Last Thoughts

Wow, there is so much incredibly good information on the net regarding the Bakken.

First, if you haven't seen the Rolfstad Presentation, you need to do that this week. It's a PDF, a very long PowerPoint Presentation. I recommend that if it's your first time looking at it, scroll through it very quickly, stopping to look at the photographs (many of which are probably Vern Whitten photographs), and then go back through the presentation at a more leisurely pace.

For those who have seen the presentation, Richard Zeits has an outstanding piece over at SeekingAlpha, posted May 12, 2013. Somehow I missed it, or at least I think I missed it. I honestly don't remember seeing it but I've done a lot of posting over the past couple of days and I often forget what I've posted.

Be that as it may, the Zeits article is superb. It lives up to the "headline": Bakken: 'Deep' Revolution Underway -- Everything Investors Need to Know.

[The usual disclaimer: this is not a YouTube site. This is a Bakken site. YouTube videos are placed here to break up the narratives.]

I would love to go through the Richard Zeits article now, posting some high points, but I am literally too tired. You are on your own.

Wandering Star, Lee Marvin

See you early tomorrow morning. Maybe.

Piling On

Politico has a most interesting article (I don't know if Drudge Report has it linked yet).

The article is two internet pages long.

An interesting bit of trivia in the long article: the writer opines that the Benghazi and the IRS scandals will last through the 2014 mid-term elections.

Ouch.

But there is another reason the long article is interesting.

The 800-pound gorilla is not mentioned.

Wait until the train wreck in October.

No, wait until the IRS starts auditing Republicans over ObamaCare. That's the 800-pound gorilla sitting in your living room.

My understanding is that the new IRS form declaring one's source of health insurance includes the requirement to check off whether one is a Republican or a Democrat, and/or if one has donated any money to any political party, and if so, which one.

[Not everything posted above is necessarily accurate. I have been known to have my information wrong.]

Wells Coming Off The Confidential List Wednesday

• 20810, drl, Slawson, Mooka 2-29-20TFH, Big Bend,
• 21453, drl, Slawson, Waterbond 2-27-34H, Van Hook,
• 24130, drl, XTO, FBIR Walterpackswolf 31X-12GF, Heart Butte, 

Bringing This Story Forward; Posted It Early; Maybe Missed By Some -- US Shale Boom Will Send "Shockwaves" Through Global Oil Trade

The US shale boom will send "shockwaves" through the global oil trade over the next five years. Bloomberg is reporting:

The U.S. shale boom will send “shockwaves” through the global oil trade over the next five years, benefiting the nation’s refiners and displacing OPEC as the driver of supply growth, the IEA said.

North America will provide 40 percent of new supplies to 2018 through the development of light, tight oil and oil sands, while the contribution from the Organization of Petroleum Exporting Countries will slip to 30 percent, according to the International Energy Agency. The IEA trimmed global fuel demand estimates for the next four years, and predicted that consumption in emerging economies may overtake developed nations this year.

“The supply shock created by a surge in North American oil production will be as transformative to the market over the next five years as was the rise of Chinese demand over the last 15,” the Paris-based adviser to 28 oil-consuming nations said in its medium-term market report today.

I posted this story along with the recent comments by the Crescent Point CEO. 

Four (4) New Permits -- The Williston Basin, North Dakota, USA; Active Rigs Tie Post-Boom Record

Active rigs: 191. Yesterday we ended the day at 187. First thing this morning, it was 188. A half hour later it was 190. Now, at the end of the day is 191, which is the post-boom high. It's not a new high; we've been here before.

Four (4) new permits --

• Operators: CLR (2), WPX (2)
  Fields: Dutch Henry Butte (Stark), Van Hook (Mountrail)
  Comments:

Wells coming off the confidential list were reported earlier; see sidebar at the right.

