EOG's Retiring CEO Suggests US Unconventional Oil Prospects May Not Be As Rosy As Some Suggest

Link here to the Jim Cramer article. From the article:

Was the Permian, [Jim Cramer] asked, bigger than anyone thought? Was this revitalized field going to blow people away as Pioneer Natural Resources, the king of the Permian, said it would on "Mad Money" the other night?

The soft-spoken but clipped Papa answered, "No." The Permian is not going to be as big as I thought. It is not going to turn out to be the biggest new field in North America. It is not going to be the second-largest oil field after Saudi Arabia.

Plus, he said, it is time to curb my enthusiasm about finding oil and producing it in this country, because we may actually be near peak production even after all the new oil has been found and that the revolution, at least in oil and not natural gas, may soon start to become played out.

[Jim Cramer] was taken aback because [Jim] was thinking we are in its infancy and he was thinking that we are more mature.

Very interesting, to say the least. 

The USSR, Central Planning, Five-Year Plans, Cellulosic Ethanol, And RINs

Updates

October 27, 2014: update on ethanol, ethanol blending, RINs as reported by 24/7 Wall Street:

Another bit of fallout from the diving demand for gasoline is just about to hit the front pages. U.S. ethanol producers are approaching the so-called blend wall, a term that describes a situation where the 10% blend of ethanol with gasoline reaches its mandated limit. At that point, the value of ethanol collapses and producers begin agitating for a higher blending limit.

The four-week rolling average blending rate for ethanol in the United States reached 9.94% in the week ending October 10. The 10% blend rate was surpassed for one week in mid-September.Ethanol blenders, including major independent refiners like Valero Energy Corp. and Tesoro Corp., in general like the low price of ethanol, which dropped below $1.60 a gallon earlier this month, less than half the price of a gallon of ethanol at its peak in August. 

Blenders took a beating in 2013 when corn prices skyrocketed, demand was falling and blenders bought renewable energy credits called RINs, bidding the price up from a few cents to more than $1.00. 

The producers want the federal government to raise the federally mandated blending amounts for 2014. Refiners and blenders oppose raising mandated limits and sent a letter to the U.S. EPA outlining its case for leaving the mandated levels where they are.

November 16, 2013: RINs trading as low as 16 cents/RIN just after 2014 proposal.

US corn-based ethanol RINs traded as low as $0.16/RIN just after 2014 RFS proposal released, down from $0.26/RIN before.

November 13, 2013: [Note: this story is about corn-based ethanol; the original post was about cellulosic ethanol.] The US corn-ethanol mandate is about to take another hit. MSN Money is reporting:

This week, the Environmental Protection Agency is expected to announce changes to the ethanol mandate, a 2007 law that requires energy companies to mix billions of gallons of ethanol into gasoline and diesel fuels.

After six years in the mix, corn-based ethanol has lost its popularity, and a diverse group of critics is calling for the law's repeal.

A proposal for the EPA's changes, leaked in October, would significantly scale back the ethanol-gas blend requirement to 2012 levels.

"If approved, the proposed cut in the biofuel mandate in 2014 to 15.21 billion gallons from 18.15 billion would mark an historic retreat from the ambitious 2007 Renewable Fuel Standard (RFS) law that charted a path toward ever-greater use of clean, home-grown fuel," said Reuters at the time.

But many think such a "historic retreat" would be not nearly enough. An extensive investigation by the Associated Press, published by accident Monday, outlined a variety of ways the mandate is "badly hurting the environment."

Though ethanol fuel releases less carbon dioxide than other kinds of gas, many question if the side effects of production are worth it. "[I]n the president's push to reduce greenhouse gases and curtail global warming, his administration has allowed so-called green energy to do not-so-green things," says the AP.

Original Post

A reader must have remembered that I could never understand RINs.  I think I finally understand them.

This is how I think it works. I sometimes incorrectly use "RIN" where I should be using "REC." The "RIN" is simply the number; the "REC" is the actual piece of paper, the certificate.

I make a gallon of gasoline in my garage using the leftover corn stalks from my garden, so it is "renewable energy."

• I send in the application to the RIN/REC authority requesting a certificate with a RIN on it (a "REC") for my one gallon of gasoline which I certify was made from corn stalks.
• The REC authority issues me a certificate with a unique 38-number code (the RIN) for that gallon of gasoline; I place the unique 38-number code on the metal container holding the gasoline.
• That gallon of gasoline is then worth a) the going price someone will pay for the gallon of gasoline PLUS b) the market value of that piece of paper holding the unique 38-number code.
• According to wiki, refineries are only interested in the certificate: "These certificates can be sold and traded or bartered, and the owner of the REC (the certificate) can claim to have purchased renewable energy."

Don't you just love that "can claim to have purchased renewable energy" bit? If the federal government doesn't require very much renewable energy to be used in any given year, the RECs lose value (could become worthless); but if the federal requirement increases the requirement for renewable energy, the RECs gain value. This is exactly why Mr Dimon of JP Morgan buys these certificates, betting the roulette wheel will be green.

