Saturday, January 18, 2014

Week 3: January 12, 2014 -- January 18, 2014

Top story
North Dakota sets new all-time crude oil production record

Four CLR Montana completions
Two laterals off one CLR well on the Atlanta pad southwest of Williston
Are there any active wells in Wells County
Abraxas comes in with a nice Lillibridge pad
Random look at some wells completed last year

Fracking continues through the cold weather

Williston update in The International Business Times

Bakken 101
The definition of the Bakken

For investors only
SLB has a great quarter; raises dividend 28%
Bret Jensen on EOG
Filloon's looks at the Bakken going into 2014, part 2 of 2 installments

National energy
The US propane shortage -- although this won't be a major mainstream story, this might be one of the major stories of 2013 - 2014 

A Mysterious Force Unkown To Most Politicians Accounts For The Success Of The Bakken

I've alluded to this numerous times since I began blogging about the Bakken. Barron's does it best in this op-ed today:
It's not always true that the government must subsidize something to get more of it for the people.
That is the default setting among politicians, as we can see from our national surpluses of grain, milk, unemployment, nonprofit companies, disabilities, and mortgage debt.
There is another way.
Consider the sudden expansion of natural gas and oil produced by hydraulic fracturing and horizontal drilling.
Because of a mysterious force unknown to most politicians, the U.S. now produces a third more natural gas and a third more oil than it did six years ago. U.S. production of oil and associated liquids in 2012 was 11.1 million barrels a day, almost what it was in 1985. By 2015 or 2016, it should surpass the old record production level set in 1970.
The mysterious force is liberty. It is the right to own and control private property and the right to enter enforceable contracts.
The technologies of fracking and horizontal drilling were developed and applied by oily entrepreneurs who wanted to get filthy rich and were willing to risk small fortunes in hopes of making large ones.
More importantly, the resources were accessible because they lay under private land and they belonged to the landowners. In other countries, the government owns all sub-surface property rights.
Even the U.S. would never have developed fracking and horizontal drilling so fast and so effectively if all of the promising territory had been under federal or state government control or under leases already held by big oil companies.
Risk-averse bureaucrats would have found reasons for delay, as they have in northern Alaska, California, and the Florida side of the Gulf of Mexico. Big energy companies would have exploited their opportunities slowly and carefully, with due regard for keeping market prices high.
Speaking of risk-averse bureaucrats and politicians, check out the way North Dakota invests oil money finding its way into the state's "Legacy Fund."

On December 22, 2013, I spelled out a bit more clearly what I mean by "the Bakken." At that time I wrote:
Regular readers know that when I mention the "Bakken," I am thinking of the Bakken in three different ways.
  • the oil patch in North Dakota
  • a laboratory for horizontal drilling and fracking in tight oil
  • an entrepreneurial spirit in which all concerned work together to solve problems
I am reminded of those three "Bakkens," the "trilogy," perhaps, when I think of EOG.
The third definition -- an entrepreneurial spirit in which all concerned work together to solve problems -- is exactly what the Barron's article is all about.


I don't know how many caught this. This is a big story.

When the Obama administration was foundering/floundering in the waning days of 2013 due to ObamaCare, the president brought in John Podesta to "save" the White House. Immediately John Podesta was put in charge of "climate change." To what extent he was brought in just for "climate change" is unknown. No doubt, just having him at the table would help Obama-Biden address issues troubling their base.

I had great concern that Obama had brought in one man, and particularly John Podesta, to focus on climate change. Two big issues were on the table: CBR  and fracking. Pedesta would have been a formidable challenge for the Bakken.

Fortunately, events have forced the Obama administration to move Podesta over to a bigger crisis: the NSA story. Again, it is unknown to outsiders how much time Podesta will spend on the NSA instead of the other issues. But it's difficult for "advisers" to wear multiple hats in the White House. Hopefully, the NSA will keep Podesta fully occupied.

Breitbart is reporting the Podesta move.


Don sent me this link to a front-page story in The Dickinson Press about another huge shale play in the continental US. This one is in Oklahoma, known as the SCOOP, and some say could be bigger than the Bakken.

Read the story at the link, then come back to read the comments I made to Don regarding this story:
This is a very interesting article. I would love to know where this is coming from. The story was not written by a Dickinson Press reporter, although it may have been edited by The Dickinson Press: it was a news story that came off the fax (or electronically) from a huge stack of news stories released daily by Reuters Media.  
Perhaps this was the source: “We consider SCOOP one of the top emerging plays in the U.S,” said Andrew Byrne, director of energy equity research at IHS in Boston. It would be interesting to know the relationship between IHS, CLR, and other investors.
Be that as it may, let's continue.
Any news organization can subscribe to Reuters Media. They are then guaranteed a huge stack of news articles that they pick and choose from that would interest their readers. For example, this story would not interest folks reading the New York Times.

It appears that The Dickinson Press added some local facts about the Bakken to make it look like "their" story, like the number of active rigs in North Dakota.

It certainly looks like the story began with a press release from Harold Hamm to "someone" -- Reuters picked it up and then did some fact checking, talking to MRO and Newfield, both of whom had "no comment," it appears.

But this has Harold Hamm's marketing fingerprints all over it.  I was mesmerized until I got deep into the story and someone, probably Harold Hamm himself, had to admit that the SCOOP would result in 100,000 bopd by 2018 compared to the one million bopd in the Bakken. For all practical purposes, the Bakken went from nothing to a million between 2010 and 2013 (one can argue the "2010" starting date).