One producing well completed:

• 22102, 400, Oasis, Norris 5892 21-30B, North Tioga, t5/13; cum --

Williston Wire: The Best Story May Be The Chicago-Style Hot Dogs

No links. The Williston Wire is easy to subscribe to.

Williston Basin Eyecare breaks ground: 60,000 square feet; five optometrists.

First International Bank celebrates grand opening of new Williston facility; off the bypass. Apparently, taking an idea from the big bank in Watford City, the band's CEO is building an Outlaw Bar and Grill behind the bank. Okay.

ONEOK celebrates opening of new projects: Stateline II and the Bakken NGL Pipeline.

Garbel's Furniture in Crosby named regional business of the year, 2013.

Rich Vestal named Entrepreneur of the Year. His one-man Red River Mud Company has grown to more than 100 employees. He has quite a story. Worth seeking out.

Meg-A-Latte named best-woman-owned business of the year; also a great human interest story, and worth seeking out.

Three Amigos is honored as the best new business in the region. Three Amigos has the region's best Japanese sushi. Just joking.

 Wow, Mercy Medical Center now has an emergency medical helicopter; Trent Massie is the pilot.

And another "wow": former Chicago cop opens Chicago-style hot dog stand in a food stand along Highway 85 near Alexander. This is worth a bit more than just the headline. The original story is in The Bismarck Tribune:

Chicago-style hot dogs — the bun stuffed with six ingredients, pickles, peppers, the works and a Vienna all-beef dog — top a varied menu. (Hint: Spread a generous pile of napkins on your lap first and hold the thing with both hands.)

Hot dogs take the menu lead, but pita-wrapped gyros sandwiches are the customers' top pick, they said.

So that's a bit of surprise, but the whole gig has been a surprise, they said.

Their location is pretty much ideal, right alongside Highway 85, next to the gigantic Patriot Fuels truck fueling station not far from Alexander. "Those pumps are our biggest ally," Hackett said.

Even so and even with thousands of trucks on the highway and hundreds pulling into the truck fueling stop, they had to build their customer base one adventuresome soul at a time.

"We thought we would get rich quick, but we had to put in the time to build up a base. These guys are skeptical about eating at these kinds of places," Hackett said. He said their food stand was inspected four times last year by the State Health Department, without one problem noted in the reports.

Construction begins on North Gate Apartments in Williston, a 300-unit upscale community in Willistion: 12 buildings on about 20 acres at 42nd Street East.

Frack Sand Mining In Minnesota: Random Update -- The State Will Allow Permitting Process Along Trout Streams

The StarTribune is reporting:

In a retreat from tough language that would have banned frac sand mining within a mile of any trout stream in southeastern Minnesota, state officials have reached a compromise that would allow the industry to encroach on the areas as long as they follow a new permitting procedure overseen by the Department of Natural Resources.

As part of the deal, Sen. Matt Schmit, D-Red Wing, said he won’t initiate a fight on the Senate floor to amend the game and fish bill with the stronger trout stream setback language that was initially supported by Gov. Mark Dayton.

The road to the compromise started late last week in a meeting Dayton arranged with Schmit, industry representatives, three state agency heads and organized labor. The new language, in addition to an assortment of other checks on the fast-growing industry, are planned to be finalized this week in the environment-finance bill.

This was an interesting statement, some indication the state is ... fill in the blank:

Jason George, legislative and political director for Local 49 of the International Union of Operating Engineers, said the deal worked out in Dayton’s office last week strikes a good balance. George fought successfully against a proposed moratorium and other statewide involvement in the frac sand industry to protect jobs in the state.

“We’re going to have an industry in Minnesota, and it will be done the right way,” he said.

One Of The Majors Says Their Global Production Will Ramp Up Soon -- Due Partly To The Bakken

Rigzone is reporting:

ConocoPhillips is in the midst of a transformation facilitated by drilling technologies that have unlocked oil and natural gas within the U.S. that had been unreachable or too expensive to drill. Mr. Lance's presentation to shareholders emphasized ConocoPhillips' ability to fund its operations and deliver on its promises of 3-5% production and margin growth even as it continues to pay a high dividend.