This seems to be very similar to the "Fed" printing money to stimulate the economy. But I digress.

Regardless of whether I have the details correct, in my mind I now understand RINs and RECs. The key to understanding how this scheme works is that the owner of the REC "can claim to have purchased renewable energy."

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

I remember tenth grade social studies. It was the first time I read about "central planning" and "five-year plans" while studying the USSR. [For newbies: that was a "country" prior to the Reagan presidency.]

Years ago I wrote a paper for some class suggesting that the USSR/Russia would eventually become more capitalistic, looking more and more like the US of the 1950s; while simultaneously, the US would eventually become more and more like the USSR of old, with "central planning" and "five-year plans.

With the EPA and ObamaCare it seems my thesis wasn't too far off.

I was reminded of that by this story sent to me by a reader: cellulosic ethanol off to a delayed, boisterous start, as reported in The Washington Post.

Central Planning & Five-Year Plans: US Cellulosic Ethanol As A Case Study

First, the "central planning" part:

The Energy Independence and Security Act passed by Congress in 2007 with rare bipartisan support. The law provided a road map for increasing the use of renewable agricultural byproducts in the U.S. motor fuel supply.

Now, the "five-year-plan" part: the EPA's initial quota (back in 2007) was one billion gallons, with annual increases.

Penalty: the EPA would impose penalties on refiners who would not contribute their fair share of cellulosic ethanol to their finished products.

Reality: even if the refiners wanted to comply, they couldn't. There was "no" cellulosic industry in the US.

Some Statistics

One billion gallons sounds like a lot. Refiners were up in arms. They said the US industry could not supply a billion gallons.

How much gasoline is consumed each year in the US? About 150 billion gallons-- US EIA.

In percent, how "much is" one billion gallons out of 150 billion gallons? 1/150 = less than a percent (about 0.6 percent actually).

Where Are "We" Now With Regard To Cellulosic Ethanol?

The EPA dialed back the original quota from one billion gallons to "a paltry" 14 million gallons earlier this year, and now has been forced to dial back again, this time to only 6 million gallons.

Six million gallons represents 0.004 percent of the amount of gasoline consumed annually in this country.

Heritage has a great graphic showing the original quota, the revised quota, and the actual production. 

But "cellulosic ethanol" factories are now coming on-line and although they won't contribute much to the US energy supply, a lot of folks could make a lot of money if the EPA increases the quotas over time. See the Washington Post article linked above.

So, I am brought up to speed on where we stand with cellulosic ethanol.

Seriously, for those interested, the linked article is excellent.

Saturday: Kashagan Is No Cash-Haven

Note: scroll down for the Kashagan story.

Original Post

The Wall Street Journal

The jobs data and the GDP data will put pressure on the Fed.

Iran talks strain mideast alliances. When I was biking into Starbucks this a.m. at 4:45 in the morning, I thought about that. Israel is furious, but the country that has to be most concerned: Saudi Arabia. the continent that needs to be most concerned: Europe. Again, Americans can be spectator, sending troops and drones in when the spirit moves us, but other than that, a spectator sport for most Americans. [Update: yup. On November 17, 2013, The Sunday Times (London) was reporting:

Once they were sworn enemies. Now Israel’s Mossad intelligence agency is working with Saudi officials on contingency plans for a possible attack on Iran if its nuclear programme is not significantly curbed in a deal that could be signed in Geneva this week.

Both the Israeli and Saudi governments are convinced that the international talks to place limits on Tehran’s military nuclear development amount to appeasement and will do little to slow its development of a nuclear warhead.

As part of the growing co-operation, Riyadh is understood already to have given the go-ahead for Israeli planes to use its airspace in the event of an attack on Iran.

Both sides are now prepared to go much further. The Sunni kingdom is as alarmed as Israel by the nuclear ambitions of the Shi’ite-dominated Iran.]

US private colleges face declining enrollment.

ObamaCare continues to unravel. A federal appeals court blocked a provision of the health-care law requiring employers to provide birth-control coverage in employee insurance, ruling it imposed a 'substantial burden' on religious rights of two firms.

ObamaCare costs to scare insurers.  Five years after Congress required insurers to cover mental-health and medical problems equally, the Obama administration on Friday issued regulations on how the law should be implemented. It looks like the president will use "ObamaCare" the way he uses the EPA -- executive orders.

Texas prosecutor gets 10-days jail sentence for misconduct that sent an innocent man to prison for nearly 25 years. It sounds like the misconduct continues. Ten days. Maybe that's a typo.

Job watch: best of WSJ blogs.

US stocks "soar."

Boeing warned that it could look to build its planned 777X jetliner outside Washington state, amid signs of union resistance to a proposed contract. [Update: the union later voted 2-1 against the Boeing contract, adding speculation that Boeing could build the 777X elsewhere.]

