Only One Well Comes Off The Confidential List Tuesday

23798, 355, CLR, Michelsen 1-34H, Frazier, t3/13; cum 2/13 --

Back To Winter -- As We Move Into May

Don writes to tell me they may see snow in southwest North Dakota tonight.

Meanwhile, USA Today is recapping the prolonged winter.

April has been a freakishly cold month across much of the northern USA, bringing misery to millions of sun-starved and winter-weary residents from the Rockies to the Midwest.

"The weather map ... looks like something out of The Twilight Zone," Minneapolis meteorologist Paul Douglas of WeatherNation TV wrote on his blog last week.

Record cold and snow has been reported in dozens of cities, with the worst of the chill in the Rockies, upper Midwest and northern Plains. Several baseball games have been snowed out in both Denver and Minneapolis. 

And AcuWeather is reporting:

Another blast of cold air will charge southward across the Plains this week, which will lead to more spring snow for Denver.

The Weather Channel: back to winter.

Minneapolis - The 70+ degree temperatures we've seen since this past Friday were nice while they lasted. Highs in the 40s and even upper 30s are expected Wednesday through Friday. Some snow is possible as well.

Nine (9) New Permits, Williston Basin, North Dakota, USA; BR With Two Nice Wells; G3 Getting Very Active

Active rigs: 185 (steady, down slightly)

Nine (9) new permits --

• Operators: G3 Operating (4), Slawson (3), Baytex, KOG,
• Fields: Antelope (McKenzie), Sanish (Mountrail), Ambrose (Divide), Marmon (Williams), Pembroke (McKenzie), Eagle Nest (Dunn)
  Comments: G3 is getting very active, also
  

Initial production for wells coming off the confidential list for the past several days were posted earlier; see sidebar at the right.

Producing wells completed:

• 23219, 624, CLR, Midred 2-19H, Brooklyn, 4-section-spacing, t4/13; cum --
• 23218, 725, Mildred 3-19H, Brooklyn, 4-section-spacing, t4/13; cum --
• 22966, 1,648, BR, CCU Golden Creek 24-23MBH, Corral Creek, unitized spacing, t4/13; cum --
• 22965, 2,896, BR, CCU Golden Creek 34-23MBH, Corral Creek, unitized spacing, t4/13; cum --

Southwestern, Chesapeake Close On $93 Million, 162,000-Acre Deal In The Marcellus

Rigzone is reporting.

Back of the envelope: about $575/acre.

I'm Not Convinced

http://www.minotdailynews.com/page/content.detail/id/575094/Refinery-groundbreaking-planned-for-May-8.html?nav=5010

Ground breaking for Native American refinery in the Bakken. 

For Investors Only: No Time To Blog, But Two Quick Links For Investors

http://gevo.com/?casestudy=usaf-a10-test-flight-powered-by-gevos-alcohol-to-jet-fuel-validates-military-application

http://gevo.com/about/our-business/isobutanol/

I post this for two reasons. One is obvious.

But the second reason is my "love" for the A-10, the Warthog, one of the coolest aircraft ever flown by the Air Force, albeit for a very short time. I'm glad to see the A-10 is still active. It's quite an aircraft.

Yoko Ono and Susan Sarandon Can Probably Rest Easier Now -- Fracking Didn't Contaminate Well Water in Pennsylvania

Gannett is reporting:

State environmental regulators looking into a high-profile case of methane contamination in northeastern Pennsylvania have concluded that gas drilling isn’t to blame.

Anti-fracking celebrities including Yoko Ono and Susan Sarandon visited the Susquehanna County village of Franklin Forks in January as part of a tour of natural-gas drilling sites. The stars met with Matthew and Tammy Manning, who blame the high level of methane in their well water on a natural gas driller, WPX Energy.

But the state Department of Environmental Protection said Monday that its 16-month investigation shows that WPX isn’t responsible. DEP says the methane in the residents’ wells is naturally occurring shallow gas, not production gas from the Marcellus Shale formation.

