Wednesday, January 23, 2013

The Oil Drum and Winniston -- The Heart of the Bakken

There are a number of reasons readers might find this story over at The Oil Drum interesting, but the comments are a hoot -- especially as you move down the comment list where "they" start talking about North Dakota. A must read just for the fun of it -- if nothing else, read the comments.

Sanchez Energy

Focused on the Eagle, but also in Montana:
While the public company is mostly focused on the Eagle Ford, it also holds a small position in the Haynesville play and approximately 82,000 net acres under lease in northern Montana prospective for the Heath, Three Forks and Bakken shale.

The company has taken a "wait and see" approach to these leaseholds, electing not to drill or invest capital beyond extending the leases, until it sees what kind of success other operators have. Infrastructure such as rail capacity to bring oil to market also remains an issue for this area.

Wells Coming Off the Confidential List Thursday -- Look How Fast These Wells Were Hooked Up To A Natural Gas Pipeline

  • 19263, 2,429, KOG, Two Shields Butte 5-7-8-1H, Heart Butte, t10/12; cum 46K 11/12;
  • 20854, 1,051, Slawson, Zulu 2-21H, Van Hook, t9/12; cum 29K 11/12;
  • 21384, 349, Whiting, Cerkoney 21-2TFH, wildcat (at the corner of St Demetrius and Whiskey Joe); t7/12; cum 10K 11/12;
  • 21470, 949, Zenergy, Monson 2-11H, Elk, t10/12; cum 20K 11/12;
  • 22780, 1,321, EOG, Fertile 46-1608H, Parshall, t8/12; cum 78K 11/12;
  • 22939, drl, BEXP, Enderud 9-4 4TFH, Banks

19263, 2,429, KOG, Two Shields Butte 5-7-8-1H, Heart Butte:

DateOil RunsMCF Sold

 20854, 1,051, Slawson, Zulu 2-21H, Van Hook:

DateOil RunsMCF Sold

 22780, 1,321, EOG, Fertile 46-1608H, Parshall:

DateOil RunsMCF Sold

CLR With Six New Permits In Area Where 100K Bbls In Nine Months Are Being Seen; This Will Make 14 Wells Sited in One Section

I recently made a huge mistake interpreting a press release (I noted it at the post and moved on, but it really bothered me to have made a mistake of that magnitude regarding the Bakken). Because of that mistake, I'm a bit "gun shy" but I think this is correct. On January 18, 2013, I posted a note that CLR will be siting 8 wells in section 16-152-99, Banks oil field

In today's daily activity report, it appears that CLR has permits for six more wells in this field. Again, I can make huge mistakes, and this could be another mistake, but if I'm reading this correctly, CLR will have 8 + 6 wells in this section: 14 wells.

CLR: six new permits announced today in section 16-152-99, Banks oil field:
  • 24837, loc, CLR, Wahpeton 2-16H2, Banks, 
  • 24838, loc, CLR, Wahpeton 3-16H3, Banks, 
  • 24840, loc, CLR, Wahpeton 4-16H1, Banks,
  • 24842, loc, CLR, Wahpeton 5-16H2, Banks,
  • 24843, loc, CLR, Wahpeton 6-16H, Banks,
  • 24844, loc, CLR, Wahpeton 6-16H3, Banks,
There is already one well in this section:
  • 19450, 322, CLR, Wahpeton 1-16H, t7/11; cum 110K 11/12; still flowing 6K bbls/month;
And one well one mile west of this section:
  • 19858, 1, 349, CLR, Jamestown 1-7H, t3/12; cum 119K 11/12; still flowing at 10K bbls/month;
The graphic for these 14 wells is at this link

CLR Update -- More To Follow

First: the press release --

Company's Bakken Proved Reserves Almost Double, Exceeding a Half-Billion Barrels of Oil Equivalent
58 Percent Estimated Production Growth Achieves 2012 Target

