The Million Dollar Way (The Bakken Oil Blog): 09/01/12

Saturday, September 1, 2012

Germany Sets New Solar Power Record -- Reuters

I completely missed this story; it must have "happened" while I was traveling. I completely missed it; it's a huge story.

In late July, 2012, a "the head of a renewable energy think tank" said that Germany set a new solar record: producing 22 gigawatts of electricity per hour -- equal to 20 nuclear stations at full capacity, through the midday hours of Friday and Saturday on/about July 26, 2012.

Germany, apparently, has nearly as much installed solar power generation capacity as the rest of the world combined and gets ... drum roll ... four percent of its overall annual electricity from the sun alone.

Unfortunately, there is no industrial-strength storage system that can store energy provided by the sun.

Somewhere around noon on any given sunny day, the German utilities are forced to bring down conventional power to "make room" for the solar-generated electricity that is being pushed into the grid, and then bring up those same coal-fired utilities as the sun fades later in the day.

Coal-generated electricity costs about six cents per kw/hr in the United States. The Germans pay about 23 cents per kw/hr and solar energy adds about 2 cents per kw/hr. According to the Reuters article, German consumers pay about $5 billion per year on top of their electricity bills for solar power.

But Germany, for now, has bragging rights: the capacity to provide a fair amount of solar electricity on sunny days at heavy cost, direct and indirect.

Week 35: August 26, 2012 -- September 1, 2012

Bakken Operations
The Bakken: a trillion bbl reserve; 45 billion recoverable bbls
ONEOK to build fifth natural gas processing plant, Garden Creek II
The QEP deal
Update on Schlumberger's Hiway fracking technology
Where the Bakken is headed
Random observation: where the Bakken is headed
High cost for wells: an explanation
The NDIC dockets: September
How accurate are well files: the case of the missing lateral
Oasis moving to pad drilling; less ceramic
Three incredible BEXP Strobeck wells
Clearbrook, MN: Bakken's Cushing?
Water, fracking, and other myths

Crude By Rail
Savage announces completion of its Trenton double-track CBR facility
Dickinson facility expanding
Statoil to lease > 1,000 rail cars to ship oil

Area Economic Development
Buffalo Wild Wings coming to Williston
Dickinson's new fracking water plant, aka water treatment plant
Minot airport new terminal, improvements: plans move along
Japanese conglomerate to build grain elevate in North Dakota
Fertilizer plant site selected: Jamestown, ND
Business climate: Minnesota vs North Dakota

International Energy
Lukoil production drops
Australia suspends fracking

For Investors Only (see disclaimer)
Chevron's hoard of cash spurs deal talk
Multiple links; including "The Street's" remarkable error
Chesapeake's cash crunch
For those who think NOG is overpriced

For archival purposes
History of mergers and acquisitions during the Bakken boom
The map of the United States -- The US State Department

Random Observation on the Future of the Bakken -- From a Reader

Updates

Monday, December 8, 2014: a reader suggests CLR will be increasing the number of wells in this area.

Original Post

This was sent to me as a comment following my post about where the Bakken was headed in light of the September NDIC hearing dockets.

Because not all folks see the comments, I am posting it here as a stand-alone post:

I'll be paying attention to the activity related to case 18670.

[From the dockets: 18670, CLR, Oakdale-Bakken, 18 wells on each existing 1280-acre unit; Dunn.]

In addition to the two 1280s referenced here, there is also a 2560-acre unit which has the Hawkinson-Whitman Eco Pad producing. The Whitman middle Bakken well is sort of a non-factor at this point as I think it is an un-fraced open lateral about 2,000 feet long. CLR quit drilling this lateral as they almost lost control of it.

The Whitman TF is the best of the pad with a July production of 36,883 bbls with a cumulative in 11 months of 465,116 bbls. July total for the four wells is 61,646 with an 11-month cumulative of the 4 wells at 854,298.

So if they add 17 wells to each 1280 (one already exists on each 1280) plus the 4 wells from the 2560 they would have a total of 40 wells on these 4 sections. Four wells in each of 5 zones? If all drilled from the same section line that would be 40 pump jacks in 4,280 feet with the 500 foot setbacks on each end. Busy place. No longer a tranquil spot for a cabin in the hardwood covered rolling hills.

The eco pad is on the verge of producing 900,000 barrels in one year from 4 wells. It will be interesting to see what another 34 wells would do on these 4 sections.

Staggering? Yes.

Maybe they will be able to put submersible pumps on all the wells, connect all of them directly to a pipeline, and minimize impact above ground. Something tells me we will see this play out over the decade.