It is my understanding that hydrocarbons have their own "fingerprints." When the evidence gets to court, one can't make up data; the judge will ask for the equivalent of a "carfax." I doubt the judge will call either Yoko Ono or Susan Sarandon to the stand for expert testimony.

Show Me The Carfax

By the way, "we" have the same thing in North Dakota, naturally-occurring methane in some wells, and it occurs well outside the oil patch. In fact, to the best of my knowledge, there have been no reports of methane in any wells in western North Dakota. (And anyone who even whispers "methane in my well" will be stomped on by 354 Bakken millionaires.)

Bakken Companies Generating An Enormous Amount Of Cash Flow

Ya gotta love this. "V" as a frequent nay-sayer contributor over at Carpe Diem and Rune Likvern over at The Oil Drum might want to read this article over at Motley Fool. Bakken doubters consistently tell us Bakken wells are too expensive for drilling to continue.

Motley Fool lists five energy companies that are "generating enormous operating cash growth." Four of those five companies were Bakken companies: Magnum Hunter Resources, Oasis, Kodiak, and Heckmann.

A few weeks ago, I opined that it is my expectation that Bakken-centric companies are going to concentrate on their financial statements this year, preparing for a huge M&A year in 2014. Generating "an enormous operating cash stream" certainly fits.

KOG's CAPEX is $775 million, enough for 75 net wells. With the cost of wells coming down, KOG might be able to sneak in a few more wells. But think of this: with ten-well pads, KOG has a CAPEX that could support seven pads. I don't know about you, but seven 10-well pads is a lot of drilling. The Bakken oil patch, geographically, is simply not that big. I think it would be quite impressive to drive by seven 10-well pads in one day.

As long as I'm rambling, another thought.

KOG has about 8 rigs.

Eight rigs, eight 10-well pads: 80 wells. One rig/pad. And then you start looking at the cost savings operating eight pads vs 80 separate well pads.

Having most of their acreage held by production allows Bakken-centric companies to drill where it makes most sense without drilling simply to save a lease. And not having to negotiate new leases does two things: a) saves money; and, b) makes it easier to budget.

A Nice Graph

A nice graph.

For Investors Only: Inflation Is Causing A Problem For The Fed ....

Updates

May 8, 2013: The Fed's credibility is testes as inflation drifts below target. Reuters is reporting:

With the inflation rate about half of the Federal Reserve's 2.0 percent target, the central bank is facing a major test and some experts wonder whether it will eventually need to ramp up its already aggressive bond buying program.

The Fed cut official interest rates effectively to zero in late 2008 during the financial crisis. Since then, it has bought more than $2.5 trillion in bonds to bolster an anemic economic recovery and speed up the decline in unemployment.

Despite those actions, its favored inflation gauge, the Personal Consumption Expenditures (PCE) price index, has fallen to a 3-1/2 year low of 1.0 percent.

Further, by the Fed's own forecasts, inflation is likely to remain short of the central bank's target for years.

Don't bet against the Fed. 

Original Post

.... or better said, the lack of inflation is causing a problem for the Fed.

The PCE inflation index is the Fed’s preferred measure of inflation. And both PCE inflation, and the core measure that excludes food and energy, are moving away from the central bank’s 2% target. The data was released as part of the Commerce Department’s report on personal income and consumer spending on Monday.

“At this moment, we think that the Fed will continue QE3 at the current pace of monthly purchases until the end of September. However, if inflation continues to fall further, we think that would increase the possibility of extending QE3 well into 2014 without tapering it,” said economists at Nomura in a note to clients.

In fact, the real question may be, how much more can inflation soften before the Fed will accelerate the $85 billion a month in asset purchases it’s currently engaged in? So far, it’s not enough to prompt action, economists say.

This is actually quite incredible, when you think about it.

Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you've read here.

Notes From All Over: Midland And The Cline Formation

The Lubbock Avalanche-Journal is reporting:

Sweetwater, TX: About a year ago, talk began circulating in this West Texas town about a huge oil-producing formation called the Cline Shale, east of the traditional drilling areas around Midland.

