The Million Dollar Way (The Bakken Oil Blog): 06/09/11

Thursday, June 9, 2011

From Carpe Diem: Don't Blame "Big Oil" for High Gasoline Prices

The administration's moratorium on exploratory drilling in new offshore areas has locked away billions of barrels of oil. Oil production in Alaska, which has been in decline for decades, could be doubled by opening up the Arctic National Wildlife Refuge and Arctic waters that are currently closed to drilling.

Combine these restrictions on drilling with instability in the Middle East and it's no wonder consumers are gritting their teeth at the price of gasoline. But we shouldn't blame oil companies for soaring prices, when they have nothing to do with the restrictions on domestic energy sources or the geopolitical events elsewhere that are the real culprits for higher gas prices.

Clear, concise, and correct.

[Scroll through all of Carpe Diem when you get there.]

Obama Hinting At Possibly Considering Maybe Tapping Perhaps Into the Strategic Petroleum Reserve This Month or The Next Month Or Maybe Waiting Until Next Year Or After One More Poll

Link here.

Random comments, some mine, some from the link, regarding tapping the SRP:

Tapping the SRP suggests a crisis; tapping the SRP to help the economy confirms economy is in crisis
Administration confirming economy is in crisis, same as those polled who think US heading for another Great Depression -- "the only thing we have to fear is fear itself"
13 days for SRP oil to reach the market
Americans know that the SRP would have to be refilled -- prices for oil would soar (can you spell "speculator"?) once "we" tap into the SRP
The last barrel of oil determines the price of oil; even as US releases SRP oil, OPEC could decrease production
All things being equal, tapping the SRP will not keep up with projected global growth and oil consumption
What happens when SRP is tapped and price of oil goes up anyway (can you spell "speculator"?)
Amount of oil tapped from SRP could probably be met by just fast-tracking oil permits
I can think of few things more idiotic in the world of commodities and economics than tapping into a reserve meant for "emergencies" -- on second thought, I can't think of anything more idiotic

Finally: Can There Be More Proof That EPA Is Out of Control? AEP To Shut Down Five Coal-Powered Plants by 2014; Loss of Jobs Minuscule (600) Compared To the Millions Already Lost in The Recent Recession -- Opportunity to Modernize

Link here.

Even administration supporters say the EPA has gone too far this time.

Utility giant American Electric Power said Thursday that it will shut down five coal-fired power plants and spend billions of dollars to comply with a series of pending Environmental Protection Agency regulations.

The company’s dramatic plan to comply with the regulations could give Republicans and moderate Democrats ammunition in their ongoing fight against EPA's efforts to impose new regulations aimed at limiting greenhouse gas emissions and air pollutants including mercury and arsenic.

Rep. Shelley Moore Capito (R-W.Va.) and Sen. Joe Manchin (D-W.Va.) immediately pounced on AEP's announcement.

“This is a perfect example of the EPA implementing rules and regulations without considering the devastating impact they may have on local economies and jobs,” Capito said.

Capito said she will write a letter to EPA Administrator Lisa Jackson asking whether the agency took into account the economic impact of its regulations.

The EPA's response to Capito's inquiry will be a one-liner: "Considering the economic impact of our rulings and regulations is not our mandate -- protecting the environment is our mandate."

Data points, to comply with EPA's proposed rules, AEP will close five (5) coal-powered plants by 2014

cost:$6 to $8 billion to comply
cost: 600 lost jobs
cost: utility rates to increase as much as 35 percent

Something tells me AEP is using the proposed rules as an opportunity to modernize; by law, utilities must be allowed a certain return on their investment.

AEP will do fine.

Brigham announced that the acceleration of its activities in the Williston Basin remains on schedule after adding its eighth operated rig and plans to be at 10 operated rigs by July. Brigham also announced that it has brought on line to production seven additional wells in North Dakota since its last operational release and to date has completed 68 consecutive long lateral high frac stage wells at an average early 24-hour peak rate of approximately 2,831 barrels of oil equivalent.

BEXP also expects production to meet low end of target.

BEXP is producing about 11,000 boepd; goal -- 16,000 boepd by the end of the year.

