Wikileaks: Saudi Overstated Reserves by 40% -- US Official

A London newspaper reports what many of us have thought all along: Saudi Arabia has exaggerated its oil reserves.

Saudi has the power to drive the price of oil up (by limiting production) but it no longer has the capacity to drive prices down (by increasing production) -- according to experts.

The article provides several reasons why Saudi's output will not be able to keep up with demand, and will eventually begin to decline.


Updates

February 21, 2011: SeekingAlpha; same concern as others -- Saudi overstating reserves. 

February 9, 2011: The spokesman now says he was misquoted, February 9, 2011. Comment: sounds like someone who spoke his mind when he didn't think his comments were being recorded; now that he has been exposed by Wikileaks, he is backing off. The truth is probably somewhere in the middle.

He may be backtracking but "it is what it is."

TransCanada Update: Cushing Extension Now Online -- The Keystone XL Is A Shovel-Ready Project -- USA

(As per my standard operating procedure, some numbers are rounded.)

Today, February 8, 2011, after close of business, TransCanada announced that the second phase of the $12 billion Keystone Pipeline had begun commercial deliveries of crude  oil to Cushing, Oklahoma.

(Note: this is not necessarily good news for the Bakken from an investor's point of view. There is already a surplus of oil at Cushing, and with more oil flowing in, the price of crude being delivered to Cushing could come under pressure. At least that's how I understand it.)

The second phase of this project was a new 300-mile extension of pipeline from Steele City, Nebraska, to Cushing. This extension increased Keystone's nominal capacity to 590,000 bopd, of which 530,000 is already contracted.

With the recent announcements of the Bakken and the Cushing Marketlink projects, TransCanada can now transport 350,000 bopd from Montana, North Dakota, and the rest of the mid-continent, to Cushing.

The next phase for the Keystone Pipeline system is the US Gulf Coast Expansion (Keystone XL) project. This 1,660-mile extension would move oil all the way from Hardisty, Alberta, to terminals near Port Arthur, Texas, to serve US Gulf Coast refineries. The proposed pipeline route would take it through Saskatchewan, Montana, South Dakota, Nebraska, Oklahoma, and Texas.

It really is quite incredible what TransCanada has completed in the past ten (10) months. TransCanada has completed seven major projects just since last summer (2010):

• The initial phase of Keystone began operations in the summer of 2010
• The North Central Corridor natural gas pipeline
• The Groundbirch natural gas pipeline
• The Bison natural gas pipeline (North Dakota)
• Maine's largest wind project -- Kibby Wind, became operational in late October, 2010
• Halton Hills Generating Station in Ontario began producing power in the fall of 2010
• Cushing extension (announced today)

TransCanada will bring several more large-scale projects into service over the next few months, including:

• The Coolidge Generating Station in Arizona
• The Guadalajara natural gas pipeline in Mexico

By the way, the Keystone XL project is shovel-ready. It's just waiting for Secretary of State Hillary Clinton to sign off on it. I'm surprised the president hasn't called her and asked her what she's waiting for.

The Keystone XL will move the oil out of Cushing and to the coast, thus increasing the price of Bakken oil by as much as $3/barrel according to past stories.

TransCanada has put together a pretty cool video of the Keystone XL -- obviously it's a public relations marketing video, but I have to admit, if you are interested in the oil industry, this is a very informative presentation.

No, I don't own any shares in TransCanada ... yet.

Active Rig Not Showing Up on the Active Rig List -- Bakken, North Dakota, USA

Apparently there is at least one rig drilling that is not on the active drilling list (see comment at this link).

This is a two-well pad in the South Tobacco oil field, section 21-T150N-R99W. The two wells on this pad:

• 19597, Newfield, Obenour 150-99-28-33-1H, will go south from the pad
• 20347, Newfield, Obenour 150-99-21-16-1H, will go north from the pad

These will both be long laterals. #19597 comes off the confidential list on July 31, 2011, which confirms that it has spudded; there is no release date for the second well on that pad.

By the way, there is already a producing well in that very same section, a short lateral.

• 18086, 30, Sergeant Major 1-21H. That well was completed in July, 2009, and has produced a total of 17,677 barrels of oil as of December 31, 2010.

The South Tobacco field is a small field, just west of Watford City. The wells mentioned above are about 3 miles west-south-west of Watford; less than a mile south of US Highway 85 as it goes into Watford City.

