Thursday, March 1, 2012

From the American Spectator: A Great Debate -- Yes, It's On The Bakken

This really is a very, very good article.

I don't care for Gingrich at all, certainly not as the GOP nominee, but one has to admit, he knows his stuff.
To Obama's boast that America is producing more oil today than any time in the last 8 years, Gingrich noted that the North Dakota boom was on private land. He reported in his earlier speech that "Under President Obama because he is so anti-American energy, we have actually had a 40% reduction in development of oil offshore, and we have had a 40% reduction in the development of oil on federal lands." In his San Francisco speech, Gingrich added: "So in the area he controls, production is down and the area that is hard at the free enterprise stuff where people get rich, production is up. So he is now claiming credit for the area he can't control in order to have us think he is actually for what he opposes."
The entire article is pretty much about the Bakken. I think you will enjoy it.

I have to thank a reader from Bismarck for sending me this article. It really is very, very good. If you don't like the players in the article (Obama vs Gingrich), replace the names with those of people you like.

Reflections of My Life, Marmalade, released late 1969

A Bit Of Insight Into Those Derivative Losses -- CLR -- The Bakken, North Dakota, USA

Link here to Motley Fool.

Regarding CLR and its derivative losses:
In the latest earnings release, net losses stood at $112 million, thanks to a $402.5 million loss on derivative instruments. Digging deeper, I see that over $399 million of these losses are actually unrealized, which means it's just an accounting entry -- in other words, the company suffers no actual cash outflows. On a comparative basis, the fourth quarter of 2010 saw net loss clock in at $45 million, which includes a $188 million derivatives loss.

I'm not too concerned about these paper losses and agree with Motley Fool community member badbernanke's comments:
Derivative "losses" from hedging commodity production are better than derivative gains for companies with rapidly growing production profiles.
"Gains" normally means that prices for the commodity are dropping and that marginal, unhedged production is receiving prices lower than the hedge price.
"Losses" mean that the commodity prices are rising (actually, have risen) above the hedge price. So marginal, unhedged production will benefit from higher market prices.

Mike Filloon on KOG, NOG, GMXR, and Magnum Hunter Following 4Q11 Results

Link to SeekingAlpha here.

Regarding NOG:
The greatest impact on Northern's quarter was derivatives. It lost $2.7 million on settled derivatives and another $23.6 million on mark to market of derivative instruments. Derivative losses totaled half of Northern's fourth quarter revenue. It may have missed earnings but the effect of derivative losses pushed this stock back significantly, and could be a buying opportunity.
Regarding KOG:
Kodiak now has 137 gross or 60.2 net wells and over 157000 net leasehold acres. It now has six drilling rigs and six workover rigs. This growth has come at a price, as things have gotten much bigger and more complicated.
I would love to comment on KOG but I am not worthy. I was never an entrepreneur; I realized early on I don't have what it takes to be successful running a business.  So, I will not comment except to say that it will be interesting to watch, from the sidelines, how KOG does. KOG is only one of many companies in the Bakken about which this could be said: "This growth has come at a price, as things have gotten much bigger and more complicated."

$10/Hour --> $100,000/Year As a Diesel Mechanic in the Heart of the Bakken

Link here to CBSMinnesota .
Wingate went from a $10 an hour job back home, to a salary of more than $100,000 as an oil company mechanic.
When I was last in Williston, finding diesel mechanics was probably one of the most challenging aspects in the oil patch. Entrepreneurs were buying existing garages for future service garages. Trucking companies and oil service companies often simply bought a new truck when a truck needed maintenance. Time was money and they couldn't wait the several weeks to get maintenance on a truck; it was just quicker to buy a new truck.
The boom centers around Williston, North Dakota, and stretches about 150 miles in all directions. About 350 oil companies have moved into the city, helping to double the town’s size in five years.

Now: A 14-Screen Movie Theater Coming To Williston

Link here to the Williston Herald
The new movie complex will feature stadium seating with two or more large format screens, according to a press release issued by T&J Agnes Theatres, which runs the current movie theaters in downtown Williston.

The new movie theater will be called Sand Creek Cinema 14, and will replace T&J’s downtown and drive-in locations.

