Is Something Big in the Bakken Happening With Regard to Chesapeake?

I reported earlier today that Chesapeake had technically entered the Bakken by buying Bronco drilling which has about ten (10) contract rigs in North Dakota. As noted, technically that puts CHK into North Dakota but still only a peripheral player.

However, after posting that, "anonymous" commented that CHK had acquired 150,000 acres in North Dakota (corrected: I had originally said "the Bakken. "Anonymous" and CHK both say "North Dakota," not "the Bakken"). I completely missed that story, but it appears that I was not the only one. Here is a blog entry from Energy Connections:

Chesapeake Energy is a major player in the horizontal drilling of shale plays in almost all US plays, except the Bakken.  That might be starting to change with this latest development between Bronco Drilling and Chesapeake. With a price tag of $315 million, a deal has been made between the two companies.  Bronco Drilling currently owns 22 rigs, these rigs are mostly in the Bakken and the Anadarko basin.  Chesapeake may not own mineral acreage in the Bakken but one can bet that their involvement through the drilling services will be noticed in Bakken.

Well, it turns out that "anonymous" comment that CHK had acquired 150,000 acres in North Dakota (corrected; see above) is correct. See CHK's April, 2011, corporation presentation, slide 3:

CHK established a >150,000 net acre position in the Williston Basin at an attractive cost.

In addition, "anonymous" hints that there will be more to follow. In the same CHK presentation, this little nugget:

• In just the past 18 months, CHK has captured leading positions in 5 of the 6 best
• unconventional oil plays in the U.S.
• #2 in the Eagle Ford with 445,000 net acres and 3.0 bboe of unrisked unproved resources
• #2 in the Niobrara with 535,000 net acres and 3.4 bboe of unrisked unproved resources
• #1 in the Anadarko with 1,460,000 net acres and 4.9 bboe of unrisked unproved resources
• #1 in the Permian (unconventional) with 560,000 net acres and 1.3 bboe of unrisked unproved
• resources
• #1 in an unnamed big liquids play (details to come later in 2011) with >1,000,000 net acres

Chesapeake will be announcing sometime later this year a deal involving more than 1 million net acres in a liquids play somewhere in the states, most likely the lower 48, and I've had two "anonymous" comments (maybe the same individual) suggesting we could see CHK taking a larger position in the North Dakota (correct; see above). There are no single North Dakota players that I know of that has 1 million acres. CHK would have to buy more than one leaseholder in North Dakota (corrected; see above) to get a million acres here.

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Closing up loose ends:

According to CHK's 3Q10 earnings conference call, three things:

• CHK announced 100,000-net acre acquisition in North Dakota (corrected; see above) (I missed that until now)
• CHK said it had a one-million-acre acquisition that will have worldwide interest, but can't announce it until in 2011
• CHK said it won't state publicly who it acquired the 100,000 net North Dakota (correct; see above) acres from, but specifically and emphatically said it was not Anshcutz (it appears my assumption that OXY USA bought Anshutz acreage in the Bakken is accurate)

I really appreciate comments from my readers.

By the way, back in 2008, Continental Resources acquired 4 million bbls of proved reserves from Chesapeake in the Bakken, according to the Motley Fool:

Continental Resources, which was early into the [Bakken] play, topped up its position in January, 2008], with a $60 million purchase of producing properties from Chesapeake Energy. Continental picked up 4 million barrels of proved reserves at $15 million a pop.

Four (4) New Permits -- Bakken, North Dakota, USA

Operators: Anschutz (2), Newfield, and Zenergy

Fields: St Anthony, Murphy Creek, Sivertson, and a wildcat.

The Newfield wildcat will be in Williams County about twelve miles north-northeast of Williston.

In the daily activity report (April 15, 2011), SM reports a nice well:

• 18579, 2,006, SM, Jorgenson 1-30H, McKenzie County, Bakken

The rest of the report was unremarkable.

Newfield Has a Nice Well: 28,000 BBLs in 15 Days -- Bakken, North Dakota, USA

It looks like Newfield has another nice well, and it's a Three Forks well:

• 18012, 3,304, Newfield, Sand Creek Federal 1-23H, Keene, Three Forks; tested 2/11; 26,777 bbls in first 15 days

This gives me an opportunity to comment on IPs (again). The IP reported by the company in a press release often differs significantly from what the NDIC reports. I don't know the specifics, and I can't put it in correct "oil industry" terms, but this is the gist, as I understand it.