Then the oilmen and their rigs arrived. Now homes and hotels are sprouting, “help wanted” signs have multiplied, and a major drilling company has cleared land to build an office and equipment yard.

“It is coming, and it is big,” said Greg Wortham, the mayor of Sweetwater, who also serves as executive director of the Cline Shale Alliance, a new economic development group.

The Cline Shale, thousands of feet underground in a roughly 10-county swath, is just one of many little-tapped shale formations in Texas and across the nation, geologists say. That means the potential for oil and gas discoveries is theoretically huge, and the reason is technology. The rock-breaking process known as hydraulic fracturing, coupled with the ability to drill horizontally underground, has allowed drillers to retrieve oil and gas from previously inaccessible areas.

Many shales will be too expensive or too small to develop, especially if oil prices fall or environmental regulations tighten. But in Texas, which is already the top oil-producing state, bullishness about a new era is pervasive.

It's a great article. 

Does this sound familiar:

Cities with fast-developing shales may find it hard to keep up with the boom.

If the Cline Shale gets going, “Where are the workers going to be? Where are you going to put them?” asked Diana Davids Hinton, a professor of history at the University of Texas of the Permian Basin and a co-author of Oil in Texas. Already, she noted, Midland’s hotels and schools are full.

In Sweetwater, Wortham acknowledged that housing remained a concern. However, he said, the schools and roads were well prepared, partly because the area had already experienced a build-out of wind farms.

“There’s a lot more traffic than there used to be,” he said. “And we haven’t started yet.”

Sweetwater, TX, is about 100 miles ENE of Midland.

The takeaway: over the next few years the competition for rigs and work force in the Bakken will increase. 

The Bakken Just Keeps Looking Better Every Day

Just the other day it was noted that the cost for Bakken wells, at least for Hess, is dropping significantly, and quickly.

Not so for the off-shore folks. Wouldn't this just ruin your day if you were the CEO of BP and were told this wonderful news? The Angola  project came in at $4 billion over budget.

A massive BP PLC oil development off the coast of Angola has come in $4 billion over budget after being delayed by a year, The Daily Telegraph reported Monday, citing an executive. 

The project, more than 100 miles offshore, was originally slated to start producing oil in late 2011 and to cost about $10 billion, the newspaper said. Instead, it began production in December, 2012 (over a year late). 

While analysts thought the project would cost nearer $12 billion, the total is now expected to be "up over $14 billion" once all the wells have been drilled and connected, Gerry McGurk, BP Angola's vice president, disclosed, according to the newspaper. 

Actually, the reality is a bit worse than the headline. The headline: $4 billion over budget. The reality "up over $4 billion more" than projected by the company. "Up over" leaves a lot of room for further upside adjustments.

And if it were a $1,000 billion project, the $4 billion would be a rounding error. But $4 billion is 40 percent -- repeat -- 40 percent -- of the company's anticipated cost. Meanwhile, at the first link above, the cost for a Hess well in the Bakken has dropped 36% over that same time period.

"The Red Queen" -- Part II

I've updated the original commentary regarding "The Red Queen."

The American Energy Revolution: From India's Perspective

Don sent me an interesting Forbes article.

I'm not as interested in the Indian perspective so much as what the article says about the American energy revolution.

China’s rise has come largely at Europe’s expense. Since 2004, China has gained market share in the export of goods and of manufactured goods, while Europe’s share is falling and the US has held steady. After losing 6 million manufacturing jobs in the last decade, the US gained half a million in the last 18 months, while Europe, Canada and Japan lost jobs or saw no change.

Sharma also points out that energy is emerging as an American competitive advantage. After falling for 25 years, the share of the US energy supply that comes from domestic sources has been rising since 2005, from 69 percent to around 80 percent, due to increasing production of oil and particularly natural gas. The textile business was one of the first to leave the developed world, but recently Santana Textiles moved from Mexico to the US due to lower energy costs.