Five (5) New Permits -- Bakken, North Dakota, USA

Daily activity report for June 9, 2011 --

Drillers: BEXP (3), Hess, and Fidelity

Fields: Todd, Murphy Creek, and Sanish

The three BEXP permits/wells will be on the same pad in Todd (inside city limits, northwest of Williston, North Dakota).

Helis O&G reports a nice well:

19104, 1,204, Helis, Henderson 16-34/27H, McKenzie County

And Whiting announced four producing/plugged wells; CLR reports one such well.

Weather, Flooding, Road Closures Taking a Toll -- Bakken, North Dakota, USA

Active drilling rigs in North Dakota have been falling in number for the past couple of weeks, probably due to flooding and road closures. "We" are now at 169 rigs, well down from the 179-rig high not long ago.

Update on Fertile Township, Mountrail County, Parshall Oil Field -- Bakken, North Dakota, USA

Elsewhere someone requested an update on "the area south of Parshall" due to a lot of folks checking their bank deposits.

I opined some time ago that due to bureaucratic red tape inside the Fort Berthold Indian Reservation (FBIR) resulted in about a 2-year delay in bringing the drilling inside the FBIR up to speed. I also opined that it appeared 2010 would be the year that drilling in the FBIR will catch up with the rest of the Bakken.

To see how that prediction has played out, one has only to look at Fertile Township, T151N-90W, entirely within the FBIR, and entirely within the prolific Parshall oil field, "owned" by EOG.

According to the GIS server, June 9, 2011, and the NDIC the following data points:

On this 36-section township, there are two active rigs, file numbers 20565, and 20742
There are seven LOC: permits only, no activity yet
In addition to the two wells with rigs on site, there are two more wells on the confidential list, and one well almost completed

Total oil produced from wells to date by section:

Section 1, 17913: 28,961 bbls
Section 3, 17888: 99,958 bbls
Section 4, 17727: 90,421 bbls
Section 4, 17754: 89,556 bbls
Section 5, 17237: 208,057 bbls (tested 7/24/08)
Section 6, 17870: 187,914 bbls (tested 8/26/09)
Section 7, 18057: 130,902 bbls (tested 5/18/10)
Section 8, 17851: 104,471 bbl (tested 8/25/09)
Section 9, 17754: 89,556 bbls
Section 10, 18110: 87,327 bbls
Section 12,16743: SI -- Fertile 1-12H
Section 16, 18061: 61,694 bbls
Section 17, 18117: 84,452 bbls
Section 18, 18157: 122,043 bbls
Section 19, 18108: 118,732 bbls
Section 20, 18800: 69,538 bbls
Section 20, 18147: 71,012 bbls
Section 21, 18121: 34,309 bbls
Section 26, 18338: SI -- Fertile 28-26H
Section 27, 18412: 1,659 bbls -- Fertile 29-27H (not a typo)
Section 28, 18289: 36,378 bbls
Section 30, 18473: 98,232 bbls
Section 21, 18203: 93,103 bbls
Section 32, 18172: 69,689 bbls
Section 33, 18438: 42,592 bbls

Two permits in the modern boom have expired in this township.

The Bakken spacing in this township is all 640-acre.

If this were outside the reservation: I imagine a farmer might own at least half the mineral acres in one section, i.e., that is 320 acres. If one is receiving twenty percent of the royalties, at $50/bbl, when a well has produced 50,000 bbls, the farmer (or his/her heirs) would have been paid $250,000 (if I did the math correctly. [25,000 bbls x 0.20 x $50 --> $250,000.]

This is inside the reservation, so I don't know how to do the calculations. One can add up the total of these wells in just this one township (2,020,556, not counting what the SI wells might have gotten before they were shut in): multiply x 0.2 x $50 --> $20 million and change.

I can understand why folks are checking their bank deposits.

For Investors: The Single-Best-Performing Stock of the Last 30 Years -- And You May Own It -- Bakken, North Dakota, USA --Seeking Alpha

Years ago, maybe 30 years ago, I started investing in the stock market. I was pretty conservative. One can argue how well it's worked out, but this "hobby" certainly has its surprises.

Had I not invested I most likely would have lost interest in current affairs a long time ago.

