Wednesday, April 2, 2014

Bakken Projections Published In Boston Herald

From The Boston Herald:
Oil production in North Dakota and Montana's Bakken and Three Forks formations will average 1.1 million barrels per day this year, according to estimates announced Wednesday by a research firm.
Wood Mackenzie anticipates that oil production in the North Dakota and Montana sections of the Bakken and Three Forks formations will grow to 1.7 million barrels per day in 2020. [The Bentek study said 2.2 million bopd by 2022, so "we're" in the same ballpark.]
"We're very confident on the future of the Bakken," said Jonathan Garrett, an analyst at Wood Mackenzie. He added that the expected lifetime of a Bakken well is 25 years to 30 years.
Wood Mackenzie projects that $15 billion will be spent on drilling and completion of wells by Bakken participants in 2014.
The research firm also said there is close to $118 billion in remaining value in the American portions of the Bakken and Three Forks formations, which also stretch into Canada's Saskatchewan and Manitoba provinces.
A reader alerted me to the article and made a number of interesting observations about the article.

Two comments: first, one about drilling and completions CAPEX this year; and, second, "remaining value" in the Bakken.

1. $15,000,000,000 / 2,400 wells = $6.25 million / well. A fair number of Williston Basin wells will be very inexpensive Spearfish wells which would bring the cost/well down, but the article specifically says "Bakken participant." Everything I've seen suggests average well costs will be about $8 million at best, and several analysts have said KOG will have rates higher than the average. There must be a lot of very inexpensive Bakken wells on the margins of the Bakken to bring the average down to $6 million / well. One of the few operators who say they can get the cost / well down to about $6 million is Whiting.

2. Harold Hamm suggests the reservoir is close to one trillion bbls OOIP (blogged a long, long time ago). Even at a paltry 5% recovery rate, the total value of the remaining Bakken is staggering, much, much greater than the article above suggests. Even if one assumes half what Harold Hamm says: 500 billion bbls x 5% recovery x $50 / bbl -- the amount is way more than what the article suggests.

Regardless, "fun" to see an article like this in a Boston newspaper. 

Proposed Jamestown (ND) Nitrogen Plant Put On Hold -- Cost Estimates Come In Way Higher Than Expected

Earlier post, same subject.

The Dickinson Press story here.

Hospitals Laying Off Employees Due to ObamaCare

I was completely unaware of this phenomenon, of hospitals laying off employees due to impact of ObamaCare. I would not have posted the link to this story but one of the regular group at Starbucks this morning also mentioned that the local medical center laid off a large number of non-physician professional staff for the same reason.

It's obviously not unique to the medical profession. The same thing is happening in the American university systems across the country: folks getting laid off due to ObamaCare liabilities. I assume it is a newsy headline because of the "irony" of ObamaCare leading to layoffs in the health care industry.

Be that as it may, here's the link to the story.

April Fool's Post -- Your Thoughts? -- Bakken Productivity

I never pass up the chance for a bit of humor.

A reader sent me this link the other day. I completely fell for it, thinking it was "legit." I didn't get a chance to post it / link it, because I was running behind schedule. Today, it was noted that the blog/post was an April Fool's joke. I completely missed it, hook, line, and sinker, as they say.

I'm curious. Would you, the reader, have seen the April Fool's joke? Be honest -- no one will know.

But here's the link to the bogus data/analysis. Note the comments.

I actually thought it was pretty good. And if it's on the internet, it must be true. LOL.

Six (6) New Permits -- The Williston Basin, North Dakota, USA; KOG Taking It To The Bank(s) -- Four Big Koala Wold Wells

When I was last up in the Bakken, a few weeks ago, I was told to "watch" the Banks. See below the KOG wells reported today, and Statoil to report a Banks well tomorrow. Also, note in new permits, two more Stockyard Creek permits. For such a small field, it is sure active. 

Active rigs:

Active Rigs190184207170103

Six (6) new permits --
  • Operators: Whiting (2), Slawson (2), Oasis, American Eagle
  • Fields: Park (Billings), Stockyard Creek (Williams) Missouri Ridge (Williams)
  • Comments: American Eagle has a permit for a wildcat; still more wells in Stockyard Creek east of Williston
Wells coming off the confidential list were posted earlier; see sidebar at the right.