At the new complex, which will be built on the west side of Williston in the same shopping center a new Menards is slated to be built.

Two Daily Flights, Williston to Minneapolis -- Another Top Story for the Year

For folks who don't know anything about Williston, how small it is/was, getting flights to Minneapolis is incredible. But two flights daily is hard to imagine.

Another contender for stop story of the year. This is huge; not in economic value but what it represents.

Not only that, but now there's a study out that says the Williston airport either needs to expand or relocate so it can handle larger aircraft.

All of this again demonstrates just how big the Bakken is. As if one needed any more proof.

GMXR: InPlay -- 4Q11

From Yahoo!InPlay:
GMX Resources is up almost 3% following earnings, production guidance this morning; co missed Q4 ests: Co reported Q4 (Dec) loss of $0.12 per share, $0.05 worse than the Capital IQ Consensus Estimate of ($0.07); revenues fell 4.0% year/year to $26.1 mln vs the $30.7 mln consensus. Revised production guidance for the first quarter 2012 is approximately 583,000 BOE, which includes an estimated 37,000 BBLs of oil, and 108,000 BBLs of NGLs. The revision to first quarter guidance is the result of reduction in the expected oil production due to availability of workover rigs. The co expects that oil production will grow from full year 2011 to full year 2012 by ~300%, while NGL production will increase ~10% during the same time period. In the fourth quarter of 2012, oil and NGLs together are expected to be 35-40% of production and 65-70% of revenues.
From Mike Filloon:
GMX Resources has had great difficulty since July of 2008. This company was trading for as high as $84/share, and now is valued at $1.82/share.

Eight (8) New Permits -- The Williston Basin, North Dakota, USA; Ragged Butte -- Just South Of Williston, North Of Alexander; Nice Field

Permits and Wells

31235, conf, Statoil, Raymond 17-20 4H, 
31234, conf, Statoil, Raymond 17-20 5H, 
30396, loc, Triangle Petroleum, Lee 151-100-8-5-3H, 
30395, loc, Triangle Petroleum, Lee 151-100-8-5-9TFH, 
30394, loc, Triangle Petroleum, Lee 151-100-8-5-4H,  

2014 (the list is complete)
29994, conf, Triangle Petroleum, Lee 151-100-8-5-2H, producing, a huge well,
29993, 888, Triangle Petroleum, Lee 151-100-8-5-10TFH, t4/15; cum 64K 9/15;
29992, 723, Triangle Petroleum, Lee 151-100-8-5-1H, t6/15; cum 62K 9/15;


2012 (the list is complete)
24397, PNC, Statoil, Stallion 33-28 5TFH,
24396, PNC, Statoil, Stallion 33-28 4H,
24395, PNC, Statoil, Stallion 33-28 3TFH,
24202, PNC, Statoil, Helling 16-21 7H,
24201, conf, Statoil, Helling 16-21 2TFH,
24200, PNC, Statoil, L E 9-4 7H,
24199, PNC, Statoil, L E 9-4 2TFH,
24144, 1,498, Statoil, Raymond 17-20 7TFH, t12/13; cum 68K 9/15;
24143, 2,554, Statoil, Raymond 17-20 6H, t1/14; cum 92K 9/15;
24142, PNC, Statoil, Raymond 17-20 2TFH,
23946, 2,747, Statoil, Sanders 34-27 2H, Ragged Butte, t9/13; cum 105K 9/15;
23945, 1,004, Statoil, Sanders 34-27 3TFH, t9/13; cum 61K 9/15;
23944, 2,658, Statoil, Sanders 34-27 1H, t9/13; cum 108K 9/15;
23943, 1,227, Statoil, Sanders 34-27 4TFH, t9/13; cum 72K 9/15;
23777, 509, Triangle, Skedsvold Trust 151-101-32-29-1H, t4/13; cum 131K 9/15;
23776, conf, Triangle, Skedsvold Trust 151-101-32-29-2H
23775, 602, Triangle, Skedsvold Trust 151-101-32-29-3H, t3/13; cum 132K 9/15;
23774, conf, Triangle, Skedsvold Trust 151-101-32-29-4H, t10/12; cum 154K 9/15;
22587, 2,633, Statoil, Lonnie 15-22 3H, t10/12; cum 154K 9/15;
22586, 2,819, Statoil, Bratcher 10-3 4H, t10/12; cum 182K 9/15;
22512, 1,848, Statoil, Lonnie 15-22 2TFH, t5/13; cum 113K 9/15;
22511, 928, Statoil, Bratcher 10-3 3TFH, t3/13; cum 67K 9/15;

