The Million Dollar Way (The Bakken Oil Blog): 03/28/11

Monday, March 28, 2011

1Q11 Earnings Central

News, 1Q11 Earnings, and 2010 Annual Reports at this page. Scroll down for Earnings and Annual Reports. For those companies who have not yet published annual reports, the information has been provided to the SEC and is at this bottom of this page.

NEWS

March 28, 2011: First hint that there may be some problems in the oil patch when 1Q11 earnings are reported. HAL is already reporting that weather-related issues and unrest in the Mideast will affect earnings. Meanwhile rest of industry is very bullish on news that Saudi Arabia may ramp up production significantly, going from 90 rigs to 118.

1Q11 -- EARNINGS -- CONFERENCE CALLS

ANNUAL REPORTS -- 2010

BHI / COP / DBLE / DNR / EEP: click on annual report

ENB / EOG / EPD

HAL / HES / MDU

NBL / NFX / OAS / QEP /

SM / WLL -- need to click on "Annual Report" when you get there

XOM

SEC INFORMATION IN LIEU OF ANNUAL REPORTS (YET TO BE PUBLISHED)

BEXP / CLR: annual report / CRED: Annual Report / CVX: Report 10-K

ERF: 2010 Annual Summary / GEOI /

KMI / KOG: click on Report 10-K

NOG: Report 10-K / PBR / SSN: click on annual report / TPLM /

TRGL: 10-K / WMB: type in Annual Reports

Eight (8) New Permits -- North Dakota, USA

Producers: EOG (4), SM (2), Sinclair, and Zenergy.

Fields: Elk, Thompson Lake, Glass Bluff, Sanish, and Ambrose.

The four EOG wells will be in the Thompson Lake field: two wells on two separate pads in the same section.

Sinclair has the Sanish permit.

Here Come the Windfall Profits Taxes on Oil Industry -- Is 81 Percent Enough?

It's starting in Great Britain.

The British government’s proposed new tax on the country’s oil and gas industry has come under heavy criticism from a leading trade association, as well as opposition politicians.

“The industry is shocked to now be hit by a tax increase that raises the tax rate to at least 62%, with some of the most mature and therefore vulnerable fields now paying up to 81%,” said Malcolm Webb, chief executive of Oil & Gas UK.

The Norwegians (Statoil) may pull out if the UK tax goes through, taking 40,000 jobs with them. Statoil just found a huge field off Norway and has plenty of work to do without UK's North Sea.

SeekingAlpha Response to Recent "Bear Raid" on NOG

Seeking Alpha.com response here.

Comments later.

Reminder: this is where I track the recent "bear raid" on NOG.

Actually, I've decided no additional comments. Folks with much better understanding of the Bakken and much better financial training have been providing comments pro and con throughout the day, and I've added the links.

I believe I have all the links up to date.

NOG Provides Operational Update and Guidance

This post is still being updated.

Reminder: this is where I track the recent "bear raid" on NOG.

Lots of information here. I will come back later and clean up the post and add important data points.

Data Points of Recent Press Release

Data points from a very long and a very informative operational update and response to recent "bear raid."

In first calendar quarter of 2011, acquired 11,100 net acres; average cost -- $1,540/net acre (remember folks; some recent core acreage has gone for $7,000 to $12,000/acre.)
NOG says their new acreage is in core Bakken
Assuming six wells/1280-acre spacing unit -- huge
Now plans to spud 40 wells in 2011; up from original plans to spud 36 -- again, huge
Increase in number of wells due to fact more drilling rigs in North Dakota; drilling program accelerating across the board
NOG partners with others: NOG has had 100% success rate in drilling
Slawson is one of NOG's major partners
Slawson recently contracted 1.5 dedicated fracking crews

Comments:

NOG says they are increasing the number of wells that they will spud in 2011 from 36 to 40. This is somewhat misleading. NOG does not spud anything. They have a working interest in wells. They partner with operators. The operators spud the wells. What matters is a) how much money NOG invests in the Bakken this year; and, b) the return on their investment.

NOG will report some huge wells this year. But if their working interest in a huge well is but one percent and their working interest on a poor well is 30 percent, that is not good.

The Press Release (portions of it)

In first calendar quarter of 2011, NOG has acquired another 11,100 net mineral acres at an average cost of $1,540/net acre in its core Bakken and Three Forks prospect areasof North Dakota and Montana.

Northern Oil controls 151,327 net acres targeting the Bakken and Three Forks prospects as of March 28, 2011. This acreage position will allow Northern Oil to participate in approximately 709 net wells assuming six wells per 1280-acre spacing unit.

