No New Oil or Gas Shale Fields in the US: Chesapeake CEO -- For Investors Only

As far as I know, Chesapeake does not have a presence in the Bakken. However, the assertion of its CEO that no more significant oil or gas shale fields will be discovered in the US is very, very interesting. Click here for the story.

The comments come three days after Chesapeake agreed to sell a third of its interest in south Texas' Eagle Ford shale formation to Chinese state-run Cnooc for $2.16 billion in cash and drilling funding.

Chesapeake, better known as a natural gas company, is now turning its focus on oil, similar to what EOG is doing in the Bakken. 

No more significant oil or gas shale fields will be discovered in the United States. It's over.






It's Over, Roy Orbison
I don't know about you, but that seems to increase the value of the Bakken in my mind. The Bakken is in a politically stable country. It is in an oil-friendly state. Takeaway capacity is increasing, thereby lowering shipping costs. Percent of recoverable oil is higher than originally predicted. The basin is relatively close to its customer (just a pipeline away from Cushing).

For Bakken investors, Chesapeake is an interesting play. Even though I doubt we will see Chesapeake in the Bakken, those who understand investing in the Bakken, understand what Chesapeake offers.

Chesapeake ... will ... shift its focus from natural gas to become a major oil producer. Natural gas prices have been in a prolonged slump due in part to the glut of supply created by the shale frenzy. But gasoline-like condensate, which trades on par with oil, is abundant in many shale formations--although not in volumes that could drive the price of oil down.

According to the CEO:

"We sit on 10 [billion] to 15 billion barrels of oil that will change the valuation of this company over time."

Although its P/E is 22, it's 1-year, 2-year, and 5-year charts are very interesting. And even with all the press about CHK in the past few days, it still trades near its 52-week low; CHK has been trading in a very narrow range. But, wow, a lot of debt, especially when compared to Hess and EOG. That explains why it had little choice to sell a third of its interest in the Eagle Ford prospect (south Texas) to CNOOC. This sorta reminds me of BEXP a year or so ago when that company had a severe cash flow problem. Look at the 2-year chart for BEXP. Fossil-energy companies have a way of turning things around.

Mouth watering?

Want fries with that? Unlike BEXP, CHK pays a dividend, albeit not much, but twice what Hess or EOG pay. I wouldn't count on that dividend however; CHK will need a huge amount of cash to develop its property (again, the CNOOC connection).

Anyway, enough of this. More than I planned to post about a non-Bakken company. I don't hold any CHK and probably won't buy any only because I am fully invested and I have nothing I want to sell. But one never knows what might happen.  Maybe swapping PBR out for CHK.....

Enterprise Products Partners Announces Distribution Increase (Not a Bakken Story)

Enterprise Products Partners (EPD) announces a 5.8% increase in its quarterly distribution. This is EPD's 34th distribution increase since its IPO in 1998, and its 25th consecutive distribution increase.

EPD is the nation's largest MLP.

For more on pipelines, click here.

Or not.


Pipeline, The Chantays

Seeking Alpha Article on the Bakken / Eleven More Permits in the Bakken

Yet another article on the Bakken. Nothing new that I can tell.

Elsewhere, eleven (11) new permits in the Bakken today, representing ten companies. Zenergy was issued two permits; the others, each one permit: Encore, Oasis, Hess, CLR, Slawson, MRO, Samson Resources (not SSN), and Whiting. "We" are on track for 1,499 new permits in the North Dakota Bakken this calendar year.

Four of the permits were for wildcats; two were in Banks oil field, by two different companies -- CLR and Zenergy.

Bakken/Three Forks Pool

I will provide the link later, if I remember, but one can find a longer discussion of this issue on the sidebar at the right. Later: this is the link.

Petro-Hunt's Petro-Hunt, USA 153-96-24D-13-1H came off the confidential list today. Interestingly enough, according to the NDIC document, this well is classified as a "Bakken/Three Forks Pool." This suggests that the NDIC is separating wells targeting the Three Forks Sanish out of the Bakken Pool. Historically, it has been my understanding that the Three Forks Sanish was part of the Bakken Pool and I believe there have been some "TFH" wells that were listed as Bakken Pool wells, without the "Bakken/Three Forks Pool" designation.

It will be interesting to see if future "TFH" wells are designated as "Bakken/Three Forks Pool" wells.

Royalty Checks: "O" "G" "P"

Just for the fun of it: does anyone know what the letters "O" "G" and "P" represent on royalty checks?

O: proceeds from oil sales

G: proceeds from natural gas sales

P: proceeds from sales of plant products

Plant products: As the gas is processed and purified for transportation, by-products like natural gas condensate, sulfur, ethane, and natural gas liquids like butane, propane, isobutane, and pentanes are produced and sold. Source.

[Hopefully we'll never see "E" "D" or "M" on royalty checks: Excise tax; Distribution tax; or Medical (healthcare funding) tax.]

**************

By the way, question/answer on my FAQs page:

Can you give me an example of how big a royalty check should be by owning "fill in the blank with the amount of mineral acres you own."

A mineral rights owner in North Dakota might mention over a cup of coffee that she gets "a 1/8 royalty" on her mineral rights That individual might have no idea what that means; I certainly did not know what it meant years ago when my dad would tell me that he would get 1/8th royalty if they struck oil where he owned mineral rights.

Here's not an uncommon example. Someone inherits or buys or is given 10 mineral acres. Let's say her well is spaced at 640 acres. Therefore, the mineral owner with 10 mineral acres has 1.56% of the 640 acres. Of that percent, the mineral rights owner will get 1/8th royalty (or 12.5%) of the oil. If one multiplies those two numbers (1.56% x 12.5%) one owns 0.20 percent of the oil that comes out of that well. It is not unusual for a Bakken well in North Dakota to produce about 300 barrels/day for the first month, but declines quickly after that. Multiplying the 300 barrels by the 0.20 percent (300 * 0.002) one gets 0.6 barrel/day. At $60/barrel, that would work out to about $36/day, or about $1,080/month. I don't know the tax penalty, but a 12% extraction/production tax would not be unreasonable so, at least $135 would be taken out by the state before you got your royalty check. There may be other taxes/fees I am not aware of, but at least that's a start. How much would it have cost you to buy those 10 mineral acres in the first place? At $2,000/acre it could have cost you $20,000 and there is every possibility that the land would never be drilled on. [Since the original posting, the wells have become significantly better. It is not unusual for a good well to produce 100,000 barrels in the first six months. If you have such a well, 0.002 x 100,000 bbls = 200 barrels. At $70/bbl, that could be as much as $14,000 for the first six months of production. Update, February 8, 2011.]

I am no authority or expert on this, so I could be wrong, but this is my limited understanding.  It will be tedious, but there is a long discussion regarding royalty checks, the time line for receiving a royalty check, and other information at this site. When you get there, scroll down to the comments. Lots of interesting information.