Before 2012
  • 20655, 2,217, Statoil/BEXP, Raymond 17-20 1H, Bakken, Ragged Butte, t8/11; cum 163K 9/15; produced 3,000 bbls over nine days in its seventh month online; 
  • 19369, 3,206, Statoil/BEXP, Bratcher 10-3 1H, Bakken, Ragged Butte, t12/10; F; cum 227K 9/15;  
Original Post

Daily activity report, March 1, 2012 --

Operators: Hess (3), BEXP (2), XTO (2), SM Energy

Fields: Manitou, Ragged Butte, Beaver Lodge, West Capa, Colgan

Eighteen (18) wells released from "tight hole" status; ten reported IPs, including:
  • 20732, 1,718, Zenergy, White 6-7H, McKenzie, t11/11; cum 111K 9/12;
  • 20903, 1,294, Denbury Onshore, Loomer 21-4SWH, McKenzie, t11/11; cum 112K 9/12;
  • 21041, 1,415, KOG, 20711 State 1621 1H, Williams, t12/11; cum 55K 9/12;
  • 21162, 50, Crescent Point Energy, Divide, Bakken,  t12/11; cum 18K 9/12;
  • 21213, 240, GMX Resources, Frank 31-4-1H, Stark, t12/11; cum 15K 9/12;
I haven't heard of Ragged Butte oil field before (if I have, I've forgotten); so I was surprised to see that it is straight south of Williston, and directly north of Alexander. In fact, the western border of Ragged Butte is US Highway 85 as it runs into Alexander.

Ragged Butte is one-half section short of a full 18 sections, a small field. But it's directly west of the bull's eye of the Bakken and will turn out to be a great field.

There are two long laterals in that field:
  • 19369, 3,206, Statoil/BEXP, Bratcher 10-3 1H, Bakken, Ragged Butte, t12/10; F; cum 144K 9/12; still producing about 5,000 bbls/month
  • 20655, 2,217, Statoil/BEXP, Raymond 17-20 1H, Bakken, Ragged Butte, t8/11; cum 85K 9/12; produced 3,000 bbls over nine days in its seventh month online;
I highlighted the Manitou oil field not too long ago; another great field, pretty much "owned" by Hess.

So, That Was Short-Lived -- Oil Back Up >$2.65


Later, same evening: Saudi denies; before market close, oil dropped back from $110 to 108. Futures now off exactly one cent. It certainly suggests the oil market is very, very skittish: not only does a rumor send oil back to highest level since mid-2008, but it didn't drop all that much when the story was found out to be a hoax; no explosion, at least according to the Saudis.

Moments later: CNBC says there are reports of a SINGLE explosion on a pipeline in Saudi. Not confirmed.  CNBC talking head: "I don't think Saudi Arabia is under attack here...Brent $145 is the top. The market is handing the news (the Saudi oil explosion) quite well....we have to get the Keystone XL pipeline in....big issue going forward....a big issue in the fall...Brent in the near term? ... waffles ... Saudi should raise their production [despite the fact their pipelines are blowing up."] Here's the link.

Original Post 
That took me completely by surprise.

Whenever there's a jump like this, one has to ask why? This is not due to weakness/strength of the dollar; it's not due to day in/day out news. Something big is going on. Generally. Today, maybe not.

Maybe more later, as CNBC folks talk about it, if they do. They have a script to follow and oil back to $110 was not in their script today. Right now, oil is back to $109.99. That's about as close to $110 without going over.

I do know that SecEn Chu appreciates these high prices; high-priced oil makes renewable energy and "green" vehicles more competitive.

My wife uses similar reasoning when she tells me she saved hundreds of dollars due to all the sales of which she took advantage.