Mr. Lance said there's a "clear line of sight" to production of 1.9 million barrels of oil equivalent a day by 2017, up from an estimated 1.5 million barrels of oil equivalent per day this year. Much of that will be fueled by ConocoPhillips' acreage in unconventional U.S. shale formations--the Eagle Ford and Permian formations in Texas, and North Dakota's Bakken.

Income brought in from production in those areas will be used to fund the company's major projects around the world and exploration that is expected to fuel long-term growth. Mr. Lance highlighted the company's work in the Gulf of Mexico, where company is working to renew its presence. It will participate in five to eight wells this year, including its first operated well there in nearly a decade.

Note, to repeat: the cash flow from the Permian, the Eagle Ford, AND THE BAKKEN will be used to fund COP's major projects in the Gulf of Mexico.

I.N.C.R.E.D.I.B.L.E.

I think often of the idiot (who I refer to simply as "V") over at another incredibly good blog who has for years says there are two kinds of operators in the Bakken: a) those who went broke drilling expensive wells in the Bakken; and, b) those who will go broke drilling expensive wells in the Bakken. LOL.

Vita Est Dulcis: The State Of Oregon Using Ethanol Storage Plants To Store And Ship North Dakota Bakken Oil

The Fargo Forum is reporting:

An ethanol plant on the Columbia River that was built with the help of $36 million in Oregon state loans and tax credits is now being used to store and ship crude oil from North Dakota.

The Oregonian reports the plant's switch came with little public notice.

It was built at a cost of $200 million for Cascade Grain at the Port of St. Helens’ Port Westward Industrial park near Clatskanie. The owner filed for bankruptcy in 2009, less than a year after startup. It produced little ethanol and is mothballed except for the storage tanks. 

And then this:

Global Partners LP of Massachusetts bought the plant in February and renamed it the Columbia Pacific Bio-Refinery. It takes oil that arrives by train from North Dakota's Bakken oil field.

Where have we heard of Global Partners before?

Yup, you are correct. Back on January 14, 2013:

Global Partners LP today announced that it has signed a five-year contract with Phillips 66 under which Global will use its rail transloading, logistics and transportation system to deliver crude oil from the Bakken region of North Dakota to Phillips 66's Bayway, NJ refinery. 

The terms of the contract include a take-or-pay commitment from Phillips 66 to receive approximately 91 million barrels of crude oil over the contract term, which equates to approximately 50,000 barrels per day. 

The Bakken crude oil is expected to be transloaded at Basin Transload LLC's North Dakota rail facilities. Global has agreed to purchase a 60% interest in Basin Transload. 

Again, more support to my thesis that out-of-state investors -- investors from Wall Street, Connecticut, and Singapore -- need to think outside the Bakken.

A big "thank you" to Don for spotting this most interesting story with multiple story lines. Much more detail can be found at the original source, The Oregonian.

Idle Chatter On "Business As Usual"

I scan through a lot of articles quickly, not reading them closely. I often make errors in interpreting the writer's main points. But the data points help fill in the mosaic of my world view.

A good example is a story over at The Oil Drum today. The writer provides his take on a graph that suggests that peak oil production will drop significantly because of a) efficiencies in conservation; and, b) natural gas substitution. If one is an investor in crude oil, the first graph certainly gets one's attention and raises some concerns. [See this Bloomberg report regarding natural gas substitution: natural gas to make up 2.5% of transport fuel by 2018.]

But that's with a first glance. It's critical to look at the time-frames / the data points in the x- and y- coordinates, respectively.

In this case, the time frame is "legitimate." It starts "now"  (2012) and goes through just a few years into the future (2020) so the time frame is relevant to most investors, young and old.

The y-coordinate is also legitimate, from 88 million bopd to 100 million bopd.