The summary at Yahoo!Finance In Play:
Continental Resources increases proved reserves 54% to 785 MMBoe : Co increased its year-end 2012 proved reserves to 785 MMBoe (million barrels of oil equivalent), a year-over-year gain of 54 percent. With the 2012 increase, Continental has grown proved reserves at a compound annual growth rate of 45 percent since year-end 2009. Continental's 2012 proved reserves had a net present value discounted at 10 percent (PV-10) of $13.3 billion, a 45 percent increase over the PV-10 of $9.2 billion for proved reserves at year-end 2011. Proved reserves growth in 2012 primarily reflected strong production growth in the Bakken play of North Dakota and Montana, which Continental believes is the nation's premier oil play.
Then, look at the daily activity report posted just moments ago. CLR with eleven (11) new permits. 

Not trivial.

Active Rigs: Up to 190; Seventeen (17) New Permits -- The Williston Basin, North Dakota, USA

Bakken Operations

Active rigs: 190 ( this is quite an increase from the intra-boom low of 179 not so many weeks ago)

Seventeen (17) new permits --
  • Operators: CLR (11), QEP (6)
  • Fields: North Tobacco Garden (McKenzie), Chimney Butte (Dunn), Banks (McKenzie), Heart Butte (Dunn),
  • Comments: CLR is getting serious!
Wells coming off the confidential list were posted earlier; see sidebar at the right.

Producing wells completed (these, again, are some nice wells):
  • 23006, 2,590, BEXP, Gunderson 15-22 6H, Banks, t12/12; cum --
  • 22749, 575, CLR, Repetowski 1-36H, Three Forks, St Demetrius, t8/12; cum 48K 11/12;
  • 23005, 1,964, BEXP, Gunderson 15-22 2TFH, Banks, t12/12; cum --

Filloon's Top Bakken-Centric Stock Picks

Part I, January 13, 2013
Part II, January 22, 2013

Filled with data points, for example:
Railroad transportation of Bakken crude is increasing. EOG Resources  uses virtually no pipeline capacity for its Bakken production. This is sent to St. James for LLS pricing. Tesoro  is doing the same to its Anacortez refinery, and is planning to start railing oil to California. Phillips 66  signed a deal for Bakken crude transported to its Bayway refinery on the east coast. Look for further rail capacity additions coming on line over the next couple of years. This should open pipes for other Bakken players.

Wow, This Is Huge: Four-Lane Between Watford City and Williston ...

.... but this is hard to believe: a new four-lane bridge across the Missouri just south of Williston.

Actually it's going to be a five-lane, not a four-lane highway between Watford City and Williston. Think Odessa and Midland. The fifth lane will be the sporty lane. [See comment below regarding growth of Watford City over new decade:]

For the past two years I wondered when the bridge issue would be addressed. The existing two-lane bridge would only become a choke point if the highway was widened to four lanes on both ends.

So, here it is in The Bismarck Tribune.

Some data points:
  • key phrase: extraordinary expense and scope of new right-of-way that will be needed
  • key phrase: extraordinary expense due to new bridge
  • will be done in phases
  • first phase: 25 miles, Watford City to Alexander (relatively easy by comparison to everything else)
  • second phase: north of Alexander to "four-mile corner" west of Williston (north of the bridge); also about 25 miles
  • second phase construction: to begin in summer of 2014
  • existing bridge will serve while the new one is under construction (either to the west or east)
  • Williston water plant sits on the east side of the existing bridge, on the north side
  • the highway: two, 12-foot lanes running each direction with a continuous left-turn lane running down the middle
  • 8-foot wide shoulders
  • separate project: a bypass around the city of Alexander; route not yet selected
One word: wow! Talk about all the employment opportunities over the next two or three years in the area.

Someone Must Have Seen The Recent "New Wells Reporting"

KOG is down slightly in early trading.

OAS is up, and set a new intra-day all-time high.

Disclaimer: this is not an investment site. These are not recommendations. Make no decisions based on what you read here. I have invested off and on in both of these companies. I am not doing any new investing for the next week or so.