Five (5) producing wells completed:
  • 25804, 1,837, KOG, Koala Wold 153-97-1-5-29-1H3, Banks, t3/14; cum --
  • 25803, 1,573, KOG, Koala Wold 153-97-1-5-8-15H3, Banks, t3/14; cum --
  • 25802, 1,944, KOG, Koala Wold 153-97-1-5-9-15H, Banks, 4 secs, t3/14; cum --
  • 25805, 2,054, KOG, Koala Wold 153-97-1-5-29-2H, Banks, t3/14; cum --
  • 26053, 949, CLR, Winston 5-12H1, Long Creek, t3/13; cum --
Wells coming off confidential list Thursday:
  • 24373, drl, Statoil, Garmann 19-18 2TFH, Banks, no production data,
  • 26074, drl, Hess, BL-Iverson 155-95-1819H-2, Beaver Lodge, no production data,
  • 26331, drl, Hess, GN-Dalseng-158-97-1102H-1, New Home, no production data,

The Mineral Rights Handbook


3:51 p.m. central time: I just heard back from the author. He said for some reason the e-mail address was not working correctly; he says it's been fixed. I've put the link back up on the sidebar at the right.

Original Post

I've heard from a trusted reader that she had trouble downloading the mineral rights handbook linked at the sidebar at the right.

I've sent a note to the author to see if he is aware of any problems with the website or downloading the book after purchasing.

I will take the link down until I hear back from the author just to be on the safe side.

April Fool's? -- That's The Only Thing I Can Think .... I Guess This Is Why It's Called The Independent -- Independent, As In "Not Group-Think"

The Independent is reporting:
Greenpeace co-founder Patrick Moore has angered environmentalist groups after saying climate change is "not caused by humans" and there is "no scientific proof" to back global warming alarmism.
The Canadian ecologist told US lawmakers there is "little correlation" to support a "direct causal relationship" between CO2 emissions and rising global temperatures.
"There is no scientific proof that human emissions of carbon dioxide are the dominant cause of the minor warming of the Earth's atmosphere over the past 100 years," he told a US Senate Committee "If there were such a proof, it would be written down for all to see. No actual proof, as it is understood in science, exists."
He also criticised the Intergovernmental Panel on Climate Change (IPCC) for claiming "it is extremely likely" that human activity is the "dominant cause" for global warning, noting that "extremely likely" is not a scientific term.
Right, wrong, indifferent, it's nice to see fair and balanced reporting.

The History of Egypt From 1860 - 1907 In Three Pages
From Sylvia Nasar's Grand Pursuit, pp 180 - 183
This puts the US crash of 2008 in perspective 

Hard as it is to imagine today, Egypt was the China at the turn of the 20th century. 

The conquest of Egypt began with Napoleon in 1798, but Egypt's transformation from an Ottoman fiefdom into a British dependency was mostly the work of entrepreneurs, bankers, and lawyers in the second half of the 19th century.

The American Civil War and the resulting cotton famine turned Cairo into a Klondik on the Nile. Colossal amounts of foreign capital, mostly in the form of loans, flowed into Egypt. For Rosa Luxemburg, the Polish revolutionary, Egypt was a microcosm of the "madness" of modern imperialism.

Inevitably, the debts piled up to complete the Suez Canal ... had the khedive Ismail Pasha invested more cautiously and avoided debt, some historians speculate, Egypt might have entered the twentieth century as another, albeit smaller, Japan.

A period of de facto British rule commenced in 1883. Evelyn Baring, the 1st Early of Cromer, scion of the banking family and one of the great imperialists of the age, was installed as the power behind the khedive's throne. Baring's top priority was restoring Egypt's Anglo-French agreement reached in 1904 extended British rule indefinitely, sparking another, even more spectacular investment boom.

Not much bigger than Holland, Egypt attracted as much British capital as India.

The flood of foreign capital was transforming Egypt's feudal economy. Historian Niall Ferguson argues that while old empires extracted tribute, modern ones injected capital and promoted economic growth. In 1900 Egyptian manufacturing had consisted of two salt factories, two textile mills, two breweries, and a cigarette factory. Sugar refining had been by far the most important industry, employing 20,000 workers.

