Wednesday, March 21, 2012

Liberty Resources -- Riverstone Holdings -- Carlyle Group

Some time ago I was intrigued by Liberty Resources. Go to the link and read the first comment.

Hofmeister on Bloomberg

Link here.

1. No proof that Saudi can increase production quickly. Saudi has not produced to stated potential. Brent has been at $125 for quite some time; why is Saudi saying they are acting now.

2. No major oil company actually increased production year-over-year in 2011.

3. China with increasing oil demands.

Hofmeister: "I'm not saying Saudi doesn't have the ability to increase production quickly; I'm just saying I don't believe they can."

My sentiments exactly.

I Blew It -- My Bias Got The Better Of Me -- Readers Correct; I'm Wrong -- The Bakken, North Dakota, USA

This morning I posted the story regarding the new CARBO proppant distribution center slated to be built near Dickinson.

I opined that this was not the best place for such a distribution center.

I was wrong.

Some random thoughts explaining why I was wrong. I'm too far behind in blogging to put the data points in a coherent narrative.
  • rail is all important; both Williston and Dickinson have rail; Watford City area does not
  • price of land around Williston has priced itself out of the market
  • Williston is way too overbuilt; time for new operations to move elsewhere
  • once proppants brought to North Dakota, distance not that big a deal (+/-; debatable)
So, I apologize for letting my bias get the best of me. 

This morning I also posted a rambling piece on state and county officials behind the proverbial "8 ball" in planning for infrastructure needs for the Bakken boom once the USGS study came out, and again when Harold Hamm suggested much higher potential production. And that's what made me realize that my post about the CARBO proppant distribution center was wrong -- and the fact that several readers pointed out the error(s) of my ways.

Back in 2008 or 2010, if state and county leaders had had a crystal ball, one of their options would have been to advise spreading the oil service companies around the state rather than let Williston grow like it did. Williston took on too much; Dickinson was too conservative; Watford City not enough infrastructure in place; Minot underutilized (no one could have predicted the flood).  I suppose, in hindsight that even Mandan/Bismarck could have been better utilized supporting the Bakken, but that might be a stretch.

So, a "tip of the hat" to the CARBO folks for looking at Dickinson and not the Williston area. 

US Supreme Court Backs Landowners; Limits Power of EPA

Unanimous decision

Link here.
The Supreme Court ruled on Wednesday that landowners can sue to challenge a federal government compliance order under the clean water law, a decision that sides with corporate groups and puts new limits on a key Environmental Protection Agency power.
The justices unanimously rejected the government's position that individuals or companies must first fail to comply with an EPA order and face potentially costly enforcement action before a court can review the case.
The opinion by Justice Antonin Scalia was a victory for an Idaho couple who challenged a 2007 EPA order that required them to restore a wetland they had filled with dirt and rock as they began to build a new vacation home near Priest Lake. They were also told to stop construction on the home.
The couple, Chantell and Michael Sackett, denied their property had ever contained a wetland and complained they were being forced to comply with an order without a court hearing.
I was out and about all day so I am way behind with updates.

I will get back to this one if I have time.

Seven (7) New Permits -- The Williston Basin, North Dakota, USA

Daily activity report, March 21, 2012 --

Operators: Triangle USA Petroleum (4), BEXP (2), OXY USA

Fields: Thompson Lake, Todd, Cow Creek, Antelope Creek

Two (2) wells released from "tight hole" status, including one I was particularly interested in:
  • 21163, 27, Kaiser-Francis, Spyglass 17-1, Duperow, Divide County (not a Bakken), 
and also,
  • 19724, 976, MRO, Joyce Repp 21-17H, Dunn County, Bakken

Director's Cut -- March 21, 2012

Link here.

Production hits all-time high in North Dakota (again):

  • Dec, 2011, oil: 535,048 bopd 
  • Jan, 2012, oil: 546,453 (NEW all-time high)
  • Dec, 2011, producing wells: 6,471
  • Jan, 2012, producing wells: 6,617 (NEW all-time high)
  • Dec, 2011: 180
  • Jan, 2012: 170 (all time high: 245, 2 Nov 10)
  • Jan, 2012: sweet crude, $88.09
  • Dec, 2011: sweet crude, $88.75
  • Nov, 2011: sweet crude, $88.54
Director's comments:
"The warm dry weather continues to result in increased hydraulic fracturing activity and increased production.....the idel well count is falling with just under 250 wells now waiting for fracturing services.