The press release continues (same link as above):

Due to accelerating drilling activity and key acreage acquisitions, Northern Oil has spud approximately 9.8 net wells in the first quarter of 2011 year-to-date and now expects to spud approximately 40 net wells during 2011, which represents an increase from previous guidance of 36 net wells.

As of March 28, 2011, Northern Oil has participated with a working interest in 343 successful Bakken or Three Forks discoveries. Northern Oil is currently participating in 141 gross (14.17 net) additional Bakken or Three Forks wells drilling, awaiting completion or completing. Northern Oil maintains a 100% success rate in the Bakken and Three Forks play.

According to the North Dakota Industrial Commission, approximately 173 rigs are currently drilling in the North Dakota Bakken and Three Forks play, representing a new record. The significant rig increase over the past year is driving the continued acceleration of the development of Northern Oil's core acreage position.

Slawson Exploration, Northern Oil's operating partner in the Windsor prospect in southern Mountrail County, North Dakota, has commenced the second well in each spacing unit of that prospect.

Downspacing in the Windsor prospect to six wells per spacing unit has been approved by the North Dakota Industrial Commission. Slawson Exploration has recently contracted 1.5 dedicated frac crews, which we expect will materially shorten the spud-to-sales timeline in this highly productive prospect.

Northern Oil is Slawson's largest working interest partner in the prospect.

Depletion and Depreciation Amortization

In light of recent comment about NOG's accounting of depletion and depreciation amortization, this is what NOG had to say:

For the fiscal year ending December 31, 2010, Northern Oil's depletion, depreciation, amortization and accretion expense ("DD&A") on a per BOE basis was $19.22. For comparison purposes, based on information provided in their respective annual reports on Form 10-K for the fiscal year ending December 31, 2010, Kodiak Oil and Gas reported a DD&A expense of approximately $18 per BOE, Oasis Petroleum reported a DD&A expense of $19.91 per BOE and Brigham Exploration's DD&A expense calculates to approximately $20.47 per BOE. As such, Northern Oil's 2010 DD&A expense was in the mid-range of its peer group in the Bakken and Three Forks play. Northern Oil anticipates its DD&A expense for the fiscal year 2011 to remain in-line with this peer group.

Tracker Has Another Nice Well -- Cedar Creek -- Bakken, North Dakota, USA

Three wells of interest that came off the confidential list today.

A nice Tracker well:

19470, 1,274, Tracker Resource Development II, Victor Pohribnak 16-1H, Cedar Coulee, Bakken, 32K in one month

Another lackluster Hess well:

19098, 193 , Hess, AV-Iverson-162-94-2314H-1, Wildcat, Bakken; north of Tioga; fairly inactive area

A fairly good XTO well:

19128, 937, XTO, Mondak Federal 24X-12, Mondak, Bakken; no oil produced first two months (weather?)

Even the Government Recognizes the "Lost Decade"

Earlier today I posted excerpts from a great commentary posted by Bruce McQuain at Hot Air.com regarding the "Lost Decade" as I call it.

The individual who alerted me to the article was kind enough to send me some interesting links associated with that commentary. The links are here, but they will be posted at "Data Links" or "Publications" also.

Here are the links:

This one is most important. Remember, folks, this is our own government which reminds us how huge the energy resources are in the United States, click here or below:
http://epw.senate.gov/public/index.cfm?FuseAction=Files.view&FileStore_id=04212e22-c1b3-41f2-b0ba-0da5eaead952
Unless I missed it, the report is undated, but references 2009 data

The following two links have been posted at this site for a very long time.

The original Leigh Price, unpublished, article that recognized the potential of the Bakken.
The much-quoted, seldom-read USGS 2008 survey of the Bakken.

The West Takes the Lead in Natural Gas Conversion

I don't know if the headline is accurate or just a perception based on the selected media that I read on a daily basis. But what I read suggests to me the western states are leading the nation in natural gas conversion. Today there is a report that the Wyoming legislature is taking baby steps to convert state vehicular fleet to natural gas. A spokesman said they wanted to mirror what the state of Utah was doing.

On top of this, UPS reported that it was setting up a natural gas corridor from Los Angeles to Las Vegas and into Salt Lake City for its brown trucks.

Recently XOM touted its changing outlook on natural gas. Of the majors, XOM has always seemed the most strategically focused.

US Energy Policy: Most Incoherent in the World

Updates

July 12, 2015: two comments regarding methane hydrates -- 1) they won't be a big deal in my lifetime; and, 2) this is just one more example why the world isn't going to run out of fossil fuel any time soon (see original post).

