Another "Silly Story" From The New York Times; Musings On A Sunday Night -- November 23, 2014

Updates

November 27, 2014: the Times article was "pretty silly" -- EnergyInDepth.

November 26, 2014: North Dakota officials respond to New York Times article. 

November 25, 2014: The New York Times has provided a very impressive graphic of all the wells in North Dakota. It would be interesting to superimpose all the windmills that would be needed in the same amount of space to generate the same amount of energy.

November 25, 2014: John Kemp, over at Rigzone, provides a very nice essay in response to "the" New York Times article on the Bakken. My comments on "the" New York Times article on the Bakken in the original post below; the first section.
 

Original Post

This is going to be a long, meandering note. It will be a long note so I can hide a lot of stuff in it. I assume folks don't read long notes.

First of all, that NY Times article, about the Bakken boom. It was clearly an editorial which will be used by movers and shakers in Washington to support their case that the environment is too important to leave it up to state regulators. It was printed to support Obama's decision later this year to enact the new EPA rules and regulations on methane. And yes, he will sign off on the new EPA rules; but like everything else, it will be phased in over two years, leaving the package for his successor to implement. Having said that, in my mind the NY Times failed to make their case. The entire article was bogus. How do I know?

• had there been any truth to the article, The Dickinson Press would have been all over this issue six years ago, even before the boom began;
• the article didn't mention that back in 2010, state regulators and courts (and maybe even federal regulators, I forget) tried to shut down the entire Bakken because of six dead ducks --;
• the article did not mention that after almost 75 years of drilling for oil in North Dakota, no one has been able to find any evidence of any groundwater contamination -- again, nada, zilch, zero;
• the article did not mention that there have been no earthquakes in North Dakota -- okay, there have been at least two; one back in 1909, and one back in 2012; it appears that extreme fracking turns the potential for large earthquakes into tremors so small that only US Navy submariners can pick them up on their sonar; not one North Dakota earthquake has ever resulted in a tsunami;
• the Times kept mentioning "North Dakota" in the article, when in fact, about four counties (out of 53) are really doing much drilling; and,
• the same newspaper, some years ago, said fracking for natural gas would never amount to anything, thereby losing all credibility except for the gullible.

It should be noted that whereas the wind industry has been given blanket immunity to kill an unlimited number of golden eagles, bald eagles, whooping cranes, there have been no reports -- nada, zilch, zero -- reports of any more ducks killed by the oil industry in the past four years, much less any other birds.

Okay, got that one out of the way.

The second story has to do with the Bakken "petering out" (their words, not mine). Don sent me that story. It was so bad, I didn't know what to do with it. It looks like someone is trying to resurrect the "Peak Oil" / "Oil Barrel" blog. But folks kept sending in comments on the article, so to cut down on all the comments, I thought I had better address it. I didn't read much more than the headline and the lede. The thesis, apparently, is that based on newer Bakken wells not being as productive as older Bakken wells suggest that the Bakken is "petering out." (By the way, here's the link:
http://peakoilbarrel.com/bakken-sweet-spots-petering/.)

Hello!!! There are so many variables with regard to oil production and oil companies hold so much so close to their collective chests, there's no way to sort out why production numbers are what they are. I just mentioned it a few weeks ago. I would assume production is going to flatten, perhaps ... OMG ... even decrease over the next few months. For a bunch of reasons:

• winter is coming;
• new flaring rules;
• Burlington Northern Santa Fe (that's Warren's railroad that has a virtual regional monopoly in the Bakken) has said they are going to cut back on oil transportation to make room for grain and other commodities;
• a slump in oil prices;
• winter is coming;
• the holidays are coming;
• people are getting tired; and, have I mentioned,
• winter is coming.

