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Wednesday, February 23, 2011

Crude Extends Gains After Hours

May crude now +$1.14 at $99.24/barrel.

Gasoline, unleaded, at the corner service station on the way to school here in San Antonio:
  • Tuesday evening, February 22, 2010: $2.89
  • Wednesday morning, February 23, 2010: $2.99
  • Wednesday evening, February 23, 2010: $3.09
  • Thursday evening, February 24, 2010: $3.19

Miscellaneous Notes On Events in The Mideast

Updates

May 29, 2013: OPEC disbands its production quota monitoring committee. OPEC produces much more than mandated 30 million bopd ceiling. Iraq on track to double production by 2020 (to 6.1 million bopd).


May 2, 2012: things getting tense in the Mideast: Saudi warning Iran over island sovereignty; Israel calling up reserves.

January 16, 2012, one hour later: gasoline shortages in Egypt

January 16, 2012: Egypt to be led by an Islamist (as in "death to America" terrorist).
Liberals and Islamists in Egypt announced a temporary agreement Monday on a power-sharing plan that would install a Muslim Brotherhood leader as speaker of the country’s newly elected parliament.

The agreement among six political parties all but guarantees that the Muslim Brotherhood’s Freedom and Justice Party will lead Egypt’s first elected parliament since the ouster of Hosni Mubarak in February, with the Islamist party expected to control as many as half the seats.
This would be similar to voting in Louis Farrakhan as Speaker of the House as an answer to America's gridlock in Congress.

It will be interesting to see what Egypt looks like in 18 months. I hope it's a mecca for tourists, but something tells me it will be a Mecca for terrorists.

Original Post
Some data points and then a thought.

First the data points:
  • WTI price of oil: jumps 9.2 percent in one day; approaching $100/barrel; this spike follows the news in Libya
  • Libya: accounts for less than 1.5 million barrels of oil/day; all of it goes to Europe (Brent, not WTI)
  • Libya: accounts for less than 3 percent of global production
  • XOM: accounts for about 3 percent of global production
  • Saudi Arabia: everyone says Saudi can easily make up the difference if Libya is down for the long term
  • The Bakken: estimates are that North Dakota could produce 1 million barrels of oil/day by 2015
Comment: Someone needs to provide a reason why Europe's losing a million barrels of oil/day that can be "easily made up by Saudi Arabia" is resulting in WTI spike to $100 with projections it could go higher. It makes no sense. Unless...

It can only come down to this: a) investors/speculators bidding oil up to >$100 do not believe Saudi can produce an additional million barrels/day and get it to Europe; and/or, b) investors/speculators do not feel the "wildfire" in the Mideast can be stopped at Saudi's borders.

There really aren't any other explanations.

Tonight we learn that Saudi has infused $36 billion into the pockets of its blue-collar workers, public service employees, the unemployed and students in an attempt to keep the peace. This amounts to a pay raise of 15 percent for some. Is that enough to keep the peace? The king of Saudi is 87 years old; he has been in power since 2005.
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I don't think it's a "bridge too far" to suggest that Syrian and Hamas youths are frustrated they are not yet part of the action. Certainly they are following events in Tunisia, Egypt, and Libya on television and the internet. Certainly they are commenting to their friends on Facebook and other social networks.

My hunch: they are probably waiting for their military supplies off those two Iranian ships that just went through the Suez Canal. Once those supplies are closer to Syria, they can provoke Israel while the US is distracted by what's going on in Libya and what might go on in Saudi.

Tonight we learn that rockets have been fired into Israel for the first time since the Gaza War.

I think some folks are making bets when that middle of the night / 3:00 a.m. phone call is gonna come in.

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Flashback, October 25, 2010: Perfect storm for a spike in price of oil.

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On February 22, 2010, President Obama gave his "green light" speech to community organizers in the Mideast. There appears to be one exception. Nile Gardiner of The Telegraph noted that for some reason the president is more ambivalent about removing the leader of Libya, the same man personally responsible for the Lockerbie terrorist act.