Forbes Take On the Demise of the Coal-Powered Vehicle -- Bright Automotive Folds


February 19, 2014: I guess Fisker is now a Chinese company -- Wanxiang Group, China's top auto parts company. 

January 2, 2014: Fisker bankrupt; in court trying to sell assets to Korean company. Chinese company that Fisker says caused their bankruptcy is trying to buy Fisker's assets. In one corner: Wanxiang Group, China's top auto parts company. In the other corner: South Korean tycoon Richard Li.

September 17, 2013: where is Fisker? DOE putting the $168 million loan on the auction block for another huge loss for the taxpayer. 

May 26, 2013: another electric car company folds -- this time, an Israeli company.

April 28, 2013: Fisker owners trying to unload their cars; willing to take huge loss. 

April 24, 2013: how the wheels came off the Fisker.

April 19, 2013: $600,000 for each $100,000 car

April 5, 2013:  Fisker will fire 75% of work force.

April 5, 2013: Key staff being laid off
Fisker Automotive has laid off its public relations staff and other employees today, according to a source familiar with the company, another sign of deepening problems at the beleaguered electric car maker.
March 13, 2013: Founder and CEO resigns. Abruptly.

November 29, 2012: Fisker idles production. Battery supplier, A123, in bankruptcy.

August 20, 2012: more chariots on fire; GM recalls a quarter-million mid-size SUVs at risk of ... you guessed it ... fire due to possible electrical shorts in power windows and door locks. I think I saw this in a movie: hit the remote control on your key fob to unlock the doors and the vehicle bursts into flames.

August 18, 2012: more chariots on fire; Fisker recalls 2,400 Karmas for cooling problems due to bad fan; results in vehicle fire;

August 15, 2012: Fisker needs "at least" $150 million to keep going. Has raised $400 million from venture capitalists, but needs more. Cut off from govt trough.

April 4, 2012: Fisker, the luxury electric vehicle appears to be nearing the end of its run.
Fisker was awarded a $529 million loan under an Obama administration program designed to spur production of advanced technology vehicles. Fisker drew about $193 million of the Energy Department loan to engineer its Karma luxury plug-in hybrid.

But a plan to retool the former GM factory to build a second model, now called the Atlantic, was delayed, and the Energy Department froze the loan last May.

The production site for the Atlantic could depend on where Fisker gets new money to replace the U.S. loan. If an overseas investor emerges, the car could be built overseas.

Fisker no longer plans to start building the Atlantic this summer.

The company is reviewing many aspects of Fisker's strategy, including whether battery maker A123 will supply batteries for the Atlantic.

Fisker has suffered setbacks on recent weeks, including a recall by A123 of batteries installed in Karma models to fix defects that caused vehicles to stall.
April 3, 2012: a bit more on the financing --
Last week Bright Automotive, an electric vehicle start-up company that General Motors helped two years ago with an investment of at least $5 million from its venture capital arm, gave up hope on winning a $450 million loan from DOE’s Advanced Technology Vehicle Manufacturing program. As the company announced the withdrawal of its loan application and that it would end operations, CEO Reuben Munger and COO Mike Donoughe sent (and released to the media) a letter to DOE Secretary Steven Chu that sharply criticized the loan programs processes and outlined their frustrations.  
Meanwhile, Fisker's bankruptcy "worse" than Solyndra. SEC could take legal action against brokers promoting this deal back in 2009.
The Securities and Exchange Commission has notified the brokers who raised most of the private financing for taxpayer-backed electric automaker Fisker Automotive that charges may be brought against them, in connection with a private offering in 2009.

Original Post
I don't get it, the fascination folks have with the coal-powered vehicles. I have nothing against coal-powered vehicles, per se. But at twice-the-cost for half-the-product I just don't get it. Give me an electric vehicle with half-the-cost and twice the product and I will buy three: one for me, one for my wife, and one for my younger daughter.

Here's Forbes' opening:
Bright Automotive, a promising start-up company developing hybrid plug-in delivery vans for fleet customers, closed its doors this week after running out of money. It’s too bad, really. Its lightweight van, called the Bright Idea, seemed like a perfect vehicle for businesses that need to make service calls or deliveries. With a 30-mile range on electricity, and the equivalent of 85 mpg, the van would supposedly lower their total cost of ownership by 10 percent to 30 percent. By building it in Indiana, Bright expected to create 675 Midwestern jobs.
If it was such a bright idea, why didn't it survive? Where's the beef? 