Here are a few of the wells in the immediate area in the Oakdale oil field:

17061, 664, CLR/BR, Whitman 11-34H, 34-147-96, Oakdale, AL, t6/10; cum 362K 10/14;
17079, 559, CLR/BR, Carson Peak 44-2H, 2-146-96, Oakdale, AL, t6/08; cum 255K 10/14;
17334, 811, CLR, Morris 1-23H, 23-147-96, Oakdale, AL, t11/08; cum 220K 10/14;
18275, 1,004, CLR, Hawkinson 1-22H, 22-147-96, Oakdale, F, t2/10; cum 634K 10/14;
18858, 715, CLR, Morris 3-26H, 26-147-96, Oakdale, AL, t5/11; cum 348K 10/14;
18859, 680, CLR, Carson Peak 3-35H, 26-147-96, Oakdale, AL, t5/11; cum 484K 10/14;
18860, 517, CLR, Morris 2-26H, 26-147-96, Oakdale, AL, t5/11; cum 213K 10/14;
18861, 759, CLR, Carson Peak 2-35H, 26-147-96, Oakdale, AL, t5/11; cum 511K 10/14;
20208, 960, CLR, Hawkinson 2-27H, 34-147-96, Oakdale, F, t9/11; cum 367K 10/14;
20210, 803, CLR, Whitman 2-34H, 34-147-96, Oakdale, F, t9/11; cum 1,153K 10/14;
20211, 263, CLR, Hawkinson 3-27H, 34-147-96, Oakdale, AL, t9/11; cum 334K 10/14;
20212, 482, CLR, Whitman 3-34H, 34-147-96, Oakdale, F, t9/11; cum 98K 10/14; (see comment above)

#20210, by the way, is already on my "Monster Wells" list.

Answer To The Quiz

Back on August 23, 2012, I posted a quiz, to be answered in short essay. I received a few replies. The target audience: newbies. Regular readers knew where I was going with this quiz.

The question posed was this: if it is taking less time to drill and complete a well, why are well costs going up?

As a reminder, two data points:

wells are costing significantly more, often $10 million, and there are reports of one particular Bakken well costing upwards of $20 million
the time it takes to drill a well has come down significantly, from 45 to 60 days in the early Bakken boom to less than 20 days now

So, all things being equal, the cost of a new well should be significantly less.

I specifically stated that "inflation" or answers to that effect would not be accepted.

I was looking for two specific reasons explaining the high cost of today's Bakken wells.

The answer(s):

There are two components for a Bakken well: a) drilling to total depth (the vertical well, the curve, and the horizontal); and, b) completing the well, generally fracking, when talking about a Bakken well.

The cost of a Bakken well, to drill it and to complete it, can then be broken into two pieces.

First, the drilling to total depth.

Had all things (but one) remained unchanged throughout the past two years in the Bakken, the cost of drilling would have come down (again, remember, I nixed "inflation" as a reply), because the time to drill to total depth had been cut in half. But one of the reasons that time to reach total depth has been cut in half is due to the new rigs that are being used in the Bakken. These are specialty rigs designed specifically for the Bakken. Whether one buys the rigs or rents them, the day rate is significantly higher than the previous rigs. Part of the increased day rates will be due to the increased use of diamond bits, as alluded to by Lynn Helms in a recent interview.

Second, completing/fracking the wells.

This is real, real easy. The answer to increased cost for completing a well -- increased amount of proppant. There are two issues with regard to fracking: a) what to use; and, b) how much to use.

With regard to what to use, I believe ceramic costs on the order of 10:1 vs sand. I could be way wrong on that.

With regard to how much to us, there is no question: a lot. EOG recently fracked three wells with eight million pounds, eight million pounds, and nine million pounds of sand (no ceramics), respectively.

So, what does this mean?

Day rates with these new rigs probably won't go down in the next year. Drilling to depth is probably a wash with regard to costs. With the new rigs, operators are saving huge amounts of money with regard to personnel costs (20 days vs 60 days for roughnecks, two geologists, truck drivers waiting to unload supplies) and with "walking" their rigs on pad drilling. But those savings will be offset by higher day rates. Operators feel they can knock off about $800,000 or maybe even a million dollars per well by pad drilling.

But that savings is peanuts compared to what proppant and guar is going to cost them. I assume if they use more proppant they also need to use more guar (I could be wrong on that).

Operators are under huge pressure to cut costs. If the cost of proppants is the 800-pound gorilla in the cost of a completed well, that's where operators will look next.

The first question will be, as noted above, what should be used? The answer: sand, and sand alone. See an earlier post regarding the QEP/Helis deal for that commentary.

How much proppant should be used? That's the ~~$64,000~~ million dollar question. I think the answer will be: a lot. EOG appears to be testing that thesis by blowing away the middle Bakken with nine million pounds of sand. For newbies, folks thought the four million pounds that BEXP routinely used was "over the top." But nine million pounds is incredible.

