,500 net acres FBIR, Sept 14, 2010, presentation, includes recent purchase
- + 46,500 acres bought in FBIR, Sept, 2010; $9,600/acre
- EUR: 300 - 500K/well
- Two wells/section
- 70 Bakken/TFS wells
- 4 rigs
- Current as of Sept 27, 2010
CLR (total Bakken acreage)
- 864,559 net acres
- + 47,707 net acres acquired 3Q10
- EUR: 518K/well
- 20 rigs
- Current as of Oct 11, 2010
- 358,000 net acres (includes Montana)
- + 76,000 net acres between December, 2009 - Sept, 2010
- EUR; 500 - 700K/well
- 5 -> 8 rigs
- Current as of Sept 27, 2010
- 428,906 net acres (North Dakota only)
- + 90,174 net acres, Montana, Sept, 2010, purchase, Starbuck
- EUR: 850K/well
- 13 rigs
- Some of the best acreage in the Sanish
- Current as of Sept 27, 2010
- 325,700 net acres (ND and Montana) (by my calculations)
- Includes an additional 16,700 units acquired November 5, 2010
- 5 rigs: four in West Williston; one in East Nesson (November 8, 2010)
- Some of the best acreage in the Bakken, but also some mediocre acreage
- Current as of Sept 30, 2010
- 72,000 net acres
- 2 rigs
- Most acreage in/near FBIR; recent acquisition - exposure north of Williston
- Current as of October 20, 2010; after announcement of acquisition this week
- >100,000 net acres
- 0 rigs; partners with others
- Unique business plan
Thoughts on long term investing in the Bakken and acreage.
Another Orion Belt for Hess, Bakken, North Dakota (USA)
Wow -- today's daily activity report -- thirteen (13) new permits. Three of the permits were for Hess -- multi-well pad in Robinson Lake, Mountrail County:
In addition, Oasis picked up two more permits in Painted Woods, northwest of Williston.
Another incredible day.
"We" are on track for 1,425 permits granted by North Dakota for calendar year 2010.
- 19620, EN-Weyrauch A-154-93-2017H-1, SESW 20-154N-93W
- 19620, EN-Weyrauch A-154-93-2017H-2, SESW 20-154N-93W
- 19620, EN-Weyrauch A-154-93-2017H-3, SESW 20-154N-93W
In addition, Oasis picked up two more permits in Painted Woods, northwest of Williston.
Another incredible day.
"We" are on track for 1,425 permits granted by North Dakota for calendar year 2010.
Thoughts on The Price of Oil and Long Term Investing
Note: updates at the bottom.
This is idle chatter, one might hear over the coffee table at the Economart in Williston. Consider it nothing more than idle chatter, but something I want to throw out there for others to comment on. I'm trying to make sense of the price of oil at $70 per barrel and the price of gold hitting a new high, solidly over $1,300 per ounce.
First, of all, I'm an optimist.
Second, I'm bullish on oil as an investment.
Third, I'm inappropriately exuberant about the Bakken.
Fourth, I do not have formal training in business and am very naive in all areas of finance.
For years, it was my understanding that because oil and gold were both commodities, it was not unusual for the two of them to be priced relative to the dollar. As the dollar went down in value, the price of commodities went up (all things being equal). Of course, "all things being equal," is critical. During perceived shortages (the Hunt brothers' attempt to corner the silver market; the OPEC embargo; etc), supply and demand had a greater impact than the value of the dollar.
For years, it was my understanding that investing in commodities, such as gold and oil, were used as a hedge against inflation.
But, recently, it appears the price of gold and the price of oil have diverged. The general consensus that in the short term deflation is a greater concern than inflation, and thus the ballistic rise in the price of gold is not due to worries about inflation. If gold prices were a reflection of worries about inflation, then one might argue that one should see a similar rise in the price of oil.
So, for reasons other than worries about inflation, the price of gold is rising very quickly. The news that governments have clamped down on domestic banks from divesting themselves of gold will only exacerbate the situation. So, repeating, for reasons other than worries about inflation, the price of gold is rising very quickly.
On the other hand, whatever is causing investors worries, it is not the kind of worry that prompts investors to push the price of oil up in a similar ballistic manner.