For various reasons, the company will report a 24-hour flowback that is often as much as three times (3X) that of the "official" (NDIC) initial production (IP) number.

If the 24-hour flowback is extremely high and the IP much lower, it suggests the flowback was obtained with a "wide-open" choke to see what the maximum flow rate "could" be.

On the other hand, the NDIC requires that the IP be what would be produced under "normal production" parameters.

In a recent case, a Fidelity well's 24-hour flowback was reported at over 1,300 boe, which was pretty exciting for a Fidelity well. Unfortunately, the "official" (NDIC) IP was less than 800 boe. That is still a great well (based on IP) but certainly not a standout -- although it was a Three Forks well in a relatively new area.

Now, back to this Newfield well. I did not see any press release from Newfield regarding this well, and we don't know what the 24-hour flowback would have been. But the "official" (NDIC) report shows it to be over 3,304 bbls of oil, and that does not include natural gas which would have increased the boepd. From the NDIC daily activity report:

• #18012 – NEWFIELD PROD., SAND CREEK FEDERAL 1-23H, SWSE 23-153N-96W, MCKENZIE CO -- 3304 bopd, 922 bwpd - Bakken/Three Forks

In this case, it appears that Newfield has a spectacular well without resorting to 24-hour flowback. It's possible this is a 24-hour flowback, I suppose, and the NDIC hasn't caught it, or some other method of calculation, so again, this is all speculation on what it really going on with regard to IPs.

All things being equal, I trust NDIC numbers more than those from a press release.

Minnesota Could Start Getting Electricity From New North Dakota Coal Plant

Updates

August 23, 2016: Minnesota calls it quits. Won't appeal this further. Agrees to take coal-generated electricity from North Dakota. 

Minnesota will not appeal a federal court ruling that called unconstitutional a law restricting importing electricity from coal-fired electric generating plants.

North Dakota filed the suit against the Minnesota Next Generation Energy Act and won in a federal district court. A federal appeals court panel in June agreed with the district court, leaving the U.S. Supreme Court the only opportunity for Minnesota to win.
But on Monday, the Minnesota Commerce Department and Public Utilities Commission announced the state will not appeal.

The decision means that Minnesota utilities may buy electricity produced in North Dakota plants, where they generate power with locally mined coal known as lignite.
Minnesota's law, designed to reduce carbon dioxide emissions, also bans new coal-fired power plants in the state. That part of the law remains on the books.

Original Post

 

More information regarding Minnesota Senate voting to lift coal restrictions at this link. This is not a done deal yet; the House had to vote (though a House committee approved the bill). The governor has said he supports the bill.

For North Dakota, this paragraph is interesting:

Sponsors of the bill said the immediate impetus is to allow Minnesota's Great River Energy company to sell to Minnesota customers power that's generated by a new plant under construction in North Dakota. The company is not allowed to do so under the restrictions in current law and top state officials in North Dakota, including the governor, have urged Minnesota lawmakers to drop the restrictions.

See original posting here.

With regard to that "new" North Dakota coal-powered electricity plant:

• Known as the Spiritwood Station
• The new coal plant is a Great River Energy product; headquarters in Minnesota
• $350 million coal-fired power plant near Jamestown
• Was to go on-line last year (2010) but project slowed (on verge of stopping) when Minnesota appeared ready to back out of coal-produced electricity
• The new date for the plant to go on-line: January 1, 2012
• This is GRE's first baseload power plant built since 1981
• It will be North Dakota's first coal-fired power plant in a quarter century

This from the AP story today (linked above):

[The] money [that] Minnesota utilities spend on energy produced by burning coal in other states amounts to "dollars out of our communities, dollars out of our pockets we could otherwise use to build homegrown and distributed sources of energy in Minnesota," said Sen. Scott Dibble, DFL-Minneapolis. "It would unwind a tremendous amount of economic progress we're making and could still continue to make."

As noted in the original posting (also linked above), this is a very, very interesting turn of events, assuming the bill is eventually passed. All indications are that it will be passed.  

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The rest is just idle rambling about why wind energy will lead to significantly higher costs for public utilities, due to (un)anticipated consequences. 