Other notes from the market:

UNP is hitting a new 52-week high with significant jump.

BRK-B hits a new 52-week high, probably riding the BNSF rails.

PSX up a bit but most oil and gas down a bit; mostly flat.

Everyone's waiting for AAPL late this afternoon. Did I hear that Apple/Verizon sold more "old" iPhones than all Androids combined this past quarter? [Later: iPhones, 63% of Verizon's smart phones on 4Q12, compared with 56% previous quarter -- or something like that -- it was on CNBC: the point is that a larger percentage of Verizon's smart phones are iPhones than Androids, and the spread is increasing.

Anyone who has followed the worldwide web development story, DARPA, and Apple closely will be intrigued by this story from MacRumors:
The report outlines how Siri grew out of a Department of Defense project to integrate with 42 different web services to perform its virtual assistant services, many of which were discontinued when Apple scaled back the platform for inclusion in iOS. Apple has been relatively slow to build Siri's feature set back up, but has been making progress on the effort. 

Wow, I Love These Stories -- Bakken, Canada, Europe, Saudi

Another great story sent to me by a reader, thank you: link here to Reuters:
The United States now gets so much crude from its own shale deposits that Canadian exporters are selling as far afield as Europe, showing how deeply the U.S. energy revolution is transforming global oil flows.
As recently as 2011, close to 100 percent of Canada's crude exports went to its neighbour the United States, according to the U.S. government's Energy Information Administration (EIA).
But trade and shipping sources said more than 2 million barrels of light crude from Canadian offshore oilfields have gone to Europe in the last month, in a taste of what is to come.
The change is due to technological advances the U.S. expects will bring a 900,000 barrels per day (bpd) record jump in its oil output to 7.3 million bpd in 2013, the EIA said ealier this month, from places like the Bakken shale deposit in North Dakota that now feeds U.S. East Coast refineries served by Canada.
Wow, there are a lot of story lines there. Of course, the one that caught my eye was the reference to the Bakken again, as the "gold standard" for results and research.

But this is the bigger story. It is easy to fall into US-centric thinking. I don't want to get all touchy-feely with globalization and 'flat earth' but I often fall into the "US-us -- Canada-them" trap. The linked story reminds us that it is not US vs Canada but North America (and with SRE/natural gas/Mexico as but just one example, one can include the entire continent) as the center of energy excitement. This is not new; just a reminder. We've talked before how the center of energy (or however it was phrased) has moved from Saudi Arabia/Mideast to the west.

This is key in the story above: the US does not allow export of oil except in certain situations (one, of course, it allowing oil export to Canadian refineries). But Canada does export oil to countries other than the US. Like Europe, Brent is about $16 more than WTI.

There appear to be two developing (continuing?) trends:
  • Brent is trending higher
  • Brent/WTI spread is narrowing
And for Bakken investors, Bakken/WTI nears parity at Clearbrook, MN.

Again, another argument is a strawman: the argument over whether the US should allow its oil to be exported. There are a lot of moving parts to make it a binary decision. 

I think "we've" been focused too much on a) the Keystone XL; b) Canada's attempt to move more oil west to Asia; and, have missed the bigger picture, c) Canada exporting oil to Europe.

Saudi has cut production/exports in the last two months (earlier it was reported just one month, but a follow-on story suggested the past two months). Who would have thought the Bakken would have made this possible? As a reminder, the Bakken is said to be producing about 12% of America's domestic production, and its production potential is choked back for a number of reasons.

Wow, what a great story. A "huge thank you" to the reader for sending me this.

The linked Reuters article has a lot of archival information regarding potential profits and the global movement of oil.