Differences in IP Reporting -- Déjà Vu All Over Again -- Bakken, North Dakota, USA

When I first started this blog a couple of years ago, there was a big discussion on the relevancy, reproducibility, and accuracy of initial production (IP) numbers.

Some companies were said to "maximize" IPs using various methods of calculations. Other companies were generally recognized to be very conservative in reporting their IPs. CLR has been one of the companies that provides the most transparency; CLR announced some time ago it was changing its method of calculating IPs to be more in line with others in the state.

But still, the IPs are all over the map. I continue to opine that the only important numbers are the total production figures at least three years out. However, I continue to post the IPs because that is about the only information we have regarding production potential of the well when the well is first released from confidential status.

But here's a good example of how IPs are still all over the map. The first IP below is that reported in official documents supplied to NDIC. In parenthesis I have included what the producer is stating in the press release. In some cases, the differences are astonishing.  Total production/months producing is in black bold.

CLR reported these wells as "notable company-operated wells completed during 4Q10 (with initial test period gross production results)":
  • 18984, 1,219, CLR, Olson 2-8H, Edge, Bakken (CLR reported 1,613) 29K in 1.5 months
  • 19107, 488, CLR, Tangsrud 2-1H, Dolphin, Bakken (CLR reported 1,023) 17K in 2 months
  • 19279, 688, CLR, Hendrickson 2-36H, Elm Tree, Bakken (CLR reported 1,323) 13K in 22 days
  • 19201, 595, CLR, Evenson 1-19H, Hamlet, Bakken (CLR reported 1,426) 19K in 49 days
  • 19156, 282, CLR, Brandvik 2-25H, Corral Creek, Bakken (CLR reported 1,630) 47K in 3 months
  • 18834, 1,140, CLR, Jerol 1-27H, Lindahl, Bakken (CLR reported 1,663) 41K in 3 months
  • 18983, 494, CLR, Rolfsrud 1-11H, Elidah, Bakken (CLR reported 1,713) 40K in 3 months

It should be noted that the most recent month being reported was December, 2010, a month that was severely impacted with winter weather. In addition, CLR has stated that much of their production is restricted due to efforts to minimize flaring.  

Earnings: DNR, QEP, WLL, CLR, DBLE

Many, many earnings reports coming out today. Consolidated here.

At that link, information is still being updated.

Also: KOG's 2010 production and proved reserves reported today; Wall Street liked what they saw: up 7% during normal trading hours; up another 3% after hours.

My general impression: 2010 was a very good year for all Bakken companies; better for some. 4Q10 impacted by weather, some companies more than others.

CLR Earnings Report -- 4Q10

Some data points from Continental Resources 4Q10 and full year (2010) earnings report.

Bottom line: 
Reports Q4 (Dec) earnings of $0.51 per share, excluding $0.78 in items, $0.02 better than the Thomson Reuters consensus of $0.49; oil and gas sales rose 34.3% year/year to $273.1 million
Gross wells: 222
  • 1,544 wells were spudded in North Dakota in 2010
  • Harold Hamm participated in 222 wells in North Dakota in 2010
  • Harold Hamm participated in one of every seven wells drilled in North Dakota in 2010
  • Harold Hamm knows the Bakken like he knows the back of his hand
Production held back significantly
  • CLR has held back its production to minimize flaring of natural gas
  • CLR production was impacted by lack of pipeline capacity, particularly during the winter weather
  • Availability of frack crews impacts everyone
Production increase
  • 48K boepd in 4Q10 vs 38K boepd in 4Q09
  • Negatively impacted by factors noted above; potential for greater production
Proved reserves increased significantly
  • 366 million barrels at end of 2010
  • 42% higher than one year earlier (257 million barrels)
Three Eco-Pads completed 4Q10
  • Miles-Kennedy: IP - 1,377; strongest well, 1,448; McKenzie County
  • Glasoe-Raymo: IP - 940; strongest well, 1,129; Divide County
  • Bridger-Bonneville: IP (restricted) - 745; strongest well (restricted), 883; Dunn County
Bakken acreage and operated rigs
  • 855,936 net acres in the Bakken play
  • 623,649 net acres leased in North Dakota
  • 232,287 net acres leased in Montana
  • 21 operated rigs at end of the year in ND; two in Montana
Participation elsewhere
  • Red River: North Dakota, South Dakota, Montana
  • Niobrara: Wyoming, Colorado
  • Fort Union: Wyoming
  • Woodford Shale: Oklahoma
  • Paris Basin: France
Trivia
"Continental completed the first commercially viable well in the North Dakota Bakken that used both horizontal drilling and fracture stimulation – the Robert Heuer 1-17R in Divide County in March 2004," Mr. Hamm said. "We were an early pioneer in the play, and since then we've established Continental as the leading leaseholder. We expect the Bakken to drive our growth for many years.