If an operator has to buy sand from a middle man, that increases the cost of the sand significantly. The cost comes down if an operator owns the sand quarries. EOG owns many, many sand quarries in Wisconsin or in some state east of the Bakken.

Once we start seeing QEP complete the Helis wells they've bought we'll get the first clue on what to use. I will be most interested to see how much they use.

************************

For newbies: Whiting says they are the low-cost operator for drilling/completing a Bakken well, stating they can drill a Bakken well for $7 million and in some of the Bakken down to $6 million. Other operators may disagree but that's from Whiting's corporate presentations.

For Bloggers

This is very interesting.

My primary blogging application is "blogger," owned and supported by Google.

Occasionally "blogger" has gone down and I've set up an alternate site, using "WordPress" as the blogging application.

Today, out of curiosity, I did a "google" search to see how my "MillionDollarWay" site was doing. The first hit (for the words I googled) took me a WordPress site for a post I did on Slawson, and rumors that it was drilling in the upper Bakken shale. That is one of my least visited posts, and yet it was the first hit on "google" using very generic search terms for the Bakken.

I scrolled to the bottom of that Slawson post and a YouTube advertisement for Yoplait was there. I never place "paid" advertising on my site. I checked the "blogger" application (my primary site), and checked out that same Slawson post: no YouTube advertisement.

I went back to WordPress, and the advertisement had changed to another YouTuber advertisement.

So, it appears:

a) WordPress has monetized their site by posting advertising directly on blogger's posts;
b) WordPress has found a way to push those posts with their advertising higher in the google search hierarchy (that is easily done, by the way; I get pitches all the time from folks willing to move my blog higher on google for a small price); and,
c) it appears WordPress placement of those ads are pretty indiscriminate. Of the 8,000 posts I have uploaded, that one post was pretty obscure and uneventful.

Google's "blogger" has also monetized their application, but not to this degree.

Now, just checking that site again, the ad is gone. Very interesting. Perhaps more to follow.

The good news: it reminded me -- I need to check up on those Slawson upper Bakken shale wells that were supposedly permitted in the 2008 time frame.

Update on Keystone XL

Following the decision to kill Keystone XL, Canada said very publicly it would look for alternate markets for its Canadian oil sands crude. I posted a story some time ago, shortly after that, that the Chinese state oil company, CNOOC, had bought a chunk of the Athabasca.

Now today there is a report that another Athabasca deal is in the works. No one is talking, but rumors are Kuwait is buying a piece of the rock, or in this case, a piece of Athabasca.

This, again, makes the Keystone XL less urgent for the Canadians.

I'm probably making too much of this, but just my 2 cents worth. It's just as likely the Kuwaitis, who know oil, simply see this as a great investment, knowing that the Keystone XL will eventually be built. Idle chatter.

Plans For New Minot Terminal Continue To Move Along

Link here to Minot Daily News.

Airport director Andrew Solsvig said the terminal design is about 35 percent complete and should be 65 percent complete by October. The goal is to deliver a completed project to the Minot City Council in January.

One design decision made this week was to include administraton and car rentals in the new terminal rather than continue to operate those offices out of the existing terminal.

Go to the link for an artist's view of the project.

Data points:

current cost estimates for the new facility: $40 million
with related airport improvements, overall: $75 million
federal funds will pay 90 percent of costs
city will seek additional federal funding for the remaining amount

A big "thank you" to a reader for alerting me to this story.

The Drill, A Free e-Magazine

Link here.

I have not visited the linked site on a mobile device; my hunch is it will look quite nice. I looked at it using a very old desktop Apple computer and worked quite well. I had a subscription to the e-version of the Williston Herald but the application seemed clunky on a desktop. Again, I never visited the Williston Herald on the iPad so cannot comment on how it looked on a mobile device. In contrast, The Drill seems to use a much better application.

The best part of The Drill is for folks outside North Dakota looking for employment: it is filled with colorful, informative ads. Every one of those ads is a potential employer.

Q3 Easing: Price of Oil (and Gasoline) Could Spike -- SeekingAlpha

Link here.

Focusing on the price of gasoline at the pump, a look at past stimulus programs highlights this point. During QE1 from March 2009 to March 2010, gasoline prices spiked +86% higher. And from the announcement of QE2 in August 2010 to its end in June 2011, gas prices posted a double at +101% before cooling off and ending +75% higher.

Moreover, it is not just balance sheet expanding monetary stimulus from the Fed that causes gasoline prices to spike, as policy actions from the European Central Bank have shown to have a comparable impact. During the ECB's long-term refinancing operation from December 2011 to February 2012, gasoline prices jumped +25% in just over two months.

The advance in the price of oil yesterday was said to be due to the Fed keeping Q3 options on the table.

Japanese Conglomerate To Build Grain Elevator in North Dakota