Nine (9) New Permits -- North Dakota, USA

Producers: Burlington (2), Whiting, Enerplus, Zavanna, EOG, Anschutz, Hess, and Newfield.

Fields: Murphy Creek, Sanish, McGregory Buttes, Stockyard Creek, Clear Water, Willmen, Big Butte and one wildcat.

It appears the two BR wells in Murphy Creek will be on one pad; if not, the two wells are still very, very close to each other.

Newfield's wildcat is north of Williston, just a mile southeast of Grenora. It is in section 18-159-102. One section over are two wells in section 17-159-102. One of those sites has a rig on site:

• 19635, rig on site, Newfield, Christensen 159-102-17-20-1H, wildcat
• 19977, confidential, Newfield, Christensen 159-102-8-5-1H, wildcat

And, yet another Whiting permit in its cash cow, the Sanish.

For a little field, Stockyard Creek, east of Williston, sure is active. Zavanna has the new Stockyard Creek permit: 20439, Thelma 1-21H.

I have not been impressed with the Clear Water wells but EOG keeps drilling there and keeps adding permits.

North Dakota is on track to issue 1,853 permits this calendar year.

Lodgepole Vertical Wells Are Not Fracked -- North Dakota, USA

At least that's my understanding. Link for extensive background. If I'm wrong, someone will correct me.

Encore and QEP With Two (2) Nice Wells -- Bakken, North Dakota, USA

Coming off the confidential list today:

• 19137, 2,928, Encore, Franchuk 34-19NWH, Murphy Creek, Bakken
• 18885, 1,101, QEP, MHA 1-29-30H-150-90, Deep  Water Creek Bay, Bakken, 20K in first 2 months

The QEP well came in with 954 bbls in the first month (30 days of production) but then in 30 days in December, 2010, came in with 19,771 bbls. Either timing of the fracking or takeaway issues resulted in the wide spread is my hunch. 

Murphy Creek is turning out to be a good field. But Murphy Field is one of the biggest fields in the Williston Basin. It is the north half that is the better half, and this Encore well is in the north half of the field.

BEXP: New Presentation Today -- Bakken, North Dakota, USA

New BEXP presentation today (a PDF link).

Some highlights:

• Slide 7: notice how number of wells/spacing unit has increased from three (3) to six (6) over time
• Slide 8: notice how wells with EURs of 500 - 700,000 bbls continue to produce for 20 years; albeit not much in the out-years. As the wells are abandoned, the pads will revert back to farmland (wind turbines will be there forever)
• Slide 10: notice how the "pie" has grown; from 30 to 70 million bbls of proved reserves; mostly oil
• Slide 22: it looks like BEXP is averaging about 34 fracture stages/lateral
• Slide 23: shows the interval between fracking stages; as little as 250'
• Slide 26: growth in production is staggering (the trajectory should continue)
• Slide 26 and slide 28 : average daily volume 3Q10 was 6,356 bopd; all of this oil (6,935 bopd) was hedged between $65 and $100

Other comments:

• Slide 19: a pat on the back. I think I was the first to post that fracturing in the Bakken only seemed to be effective about 500 feet out from the wellbore (that was posted so long ago, I may not be able to find the link). And sure enough, laterals are being laid about 1000 feet apart from each other. 

Investors Only: How Much Will $10 Billion Buy You?

Folks who have invested in the Bakken have had a pretty good run, but with the price of oil coming down a bit, there might be some concern there may be a pullback in the stock market.

But I still feel very comfortable with the energy sector, despite some expected volatility.

I was sent this link which will be interesting to follow.

Loews Corp, run by the billionaire Tisch family, reported its best quarter of the year ...

Shares of Loews touched year highs ... with Loews rising as much as 9 percent ...

... and said it was looking at acquisitions in the energy sector.

Tisch added that any deal would be paid for with Loews Corp's cash reserves and expects the deal size to be less than $10 billion.

How much would $10 billion buy you? About a million net mineral acres in the Bakken --- the market cap of Continental Resources (CLR) is just under $11 billion.  

Fortunately, Lowes/Tisch sentiment has been offshore.

Tisch said contract driller Diamond Offshore, in which Loews has a majority stake as of Sept. 30, had the size and skill to compete against the combination of its smaller rivals Ensco Plc and Pride International Inc. ...

Any $10 billion in the energy sector should positively impact most companies in the sector.