Quiet Day in Bismarck -- Only Three (3) New Permits -- Slawson With a Good Well -- North Dakota, USA

Producers: Slawson, Zavanna, KOG.

Fields: Heart Butte (lots of activity recently); Stockyard Creek (for such a small field, lots of activity) and a wildcat.

The wildcat is a "true" wildcat, nowhere near an active field, and no activity in sight:
  • 20509, Slawson, Kahuna 1-7-6H, SWSE 7-149N-99W
You gotta love the name of the well.

Talking about Slawon, the company reported a great well today:
  • 18574, 1,427, MOLE 1-20H, SWSE CO. 20-151N-92W
It's located in the Big Bend oil field, right across the line from the Van Hook field. Both fields are very, very good. In fact, Mole 1 sits among a string of 21 wells across eight (8) sections (or about 8 miles) with two rigs on that line of wells. Very, very active. Mole 1 sits on the same pad as another confidential well.

Flashback: October 26,2010

Perfect storm for spike in oil. Link here.

That was posted October 26, 2011. It suggests that a) investors in oil know that Saudi cannot make up the difference in loss of Libyan oil; and/or b) are concerned that the fire in the Mideast will not stop at the Saudi border.

Wind Energy, Turbines, Libya, and Oil Price Conspiracies

Updates

March 2, 2011: One of the points I was trying to make below was finally voiced in words that no one could misunderstand: Mississippi Governor Haley Barbour says the administration favors high oil prices.  The second point: for those following the high speed railroad story, ask who will build the high-speed electric locomotives, and then ask who is the administration's White House economic adviser. Answer at bottom of the this post.

Original Post

I have to flesh this out later, but while I cogitate on this, you all may want to spend some time connecting the dots.
  • WTI price of oil: jumps 9.2 percent in one day; approaching $100/barrel; follows news in Libya
  • Libya: accounts for less than 1.5 million barrels of oil/day; all of it goes to Europe (Brent, not WTI)
  • Libya: accounts for less than 3 percent of global production
  • XOM: accounts for about 3 percent of global production
  • Saudi Arabia: everyone says Saudi can easily make up the difference if Libya is down for the long term
  • The Bakken: estimates are that North Dakota could produce 1 million barrels of oil/day by 2015
  • Link to the top wind energy turbine companies worldwide
  • Recent wind energy turbine sales: Norway and Sweden to get giant GE turbines; "giant" was their word, not mine
  • The administration's new economic czar is the CEO of GE, Mr Jeffrey Immelt
  • I seem to remember an old adage, "what's good for GM, is good for America."
Whenever my students ask me a question I cannot answer or if they ask me a question that I can answer, but then the follow-up question is "why," I tell them two things:
  • Follow the money
  • Google it
I remember when I first started this blog, I remember reading many other blogs that opined that the Bakken was being "hyped."  Of course, that's in the eye of the beholder, but when I see the anxiety caused by "losing Libya" with a piddly 2 million bopd, and then seeing estimates of 1 million bopd coming out of the Bakken in a couple of years, it should give pause with regard to one's thinking exactly how important the Bakken, the Niobrara, and the Eagle Ford are.

*******

Answer to trivia question: it is my hunch that GE will make the electric locomotives for high-speed rail advocated by the administration. The administration's economic czar is the GE/CEO.

DNR/Encore -- A Bakken Player -- Reports Earnings Tripled

Earnings release here.