"Crude oil take away capacity via pipeline is well below production, but rail and truck transportation combined are keeping up with near term production projections."
"EPA regulation of hydraulic fracturing under the safe drinking water act through the diesel fuel provision in the 2005 energy policy act remains on hold with the proposed guidance document(s) still under review at OMB. Following that review a 60-day public comment period is planned.

From RMOJ, march 16, 2012:
  1. Mountrail continues to lead oil production among ND counties; 1.3x more than McKenzie
  2. Mountrail: 5.167 million bbls; 1,109 wells (1,175 capable)
  3. McKenzie: 3.740 million bbls: 1,273 wells (1,460 capable)
  4. Dunn: 2.594 million bbls: 716 wells (753 capable)
  5. Williams: 2.459 million bbls: 828 wells (929 capable)
The state's two most prolific fields: Sanish and the Parshall

So Much for Demand Destruction --

Didn't I just use this subject line a few days ago?

Link here to AP news:
Oil prices rose to near $107 a barrel Wednesday after a report showed U.S. crude supplies fell unexpectedly, a sign demand may be improving in the world's largest economy.

The American Petroleum Institute said late Tuesday that crude inventories fell 1.4 million barrels last week, breaking a two-month trend of growing supplies. Analysts surveyed by Platts, the energy information arm of McGraw-Hill Cos., had predicted an increase of 2.1 million barrels.

Inventories of gasoline fell 1.4 million barrels last week.
Wow, that Saudi oil can't get here fast enough
Saudi Arabia is preparing to extend this year's unexpected jump in oil sales to the United States, adding to speculation about the response of the world's top oil exporter to sanctions against Iran and a rally in prices.

The kingdom's shipments to the United States have quietly risen 25 percent to the highest level since mid-2008, according to preliminary U.S. government data, a sizeable leap that appears at least partly related to the imminent completion of a major expansion at its joint-venture Motiva refinery in Texas.
And, of course, the drop in gasoline inventories comes on the heels of the report that three refineries in the Philadelphia area are scheduled to close. Refiners can't make a profit: oil costs too much and the costs are difficult to pass on to the consumer. That's because there's so much competition: with four service stations on most major urban intersections, one can always go to the service station with the lowest price, like $3.79 vs $3.83. On a 12-gallon fill-up, one could save .... thinking .... calculating ... 48 cents.

By the way, back to the linked story: the most common three words I see in business news these days are: analysts, rise, unexpectedly.

The next most common three words: analysts, fell, unexpectedly.

We either need new analysts or new words.

$26 Million Proppant Distribution Facility Approved By Stark County Development Corp -- The Williston Basin, North Dakota, USA

Link here to Debbie Downer.

Data points
  • proposal: a $26 million proppant distribution facility, near Gladstone
  • confusion as to which government bodies will get involved
  • Houston-based CARBO Ceramics North American 
  • will be their largest distribution facility
Well, the biggest "government body" for this proposal to go through is the Stark County Commission, I suppose.

Good luck. 

Again, this is the largest -- the largest -- distribution facility for this Houston-based company; anyone still doubt the significance of the Bakken?

I personally think this is about the least desirable place in the state to put the distribution facility. The center of activity will be farther north. Somewhere between Alexander and Watford City seems to be a better location, and the folks there support growth, based on published reports. If the distribution centers needs rail access, then west of Williston would have been better.

Ramblings on a Delayed Story -- The Bakken, North Dakota, USA

We now have the acreage, drilling rigs and services as well as the organizational capability and experience to sustainably grow our Bakken production -- MDU, March, 2012
We are now five years into the boom 

Several people have sent me the link to a Bismarck Tribune story about an NDIC-commissioned study:
North Dakota's Industrial Commission agreed Monday to help pay for studies on how to meet the ravenous electricity needs of the state's oil industry and the pipeline network required to handle its burgeoning natural gas production.
I saw the story the day it was published, March 19, 2012, but elected not to post it. I  was dumbfounded that five years into the boom, folks are now noticing that, "hey, Houston Bismarck, we've got a problem."
Aside from oil industry worries about whether the state's electric grid can supply the rapidly expanding industry, Basin and Montana-Dakota Utilities are concerned about serving the influx of people arriving to work in the oil fields, she said. The study should be completed by September.