By 1907, brand-new industries such as ginning and pressing cotton, cottonseed oil, and soap manufacturing employed 380,000 workers. Wages rose along with cotton prices....Egyptians were acquiring European culture.

Egypt's foreign colony -- expats as well as Jews, Copts, and Greeks who had settled there hundreds of years earlier -- helped make Egypt "almost the most cosmopolitan country in the world." Cairo swarmed with fortune hunters, bankers, brokers, and entrepreneurs who invested in tourism, railways, banking, sugar, and, of course, cotton.

Egypt became the poster child for the new imperialism.

William Jennings Bryan, the three-time Democratic presidential candidate, stopped in Cairo on his way back from India in 1906 ...

... and the then the world-wide panic of 1907. The run on banks that began in New York City in 1907 followed with runs on banks around the world. Cairo was not spared. The Egyptian stock market plunged. Most thought it was temporary but in April the market crashed a second time and, this time, kept going down. This tie full-scale panic erupted.

The Egyptian crash was part of a worldwide phenomenon, just as Cairo was a link in a chin that stretched from San Francisco to Santiago, London to Bombay, New York to Hamburg and Tokyo.

A London banker observed after the fact, "beginning about the middle of 1905, a strain on the whole world's capital supply and credit facilities set in, which increased at so portentous a rate during the next two years that long before October, 1907, thoughtful men i many widely separated markets were discussing, with serious apprehension, what was to be the result."

The even that triggered the chain reaction had taken place on the far side of the world. Besides practically leveling the city, the great San Francisco earthquake and fire of 1906 resulted in enormous claims to insurance companies in London. As insurers were forced to sell pounds in order to buy dollars to settle them, the pound started to fall in terms of its gold price. To stem the outflow of gold, the Bank of England raised its discount rate to 6 percent in October, 1906. The result was a credit squeeze for borrowers.

Under the gold standard, when England sneezed, the US caught cold. The New York stock market plummeted in March 1907, and in May economic activity began to decline. The recession set the stage for the last and worst banking panic -- the panic of 1907 -- that focused on the New York trusts. The resulting credit freeze forced thousands of banks and businesses around the US into bankruptcy.

A severe economic downturn continued for more than a year, and business conditions did not fully recover until 1910. In England, and on the Continent, the slump was even deeper and longer. In Cairo, on the other hand, the Panic of 1907 was only a pause.

Putting The Bakken Into Perspective Again -- High Development Costs -- Remember When The Bakken Was All About The Expense? A $10-Million Well Is Now Considered A Bargain

The WSJ-linked article below is a must-read, to help put the Bakken into perspective. 

A reader was kind enough to send me a long response to the long, meandering post on projected productivity of the Bakken vis a vis the Bentek study. He brought up so many points, it will be awhile to get to all of them. Much appreciated.

The reader sent this WSJ link which I can't remember if I've posted before but it helps put things in perspective: triple-digit oil prices needed to sustain oil production.
Underneath their swagger and bravado, global energy chiefs gathered here for their annual U.S. conference expressed a palpable sense of dread over the soaring costs of their signature oil and gas projects.
"All of us are facing new realities and pressures," John Watson, chairman and chief executive of Chevron Corp., told a hotel ballroom jammed with an international assortment of men in suits and the occasional woman.
"Labor and capital costs have doubled over the last decade." To pay for the rising price of extracting fossil fuels, the industry needs triple-digit oil prices, Mr. Watson warned. "The $100 barrel is the new $20," he said—a sobering statement since global oil prices haven't been in the $20 range since 2002.
Look at the Kashagan debacle

On the other hand, as more and more infrastructure is completed in the Bakken, which, hopefully, will help contain costs there.

And there it is, here in the WSJ-linked article:
While the big projects provoke the most angst, there is widespread recognition that the small scale—especially around the U.S. shale boom—has had significant impact. The one place where cost inflation wasn't at the forefront of discussions was shale energy development and how it has benefited the U.S. To drill and hydraulically fracture a well in Pennsylvania or North Dakota costs $10 million, at most. 
So, $10 million/well is now considered cheap? Wow. 

Pricing -- WTI - Brent Spread Narrows; For Investors Only -- New Highs For The Day

The spread between WTI and Brent is only $5.00 (a dynamic link; this will obviously change five minutes from now).
  • Brent: $104.41
  • WTI: $99.17
New highs for the day: BHI, EPD, HP. In addition, UNP is near its 52-week high. 