In the 1960s, the US Gulf of Mexico was the hub of the global petrochemical industry. This changed over the years, as it became cheaper to produce in Asia and the Middle East. The shale revolution has led to a revival of interest in the region. Dow Chemicals has re-started its Texas cracker plant in December last year—it had been moth-balled in 2008-09, when the slowdown began. Dow is also putting up another huge facility at Freeport, Texas, that is coming online in 2016-17. “The idea is to take advantage of the low prices, to serve the Latin American market from the US. We are also doing this in Saudi Arabia—using the oil to cater to the European markets,” says Vipul Shah, CEO and chairman, Dow India.

I am looking for a huge American resurgent after 2016. I hate to imagine the country could elect a more obstructionist president who was handed the most fortuitous energy gift of any US president in history, and failed to capitalize on it.

From a Platts Tweet -- June Gas Futures Rise On Expectations of Cooler Weather Extending Into June

NYMEX June gas futures rose early Monday on cooler weather in the short term, expectations of another smaller-than-average build to storage.

Who wudda thought?

WTI and Bakken Spread Narrowed Over The Past Year -- Dated Article But Good For The Archives

This article is dated, but nice for the archives.

The EIA is reporting: WTI and Bakken spread narrows over last 14 months.

Crude oil production in the Bakken grew from 274,000 barrels per day (bbl/d) in January 2011 to 673,000 bbl/d in January 2013, according to the North Dakota Department of Mineral Resources. However, new transportation infrastructure completed in the second half of 2012 helped ease the bottleneck in North Dakota and contributed to a narrowing of the price differential between Bakken and WTI.

Traditionally, the midcontinent pipeline system was configured to deliver crude oil imported to the U.S. Gulf Coast and domestic production from West Texas to the refineries in the Midwest via Cushing, Oklahoma. However, transportation constraints resulting from limited pipeline capacity into and out of Cushing have led to bottlenecks in the region. In February 2012, the discount between Bakken and WTI reached $28 per barrel as increasing Bakken production faced severe transportation constraints.

The addition of new rail takeaway capacity from the Bakken region in spring and fall of 2012 let Bakken crude oil bypass the bottleneck in Cushing, Oklahoma and reach refining markets on the East and West coasts, as well as the Gulf Coast. This takeaway expansion resulted in Bakken crude oil briefly selling at a premium to WTI, which unlike waterborne crudes imported by refineries of the East and West coasts is itself subject to transportation constraints at the Cushing, Oklahoma trading hub.

Pipelines are the most cost-effective way to transport crude oil in the United States, but they are expensive to build and may face regulatory hurdles. For these reasons, companies have turned to rail transport to deliver crude oil across the nation.

Total takeaway capacity from the Williston Basin grew from about 678,000 bbl/d at the end of 2011 to over 1.1 million bbl/d in 2012. Takeaway capacity via rail represented most of this expansion, increasing from an estimated 265,000 bbl/d in 2011 to approximately 660,000 bbl/d in December 2012.

Lots of graphs. Worth reading. 

Under The Radar: Natural Gas Exports to Mexico Hit Record in 2012 -- EIA

The EIA is reporting:

U.S. natural gas exports to Mexico grew by 24% to 1.69 billion cubic feet per day (Bcf/d) in 2012, the highest level since the data collection began in 1973. With imports now accounting for over 30% of its total supply, Mexico's natural gas use is also at its highest level ever.

Lots of graphs; expansion projects. Worth reading.

Disclaimer: this is not an investment site; do not make any investment decisions based on what you read here or what you think you've read here.

Monday Morning Links; Wells Coming Off Confidential List Have Been Posted

Initial production numbers have been posted for the wells that came off the confidential list since last Thursday. About a third of wells coming off the confidential list went to DRL status.

RBN Energy: overview of the Bakken NGL situation. Huge story. A must-read.