2018 is four to five years from now. How they can suggest the SCOOP might be bigger than the Bakken is beyond me.

Look at these two paragraphs buried deeply in the article:
Portillo sees SCOOP maxing out at about 100,000 bpd in 2018, around three times what it pumps now — versus nearly 1 million bpd from the Bakken or the Eagle Ford in Texas.
“The oil is fairly immaterial in terms of the production numbers,” Portillo said of current SCOOP output compared with other plays.
The first paragraph: 100,00 bopd by 2018. Inconsequential. 
The second paragraph: whoever Portillo is, he agrees: 100,000 bopd is fairly immaterial. 
The 100,000 bopd is NOT immaterial to Harold Hamm, but it is immaterial relative to US onshore production, to western Canadian heavy oil production, and needless to say, immaterial to global production.
My two cents worth.
I have to check the 168-rig count that The Dickinson Press provides.
Two other data points. The article suggests that the Bakken has 24 billion bbls of recoverable oil:
CLR calls SCOOP a “world class resource,” and estimates it could contain 70 billion barrels of oil.
By comparison, Continental estimates North Dakota’s Bakken shale oil play contains 24 billion barrels of recoverable oil.
In fact, that is a conservative estimate for the Bakken. The folks-in-the-know, including Harold Hamm, have suggested that the Bakken may be a trillion-barrel reservoir, and recovery rates are easily reaching 5 percent. That is still less than 70 billion bbls but if the recovery rate hits 8 percent in the Bakken it will exceed the current SCOOP estimates.

How much you wanna bet this story will be a footnote in the next CLR presentation or a comment in the next earnings conference call?

ObamaCare Will Not Be Repealed

Don sent me a couple of links to ObamaCare articles this morning.

We haven't seen much on ObamaCare in the mainstream media this past month: the cold weather, the Target breach, and the NSA have taken up all the ink.

As those stories fade, the talk will return to ObamaCare. By July/August of this year, ObamaCare will smother all other news stories, and in October, just before the election, insurance companies will set the "new" premiums for 2015.

First the two links that Don sent me:
  • Forbes is reporting: of those who did not enroll, 52% said they did not enroll because they could not afford ObamaCare. Only a third said they did not sign up because of technical reasons.
  • The Wall Street Journal is reporting that the majority of those who signed up for ObamaCare were previously insured elsewhere. For the most part, the majority of those who signed up were the ones who had their policies canceled under ObamaCare (one big shell game, in other words).
The point of the second story is this: the whole purpose of ObamaCare was to capture the previously uninsured (the 30 million uninsured Americans) -- that did not happen (and won't happen).

The point of the first story is that the majority of folks are not enrolling in ObamaCare because they cannot afford the premiums, not because of technical issues. In six months there will be a new poll out that shows among the enrolled folks who could "afford" the premiums, the vast majority will find they cannot afford the annaul $12,000 deductible and will have dropped their plans.

After getting the links from Don, I responded. The following is my response. It is not ready for prime time, but seldom is anything on the blog ready for prime time. But these are my unedited thoughts about how I think ObamaCare will play out.

I am posting this for the archives. I assume my position will a) be proved wrong over time; and, b) will evolve as new data becomes available, but I bet I'm not too far off the mark.

Based on the Forbes article in which the journalist suggests ObamaCare will be repealed, here's my prediction:
All that talk about "repealing" Obamacare -- it can't happen. ObamaCare has woven itself into all sectors of the economy. The best that can be done is to nibble around the edges, modifying the existing bill.

Hillary, Pelosi, and Co. wanted two things: a) no pre-existing clauses; and, b) no caps on coverage. Those two benefits cannot be removed. That's exactly what Tricare -- military medicine has: anyone who is part of the military (spouses and children) have the same insurance regardless of pre-existing medical conditions; and there is no cap to total expenses, once the deductible is paid.

Congress will modify ObamaCare to appease their constituencies; the annual deductibles will be lowered to $6,000 or less; the premiums will be capped; and the insurers will be compensated for their losses.

The only piece that might be interpreted as a repeal of ObamaCare is when Congress permits folks to buy insurance policies that don't meet ObamaCare requirements. President Obama has already made this possible for the majority of those affected by the individual mandate; he did this using a) his pen; and, b) an executive order.

Health insurers will then be like the utilities with two "entities": a) the regulated side of the house (what we call ObamaCare now); and, b) the unregulated side of the house (what will be called ObamaCare Lite. Or ObamaCare Elite since it will be bought by the elite.

The regulated side will simply be "pass-through" entities with the US government (taxpayers) making up the difference between which the insurers collect from premium payers and the total cost of providing ObamaCare to those who buy from the regulated side of the market.

The insurers will be guaranteed a small profit on the regulated side, and no restrictions on profit on the unregulated side.

The Target Store Hack -- The NSA And Everyone Else Dropped The Ball

It turns out the malware that was used to target Target, Nieman-Marcus, and other retailers has been around for years, and was written by a 17-year-old from St Petersburg, Russia. The malware goes by the name BlackPOS and is incredibly easy to find, if one is in that "business."

This news is incredibly mind-boggling. And, oh, by the way, it uses security holes in Windows software.

The NSA missed this one -- imagine what professionals out of China, Russian, and Romania can do if a 17-year-old was able to do this and remain undetected for weeks.

I find it strange that the federal government has not made any public statement on this. 

No links: the story is everywhere and is easily googled.