Lots of Opportunity --

Thank you to a reader for sending this note, story at Bloomberg:
U.S. oil demand fell to the lowest level in 16 years in 2012 as economic growth weakened while domestic [oil] output surged the most in more than 150 years, the American Petroleum Institute said. 
Total petroleum deliveries, a measure of demand, dropped 2 percent from 2011 to 18.6 million barrels a day last year, the lowest level since 1996, the industry-funded group said in a monthly report today. Oil production increased the most since 1859 to the highest level in 15 years, the API said.
“The demand decline is driven by the weak economy,” John Felmy, chief economist of the API, said in a phone interview. “You have weak gasoline demand, which is tied to employment and retail sales. And you’ve got weak diesel demand that reflects a slowdown in the manufacturing sector.”
Domestic oil production jumped 779,000 barrels a day in 2012, or 14 percent, to 6.43 million, the API reported. A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations in states including North Dakota, Texas and Oklahoma.

SeekingAlpha Has A Piece on XOM and Kurdistan


November 28, 2013: Exxon sells crude oil stake in Iraq to PetroChina
Original Post

I wouldn't have posted this link except for the fact I was in Kurdistan in another life, long ago, and (literally) far away. So it caught my interest.

Also, with "Bidentalk" of the vice-president being intoxicated with the idea of running for president of 2016, we need to start connecting dots and opportunities.

The Kurdish Regional Government ("KRG") has their own armed forces and has run its own regional administration in northern Iraq since 1991. The KRG has signed dozens of deals with other large foreign oil companies. Along with XOM, U.S. oil giant Chevron is also poised to start drilling in Iraqi Kurdistan during 2013.
So Exxon, and to a lessor extent Chevron, is now at the heart of a long-running dispute over oil reserves and territory between the Arab-led central Iraq government and Kurdish Regional Government . This will be a fascinating storyline to watch in 2013. Indeed, recently more trouble is brewing as the Kurds have rejected Baghdad's recent Kirkuk deal with BP as "illegal and unconstitutional."
Mr Biden has made his position known how he would advise Baghdad. And that's important. Not intuitive, but important. On this one, Mr Biden is correct.

Non-Bakken Links: All Bakken All The Time? Skip This Post; Scroll Down; Sidebar At The Right

Active rigs in North Dakota: 188 (steady overnight)

All Bakken All The Time at the sidebar at the right

WSJ Links

Section D (personal journal)
Walter Mossberg on "sometimes they're tablets, sometimes they're not." That's how I felt about the new Microsoft Surface, but I don't think that's what Mossberg is talking about today. We'll see. These are the three hardware devices he reviews: HP Envy x2 (weak processor; 5-hour battery); Asus Taichi 21 (complicated; a "heavy" tablet); and, Toshiba's Satellite U925t (4-hour battery). Bottom line: "None of these three convertibles is optimal and different people will have different tastes. But as someone who values tablets partly for their sleekness, I'd pick the HP, which includes a real tablet, if I had to choose. I only wish that, as a laptop, it had more storage and a snappier processor."

Section C (Money & Investing): Nothing. At most, "soybean futures up 1.6%."

Section B (Marketplace):
Great article: why lithium batteries are prized. The science behind the Dreamliner batteries.
The challenge for battery makers has been to boost the amount of energy that can be stored in a given volume—and that is where lithium-ion technology shines. A lithium-ion power-pack can deliver more energy than a similar-size battery based on another metal, a measure known as energy density.
That is why lithium batteries were compelling to the 787's designers. The Dreamliner was crafted to allow for big fuel savings and weight reductions, some of which are enabled by the small but powerful lithium-ion batteries Boeing is using.
Lithium is the least dense of all metals and highly electropositive, which means it delivers a high voltage. Lithium-ion batteries pack twice as much energy density as nickel-metal-hydride versions, and four to six times as much energy density of the lead-acid battery found in many cars, according to Stanley Whittingham, a professor of chemistry and expert on lithium-ion batteries at Binghamton University in Binghamton, N.Y.
Lithium also is the third-smallest element after hydrogen and helium. "Because it is small, you can pull it in and out of materials easily" compared with other elements that are bigger and can't be moved so easily, said Clare Grey, professor of materials chemistry at the University of Cambridge, England.
Front page:
Can a whole city stick to a diet? Fat chance. Boston resolved to drop a million pounds: 74,597 pounds later, a gut check.
In June, a mere two months after the challenge began, the city kicked off "Fitness on the Plaza," a series of free exercise classes for the citizenry to work off its blubber. But the same week in the same place—City Hall Plaza—Boston tempted the sweet tooth by hosting the annual "Scooper Bowl," billed as the nation's largest all-you-can-eat ice-cream festival, offering delicacies from Rockin' Poppin' Cotton Candy to Hunka Chunka PB Fudge.
Whatever. Boston is also home to some of the biggest beer-tasting and beer craft shows throughout the year. And we haven't even mentioned the huge "hot dogs" in the stands across from the Green Monster.