Natural gas liquids (NGL) production from the Bakken has increased from only 20 Mb/d two years ago to almost 50 Mb/d today.  And that is with nearly one-third of the natural gas in the region being flared and no outlet for ethane.  For years gathering, processing and pipeline constraints have held back production growth.  But that’s all changing.  ONEOK has completed their NGL pipeline and plant expansion project and more outlets are on the way.  Production could rise to more than 300 Mb/d by 2018.  In today’s blog, we examine the Bakken NGL situation.

Does anyone care any more? Another article on the safety of pipelines, and the Keystone XL in particular from The Brainerd Dispatch. Regional media links break often and break early, so a quick excerpt:

The still heavy dilbit requires extra pressure to move through the pipeline, and it is also more acidic and corrosive than conventional oil. This creates a greater danger of pipeline leaks with risks to ground water aquifers such as the Ogallala, over which the pipeline will pass.

In response, pipeline builder TransCanada notes that existing dilbit pipelines are operating safely. This includes the Alberta Clipper pipeline which brings dilbit from Alberta to Northern Minnesota.  The Alberta Clipper is a 1,607-km (1,000-mile) crude oil pipeline that provides service between Hardisty, Alberta, and Superior, Wis.,  A spur pipeline at Clearbrook, Minn., brings 300,000 dilbit barrels/day to our Pine Bend refinery, the source of most of Minnesota’s gasoline, diesel, and aviation fuel. Nebraska governor, DaveHeineman, has approved a revised route for the Keystone Pipeline. 

WSJ Links

Section R (Journal Report):

• Will longer hours boost (restaurant) sales?

The basic problem: Restaurants need to shoulder more expenses to keep the lights on longer—but the crowds usually aren't that big at odd hours, and customers don't end up spending very much. In fact, franchisees and industry experts say, some markets may not have enough all-night types to make the concept work at all.

Longer hours appeal mostly to "younger folks out and about, and they have cut back so much on restaurants," says Bonnie Riggs, restaurant-industry analyst at research firm NPD Group. "Maybe if you're in some big metropolitan or tourist areas it's worthwhile."

• Microsoft is leaving money on the table by not providing Office for Androids, iPads.

The idea is to convince buyers that Windows-based tablets can do more than rival devices and, consequently, that they can save money buying one product instead of a laptop and tablet. That sales pitch revolves around a key feature of Windows tablets: They are the only ones that run a full version of Office.

Particularly popular among business users, the Office suite includes Word, Excel, Power Point and other productivity apps. And it is a far bigger business for Microsoft than even Windows. Microsoft's Business Division, of which Office is the primary component, generates around 30% of sales and nearly half of operating income. Office is so popular, Morgan Stanley has estimated that even 30% to 40% of Mac users pay for it.

So the fact that Office isn't available for iPads and Android tablets, the most popular devices in the fastest-growing segment of the computer market, means Microsoft is leaving money on the table.

Section C (Money and Investing):

• In stocks, payouts trump potential.

Investors searching for higher yields are driving up the shares of dividend-paying companies, fueling a debate over whether these traditional haven stocks are getting dangerously expensive. Some buyers argue that dividend stocks have entered a period where demand for income will keep valuations high, perhaps for years, thanks to Federal Reserve easy-money policies that are expected to remain in place at least into 2015. Skeptics say the "this time is different" thesis will prove wrong, and that investors will discover they have overpaid.

Section B (Marketplace):

• Boeing's Dreamliner returns to service: my favorite airline -- Ethiopian Airlines.  

Section A:

• Real culprit behind smaller workforce: age.

Americans are leaving the labor force in unprecedented numbers. But the trend has more to do with retiring baby boomers than frustrated job seekers abandoning their searches.

The share of the population either working or looking for work in March hit its lowest level since 1979. The measure, known as the participation rate, now stands at 63.6%, down from 66% when the recession began. That represents close to seven million workers who are now "missing" from the labor force.