Don sent me this SeekingAlpha.com link which ties in with an energy company in the Bakken. I would have missed the article, or at least not gotten to it for several days. It seems like I am always catching up. So, again, another big "thank you" to Don.

The article has a tie-in with Williams Companies. Williams Companies has been one of my favorite companies. It was one of the first individual companies I ever bought shares in, and I've accumulated shares in the company off and on over the years. But I never knew that Williams owns 69% of a company that may be "the single-best-performing stock of the last 30 years."

Notice where the company, Apco Oil and Gas International is incorporated, where it has its headquarters, and where it has its branch offices. Some day, I think we are going to see one of the smaller Bakken companies recognized as the single-best-performing stock of the last 30 years: the company will be headquartered somewhere in Colorado (Denver), Texas, or Oklahoma, and will have branches throughout the Rockie Mountains and Texas: the Bakken, the Niobrara, and the Eagle Ford.

[Earlier this year:

Williams Cos., the fourth-largest U.S. pipeline operator by market value, will sell as much as 20 percent of its oil and natural-gas exploration unit in an initial public offering.

Williams also said it will raise its quarterly dividend by 60 percent to 20 cents per share for the first quarter 2011, to be paid in June. It plans an additional increase of as much as 15 percent next year.

The IPO is scheduled for the third quarter, the company said in a statement. The remainder of the oil business will be spun off to Williams shareholders next year. After the transactions, Williams’ shareholders will own stakes in two publicly traded companies: a pipeline company and an exploration company.]

Annabelle Homes, Minneapolis, Expanding in the Bakken -- North Dakota, USA

Link here. From the June 9, 2011, edition of the Minot Daily News -- I would have missed it. A big thank you to "anonymous." For an earlier story on Annabelle Homes in Stanley, North Dakota, click here.

A developer building a 54-home and retail complex in Stanley is bringing more construction to area towns, including Columbus, Plaza and Kenmare.

Annabelle Homes, Minneapolis, could have projects under way yet this summer in those towns and is visiting with Tioga, Crosby, Watford City, Velva and Berthold about potential projects.

Annabelle Homes plans to build as many as 100 single-family homes, 48 townhomes, a convenience store and two retail buildings in Columbus, a Burke County town of 133 people. The city has yet to annex the 80-acre parcel south of town. That could come at a special meeting in a couple of weeks, Mayor Scott Kihle said.

Kihle said another developer has proposed a 214-home development northwest of town. If both projects are fully developed, it would mean more than 350 new homes.

Columbus, North Dakota, is located near the Canadian border, north of Ray/Tioga.

Incredible Aerial Photos Of The Missouri River Flooding -- North Dakota -- Not a Bakken Story

Link here.

The link may break, so you may want to look at it now.

Did Steven Chu "See" the Japanese Nuclear Disaster Coming?

I buried this at the bottom of an earlier commentary, but I want greater exposure of this, so here it is again as a stand-alone post:

It now makes sense to me why a nuclear physicist would say his worse nightmare is coal. Like many brilliant men, he thinks of derivatives or "unintended consequences." As a nuclear physicist Chu realized that a nuclear meltdown was inevitable (earthquakes, human error, poor designs, terrorists, anarchy). If the world reacted to a nuclear meltdown as Germany has, Chu understood that the only fuel that could make up the difference was coal. In 2010, coal saw the greatest increase in consumption since 2003 and that was before the nuclear disaster in Japan. I now get it. Steven Chu was absolutely correct. His greatest nightmare is "coal."

Natural Gas Five Cents From a Tipping Point -- Update: Not So Fast!

Update

June 9, 2011, 2:00 p.m. -- Well, that was quite a turnaround. Down 16 cents now, natural gas is back to $4.68, well below the $4.95 we saw earlier. Even CNBC reported on the "plunge" earlier this morning. They were looking into whether there was some kind of glitch with the sudden drop, but a spokesman said the trades were valid and would stick.

So here we are, back to $4.68, but sill headed in the right direction.

Original Post

I'm not going to look for the link because it would take too much time, but about a year ago, I assume, I commented that I wouldn't buy shares in EOG until natural gas went above $5.00.

