Week 7: February 12 -- February 18, 2011

"X" Marks The Spot: Two Nice XTO Wells in Blue Buttes

For Investors: KOG's Forward P/E -- 15

Commentary: Tectonic Shifts

Brent-WTI Spread Explained

QEP With an "Eco-Pad"

Huge Story in Rigzone on the Bakken

T Boone Pickens Spreads His Bets -- Diversifies Into Oil

GE Spreads Its Bets -- Diversifies Into Oil ... Rapidly

Vantage Pipeline Canada Planning to Lay Ethane Pipeline From Tioga, North Dakota, to Alberta

Enbridge Will No Longer Ship Sour Crude In Its Pipeline System

FAQ: Wells Being Offset 160 Acres and 320 Acres

Some Initial Thoughts On Unitization and Enhanced Oil Recovery in the Bakken

Update on Three Extended Long Laterals in the Bakken

Whiting: 15 Wells in 3 1280-Acre Spacing Units -- Room for More?

Oasis: With a 7-Rig Program, 22 Years To Drill All Its Locations

For Investors: Three Oil / Oil Service Companies Announce Increased Dividends

Oil and Gas Conversion Calculator: Rigzone Link; Nice Tool

URSA Well Extends Productive Area East of Elm Coulee

State Unemployment Insurance -- Not a Bakken Story

The concept is simple. During good economic times build up the state unemployment trust fund so that when the cycle turns, there will be money available for unemployment.

Businesses pay money into state unemployment trusts; the amount businesses pay into the trust is based on a formula that includes the company's history of layoffs.

Due to several reasons, state unemployment trusts are depleting very, very quickly. The reasons include:

• In some cases, states cut back on unemployment taxes for political reasons, not practical reasons
• This recession has been deeper and longer than usual
• The recession has resulted in a larger number of unemployed than usual
• The trusts' investments tanked along with the general downturn of the market
• States increased benefits during good times -- but they continue even in bad times

This is not the first time this happened. In the past it has led to insolvencies in the unemployment funds:

• 1990s: seven states needed to borrow money from the federal government to meet obligations
• 2001: eight states needed to borrow money due to the recession

What has been the history of the trust funds?

• 2000: total reserves for the 50 states and territories came to $54 billion
• 2007: $38 billion
• 2009: $11 billion -- lowest in the program's history when adjusted for inflation

So, how are things going in 2011?

• Georgia has already started borrowing money due to political decisions in the past, including a four-year tax holiday for employers (1999 - 2003) when businesses were doing well, and the trust fund was bulging
• New Jersey: the fund has dropped from $3 billion to $35 million. NJ expanded benefits, cut taxes when things were good; NJ even diverted unemployment trust funds to pay hospitals for indigent care
• California: kept payroll taxes the same, but gradually doubled the maximum weekly benefit. California has now borrowed $10 billion to meet obligations; California owes the federal government $360 million in interest payments by the end of September -- that's just the interest -- there's still that pesky $10 billion principal
• Michigan: first state to start borrowing from the federal government, when they started borrowing back in 2006 (that's five years ago); Michigan had also cut payroll taxes and increased benefits
• Texas: one of the best run unemployment trust funds, but Texas also had to borrow $1.3 billion in 2009

And the beat goes on.

NOG: Unique Business Model

NOG must be lovin' life.

Here's nine guys (and gals?) and a $1.4 billion company (market cap).

Regular readers know that NOG's business model in the Bakken has a unique model, but I had forgotten about another secret to their success: buying up small bits of acreage the bigger operators cannot be bothered with. The result: they end up picking up acreage at "discount prices."

I missed this part of NOG. I thought it was mostly about cash, with NOG buying in with a working interest on wells being drilled by others. But in addition, they end up "trading" acreage for a working interest in wells.

NOG  had no trouble raising $200 million with a new share offering back in November, 2010.

For another story on NOG, click here. 

My Sentiments Exactly -- Singing the National Anthem

From Mark Corallo:

So, with all the kindness I can muster, I give this one piece of advice to the next pop star who is asked to sing the national anthem at a sporting event: save the vocal gymnastics and the physical gyrations for your concerts. Just sing this song the way you were taught to sing it in kindergarten — straight up, no styling. Sing it with the constant awareness that there are soldiers, sailors, airmen and Marines watching you from bases and outposts all over the world. Don’t make them cringe with your self-centered ego gratification. Sing it as if you are standing before a row of 86-year-old WWII vets wearing their Purple Hearts, Silver Stars and flag pins on their cardigans and you want them to be proud of you for honoring them and the country they love — not because you want them to think you are a superstar musician. They could see that from the costumes, the makeup and the entourages.