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

Wow, this story never quits. I think I started blogging about this story some years ago. Giant oil field in Kazakhstan faces long delay. 

Oil production at Kazakhstan's huge Kashagan field, halted since mid-October because of a dangerous gas leak, won't resume before next year, according to people familiar with the matter, casting a cloud over one of the world's biggest energy projects.

Equipment needed to inspect a leaking pipeline connecting the field in the Caspian Sea to an onshore processing unit won't arrive on site before mid-November, the people said. The inspection will determine how much of the pipeline must be replaced, and once it is completed a preliminary report on how to conduct repair work won't be submitted to Kashagan operators before late December, they said.

NCOC, the consortium of oil companies operating the field, said it was too early to say when production—which exceeded 75,000 barrels a day at the time of the shutdown—might restart. "No prediction can be made," a NCOC spokesman said.

The stoppage at Kashagan after barely a month of production is another setback for the NCOC consortium, which has invested an estimated $40 billion over more than a decade to develop one of the largest hydrocarbon discoveries of the last 30 years.

Ramping up production to 370,000 barrels a day in 2015, and later to a projected plateau of 1.5 million barrels, is crucial for some members of the consortium, such as Total SA, which are relying on crude oil from Kashagan to help offset output declines in other parts of the world. Similarly, Kazakhstan, a thinly populated country of desert steppe, is counting on Kashagan to transform itself into a mighty petro state.

In the past I was often criticized for posting non-Bakken stories on a "Bakken-all-the-time site" but this story puts the Bakken into perspective. Development of this field in Kazakhstan has been going on for years, costing upwards of $40 billion, and it looks like "they" still have nothing to show for it. Before the latest setback, developers were hoping for 315,000 bopd. The Bakken, four counties in western North Dakota, is doing twice that much as significantly less cost, less frustration, less risk.

Kashagan: cash-hole. 

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

 All I have time for, now.

Week 45: November 3, 2013 -- November 9, 2013

Operations
A Statoil re-entry well in the Alger?
A string of Murex wells in northwest North Dakota
With pad drilling, a sign of things to come: 23 producing wells completed
What the success of CLR's Hawkinson wells means for the Bakken
Abraxas pulls back plans to drill; lease rates onerous (a Montana story)
Abraxas pulls back plans to drill (original story)
NDIC takes steps to increase drilling in Bowman County
Twin Buttes oil field updated
Declining decline rates in the Bakken -- the HK experience
Re-entering/re-completed wells in the Spotted Horn oil field
Random look at some re-entered/re-completed wells
A new metric: rig productivity
Reminder from the November dockets: Oasis to put 21 horizontal wells on some or all of its 640-acre units in the heart of the Bakken 
Whiting's new completion technique 
EOG's monster wells

Fracking
Whiting's new completion technique (same link as above)
Evolving completion techniques -- Whiting presentation

Economy
The Williston Wire, weekly

CBR
Another Bakken crude oil train derails, spills, explodes, and burns, western Alabama
Update on CBR tank cars -- RBN Energy

Pipeline
Enbridge getting ready to announce "open season" for the Sandpiper

General
Platt's commentary: using existing assets to facilitate new markets
For newbies: what the Bakken is all about
The highest paying jobs in the Bakken oil patch
Stratigraphy of the Bakken Pool: Whiting presentation

Earnings
NOG
CLR
Oasis
EOG
KOG

Commentaries
Halcon -- Richard Zeits, SeekingAlpha
The falling price of crude oil
An emerging oil story: CHK vs COP vs EOG (Motley Fool)

Naming Wells In The Bakken

Just a bit of fun on a Saturday morning. This information came to me via comments. Assuming a lot of folks may not read the comments (and even worse, for me, comments are not "searchable" through google, at least as far as I can tell), so here is the stand-alone post on a very trivial but "fun" subject: names of wells in the Bakken.

It's been my perception, and the perception of others, that Slawson consistently comes up with some of the better names for wells in the Bakken. It turns out that the Australians may be responsible for some of these names, according to a reader. Example: the wells on the Tofte pad, Stockyard Creek, 13-154-99, have four interesting names via Samson Oil & Gas:

• 24793, loc, Slawson, Duckstein 1-13-14HTF,
• 24794, drl, Slawson, Billabong 2-13-14HBK,
• 24795, 556, Slawson, Sail and Anchor 4-13-14HBK,
• 24796, drl, Slawson, Blackdog 3-13-14H, originally to target the Three Forks; sundry form, Oct 2013, requested target to be changed to the Bakken;

This pad: change of operator from Samson Oil & Gas to Slawson, October, 2013.

I was going to let folks ponder the background regarding the names of these wells, but here's a hint. Had they been named by a German oil company, the names might have been: Bitburger, Warsteiner, Beck's, and Paulaner.

And now you know. Prost.