"There's growing concerns that the (transmission) infrastructure in western North Dakota ... may not be sufficient to meet this amazingly increasing demand in electricity," Tabor said.
I was so dumbfounded by the story, I was unable to post it. 

Bureaucracies tend to be slow to act -- that's the nature of a bureaucracy. So, one has to assume the USGS study in 2008 that revised upward the amount of recoverable oil in North Dakota should have been enough to get folks moving. On top of that, bureaucracies tend to be very conservative and so the 2008 USGS study should have been seen to be similarly conservative. Harold Hamm has repeatedly raised the bar, and not just in the press, but in presentations to the engineering school at UND. 

I can't remember when I first started blogging about the Bakken. I think it was back in 2007, certainly by 2008 because I remember blogging about the USGS study. I deleted the original blog in 2009 and started over. I remember vividly one of the first comments I received had to do with the county commission's handling of man-camps. The reader was dumbfounded at the triviality of the questions being addressed and said if this was the level of their understanding of the issue, North Dakota was headed for significant problems. I did not post that comment because I was giving the county commissioners (and other state agencies) the benefit of the doubt at that time. I wish I had saved that comment. It was very, very prescient.

So, now, five years into the boom we have a study to see what needs to be done with regard to the electric grid! Five years. This study should have been commissioned back in 2009 when one could see the handwriting on the wall regarding the influx of workers, and the number of wells that were forecast to be drilled.

The linked article above also says the commission approved another study at the same meeting: this study will look into North Dakota natural gas production, gathering and processing.
As oil production grows, so has the state's output of natural gas. In a separate vote Monday, the Industrial Commission approved spending $120,000 to hire Bentek Energy, a consultancy based in Evergreen, Colo., to analyze the state's likely future natural gas production, and suggest expansions or improvements to its existing pipeline network.
They can start by reading ONEOK's annual reports for the past five years.

I find it interesting that both issues being studied -- natural gas and electricity -- are core competencies of MDU, headquartered in Bismarck, North Dakota. I cannot think of one company that has so completely missed the Bakken boom. The Bakken was literally in their backyard. Up until recently MDU has had a grand total of two rigs in the Bakken. Recently it announced it was going to add a third and a fourth, I believe, in their Montana acreage. This was the company that "discovered" the Cottonwood oil field northeast of the Sanish, and subsequently sold their Bakken assets to Oasis, which seemingly overnight came out of nowhere to become a $2.7 billion market cap company. I could be wrong, but if I recall MDU had a market cap of nearly $5 billion going into the Bakken boom; MDU now has a market cap of $4.2 billion helped by a bull market. A Yahoo!Financial comparison of the two (MDU vs OAS) is eye-opening. Over two years, MDU's return on that chart is 20%; the return for Oasis is 120%.
“We now have the acreage, drilling rigs and services as well as the organizational capability and experience to sustainably grow our Bakken production,” said Kent Wells, president and chief executive officer of Fidelity. “Our systematic approach of appraising and continuously improving our drilling and production operations is starting to pay dividends and we have only just begun.” 
It's 2012, and MDU just "now has the acreage, drilling rigs (2 drilling rigs in North Dakota) and services" and MDU "has only just begun"? Five years into the boom? Two (2) drilling rigs in North Dakota?
One has ask: how was it than an Oklahoma company saw the opportunity and will have three good-sized natural gas gathering and processing plants on line by 2012: Garden Creek, Stateline I and Stateline II? This was not a secret. The stories were published well in advance. Everyone was concerned about flaring. Where was MDU? This opportunity seems to have been a natural for MDU, but it was an Oklahoma company that acted upon it. Just as it was an Oklahoma company that grew from almost nothing to a company with a market cap of over $15 billion.