I am going to posit that the reason that gold is rising quickly is because there is a perceived shortage of gold as the "gold" standard (no pun intended) for safety. It almost seems like a bunker mentality. Fearing the absolute worse, default of one's government/country (Portugal, Ireland, Italy, Greece, Spain, e.g.), folks are buying gold. I don't know how much gold is out there. But first there is a rush to safety, and as that is bought up, there is a perceived shortage. One sees the same thing with bottled water in the face of an impending hurricane. First, there is a rush to buy it, and then as the bottles come off the shelves, there is a perceived shortage (despite the fact Wal-Mart one state over has trucks of bottled water).
So, let's assume that's were we are now. There was a rush to safety, the initial buying of gold when it went through the $800 $1,200 range. Now there is a perceived shortage and that will take the price of gold to yet new highs, today solidly over $1,300.
Now to the price of oil.
Now, to the price of oil. People flock to gold for safety. They don't flock to oil for safety.
If there is a perception that their governments could default, or that the global economy could go into a depression, folks want gold, not oil.
However, let's say a couple of years go by, and somehow there are no major national defaults, somehow the PIIGS get through this. Let's further imagine that a couple years from now, the global economy has recovered, and there is no longer any threat of another recession, much less a depression.
If the global economy gets back on track, the requirement for energy will increase. I don't think anyone will argue with that.
Now look at the graph I linked a couple of days ago at The Oil Drum/Europe.
Look at the tremendous spike in the price of oil a couple of years ago. Pretty spectacular, isn't it? Now look at the total amount of oil production through all of this. It remained unchanged, give or take a bit of background noise, which I doubt was statistically significant.
Now look at a graph of energy consumption. I apologize for this. It's a PDF and will take time to download, but click on the link: Shale Gas Revolution, International Study/UK, 2010, a "Chatham House Report." As noted, this study was done in Britain, and is very, very up-to-date. When you get to that PDF, go to page 14 of 46 (or page 5 of chapter 1) and take a look at Figure 3: UK Primary Energy Consumption by Fuel, 1965 - 2009.
Figure 3, referenced: This is not ancient history. One could argue that China, today, is where Britain was in 1965. Back in 1965, the UK used "no" natural gas, but as the use of coal decreased, natural gas stepped in to make up the difference. The amount of oil consumed did not change much except for short periods. We can ignore nuclear energy for now.
We now have two graphs, one from The Oil Drum and one from the Chatham House Report. They seem to support each other. In one case, we see that despite the spike in the price of oil, world production did not increase. And in the other report, despite the price of oil, the amount of oil used in the UK did not appreciably change, at least not enough to show up on this graph.
I am not a "believer" in "peak theory of oil" as it is currently posited, but I do think that there is very little slack in available oil as measured in one to two years. If one could predict that "$150 oil" was going to be here starting January 17, 2015 and never retreat, I feel strongly that the oil industry would respond, but the lead time is horrendous, not just for the drilling, but for the infrastructure (pipelines, and tankers). Now, add in environmental controls, and the lead time is even greater.
My hunch is that it's just a matter of time when we see the price of oil do what we're seeing with the price of gold.
Instead of a flight to safety, there will be a real need for increased energy. Look at that UK graph. The population of Great Britain is 61 million; the population of China is 1.3 billion (20 times greater); and, the population of India is 1.1 billion. We can ignore solar, wind, and nuclear power, Coal will remain important. But the need for natural gas will increase exponentially, and the need for oil, likewise.
But that's not to say that the industry will respond.
If given enough time, I think the industry could respond, but the lag time will be measured in two to five years. It's possible the increase will be so severe a reactionary recession or depression could occur, but the point is that when the global economy recovers, there will be a flight to fossil fuels. Like the early phase in the price of gold going through $800, there will be an orderly (or disorderly) rise in the price of oil.
When it is realized that the graph in The Oil Drum is the way it is because the totality of oil reserves is pretty much tapped out, there will be a perceived shortage, just as there is a perceived shortage of gold, pushing the price of gold solidly over $1,300.
Drillers can only drill so fast. Just like the "flash crash" of the stock market on May 6, 2010, which no one can explain, no one has been able to explain the $150 spike in the price of oil. Relative to the long history of oil production, the spike to $150 dropped back as quickly as it rose. No one has offered a good explanation.