And that's about it. There was an op-ed on Phil's comments. It appears, based on comments I received, there are a few people, at least, all things being equal, if given the opportunity, would move to a high-tax state. Most folks, however, all things being equal, if given the same opportunity, would move to a no-tax state.  I was thinking of doing a poll, but common sense prevailed. But you can do your own poll: ask your friends -- "All things being equal, if you had the opportunity, would you like to live in a high-tax state or a no-tax state." Interestingly, this is not as easy as it sounds. Remember, you can't qualify it by saying that with higher taxes, one would have better schools, or better roads, or better health care, the critical phase is "all things being equal." The only thing different: high taxes or no taxes.

And with that, back to the Bakken. I hear it's five degrees colder than the norm in Chicago today. Brrr! Watch natural gas prices.

Must-Read: Sent In By A Reader -- Huge Growth In Houston Seen

[Wells coming off confidential list today have been posted: two nice wells.]

From a reader:
Coming to Houston port region: $35 billion in investments and 111,000 jobs, between 2012 and 2015:

While oil impacts the Houston port region somewhat, NGLs are the real driver. More ethane means more ethane crackers and more polyethylene for expore, more propane means more polypropylene and more propane exports, more butane means more polybutylene and butadiene etc as well as more exports. Crackers are billion dollar investments and then at least 10 being planned or under construction. Then there is LNG potential.

The Houston port doesn't include Beaumont or the Lake Charles region, which also have massive projects underway or planned related to NGLs and LNG.

Wednesday Morning

Wells coming off the confidential list have been posted today; two nice wells.

Wow, this is nice. We talked about this some time ago. Now RBN Energy has a nice post on Kinder Morgan, following the diluent trail from Eagle Ford to Canada.
The last episode of our Gulf Coast crude oil terminals series covered the Plains All American St. James, LA terminal. In particular we described the way that Plains is using St. James as a staging post to send condensate from the South Texas Eagle Ford basin as diluent to Western Canada via the Capline pipeline to Chicago and the Enbridge Southern Lights system to Edmonton. Having covered Plains’ condensate plans we felt it appropriate to update you with details of a similar project planned by Kinder Morgan (KM) in this blog. In the next and final episode in this series we will round out the Gulf Coast crude terminals with a look at yet-to-be-built projects and a summary of what we covered so far.
This is not an investment site, but some readers will look past that disclaimer and see some opportunities in what RBN Energy sees:
The “diluent trade” is a growing business for US Gulf Coast producers and refiners. The business consists of sourcing condensates in the Gulf Coast region and shipping them to Western Canada by pipeline. In Canada the condensate is mixed with heavy tar sands “bitumen” to make a “dilbit” crude light enough to flow back to the US (or Eastern Canada) in a pipeline. Canadian demand for condensate as diluent is expected to grow rapidly in the coming years. The chart below is based on National Energy Board (NEB) estimates published in 2011 for condensate/diluent demand in Canada. Total Canadian demand (blue line) is forecast to expand from 300,000 b/d in 2012 to 670,000 b/d by 2020. 
A lot of story lines here, especially in light of the new routing for Keystone XL 2.0 moving forward, now approved by the Nebraska governor.