I could be wrong on the facts. But that's how I see it. That's my myth. It's all personal opinion. I'm sure I'm out of the mainstream in my thinking. This post is simply for myself and my archives.

Sure, this is all 20-20 hindsight, but I will never forget the comment that someone sent me many years ago about how North Dakota leaders were mired in trivialities which did not bode well going forward. I remember very distinctly posting a suggestion for managing the road issue (I don't recall if that was in the original blog (2007 - 2008) or this current version back in 2009. It was too audacious then and too audacious now to post, so I won't.)

So, that's the reason I did not post the Bismarck Tribune study regarding these studies when I first saw the story. These studies should have been commissioned in 2008 when the USGS study came out. 

As long as I've rambled this long, I might as well add one more complaint. How does North Dakota plan to invest the oil revenue they have put in a "lock box"? From the Alaska Journal of Commerce
North Dakota's new state oil tax trust fund will have scanty earnings while an advisory board controlled by state lawmakers decides how the money should be invested. 
The board's chairman, state Sen. Randy Christmann, R-Hazen, said he's reluctant to put much of the revenue into the stock market, even though similar funds in other energy-producing states have significant investments in stocks.
"I think stocks would be pretty limited," Christmann said. "Preserving that principal is the priority."
And so it goes.  Lawmakers are even afraid to invest the oil revenue in companies involved in the biggest boom they will ever see in their lifetimes. Meanwhile, North Dakota's tax rate is #17 in the nation. Meanwhile, see this letter on same subject in Debbie Downer. If the link is lost, which it will be shortly, it has to do with request for ND legislature to use Alaska as a model for dispersing oil fund money.

A Note to the Granddaughters

You know this story well; I've told it many times, and as you grow older you will hear it many more times. That's what grandparents do -- at least grandfathers: they keep telling the same stories over and over.

One could not ask for a nicer day with regard to the weather -- well, it might be a bit humid. I already feel a bit "sticky."

There is not a cloud in sight; the sun is bright. Even a short-sleeve western shirt (can western shirts be short-sleeved?) seems more than needed; it's getting that warm. It's 9:00 a.m. and I've not yet had coffee. (Maybe that explains the note up above.) I remember when I was in the Air Force. The US Army had the commercial, but we all lived it: In the air force, I did more before 9:00 a.m. than most folks did all day.  But now that I'm retired, I have to stay up until 2:00 a.m. every night to get everything done.

But I digress. The day reminds me of the wonderful, beautiful days I experienced in Westfield, New Jersey, or more precisely, Union County, New Jersey, following my junior year in college. I sold dictionaries door-to-door in that New York City-bedroom-community. I started at 7:00 a.m. and worked until 7:00 p.m., hitting a new house, on average, every 15 minutes. It was the hardest job I ever had: physically, mentally, spiritually. Looking back I don't know how I completed that summer, and I could never do it again. Indeed, though I had the invitation to return the following summer, I just could not do it.

Experiences are "funny." I could be experiencing the identical weather in the Bakken today but it would feel different. As soon as I walk out the door unto the streets of this Boston suburb, I can tell I am on the northeast coast of the US. It's probably the traffic, the slight humidity, the trees, the "architecture" of the service stations. And it immediately reminds me of my coming of age summer, that summer I sold dictionaries door-to-door. Had I stuck with it, I might have risen to be the CEO of a publishing company and would tell you how I started out door-to-door. Just as Harold Hamm tells his listeners that he started out driving a water truck in Oklahoma.

The leaves are not out yet. The younger of the two granddaughters wished a happy "first day of spring or the first day of summer," whatever it was before leaving for school. Yesterday on the way to gymnastics we mentioned that today would be the first day of spring. I guess it was hard for her to realize that this was only spring; it feels like summer.

This afternoon we are going to the beach. The granddaughters have early release today because of parent-teacher conferences. They will be released from school at 11:30.

The beach we go to today is an interesting beach: it is at the confluence of where the Annisquam River runs into the harbor along the North Coast. Our older granddaughter (8 years old) wants to be a marine biologist, so an outing to the beach is one of her favorite things, if not her favorite thing, to do.