For those who are fleeing to safety in the current economy, they are buying gold; for those perceiving a shortage of gold, they are willing to pay $1,300 per ounce.
Why aren't investors fleeing to oil for safety, as they were fleeing to safety (when gold was $800 - $1,200).
Gold and oil are inherently different. At $1,300/ounce it doesn't take much room to store it. Gold is not used up (except for jewelry and some high tech requirements, but people aren't buying gold to turn it into something else).
The only value oil has is when it is turned into energy.
So, for all practical purposes, an investor, or the average person, cannot buy oil, whereas an average person can buy gold, very easily and hold it forever.
So, what is one to do, if one is an optimist, one is bullish on oil, and one is inappropriately exuberant about the Bakken?
Certainly one cannot buy Bakken oil and store it in the garage.
But one can do the next best thing: buy Bakken oil and store it in the ground. And, the best way to do that, is to buy (or accumulate) Bakken acreage. And the best way to do that, for the average retail investor, is to buy (or accumulate) shares in companies (generally oil companies) that are buying up acreage in the Bakken.
All things being equal, I don't think it matters a whole lot whether one buys shares in Continental Resources, Brigham Exploration, Whiting, Kodiak, Oasis, EOG, Hess or a whole host of others in the Bakken. Some will end up being better than the others, and more about that later, but right now, pick your favorite for whatever reason, and start accumulating shares (acreage).
Acreage was being sold for $500/acre less than a few years ago, and there are still acres in some areas of the Bakken that are going for that amount. But, the state of North Dakota sold leases for $12,000/acre in a small area in a recent sale. Within the last two weeks, Enerplus agreed to purchase acreage for an average price of almost $10,000/acre.
In the near term, the amount one is willing to pay for an acre in the Bakken will top out, but once the global economy turns, and there is a perceived shortage of oil (real or not), the price of oil will take off.
As I said earlier, all things being equal, I don't think it matters a whole lot what Bakken driller you decide to invest in. However, if one has to separate it out, I would look at those companies whose stated strategic vision is to accumulate acreage, not just develop what they have.
Some of the acreage that is accumulated will be "outside the core area" as currently defined. But before 2000, none of the Bakken was worth going after. The drillers seem to be getting better at getting oil out of the ground "outside of the core area." If one thinks technology and processes will improve over time, then accumulating acreage outside the core area is a good strategy. Look at the Investopedia article today about drillers going into Montana, clearly "outside the core area" as currently defined by some (not me).A musical interlude: My Wife Thinks You're Dead, Junior Brown
Bottom line: I think at some point there will be a perception that there is a shortage of oil (real or not), and that will result in a spike in oil prices. There will be a tipping point, but once it occurs, the increase in price will come quickly (we've seen it once). First, people will start fleeing to oil (and natural gas) because they need it, and once they start fleeing to oil (and natural gas) because of a perceived shortage, the spike will be remarkable.
Holding Bakken acreage, any Bakken acreage, will be like holding gold.
I'm sure my argument is weak in many, many places, but remember, I'm an optimist, a bull on oil, and inappropriately exuberant about the Bakken. The latter has not disappointed me yet.
Again: This is idle chatter, something one might hear over the coffee table at the Economart in Williston. Consider it nothing more than idle chatter, but something I've been thinking about, trying to figure out why the price of gold and oil have diverged.
October 3, 2010: What Crude Prices Are Telling Us, Seeking Alpha.
October 2, 2010: The (London) Independent, "The Chinese Land Grab."
October 1, 2010: Jim Cramer, CNBC, said price of gold is going up due to increased demand by BRIC citizens (Brazil, Russia, India, China). He says "increased demand"; I say "perceived shortage."
Introduction
This is idle chatter, one might hear over the coffee table at the Economart in Williston. Consider it nothing more than idle chatter, but something I want to throw out there for others to comment on. I'm trying to make sense of the price of oil at $70 per barrel and the price of gold hitting a new high, solidly over $1,300 per ounce.
First, of all, I'm an optimist.
Second, I'm bullish on oil as an investment.
Third, I'm inappropriately exuberant about the Bakken.
Fourth, I do not have formal training in business and am very naive in all areas of finance.