For starters, lowering one's total cost by 10 percent just doesn't grab headlines (the "... to 30 percent" is a marketing tool -- if they could deliver 30 percent savings, they would advertise "... to 50 percent").

I see on CNBC today, Chrysler increased its sales by 40% over some time period, compared to single-digit increases for many of the other dealers. The CNBC folks were surprised, saying that Chrysler leaned towards SUVs, minivans, and gas-guzzling jeeps. How could Chrysler do so well with gasoline trending higher? Probably because Chrysler is offering twice-the-product at a great price (CNBC noted that Chrylser's sales improved even after Chrysler ended some of their incentives).

I can understand why folks don't want an all-electric vehicle but hybrids are a different story. If the driver doesn't like to plug it in at night, or park somewhere where there is no outlet, not to worry; they always have the gasoline engine as backup, although I believe the tank is small and range is limited if that's all you have. 

One of the CNBC talking heads mentioned that he bought two new cars this month; it would have been interesting to find out if he was concerned about mileage or the environment when he bought the car. (I assume, except for Joe, all CNBC commentators will vote for Mr Obama or will stay home.)

The start-ups blame...drum-roll..... the hand that feeds them, the US government:
Both companies [the other being Fisker automotive -- the company that was building its cars in Finland with US taxpayers stimulus money] blamed their financial troubles on bureaucratic gridlock in a U.S. Department of Energy loan program intended to promote the development of cleaner, more fuel-efficient cars in the United States. Three months ago, another fledgling EV maker, Aptera, pulled the plug on its four-year-old business for the same reason.
It should be noted that North Dakota farmers, recipients of much federal aid, have had to put up with bureaucratic gridlock for decades. Get over it. The oil industry, not only has no federal aid, but literally has to fight the administration for every one step forward, two steps back. And they are doing just fine, thank you.

The last paragraph in the linked Forbes' article:
I want the government to be vigilant when deciding to whom it’ll loan my tax dollars. And any company whose business model is built around a government loan doesn’t deserve to be in business. But I do think there’s nothing wrong with government giving a temporary leg up to entrepreneurs with promising technologies that will boost American competitiveness in the long run. Other countries do it all the time. The U.S. had better wake up.
Vigilant. Like being vigilant in loaning to the four or so solar companies that are now bankrupt or near bankruptcy.

How To Find Oil in Bavavia -- Absolutely Nothing To Do With The Bakken

Interesting technology in Germany and interesting where they are finding oil -- Bavaria!
Wintershall AG completed three exploratory wells in the Alpine foothills in southern Germany where it is using a helicopter-assisted electromagnetic exploration method. The method is designed to detect electromagnetic fields in a certain frequency range in places where hydrocarbons lie underground. Wintershall said it is unable to determine the existence of hydrocarbons with the seismic methods previously used.
Three of the company's wells: 220,000 bbls in 2011; total cost 7.5 million euros.

Overheard At the Economart -- The Bakken, North Dakota, USA

Folks sometime read more into my posts than I mean to imply.

I try to keep the discussion on this blog at the level I would expect to hear while having lunch at the Economart in Williston, North Dakota, heart of the Bakken.

I'm not in the Bakken right now, but if I was/were there, I could imagine hearing this conversation:
One has to be in a good mood to see a day like this: the market in general is "melting up" as they say, moving up slightly despite all the headwinds. Despite Bernanke. Despite oil going back up.

Oil seems to have corrected (all of $3 off $110) and has bottomed (in short term) at $107 and now turning up, at least a bit.

KOG did not suffer significantly; I thought it would be much worse, but I guess analysts thought like Motley Fool: KOG has huge production increase; forget about missing estimates, "damn the torpedoes, full speed ahead."

I see oil just went over $108.

NOG also missed making a profit due to derivative losses; that seems to be a common theme. Same thing there; forget the quarterly earnings losses due to derivatives; five years from now, these little companies are going to have huge production -- these Bakken wells keep producing for 20 - 40 years based on history of Madison wells. These wells are going to be paid for in 3 - 5 years (closer to 3 years in many cases) and then keep producing for "peanuts" for 20-30 years longer.

