RBN Energy Crude Oil Pricing, The Bakken, And The Spearfish

Elsewhere there are always a lot of questions and confusion about pricing Bakken oil.

RBN Energy has a great essay today on the crude oil market in the United States. This is an article that needs to be archived (and it has been, over at the sidebar under "RBN Energy").

This is a very important paragraph in that analysis:

Both LHS and Eagle Ford are light sweet crudes and there are plenty of these grades headed into Houston in the coming months. However many Houston refiners are actually looking to buy heavier sour crudes because their refineries are configured to process these grades rather than the light-sweets.

Most of these heavy sour requirements are currently met by imports from Mexico and Venezuela but those suppliers will increasingly compete with Canadian heavy crudes arriving via Cushing and medium sour grades such as WTS from the Permian Basin. So although there is no clear trading market for a standard sour crude grade in Houston yet, because the infrastructure and supply picture is still evolving, it is likely that one will develop. In fact heavy sour crudes may well become more valuable than light sweet grades. For example it is interesting to note that during July 2013, prices for WTS crude at Midland in the Permian Basin were higher than for WTI at the same location (by an average of about 20 cnts/Bbl).

That situation is unusual since WTS has traditionally traded at a discount to WTI because sour crude is generally less valuable to refiners. [The reason that sour crude prices are usually cheaper  is that additional expensive processing is required to remove the sulfur from refined products made from these grades.] Higher WTS prices last month reflected new demand for delivery to Houston refiners on the Longhorn pipeline, particularly since the Shell Houma to Houston (Ho-Ho) pipeline is now no longer flowing sour grades to Houston since it was closed to finish the reversal of that pipeline. Increased demand for sour crudes in the midst of the incoming flood of light sweet crude is likely to continue to upset “business as usual” for Gulf Coast crude pricing.

Two takeaway points for those following the North Dakota oil industry:

• Bakken oil is closer to what refiners want compared to Eagle Ford oil which is too light, and flooding the market
• Spearfish heavier, sour crude is exactly what some refiners are now looking for

It looks like my commentary over the weekend was spot on.

Even more interesting: it looks like Corinthian Exploration in Bottineau County, North Dakota, is hitting its stride at just the right time. In addition to that well reported last week, today Corinthian Exploration reports two more similar wells -- as good as any mediocre Bakken well, and, way, way less expensive:

• 23894, 146, Corinthian Exploration, Corinthian Backman 12-34 1H, North Souris, another very nice Spearfish well, t2/13; cum 16K 6/13; 19 stages, 163K lbs proppant; 3,000 feet deep vertically; < 6,000 feet total depth; five days to drill; 320-acre spacing;
• 23895, 133, Corinthian Exploration, Corinthian Backman 4-34 1H, North Souris, a very nice Spearfish well; t3/13; cum 18K 6/13; 20 stages; 180K lbs proppant; 3,000 feet deep vertically; < 6,000 feet total depth; 4 days and 1 hour to drill to total depth

Theme song for the roughnecks working the Spearfish:

She Bop, Cyndi Lauper
They can drill a Spearfish well in about the time it took to record this song. Fast. Play it loud with the windows rolled down.