Mrs Hammatt's Kindergarten Class Singing the National Anthem

Cows to Kazakhstan -- North Dakota, USA

A few days ago I updated the story about the North Dakota cows being flown to Kazkhstan. Because it was an update added to a previous post, I assume a lot of folks missed it.

The story is too good to miss. And I'm sure there are a lot of folks looking for something interesting to read on a Saturday morning.

I strongly recommend you read about these North Dakota Herefords flying to Kazakhstan. I know you will enjoy the story.

The original post was here.

Investors: Explanation Why EOG Shares Are Soaring -- Bakken, North Dakota, USA

"Soaring" is in the eye of the beholder. But looking at the 3-month chart, shares of EOG have moved from $88 on November 23, 2010, to $108, yesterday, February 18, 2011.

It all has to do with EOGs transition from a natural gas company to an oil company.

Here are some direct quotes from EOG and others:

Because we expect almost 70% of our 2011 and 73% of our 2012 North American wellhead revenues to emanate from liquids with current prices, we have shifted our reporting from natural gas unit measurements to crude oil unit measurements using the 6:1 conversion ratio. -- EOG earnings conference call, February 18, 2011. There were two points that were made in that one sentence.

2010: natural gas accounted for 70% of EOG's production; oil accounted for 20% of EOG's production. -- Zman

EOG's debt ratio is increasing from 27% to 30%. EOG had reported earlier they hoped to retire debt (go to zero percent) but in fact, their debt is increasing. Why? They are expediting their transition to oil, away from natural gas. Putting in those horizontal Bakken and Niobrara wells are expensive. EOG is putting "money where their mouth is."

Mark Papa: "I'd also like to interject a comment here regarding using production growth as a measurement parameter. At the current 22:1 crude oil natural gas price ratio, I believe that production growth yardstick had become somewhat meaningless. In today's world, the metrics of liquids production growth and product mix change will be the focus since cash flow, returns and earnings will follow liquids growth and that's how we defined EOG strategy over the past few years."

Zman: "Liquids are expected to be 69% of total production for 2011 vs 53% in 2010. The prior estimate was that they'd be 67% liquids on average this year, another oily step in the currently right direction. You won't find another large cap E&P making the transition from gas to liquids nearly this fast." 

And that, folks, is why the share price for EOG is soaring.  EOG's trailing P/E is 54; forward P/E is 19.

EOG Reports Two Great Wells: Bear Den and Round Prairie -- Bakken, North Dakota, USA

In yesterday's earnings conference call, transcript at SeekingAlpha, EOG announced the results of two Bakken wells, which are still on the confidential list:

Our recent drilling efforts have been to test areas outside the core, and we've had very good results. Typical results on our Round Prairie 10-1819H well near the Montana's South Dakota Stateline, which tested at 1,458 barrels of oil per day and 600 MCF of gas per day and the Bear Den 7-17H west of our core field, which IP-ed at 1,882 barrels of oil per day.

The EOG spokesman misspoke, or the transcriptionist erred in typing: the Round Prairie well is in the Round Prairie oil field on the Montana/NORTH Dakota border, not South Dakota border.

The Round Prairie oil field is in North Dakota, west of the Painted Woods field, just northwest of Williston. The Bakken, to the best of my knowledge, does not extend as far south as the South Dakota border.

******

1. The Round Prairie 10-1819H, #19478, is in the Round Prairie oil field northwest of Williston, west of the Painted Woods oil field. It's right along the Montana / NORTH Dakota border, not South Dakota border. He and Jim Cramer, for some reason, have the Bakken in South Dakota. At the time EOG was issued the permit for this well, it was considered a wildcat.

2. Bear Den 7-17H (#19170), of course, is inside the reservation (Spotted Horn).

Now a Best Western -- Williston, North Dakota -- Bakken, North Dakota, USA

First it was the announcement of a Holiday Inn coming the heart of the Bakken. Now, it appears that a Best Western motel will also be coming to Williston. (Temporary, regional newspaper link.)

Construction on an 88-room Holiday Inn is tentatively set for May on 38th Street West.

A land purchase is also ongoing for a 2.6 acre parcel of land on 42nd Street West north of Walmart. A Best Western may be built at the site.

In addition, there are rumors of at least two more hotel projects yet to be announced.