Having satisfied myself the graph's parameters are legitimate, it becomes worthwhile to look at the curves, or the projected data. Very, very interesting. After vehicle efficiency gains and after gas substitution the amount of oil production will tend to level off at 90 million bopd. according to Citi Research.

This is the fallacy of the author's interpretation (for purposes of this discussion, let's assume Citi Research data is correct, which, I think, is a pretty good assumption): the author is comparing what is likely to happen with what it likely not to happen. The "business as usual" line is the data line that no one believes will happen. It's almost Malthusian.

The first important point I take from the graph: the demand for / production of oil will continue to increase from about 89 million bopd to close to 91 million bopd in 2016 at which time it will level off. It never really decreases after that.

The second important point I take from the graph: the slower rise in oil demand is due mostly to natural gas substitution (not to conservation). This is huge news, and great news, for XOM, CHK, the US, the Bakken, SandRidge, ONEOK, and a thousand other companies one could name.

But this is the most important point: the delta between the "business as usual" and the "way it will be" is not all that great. In 2014, the delta is 91.6 vs 91.4 (0.2%). In 2020, the delta is 98 vs 95 (3%). There's a huge difference between 0.2% and 3% but it certainly is nothing particularly alarming.Even a ten percent delta would not be all that concerning. Maybe twenty percent would be, but I am not convinced?

Why?

Go back to the y-coordinate. There are a lot of folks, including ironically enough, the folsk that buy into the Peak Oil theory is that "we" are pretty much maxed out at 90 or 91 million boopd inprodduction. Many (most?) analysts don't think "we" can get much beyond 92 million bopd. If that's accurate, all I can say is "thank goodness" it is not "business as usual."

Bottom line: the graph catches your eye, but once you actually spend some time with it, it's not very alarming to an oil and gas investor. In fact, for XOM, CHK, SandRidge, ONEOK, etc., it looks pretty inviting. 

Maybe there's even a more important point. Most folks agree, including the folks who tend to subscribe to the "peak oil" theory, is that even if "we" are able to keep up with 91 million bbls of oil per day demand, the cost of finding and producing that oil will only be more expensive, and some would argue, the margins of profit will increase for oil companies who "planted their seed corn" in the Bakken in 2010 - 2014.

And now, the fun part: at the beginning of this piece, I pointed out that I often misinterpret articles because I read them too quickly, or misinterpret them. In this case. I only read the headline and looked at the graph.

In fact, the author suggests it is more likely that we will see "business as usual." Wow. I completely missed the author's point. And that makes investing in oil and gas all the most interesting.

Active Rigs Up To 190

If I am not interrupted, I can get through the daily WSJ links in about thirty minutes. This morning, while updating the WSJ, I checked the number of active rigs.

At about 8:50 am (CST), the number was 188, up from yesterday, and up quite a bit from a recent 181. While updating the WSJ links, the number of active rigs went up one and then again a few minutes later went up another one, where it now stands at 190. Impressive.

At the WSJ Links page today.

Active rigs: up to 188 189. 190. I posted 188 one minute ago, and thought I better check again, and there it is, up another rig. Steady, but trending up. Just before closing out this post, I checked again: rigs up to 190.

Meanwhile, in another window in the background I see CVX keeps going up. It's a nice day to be blogging.

Disclaimer: this is not an investment site. Make no investment decisions based on what you read here or what you think you read here. 

For Investors Only: CVX Goes Ex-Dividend Tomorrow; Shares Up Nicely Today, Hitting New All-Time High

Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you read here. I track these companies to help me understand the Bakken and track trends. I invest in some of the companies followed but not all.

There are quite a few companies hitting 52-week highs today, and many of the 52-week highs are also all-time highs.  The month of May is not yet over, but so far, selling in May and going away ...

Union Pacific Railroad and Berkshire are also hitting 52-week highs. EOG is up another $3.00. This follows an $11 pop last week. EOG is sitting nice in the Eagle Ford AND the Bakken. KOG is up a tad, but Oasis is doing really nicely.