Part The First
For years, it was my understanding that because oil and gold were both commodities, it was not unusual for the two of them to be priced relative to the dollar. As the dollar went down in value, the price of commodities went up (all things being equal). Of course, "all things being equal," is critical. During perceived shortages (the Hunt brothers' attempt to corner the silver market; the OPEC embargo; etc), supply and demand had a greater impact than the value of the dollar.
For years, it was my understanding that investing in commodities, such as gold and oil, were used as a hedge against inflation.
But, recently, it appears the price of gold and the price of oil have diverged. The general consensus that in the short term deflation is a greater concern than inflation, and thus the ballistic rise in the price of gold is not due to worries about inflation. If gold prices were a reflection of worries about inflation, then one might argue that one should see a similar rise in the price of oil.
So, for reasons other than worries about inflation, the price of gold is rising very quickly. The news that governments have clamped down on domestic banks from divesting themselves of gold will only exacerbate the situation. So, repeating, for reasons other than worries about inflation, the price of gold is rising very quickly.
On the other hand, whatever is causing investors worries, it is not the kind of worry that prompts investors to push the price of oil up in a similar ballistic manner.
I am going to posit that the reason that gold is rising quickly is because there is a perceived shortage of gold as the "gold" standard (no pun intended) for safety. It almost seems like a bunker mentality. Fearing the absolute worse, default of one's government/country (Portugal, Ireland, Italy, Greece, Spain, e.g.), folks are buying gold. I don't know how much gold is out there. But first there is a rush to safety, and as that is bought up, there is a perceived shortage. One sees the same thing with bottled water in the face of an impending hurricane. First, there is a rush to buy it, and then as the bottles come off the shelves, there is a perceived shortage (despite the fact Wal-Mart one state over has trucks of bottled water).
So, let's assume that's were we are now. There was a rush to safety, the initial buying of gold when it went through the $800 $1,200 range. Now there is a perceived shortage and that will take the price of gold to yet new highs, today solidly over $1,300.
Now to the price of oil.
Part The Second
Now, to the price of oil. People flock to gold for safety. They don't flock to oil for safety.
If there is a perception that their governments could default, or that the global economy could go into a depression, folks want gold, not oil.
However, let's say a couple of years go by, and somehow there are no major national defaults, somehow the PIIGS get through this. Let's further imagine that a couple years from now, the global economy has recovered, and there is no longer any threat of another recession, much less a depression.
If the global economy gets back on track, the requirement for energy will increase. I don't think anyone will argue with that.
Now look at the graph I linked a couple of days ago at The Oil Drum/Europe.
Look at the tremendous spike in the price of oil a couple of years ago. Pretty spectacular, isn't it? Now look at the total amount of oil production through all of this. It remained unchanged, give or take a bit of background noise, which I doubt was statistically significant.
Now look at a graph of energy consumption. I apologize for this. It's a PDF and will take time to download, but click on the link: Shale Gas Revolution, International Study/UK, 2010, a "Chatham House Report." As noted, this study was done in Britain, and is very, very up-to-date. When you get to that PDF, go to page 14 of 46 (or page 5 of chapter 1) and take a look at Figure 3: UK Primary Energy Consumption by Fuel, 1965 - 2009.
Figure 3, referenced: This is not ancient history. One could argue that China, today, is where Britain was in 1965. Back in 1965, the UK used "no" natural gas, but as the use of coal decreased, natural gas stepped in to make up the difference. The amount of oil consumed did not change much except for short periods. We can ignore nuclear energy for now.
We now have two graphs, one from The Oil Drum and one from the Chatham House Report. They seem to support each other. In one case, we see that despite the spike in the price of oil, world production did not increase. And in the other report, despite the price of oil, the amount of oil used in the UK did not appreciably change, at least not enough to show up on this graph.
I am not a "believer" in "peak theory of oil" as it is currently posited, but I do think that there is very little slack in available oil as measured in one to two years. If one could predict that "$150 oil" was going to be here starting January 17, 2015 and never retreat, I feel strongly that the oil industry would respond, but the lead time is horrendous, not just for the drilling, but for the infrastructure (pipelines, and tankers). Now, add in environmental controls, and the lead time is even greater.