Unless there are "devil in the details" issues, it looks like a very, very good report.
Fourth quarter 2010 net income was $10.4 million, or $0.03 per basic common share, as compared to $3.5 million, or $0.01 per basic common share in the fourth quarter of 2009.
As folks will remember, Denbury acquired Encore, a big player in the Bakken, in the last year or so.

Denbury may be the premier mover and shaker when it comes to enhanced oil recovery which has yet to be proved workable in the North Dakota Bakken.

I believe I read that EOR is being used in the Alberta Bakken with success. If I have time, I will look for the link.

And Folks Wonder Why WTI Crude Went Up Nine (9) Percent in One Day

The talk on the morning talk shows following the nine (9) percent rise in oil prices over the weekend focused on Libya, a country from which the US gets no oil. The "talking heads" never mentioned a few facts closer to home that possibly, just possibly, might have contributed to the sudden spike.

I repeat myself:
  • Alaska pipeline running under capacity ... any less, the pipeline will have to shut down ...
  • BP and Shell both deferring any more drilling off Alaska ...
  • "Permitorium" continues in the Gulf of Mexico ...
  • EPA regulations hanging over domestic drilling ... like the sword of Damocles ...
What is interesting is that no one on the national stage is able to connect the dots.

Even "the face of the Bakken boom" is concerned that North Dakota leaders may not be thinking strategically.

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(Note: Libya produces about 1.5 million barrels/oil per day. With infrastructure in place, analysts estimate North Dakota could produce 1 million barrels/oil per day by 2015. According to CNBC, Libya "controls" three [3] percent of the world's total oil reserves/production. The fear of losing three percent of global production resulted in a price spike. That speaks volumes. Can  you imagine where the price of oil would go if the EPA shut down drilling in the US?)

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It's possible I missed someone mentioning the US energy policy (or lack thereof), but I doubt it. I was watching MSNBC, FOX, and CNBC.

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Note: minutes after posting the above, I was sent this article on "Spare Capacity Theory" from SeekingAlpha.

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With every new report on CNBC or MSNBC, the amount of oil that Libya has historically shipped has been dropping. First we were told as much as 2 million bopd; then we were told 1.8 million bopd. I thought 1.5 million bopd was the right number and now "they" say that the Saudis will have no trouble meeting the 1.2 million bopd gap caused by the Libyan disruption. We're now down to just 1.2 million bopd -- and all that oil goes to Europe, none to America.

******
Wind energy ideologues see this spike in the price of oil as wonderful news. This may explain the lack of any sense of urgency by the administration. Something has to explain the lack of urgency and I can't figure it out, but ideologies may be the driving factor. The new White House economic czar has a huge interest in success of wind turbine business.

Medical Insurance Costs

From the Billings Gazette:

A new federal health care plan with no exclusion for "pre-existing conditions" offers insurance premiums significantly less expensive than current plans.
Under the Wyoming Health Insurance Pool, a 65-year-old resident living alone making less than $27,225 would have to pay $918 a month for a plan with a $5,000 deductible. But the new federal plan offers premiums that are far cheaper: A standard-option plan with a $2,000 in-network deductible would cost a 65-year-old Wyoming resident $403 a month.
Back-of-the-envelope calculations: 12 x $403 = $4,836 + $2,000 = $6,836/$27,225 = 25.11% of one's pay (the article did not say whether the $27,225 was net or gross).

“That is a stunningly low premium, stunningly low,” said Jay Angoff, senior adviser to U.S Health and Human Services Secretary Kathleen Sebelius.

Somehow I don't see 25% of one's salary as "stunningly low" when one is living on the margin. 

The state premium, $918 with a $5,000 deductible (~ 60% of that salary), is incomprehensible.

Misspellings? It Happens. But "Williston?"

This from the Williston Herald, February 23, 2011, on a story about a regional water system:
"I think it's a win-win situation for everyone. It's just going to create a wonderful situation for northwest North Dakota," Rep. Gary Sukut, R-Williston, said. If the bill passes the Senate, the project would originate in Williston.
And so it goes.