A snapshot in time. Won't mean a thing a week from now, but a nice feel-good moment.

Huge Headline Story In Today's WSJ: Continental Resources

Continental strikes side deal with founder Harold Hamm. (As usual, I round some numbers in all my posts.)

The Double H pipeline.  CLR committing $100 million. The pipeline cost: $300 million.
The pipeline deal comes as some investors have become increasingly wary of close ties between energy companies and their executives. Earlier this year, Chesapeake Energy Corp.'s co-founder and chief executive, Aubrey McClendon, left the company after disclosures that he had borrowed $1.4 billion from a private-equity firm while selling corporate assets to the same firm. An internal probe of these financial dealings cleared Mr. McClendon of any "intentional misconduct." 

And further down:

Continental wants to have many different ways—including railroads as well as pipelines—to ship the crude it produces in North Dakota to refineries across North America, he said. Committing to the Hiland Partners pipeline, known as the Double H, will help ensure the company can move oil south to the Houston region's enormous concentration of refineries, Mr. Hume said.

The $300 million pipeline, which Hiland says will be operational by August 2014, will take crude from the booming North Dakota oil fields about 450 miles to Guernsey, Wyo. There it will connect with the planned Pony Express Pipeline to carry crude 690 miles to Cushing, Okla., a major market hub with connections to Gulf Coast refineries.

Continental has reserved space on the Double H to ship 10,000 barrels of crude a day for five years, about one-fifth of the northern leg of the pipeline's total capacity. Continental's commitment helped Hiland amass enough agreements from oil producers to move ahead with the project, even as competing pipelines were abandoned.

The MDW tracks pipelines of interest here. 

Tuesday Morning Links: NGLS In The Northeast To Surge

Wells coming off the confidential list have been posted; scroll down a few posts.

Active rigs: up to 188 189. 190. I posted 188 one minute ago, and thought I better check again, and there it is, up another rig. Steady, but trending up. Just before closing out this post, I checked again: rigs up to 190.

The Fairfield SunTimes is reporting on new technology to remove sulfur from natural gas. The process started with figuring out a way to remove CO2 without using water. The article notes that the researchers found the "sweet spot" (pun intended) when the water-free solvent was even more effective at capturing hydrogen sulfide.

RBN Energy: big surge comes to Whoville -- northeast NGLs to increase six-fold.

A few months back we introduced Whoville, the emerging NGL hub in a small corner of Pennsylvania and West Virginia.  Now that hub is coming on like gangbusters.  Between now and 2015 nearly 4.7 Bcf/d of additional cryogenic natural gas processing capacity is due to come online along with 500 Mb/d of fractionation capacity and 500 Mb/d of NGL pipeline takeaway capacity to support growing Utica and wet Marcellus production.  As a result, NGL production from the Northeast is due to exceed 400 Mb/d by 2015, a six fold surge from EIA’s 63 Mb/d February production number.  In today’s blog, we examine growing Northeast NGLs production.

WSJ Links

Section D (Personal Journal):

• How libraries are adapting to a "new world"

Section C (Money & Investing):

Section B (Marketplace):

• Continental Resources/Hiland Double HH pipeline project: $300 million. 

Section A:

• Marines protect endangered tortoises.

Mr. Henen, who has a doctorate in biology, is part of a little-known army of biologists and other scientists who manage the Mojave desert tortoise and about 420 other threatened and endangered species on about 28 million acres of federally managed military land.

"There's a lot of people who don't recognize the amount of conservation the Marine Corps does," said Martin Husung, a natural-resource specialist on the base. "A lot of people think we're just running over things."

Instead, Mr. Henen often hustles out to remote parts of the Mojave Desert to make sure the threatened desert tortoise, which can weigh 10 pounds and live to be more than 50 years old, isn't frightened by charging troops.