My hunch is that it's just a matter of time when we see the price of oil do what we're seeing with the price of gold.
Instead of a flight to safety, there will be a real need for increased energy. Look at that UK graph. The population of Great Britain is 61 million; the population of China is 1.3 billion (20 times greater); and, the population of India is 1.1 billion. We can ignore solar, wind, and nuclear power, Coal will remain important. But the need for natural gas will increase exponentially, and the need for oil, likewise.
But that's not to say that the industry will respond.
Part The Third
If given enough time, I think the industry could respond, but the lag time will be measured in two to five years. It's possible the increase will be so severe a reactionary recession or depression could occur, but the point is that when the global economy recovers, there will be a flight to fossil fuels. Like the early phase in the price of gold going through $800, there will be an orderly (or disorderly) rise in the price of oil.
When it is realized that the graph in The Oil Drum is the way it is because the totality of oil reserves is pretty much tapped out, there will be a perceived shortage, just as there is a perceived shortage of gold, pushing the price of gold solidly over $1,300.
Drillers can only drill so fast. Just like the "flash crash" of the stock market on May 6, 2010, which no one can explain, no one has been able to explain the $150 spike in the price of oil. Relative to the long history of oil production, the spike to $150 dropped back as quickly as it rose. No one has offered a good explanation.
For those who are fleeing to safety in the current economy, they are buying gold; for those perceiving a shortage of gold, they are willing to pay $1,300 per ounce.
Part the Fourth
Why aren't investors fleeing to oil for safety, as they were fleeing to safety (when gold was $800 - $1,200).
Gold and oil are inherently different. At $1,300/ounce it doesn't take much room to store it. Gold is not used up (except for jewelry and some high tech requirements, but people aren't buying gold to turn it into something else).
The only value oil has is when it is turned into energy.
So, for all practical purposes, an investor, or the average person, cannot buy oil, whereas an average person can buy gold, very easily and hold it forever.
Part the Fifth
So, what is one to do, if one is an optimist, one is bullish on oil, and one is inappropriately exuberant about the Bakken?
Certainly one cannot buy Bakken oil and store it in the garage.
But one can do the next best thing: buy Bakken oil and store it in the ground. And, the best way to do that, is to buy (or accumulate) Bakken acreage. And the best way to do that, for the average retail investor, is to buy (or accumulate) shares in companies (generally oil companies) that are buying up acreage in the Bakken.
All things being equal, I don't think it matters a whole lot whether one buys shares in Continental Resources, Brigham Exploration, Whiting, Kodiak, Oasis, EOG, Hess or a whole host of others in the Bakken. Some will end up being better than the others, and more about that later, but right now, pick your favorite for whatever reason, and start accumulating shares (acreage).
Acreage was being sold for $500/acre less than a few years ago, and there are still acres in some areas of the Bakken that are going for that amount. But, the state of North Dakota sold leases for $12,000/acre in a small area in a recent sale. Within the last two weeks, Enerplus agreed to purchase acreage for an average price of almost $10,000/acre.
In the near term, the amount one is willing to pay for an acre in the Bakken will top out, but once the global economy turns, and there is a perceived shortage of oil (real or not), the price of oil will take off.
As I said earlier, all things being equal, I don't think it matters a whole lot what Bakken driller you decide to invest in. However, if one has to separate it out, I would look at those companies whose stated strategic vision is to accumulate acreage, not just develop what they have.
Some of the acreage that is accumulated will be "outside the core area" as currently defined. But before 2000, none of the Bakken was worth going after. The drillers seem to be getting better at getting oil out of the ground "outside of the core area." If one thinks technology and processes will improve over time, then accumulating acreage outside the core area is a good strategy. Look at the Investopedia article today about drillers going into Montana, clearly "outside the core area" as currently defined by some (not me).
Summary
Bottom line: I think at some point there will be a perception that there is a shortage of oil (real or not), and that will result in a spike in oil prices. There will be a tipping point, but once it occurs, the increase in price will come quickly (we've seen it once). First, people will start fleeing to oil (and natural gas) because they need it, and once they start fleeing to oil (and natural gas) because of a perceived shortage, the spike will be remarkable.
Holding Bakken acreage, any Bakken acreage, will be like holding gold.