Some say oil could "crash" to $80.  Wouldn't it be interesting if much of the Bakken drilling occurred during high price of oil, and then when drilling tapered off (10 years from now) and steady production for little cost, oil dropped back to $80 (in 2012 dollars).  The margin for each bbl sold is high now, and will stay high in the out years even if price of oil drops.
Just some Economart chatter. 

Those Low-IP Baytex Wells -- The Bakken, North Dakota, USA

After looking at a half-dozen Baytex well files, this would be my 30-second Economart talking point:
Baytex is drilling relatively shallow wells (8,500 feet), targeting the Three Forks; drilling short laterals; 16-stage fracs (equivalent to 32 stages for long horizontals); 1.5 million lbs sand (equivalent to 3 million lbs for long horizontals); initial 30-day production about 4,500 bbls; dropping off to 1,000 by end of first year; looking for 50,000 bbls for first year cumulative."
The key metric will be total production at 3 years, and then annual production for the next 5 years after that.  

Interestingly these low-IP wells are in the same ballpark after one year, comparing their short-lateral production with the long-lateral production of other companies. I would assume cost of these wells are somewhat (much?) lower than cost of the high-IP wells.  

Don't take this as gospel; this is early and quick look; and I only looked at most recent wells. I assume mineral rights owners are not real impressed with their returns. But, Baytex wouldn't be drilling so aggressively if they weren't making money on these wells, and 50,000 bbls/year for less expensive, short lateral wells, are nice wells in the aggregate for a company. Especially when these wells will produce for 40 years. Think about that: these wells will pay for themselves in 3 - 5 years (probably closer to 3 years) and then produce for "peanuts" for the next 30 years.  An individual mineral rights owner might not do all that well, but the company, with two to four wells/section after ten years of drilling, is going to have a huge annual production out of a small area. 

Mainstream Media Catching Up With Reality -- Talking Fish

Link here to Yahoo!Finance/Daily Ticker article on why the high price of gasoline won't hurt economy as feared.
... the U.S. is a bigger producer of oil than it was a few years ago. Oil consumption is in many ways a zero-sum game: more money spent by consumers on gasoline means more money going into the pockets of oil producers — most of them overseas. But in the last few years, the U.S. domestic oil industry has experienced significant growth, thanks in part to North Dakota's shale oil boom. Government data on crude oil production suggests that 2011 saw the highest level of domestic oil production since 2003. So more of the money spent on more expensive oil will stay in the U.S.
I missed it, but apparently Fed Chairman Bernanke said that, unlike other recoveries, the housing market is not going to lead us out of this recession. I missed what industry he said would lead us out of the recession, but I assume he did not. It would not be politically correct to say what is obvious: it's the traditional energy industry leading the recovery.

Did you notice something else? The only "tight oil" play the linked article mentioned was the Bakken. As I've said many, many times, it's not the production that made/makes the Bakken so important. History will write that it was the a) relative unfettered development of the Bakken; and, b) the technology laboratory that the Bakken is/was that are the important things about the Bakken. Yes, for shareholders, mineral rights owners, for developers, it's all about the production. But for America, in general, it's the lessons and technology that were learned and developed in the Bakken that will be remembered as being most important.

Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.

Harold Hamm: SecEn?

Several folks have sent me this link: Romney names HH to be his chief energy advisor.

Diesel Fuel To Be Tight In The Williston Basin This Spring

If it's March 1, spring is just around the corner. I assume truckers and farmers in North Dakota are starting to scramble to find sources of diesel fuel. New diesel refineries in the Bakken oil patch won't be up and running this spring. So, five years into the boom and we still have diesel fuel shortages.

Link here to AP story on likely shortage.
About 2 million gallons of diesel is currently used daily in the state in the oil patch, largely powering the trucks and trains needed to move crude oil and materials, Rud said. It also takes about 3,000 gallons of diesel each day to power one drill rig, he said. On Thursday, there were 204 rigs working in the state.
I was told a year ago that the oil patch was short 20,000 gallons (or was it barrels?) of diesel fuel each day.