"When they get scared, they pee themselves," Mr. Henen said, referring to the tortoises. Since tortoises can go two years between drinks of water, an unplanned micturition can cause dehydration and even death. So Mr. Henen sometimes demonstrates to troops how he soaks the reptiles in a pool until they drink enough water to plod on with their lives.

• Add China to the list of countries rushing to the Arctic for its oil. We talked about this earlier: how the US is ceding control of the Arctic to the Russians, Canadians, Danes, Brits, the Chinese, and, before it's over, the Maldives, I suppose. The US has no policy on the Arctic. President Obama is still studying the issue; the last policy expired just as he was taking office. It's been five years. My hunch is this will be unfinished business on January 20, 2017.
• Op-Ed: Kissinger asks if the US needs a foreign policy? Obama does not feel a foreign policy is necessary. When one is in campaign mode 24/7, there's not much time to govern.

• Angola looks to China as sales of oil to US fall. 

From twitter:

• FBI can read e-mails older than six months without a warrant. Cue up Connie Francis.

Emails are not private. A message may have one sender and one recipient but it can, with little effort, be read by a third party. In fact, despite the Fourth Amendment’s protections against unlawful searches, federal agencies do not necessarily need a warrant to read emails older than six months.

Concerns over such government snooping were raised by the American Civil Liberties Union, which last week noted a “troubling picture” of email surveillance practices by the Federal Bureau of Investigation and the Department of Justice. The agencies may be taking advantage of a component of the Electronic Communications Privacy Act, which requires warrants only for emails that have been stored on a third-party server for less than 180 days.

Benghazi: "A Side Show"

The President says the discussion of Benghazi -- where four Americans were killed, including the first US ambassador in 35 years -- is a side show. Earlier it was "just noise." I don't know what has more impact: a "side show" or "just noise."

Investment Trends In The Bakken, 2013, Part III -- Filloon

Part I and Part II were linked here.

This is Part III.

The first quarter has turned out to be much better than expected in the Bakken. Most operators spent time drilling from pads, which was a good thing as the winter lasted longer with more snow than originally expected. Pad drilling requires that all the wells be drilled before completion work begins. Batch drilling saves time and money.

Zipper fracs allow multiple wells to be fracced at the same time, which also lowers costs. The larger percentage of drilling vs. completion work means less production began in the first quarter. This did lower revenues, but more importantly, is the beginning of a new dynamic in the Bakken and at other basins in the United States.

Completing multiple wells with in a short time frame means production will be very high at those times. This means some quarters will have high revenues and EPS while others could be very low. This lumpy production will provide buying opportunities in the first and second quarters of the year. In parts one and two of this series, I discussed how the Bakken operators continue to benefit. Part 3 also touches on these points, but more importantly, starts with Oasis, which blew the doors off estimates.

Cost of wells is well below $10 million. 

Huge amount of information regarding Oasis.

With regard to COP:

Now the Eagle Ford, Permian, and Bakken have higher margins than the average of all of Conoco's production combined. This shows the economics of shale liquids are very good. Conoco's WTI/Bakken differentials are minus $5, and the Eagle Ford is plus $5. Even with well cost improvements in the Bakken, the Eagle Ford continues to be a better overall play.

Costs for OXY USA wells has come down significantly:

Occidental is realizing improved well costs throughout all of its U.S. acreage. From 2012 to 2013, the Williston Basin has seen a 32% decrease. This was the best percentage of all U.S. plays for Occidental. Its drilling program is now planned months in advance. This not only decreases costs associated with downtime, but it has been able to decrease the number of hours needed to complete the wells. It has decreased the number of strings of casing. It has switched its cemented liners for slotted liners. Occidental is optimizing water usage, by using flow back-end or produced water on completions. Stimulation contracted costs are also headed lower. Four months ago, Occidental Bakken well costs averaged $10 million. Today the average is $8.2 million with a goal of $7.5 million. In 2013, it will run 6 to 7 rigs.