I'm sure my argument is weak in many, many places, but remember, I'm an optimist, a bull on oil, and inappropriately exuberant about the Bakken. The latter has not disappointed me yet.
Again: This is idle chatter, something one might hear over the coffee table at the Economart in Williston. Consider it nothing more than idle chatter, but something I've been thinking about, trying to figure out why the price of gold and oil have diverged.
*****
Updates
October 3, 2010: What Crude Prices Are Telling Us, Seeking Alpha.
October 2, 2010: The (London) Independent, "The Chinese Land Grab."
October 1, 2010: Jim Cramer, CNBC, said price of gold is going up due to increased demand by BRIC citizens (Brazil, Russia, India, China). He says "increased demand"; I say "perceived shortage."
Investopedia Update on Bakken Companies
Eric Fox, over at Investopedia, has a new article on the Bakken, dated September 28, 2010. He notes that Bakken companies in the core of the Bakken (North Dakota) are expanding into Montana, and specifically mentions Oasis, BEXP, Continental Resources, and EOG. Eric Fix also mentions Rosetta Resources which has acreage only in Montana; I do not follow Rosetta Resources.
In fact, the current boom in the Williston Basin began on the western side of the Montana-North Dakota state line, in Montana, in Richland County, in Elm Coulee oil field. The drillers took that technology and moved it into North Dakota (I forget which came first: Parshall discovery in North Dakota or Elm Coulee in Montana -- but the boom began in Elm Coulee).
Now, with improved technology -- particularly increased fracturing -- drillers know that they can go back into Elm Coulee as well as open up new areas farther north, again along the Montana-North Dakota border. I doubt any of the original Elm Coulee wells had more than one stage of fracturing.
So, a second boom is occurring in Elm Coulee (to the best of my knowledge; I don't follow the Montana oil industry all that much) and a new (first-time) boom is occurring farther north, directly west and northwest of the city of Williston.
With regard to Rosetta, Fox reports that Rosetta will drill eight (8) vertical wells to better delineate the oil play in Montana. That I don't understand. To the best of my knowledge, the Bakken drillers have drilled very few vertical wells into the Bakken for the purpose of studying the Bakken. It would be interesting to see the source document about the vertical wells to which Eric Fox refers.
I do know that North Dakota has the absolutely best geologic record of the formations in western North Dakota. It is my understanding that nowhere in the world is the geology of any oil basin so well studied. Starting years ago, drillers were required, by las, to send core samples to the state every time they drilled a well, whether it was dry or economic or a gusher. The state (specifically, the North Dakota Geologic Survey) has a phenomenal amount of information, and it's possible this is not as true in Montana, and thus the need for vertical wells for the purpose of studying the geologic formations.
More on this later.
In fact, the current boom in the Williston Basin began on the western side of the Montana-North Dakota state line, in Montana, in Richland County, in Elm Coulee oil field. The drillers took that technology and moved it into North Dakota (I forget which came first: Parshall discovery in North Dakota or Elm Coulee in Montana -- but the boom began in Elm Coulee).
Now, with improved technology -- particularly increased fracturing -- drillers know that they can go back into Elm Coulee as well as open up new areas farther north, again along the Montana-North Dakota border. I doubt any of the original Elm Coulee wells had more than one stage of fracturing.
So, a second boom is occurring in Elm Coulee (to the best of my knowledge; I don't follow the Montana oil industry all that much) and a new (first-time) boom is occurring farther north, directly west and northwest of the city of Williston.
With regard to Rosetta, Fox reports that Rosetta will drill eight (8) vertical wells to better delineate the oil play in Montana. That I don't understand. To the best of my knowledge, the Bakken drillers have drilled very few vertical wells into the Bakken for the purpose of studying the Bakken. It would be interesting to see the source document about the vertical wells to which Eric Fox refers.
I do know that North Dakota has the absolutely best geologic record of the formations in western North Dakota. It is my understanding that nowhere in the world is the geology of any oil basin so well studied. Starting years ago, drillers were required, by las, to send core samples to the state every time they drilled a well, whether it was dry or economic or a gusher. The state (specifically, the North Dakota Geologic Survey) has a phenomenal amount of information, and it's possible this is not as true in Montana, and thus the need for vertical wells for the purpose of studying the geologic formations.