Today, OilPrice suggests Japan could move to methane hydrates.

Before the [nuclear] incident, Japan’s 54 nuclear reactors provided more than 30 percent of the country’s electricity requirement. Without nuclear energy, Japan’s domestic energy resources could only meet less than 9 percent of the nation’s energy requirement. 2013 saw the country increase it’s spending on fossil fuel imports by 60 percent when compared to 2010.

Currently, Japan is one of the largest net importers of crude oil, the second largest importer of coal and the largest global importer of liquefied natural gas (LNG). Since Japan imports almost its all of its fossil fuel requirement, it has lost its trade surplus and has become a nation with a rising trade deficit.

Methane hydrates are crystalline ice that is found in lower sediments of deep sea regions and polar regions that have methane gas trapped within them. When melted, methane hydrates turn into water and methane. Methane hydrates offer a truly massive reservoir of natural gas trapped in ice.

In fact, the deposits of this “burnable ice” are so large, ( Japan has around 746 locations in its coastal waters) they could provide Japan with enough natural gas for the next 100 years at least. And there could be much more methane hydrate deposits in the marine sediments off the Pacific Coast of the country. These are big numbers. Japan has also participated in an international research team that successfully produced methane in Canada’s arctic region.

Original Post

Over the weekend, Bruce McQuain posted a great article at HotAir.com:

The United States has the most energy resources in the world AND the most incoherent energy policy

McQuain used one word that caught my eye, the same word I often use on this site. But more on that later.

McQuain starts with this:

According to a new report requested and paid for by Congress, America's combined energy resources (principally coal, natural gas, methane, and oil) far exceed --- ECLIPSE -- the energy resources of Saudi Arabia (3rd), China (4th) and Canada (6th).

This does not include America's shale oil deposits (such as the Bakken).

This does not include America's potentially astronomic impact of methane hydrates

Data points (some numbers rounded)

Coal:

Well known to all: US has recoverable coal reserves of 260 billion tons
Using 1 billion tons/year, US reserves will last centuries
The US has 30% of the world's coal

Natural gas:

At current rates of consumption, US has 100 years of natural gas reserves, based on conservative estimates
Congressional Research Service upped its 2006 estimate of America's enormous natural gas deposits by 25 percent
This estimate was conservative to begin with and does not include recent shale boom underway in the US

Methane hydrates (natural gas):

Government estimates of methane hydrates -- one word -- "immense" -- possibly exceeding the combined energy content of all other known fossil fuels
If just 3 percent of this resource can be commercialized, that level of supply would the US more than 400 years

Oil:

Congressional Research Services: 163 billion barrels (vs mainstream media's repeated estimate of 28 billion barrels of proven reserves)
Oft repeated US provable oil reserves represents only 20 percent of total US recoverable oil
True estimate of US oil is enough to maintain America's current rates of production and replace imports from the Persian Gulf for more than 50 years
That last statement may be a bit misleading: the US is importing less and less oil from the Midease; US is importing oil from Canada, Latin America, and western Africa

McQuain concludes his article with:

We have no coherent energy plan from this administration. Instead it seems to have gone to war with the oil industry and is doing everything it can to slow its ability to find and exploit these resources. 19,000 jobs and 1.1 billion in earnings have been lost since the imposition of the administration’s moratorium. Both former Presidents Bush and Clinton have spoken out against the delays. And the administration remains in contempt of a court order which ordered them to speed up the permitting process. As a result the EIA has estimated a loss of 74,000 barrels a day of production due to the moratorium this year.

Oh, yes, the word that caught my eye: myth.

I have long been a fan of JRR Tolkien's concept of myth and quote him often. That concept is my guiding light when it comes to energy. This is an expert's opinion of the US energy policy and how Bruce McQuain concluded his post:

Meanwhile US energy policy persists in pursuing the myth that renewables are the economically viable future, with fossil fuels already, as the president said in January, “yesterday’s energy." With 85 percent of global energy set to come from fossil fuels till at least 2035 no matter what wishful thinkers may prefer, current US energy policy – much like European – is pure political pantomime.

From my perspective: America's energy industry has been Balkanized by special interests, government bureaucracy, and environmental demagoguery. We can't even put in transmission lines for wind turbines in west Texas to get the electricity to urban centers.

Investors Only: The Quarter to Date -- Chevron Leads the Dow

Just reported on CNBC: for the quarter to date (first calendar quarter, 2011) -- Chevron (CVX) is the best performing stock on the Dow.

Up 17%. Feels like a growth company. Just the other day I posted this was going to be a huge quarter for XOM.

Who would have thought?

Pages

Monday, March 28, 2011