After posting that, EOG announced a strategic plan to shift to oil, and away from natural gas, at which time I bought some shares in EOG.

However, the transformation from a natural gas focus to an oil focus continues, and in the meantime, EOG and other natural gas producers are going to benefit from higher natural gas prices.

I see this morning that natural gas is five cents away from $5.00. Very, very interesting, how these things sneak up on folks. Remember: historically natural gas generally had its price spike in the autumn as folks gear up for winter heating. Something is going on in the natural gas arena and I'm not exactly sure what. It may be due to fact that utilities are switching from coal to natural gas in this country, or see the writing on the wall, that the EPA is about to make coal much more expensive, making a switch to natural gas economical.

World Consumed More of Every Main Fuel (Except One) Than In Any Previous Year -- Guess Which Fuel?

Link here.

Not since 1973 has world energy use increased by as much, in percentage terms, as it did in 2010. According to BP’s annual Statistical Review of World Energy, published today, 2010’s energy consumption was up by 5.6% on the year before. In part this is thanks to recovery from the economic crisis; in part it is down to the longer-term shift in economic activity towards emerging economies, which are less efficient in their energy use.

Robust growth was seen in all regions and in almost all types of energy use: the world consumed more of every main fuel bar one than it had in any previous year.

Consumption of oil, which accounts for 34% of the world’s primary energy by BP’s calculations, rose by 3.1%. Coal, at 30% the number two fuel, was up by 7.6%, growing faster than at any time since 2003. Consumption of gas, which contributes 24%, was up by 7.4%, the biggest annual growth since 1984.

The laggard:

Of all the fuels, only nuclear had seen better years; 2% growth over 2009 still left it a little below its levels in 2005 and 2006. Ten years ago nuclear and hydro were pretty evenly pegged as energy providers; last year hydro provided 20% more electricity. After the disaster at Fukushima, with its attendant closure of a lot of Japanese and German nuclear capacity, nuclear will undoubtedly fall further behind still.

Hey, how about renewables?

That said, non-hydro renewables still check in at only 1.3% of global energy consumption—1.8% if you include biofuels. (Hydro accounted for 6.5%, also another record.)

Did Steven Chu "see" the Japanese nuclear disaster coming?

It now makes sense to me why a nuclear physicist would say his worse nightmare is coal. Like many brilliant men, he thinks of derivatives or "unintended consequences." As a nuclear physicist Chu realized that a nuclear meltdown was inevitable (earthquakes, human error, poor designs, terrorists, anarchy). If the world reacted to a nuclear meltdown as Germany has, Chu understood that the only fuel that could make up the difference was coal. In 2010, coal saw the greatest increase in consumption since 2003 and that was before the nuclear disaster in Japan. I now get it. Steven Chu was absolutely correct. His greatest nightmare is "coal."

MDU Rates Increase -- Less Than Requested -- Wind Power Related Costs?

Link here.

Data points:

Monthly minimum rate jumps from $5.50 to $10.64.
Old plan: $5.50 minimum and 7.8 cents/kwh.
New plan: $10.64 minimum and 7.6 cents/kwh.
If I read that correctly, if your usage exceeds 140 kwh, you would be paying 7.6 cents/kwh. If your usage is less, your rate/kwh would be higher.
But the article says the average user would pay almost $2.00 more a month.
So I must be interpreting the article incorrectly (wouldn't be the first time).

Two direct quotes from the article:

Under the new rate plan, a residential customer will pay a $10.64 minimum monthly charge and 7.6 cents per kilowatt-hour of electricity used. When the rate case was filed, customers were paying a $5.50 minimum and 7.8 cents per kwh.
An average residential MDU customer who uses 750 kwh per month will pay almost $2 more a month for electricity than they were paying under the original rate structure, the commission said.

Apparently, some customers will pay more than $10.64 for the minimum monthly charge but all will pay 7.4 cents/kwh.

Wind power related costs

During the commission's debate on the rate increase, Cramer pushed to have the PSC's final order exclude two Montana-Dakota wind power projects near Baker, Mont., in southeastern Montana. The Diamond Willow projects cost $65 million to build and are capable of generating about 30 megawatts of electricity.

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Thursday, June 9, 2011