The April jobs report, coming Friday, probably won't repeat March's historic decline, when the labor force shrank by nearly half a million workers. But it likely won't show much improvement, either. The participation rate has trended downward through both the recession and the recovery, continuing to fall even as other measures of economic well-being have improved.

• Wow, that didn't last long. Air travel delays are easing. 

• Impact fees fracture Pennsylvania.

Unlike many communities focused on cutting budgets, this small township of hilly farmland an hour south of Pittsburgh recently splurged on a new firetruck, a police cruiser and a new pavilion, bathrooms and riding mower at its Wana B Park.

The shopping spree was financed by a $1 million check—nearly half as much as the township's $2.3 million operating budget—thanks to a state law passed last year to assess fees on natural-gas wells drilled into the Marcellus Shale formation. The township, which has 130 such wells on its 39 square miles, is among the state's most densely drilled areas.

Unlike most other states that require drillers to pay severance taxes based on the volume of gas produced, Pennsylvania's impact fee is based on natural gas prices and the year of production for each well. When the price of natural gas is between $2.99 and $5.00, the fee is $50,000 a well during the first year of production. Critics of the law faulted Pennsylvania for not raising even more revenue from fracking.

While severance taxes typically flow into a state's general fund, the impact fee is designed to send money back to areas most affected by drilling to pay for wear and tear on roads and new equipment.

• Tough slog for Obama's gun orders.

His nominee to lead the Bureau of Alcohol, Tobacco, Firearms and Explosives, which has long lacked a permanent director, awaits a Senate hearing. A $10 million budget allocation to research the causes and prevention of gun violence needs congressional approval. This comes on top of the biggest setback for the administration, the Senate's rejection this month of a proposed expansion of background checks for gun buyers.
The administration says many of Mr. Obama's 23 executive actions will have an effect, even as officials acknowledge that they can't accomplish all that legislation could.

Few of the measures were intended to bring wholesale changes, both gun-rights and gun-control advocates say, with many seeking to improve the effectiveness of existing laws and regulations.

The ACLU will love this, rifling (no pun intended) through medical records as part of a background check:

And the Department of Health and Human Services said it would write new rules to ensure that federal health-privacy law doesn't prevent states from providing records to the background-check system.

Cue up Connie Francis.

• Op-ed: on taxes.

It's not just rates that vary but rules that determine what's taxable and what isn't. Wisconsin has a 1,400-word regulation on when the sale of an ice-cream cake is taxable. If the ratio of ice-cream layers to cake layers is too high, sales tax has to be collected. Candy bars are taxable in New York, but not in New Jersey. In Texas, large pretzels are tax-exempt baked goods, but small pretzels are taxable snacks. Iowa charges a sales tax on decorative pumpkins but not edible ones.

Rhode Island taxes soft drinks but not bottled water. It taxes clothing accessories but not fur clothing. It taxes kidney-dialysis machines with or without a prescription, unless used at home, whereas prosthetic devices, eyeglasses and contact lenses are taxable without a prescription but tax-free with one.

• Op-ed: profiling.

But it is not good enough for the CFPB. In a quest to make sure that all individuals falling within the "protected classes" under the Equal Credit Opportunity Act get the same interest rate as those who are not covered by it, the agency wants financial institutions to guess your race, ethnicity and gender based on your name and the address on your application. Put bluntly, they want lenders to profile you.

It sounds bizarre. But during a conference call on March 21 to congressional offices explaining how auto lenders were supposed to comply with the Equal Credit Opportunity Act (as outlined in CFPB's Bulletin 2013-02), agency staff advised us that they would recommend that financial institutions use "proxies to give probabilities of the race, ethnicity and gender of borrowers" to guess if an applicant falls into a protected class, or not, for the purpose of setting interest rates. In other words, they would like lenders to use stereotypes associated with your name and location in order to monitor compliance with equal-opportunity requirements.

Does that mean a person named Jefferson who lives in the Bronx is to be presumed an African-American, but not a Jefferson in Wichita? Is Taylor Rosenstein living in Miami a woman or a man? He or she must certainly be Jewish, right?