But this is something that no one has talked about: E&P. Publicly traded oil companies -- you know, I talked about this a long time ago -- I've probably discussed it several times -- why am I talking about it again -- whatever -- publicly traded oil companies need to manage their assets. Part of their market capitalization (part of their value) is based on how much oil they still have in the ground (reserves). For example, let's say KOG just announced they were going to drill all the oil they have and all the oil they ever hope to have in 2015, drawing their reserves down to zero (0) by the end of 2015. Yes, KOG shares would plummet and that would pretty much be the end of KOG. Of course, KOG isn't going to drill out their inventory next year. But if an oil company doesn't find more reserves, it will eventually run out of oil, all things being equal. That's the "P" part of the story ("P" stands for production). But oil companies are E&P companies; the "E" stands for "exploration."

It's been pretty much agreed by everyone that the middle Bakken has been fully delineated in North Dakota. How do I know that? Lynn Helms has said that. But the Three Forks has barely begun to be delineated. In fact, there are some folks reading this right now who have not even heard of the Three Forks. I assume those folks arrived on this site by mistake looking for that NY Times article. Up until a year or so ago, "we" only knew of "Three Forks not otherwise specified." Up until a year ago, Three Forks wells were pretty much "upper" Three Forks. It turns out there is also the Sanish, and also the Pronghorn sands, and now, there are four benches, three of them in the "lower" Three Forks. We don't even know if all benches will be productive, and which ones will be most productive.

Oil companies have not even fully delineated the upper Three Forks, much less any of the benches. How do I know that? Lynn Helms has said that. I haven't counted the wells but among the Bakken pool wells drilled to date, I bet the ratio is a 100 middle Bakken wells for every Three Forks well (I'm probably off by a factor of ten, but I'm trying to make a point. Give me a break). If you are interested in the exact ratio, you can do the math at the the NDIC site that has all the statistics.

So the operators are delineating the upper Three Forks, which I guess is now considered the first bench, and the other three or four benches, depending how you count them. It would only make sense that the new wells might not be as good as the middle Bakken wells drilled just last year. But, the drillers have been improving on their middle Bakken wells over the past seven years and are still trying to sort out the best ways to complete middle Bakken wells. I assume there will be a learning curve for the Three Forks sub-formations.

Okay, enough of that. Take it for what's it worth. But, yes, I'm betting that we will see a flattening of oil production in North Dakota or even a decrease in oil production month-over-month starting in November, 2014 (but we won't know until the Director's Cut comes out February 15, 2015), but it won't be because the Bakken is "petering out" for the reasons apparently suggested by that writer in the article I didn't read.

You know, I have to chuckle. If the middle Bakken sweet spots are "petering out," someone hasn't told the operators: they are planning to put in 56 wells in some drilling units in the sweet spots. That doesn't sound like a "sweet spot" petering out ... it sounds like things are just getting started.

There is so much else I could add, but at some point one needs to move on.

A third story, the slump in oil prices. I don't know what more can be said that hasn't already been said. The one metric I'm following is the number of active drilling rigs. Yes, I know there are errors in the number of active rigs being reported and the number includes spudding rigs and "drilling" rigs, but that's been true from the beginning. The number of active rigs as reported by the NDIC as the data comes in: "it is what it is."

So, why am I using the number of active rigs as the single metric that means the most to me right now? Because I can get my hands / my mind around the number "200" or more accurately, "191," the number of active rigs in North Dakota as being reported tonight by the NDIC. It's a simple metric to follow. Much could be written about rig count but I've discussed it in the past ad nauseum. The reason the number of active rigs is important to me is for one simple reason: an active rig means roughnecks are working; geologists are employed; truck drivers are delivering pipe, sand, and water. If there's a better single metric to follow in the Bakken that correlates with activity, I would be interested in hearing what it is. For any number of reasons, my "floor" is 175. As long as there are 175 active rigs in North Dakota, the Bakken will do just fine. But for the roughnecks, truck drivers, geologists, I hope the number doesn't get that low.

