Mike Filloon Has An Excellent Update On The Bakken

I was getting a bit worried about Mr Filloon. I had not seen something from him in quite some time.

This morning Don sent me a wonderful surprise! A link to a great Filloon article over at SeekingAlpha. The frosting on the cake? This is the first installment of a two-part series.

The comments are also interesting to read. I see folks are having the same problem I had trying to find the spot price for Bakken crude oil. A reader provided the best link to date and I've included it at my "Data Links" page. Plains All American appears to be the best non-subscription site. I understand that Platts and Bloomberg both post prices at Clearbrook but for a costly subscription. Some time ago I posted a comment at SeekingAlpha providing a link to a site that provided an answer to someone's question but it was rejected and I got a note from SeekingAlpha that said hyperlinks were not allowed, and if I persisted in posting links (that was the first time I had done that), I would be denied access to the site. Whatever.

As usual, the article by Mike is outstanding.

His second installment will "will cover Bakken operators in a good position going into 2014."

His first installment was very, very long, and he probably did not have time or space to post everything he knows. If he mentioned the huge strides in infrastructure since 2011, he did so in passing. In the big scheme of things, the cost of building and maintaining roads to all the drilling pads must be inconsequential because no one ever talks about them. But if the cost of building/maintaining these roads are not inconsequential look at the savings gained by pad drilling. Instead of one road being built to service one well, one road now goes to a 5-well, 10-well, or even a 14-well pad.

Since 2011, a lot more pipeline has been laid: natural gas pipeline; crude oil pipelines; and, water/waste pipelines. By the middle of 2014 there is going to be another huge pipeline on-line, the one from Killdeer to Dickinson which will pretty much hook into the entire southern half of the Bakken. Trucking costs have had to come down significantly.

A third cost? Leases. A thing of the past, for the most part.

That's on top of drilling costs dropping from $10 million to $8 million, per well.

Mike touched in passing on the glut of oil hitting the Gulf coast, and how other sources of oil could "displace" Bakken oil from east coast refineries. RBN Energy has talked about this at length for quite some time. But the capacity for light, sweet oil on the west coast will increase over the next few years. Having said that, I don't think folks understand to what degree the "flood" of new domestic oil will have on the market.

Mike did not mention the recent derailments and the safety alerts coming from the government. The emotional anxiety this will cause investors will result in share price volatility but it will be temporary. There are four pipelines that are particularly interesting and relevant to this discussion:

• the Keystone XL 2.0 South will start flowing oil out of Cushing on January 22, 2014, but the huge influx of western Canadian heavy oil that was to replace it via the Keystone XL 2.0 North won't be on-line by 2016, if ever. There may be a reason that Harold Hamm has said the Keystone XL is no longer needed; 
• the Killdeer-to-Dickinson pipeline will be on-line by the middle of this year;
• the Enbridge Sandpiper project; this one won't be completed until 2016; in addition, I have some concerns whether it will be completed/delayed due to activist environmentalist concerns, but with the rail issues, the advantage may have turned in Enbridge's favor; and, 
• the Double H pipeline from Dore, North Dakota, to Guernsey, Wyoming. I haven't seen anything on that recently; updates should be in the annual report, if nowhere else.

When takeaway capacity was first being talked about in the Bakken, the conversations only related to pipeline. Experts suggested that pipeline capacity would exceed Bakken production by this time (or at least that was my recollection). For various reasons, CBR has turned out to be more successful than anyone originally anticipated. But now with additional pipeline in place (locally, regionally, and nationally) recent CBR events might be less concerning than they otherwise might have been.

This Mike Filloon article is an excellent update. It will be linked as a favorite commentary at the sidebar at the right.

Oh, by the way, did you all see this in his opening paragraph: "... the Three Forks' four benches will produce significantly more resource than the middle Bakken." There are two story lines or two data points in that one short phrase.