It should be noted, that all things being equal with regard to energy requirements, wind farms will actually increase the cost of the use of coal by making the coal plant less efficient. Wind will never be able to replace coal. Coal plants will continue to produce the bulk of baseload electricity, but coal plants cannot be turned on and off with a simple click of a mouse button. Even when wind kicks in for surges, coal plants will continue to burn coal as a back-up when the wind ceases to blow. This electricity is not stored. So, unless I'm missing something or don't understand electricity production, the coal plant might be able to reduce the amount of coal being burned (but, wow, that has to be tricky) while turbines are spinning, but the moment the wind stops, the coal plants have to surge. 

It will be very interesting to see peer-reviewed studies ten years from now showing how much less efficient coal-plants will have become due to having to support wind-generated electricity.

If there's a glitch or a delay in the coal plant responding, folks will notice brown-outs or temporary loss of electricity. Maybe surge protectors and or uninterrupted supply units will come back into fashion. I  remember having to buy surge protectors to protect my computer when stationed overseas. I never bought an uninterrupted supply unit but many individuals did, and, of course, businesses will have to have such units.

In addition to burning coal on a "stand-by" basis, the utility will have to invest in sophisticated automated systems to manage the interface of wind-generated electricity and coal-generated electricity. 

As long as I'm rambled this long, I might as well continue. Utilities will pass the cost of additional transmission lines to consumers. Wind-generated electricity will have to be "brought" to the utility or tie in at some substation to be placed on the existing grid. Right now, the grids are in place: a "centralized" power plant with transmission lines going to customers. 

It's been my observation that wind farms are scattered across the landscape, and not centralized to any one location. So, now instead of just outgoing distribution transmission lines, utilities will have to install incoming transmission lines from these scattered wind farms to tie in to the existing grid.

Lots of additional costs associated with wind-generated electricity and with coal burning continuously and less efficiently while wind turbines are turning, it's questionable how much the carbon footprint is being reduced. But it will make some folks feel good to see all those wind turbines.

Bronco Drilling Will Be Acquired By Chesapeake: Bronco Rigs To Be Integrated Into Nomac Drilling Unit (CHK)

Link here. More detailed information here.

According to the company's profile, Bronco operates rigs in North Dakota. According to the NDIC active drilling list, it looks like Bronco has about ten (10) rigs in North Dakota.

Chesapeake has said it wants to own about two-thirds of the rigs it operates under its drilling program. It will integrate Bronco into its Nomac Drilling unit, which currently owns 95 drilling rigs.

Someone opined in a comment just a few days ago that Chesapeake will enter North Dakota. This is a very small piece of Chesapeake (buying Bronco) but technically that has now happened, assuming Chesapeake doesn't divest itself of some of the Bronco assets.

Right now, it appears (at least to me) that Bronco is a contract driller and does not go after permits in the Bakken itself. It will be interesting to see if Chesapeake eventually acquires acreage in the Bakken. 

Bronco's profile emphasizes that it supports both oil and natural gas exploration and production companies.

$200 Oil Not Out of the Realm of Possibilites: Korean Times

A recurring theme on this blog: Saudi Arabia can lower oil production in an attempt to raise oil prices, but Saudi Arabia no longer has the wherewithal to raise oil production to lower oil prices. (This puts me at odds with most pundits on this subject.)

But at least someone else agrees. From the Korean Times, as reported by PennEnergy:

But what if and more realistically so, there was to be a drawn-out civil war in Libya? Will the Saudi oil industry, already under duress to maintain supply at the present level, be able to withstand the pressure and continue pumping an extra two million barrels per day into the world market? Are its oil supplies going to last through long-term disruptions? Hard facts are pointing to the opposite direction, as oil prices will more than probably surpass their 2008 summer figures.

This is an excellent article. The source is interesting: Korean Times. It was interesting what was not mentioned: the Japanese nuclear disaster. Just one more reason that part of the world is going to be more dependent on fossil fuel.

OPEC countries are already producing at full capacity, thus the apparent surplus available there is on paper only. Last year, for the first time in its five decades history, OPEC itself has quietly raised its worldwide demand estimate three times. 

Those demand estimates were made before the nuclear disaster. 

The writer concludes that $200 oil is not out of the question.