Hey, speaking of that, I don't recall much about Welter Consulting. One of their wells will be coming off the confidential list tomorrow. Welter's track record in North Dakota: three permits. Two resulted in dry Madison wells (#22690, #25291) northwest of Minot. Their third of three wells will be coming off the confidential list tomorrow.

Finally, last but not least. This is such an incredible story, I may post it again as a stand-alone post. Don caught it. Again. He has a knack for finding these stories. This story is so preposterous I took a screenshot of it because I'm sure it will be corrected or removed.

Iraqi News is reporting:

The President of Kurdistan, Massoud Barzani confirmed that Baghdad will send $500 million to Erbil (Kurdistan) as part of the agreement settled upon between the two sides last week.

Barzani said, “We have agreed with Baghdad that it will send one billion dollars in two batches; we will give 150,000 barrels of oil to Baghdad in return,” adding that both sides agreed on the amount of oil to be exported from Kirkuk via Kurdistan pipeline to Turkey.

In case you missed that: Baghdad will "move" one billion US dollars up to Erbil, Kurdistan, for 150,000 bbls of oil in return.

Perhaps that was a misprint. But no, it's repeated again in a subsequent paragraph:

The Ministry of Finance announced on November 19, 2014, $500 million are to be transported to the Kurdistan region, noting that this step comes after the regional government implemented the item related to delivering 150,000 barrels.

It's a little unclear whether they are paying $500 million for 150,000 bbls of crude oil or $1 billion for 150,000 bbls of crude oil. I read it as $1 billion for 150,000 bbls of crude oil. One billion American dollars.

The math is not hard: $1,000,000,000 / 150,000 = $6,666.67 dollars / bbl. 

Whatever the Kurds are paying their negotiator, it is not enough. If oil is being "exchanged" between Kurdistan and Baghdad, for almost $7,000/bbl, watch out for a spike in the price of oil tomorrow. I would say we could see WTI going for $4,000/bbl over the holidays.

This story is so incredible, I took a screenshot of it, just in case:

Something tells me there was something lost in translation. Unfortunately the best I could do for this:

Suntory Time, Lost In Translation   *************************************  In Other News For The Archives  

I see Finland is worried about a hostile takeover by Russia (I can't make this stuff up). To the best of my knowledge Finland is known for three things: a) licorice; b) Tesla; and, c) Nokia. To the best of my knowledge only one of the three is still doing well in Finland, and to the best of my knowledge, Putin is not a big licorice afficionado.

Ferguson: game time, 9:00 p.m. Tuesday Monday (updated, 1:00 p.m. CDT, November 24, 2014). Pre-game show begins at 6:00 p.m. same day. Officiating, Eric Holder. [Game time moved up one day with hopes that holiday "shopping" can be completed by Thursday, Thanksgiving, and all the football games.]

Two country singers announce that they are gay. Photographs of two individuals are posted at that story: Ty Herndon (who I have not heard of); and, Dolly Parton (who I have heard of). I cannot make this stuff up. Generally, "things" come in threes. 

Two girls, ages 4 and 6, recently visited Sierra Leone (not Disney World?), and upon return to the states developed a fever. They both tested negative for Ebola; they have the "flu." Ebolaland flu. At least it's hard to catch. I can't make this stuff up.

What else are we going to be talking about tomorrow? In Saturday's Wall Street Journal:

Lois Lerner's lost letters? They've been found! As many as 30,000 missing e-mails have been found. Just in time for GOP Senate and GOP House hearings. Something tells me Lois will wish these e-mails would have been found in time for the Dem-led Senate to have reviewed them and for Harry Reid to have called them irrelevant.

Pre-game show in Ferguson: "officials" lay out rules for police handling the protests. High on the list: don't shoot anyone.

Biden warns Russia on Ukraine. The short note did not say anything about whether a "red line" had been drawn.

In tonight's Los Angeles Times:

It looks like the umpteenth deadline in those Iranian talks will be extended.