Thursday, May 5, 2011

2Q11 Bakken Company Earnings -- Bakken, North Dakota, USA

It will be interesting to see the earnings report for the second quarter for 2011. Oil prices have fallen significantly this week and could continue.

It will be interesting to see whether 1.5 months of production in one quarter when oil rose to $114 will be a better or worse quarter than a three-month period when we have three months worth of production (minus five days due to April 30 - May 1 blizzard) when oil fell back to $90. That was hard to write; maybe harder to understand.

Saying it another way:
  • 1Q11: in the Bakken, we might have "lost" as much as 1.5 months of production due to winter weather; during that quarter, the price of oil rose to $114/bbl
  • 2Q11: in the Bakken, barring any more blizzards, it appears we may have lost only a week of production due to winter weather; the price of oil is falling quickly; whether it falls back to $90/bbl is yet to be seen
My hunch: the 2nd quarter will be outstanding (remember, these companies have hedges, collars, and most of the oil has already been sold on contract.

And the 2nd half will be even more outstanding. Production will increase; infrastructure will improve; more takeaway capacity will come on line; and, workers will be more productive.

Speaking of oil field workers, by the way, it's my understanding that the drillers and oil service companies are not enamored with the man-camps. The work force is too undependable. The men live locally for two weeks, then return to Texas or their homes elsewhere for a couple of weeks. There is no guarantee they will return from their homes when their two weeks are up, and thus there is an on-going problem of fielding enough men for a scheduled job.

Companies are looking into developing their own housing projects, with 2- and 3-bedroom apartment complexes and/or single unit homes, and rent them back to their employees with the understanding that they bring their families to North Dakota, particularly the Williston area. There will be more than enough work for their spouses: the new Menard's coming into Williston will see to that.

By the way, as long as I'm rambling, how much work will there be in Williston?


Here is the data for new building permits in Williston, 2010 (2009):
  • Williston: 770 permits; $106 million (257; $45 million)
  • That's $106 million in permits for Williston in 2010
  • It's my understanding that estimates for 2011 will be $150 million.

4 comments:

  1. Based on today's crude price collapse, we could see $90 crude buy cob tomorrow. Any "expert anysis" as to what brought on the crude price nose dive?

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  2. Thank you for kind comments. As mentioned often, I am not an expert. No training/education in either business or energy. Just an amateur who loves the Bakken and very excited about what is going on there. Having said that, to answer your question:

    I can't remember if I posted it or not, I think I did, but the expectation was that if oil broke through (going down) $110, it could drop quite far and quite suddenly. Also the regulators did not stop trading despite "free-fall." Traders expected at the $10 drop, trading would be stopped; regulators set the limit at $20 fall before it would stop trading. The selling continues in after hours.

    I've posted this several times (actual numbers may change a bit; I can't remember exact numbers):

    $60 - $90: supply and demand
    $90 - $100: Mideast tension, global economy, etc
    > $100: weakness of dollar, inflation fears, etc

    Today, dollar had biggest move on the upside (strength) which was probably the biggest reason for the oil move.

    Now, between $99 and $90, will relate to Mideast tension, global economy. If goes below $90, it suggests traders think US GDP growth will be less than 1.8% next quarter. Remember, the market often reflects events six months out. With housing value in a double dip ("officially" today), I think risk of double-dip recession is back on the table. Expect to see them talk about that on CNBC tomorrow.

    Never forget (and it was just said on CNBC): huge profits have been booked; great time to take profit; "sell in May, go away."

    Traders doing very, very well; long term investors will be offered some great entry points that don't come along often.

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  3. And there it was, 4:26 p.m. EST, May 5, just moments after posting the above: the CNBC "talking head" said, "Let's not confuse the sell-off of commodities with a slowdown in the economy or double-dip recession. I'm not ready to throw in the towel yet."

    Not ready to throw in the towel YET.

    This was in response to M.'s question about slowdown in China as possible contributing factor to sell-off today.

    I'm not the only who's talking double-dip recession.

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  4. With regard to the "crash" in oil prices yesterday (which continues today, Friday, May 6, 2011), I think we were provided a bit more insight by the interview with the CFTC commissioner, Bart Chilton.

    He clearly said that high oil prices were not good for the consumer, but then with a follow-up question on this issue, denied that he had said "high oil prices were not good for the consumer."

    He immediately realized he had stepped into the "price-fixing" arena where the govt appeared to be establishing prices or at least setting targets.

    Very, very interesting interview.

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