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read at this site, or think you may have read at this site.

Predicting Productivity In The Bakken

Wow, timing is everything.

Yesterday I posted a long meandering note on predicating productivity in the Bakken.

Now, a four-page internet article on just that being reported at Rigzone.
We recently authored an article in the Musings discussing the impact of the extremely cold winter on oil output in the Bakken basin of North Dakota.
When we examined the EIA’s March Drilling Productivity Report, we were startled by the chart showing a steady increase in the basin’s oil output and the accompanying forecast for future monthly increases. That shock sent us back to look at all the monthly charts for the Bakken’s output projected by the EIA.
Every month showed a projected output increase. Given what we knew about the production output during the winter months obtained directly from the North Dakota Department of Mineral Resources (DMR) that showed a significant drop in production, and especially Bakken output, which is what dominates the state’s oil production, we wondered about the EIA’s forecasts.
To explore the subject, we plotted the monthly output estimated by the EIA along with its next month forecast. We then looked at what the starting point for production was the next month along with its projected output one month forward. We did that for each month from October 2013 through March 2014, which gave us an estimate of Bakken production for April 2014. Next, we went to the North Dakota DMR web site and got each of the month’s preliminary and revised monthly production statistics for the entire state and for the Bakken formation. All of monthly data is presented in Exhibit 2.
As the DMR data is reported with a lag of two months, the last preliminary monthly output figure for the Bakken formation is for January 2014 of 871,672 barrels per day (b/d). That estimate contrasts with the EIA’s January 2014 projected output of 1,025,000 b/d made in December 2013. That is a difference of 153,328 b/d, or 17.6% of the DMR estimate and 15% of the higher EIA estimate. If we measure the DMR Bakken production estimate against the EIA’s starting point in January, the difference is 15.2%.
A great beginning. And it appears one day after my long meandering article. Gotta love it.

The article ends on an unsatisfactory note. 

For Investors Only

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or think you may have read here.

KOG continues to be a Wall Street darling. Most of the data points in this article could be applied to most operators in the Bakken:
  • a twelve-year drilling inventory
  • 2013 production significantly higher than 2012 production
  • it trades below its peers on a multiples basis
My favorite contributors with regard to the Bakken over at SeekingAlpha: Filloon, Zeits, Fitzsimmons.


And then there are those who like EOG.
On Monday, March 31, EOG Resources announced that five new wells in the Eagle Ford formation were pumping more than 13K boe/day of crude and yielding 91%-97% oil. According to sources, these wells had individually produced between 2,314 and 3,071 boe/day and the crude that was discovered is very similar to the light oil that is produced off the coast of Louisiana.
If EOG Resources can continue to demonstrate significant production-related performance as it continues to develop newer wells, there's a very good chance the company's long-term earnings growth and long-term revenue growth could increase if such performance is sustained. In other words, if EOG can continue to develop wells that yield at least 92% oil while producing an average of 2,500 boe/day, there's a very good chance both earnings and revenue growth could be positively impacted for years to come.
That's a pretty tepid analysis.  Let's repeat that analysis: "In other words, if EOG can continue to develop wells that yield at least 92% oil while producing an average of 2,500 boe/day, there's a very good chance both earnings and revenue growth could be positively impacted for years to come."

Well, duh.


Crunch year ahead for Norway's Arctic oil adventure. Reuters is reporting:
Rising costs, lack of infrastructure and a string of poor exploration results may mean Norway's Arctic oil exploration peaks this year, energy officials said on Tuesday.
Drilling in the Barents Sea will reach a record high this year with 12 wells but the sector could quickly shift its focus to more promising regions if the heavy investment fails to pay off, especially as firms around the world are already cutting back capital spending plans.
"There are dark clouds gathering on the horizon because of rising costs and investment cuts by energy companies," oil minister Tord Lien told Reuters on the sidelines of a conference. "This could be a critical year for projects in the Barents Sea."
"Costs are rising too high and too fast and the Norwegian costs have increased a bit more than elsewhere," he added. Exploration in 2013 was mixed and the few notable successes were more than offset by either dry wells or small gas discoveries, which tend to be uncommercial because the area lacks the extensive pipeline infrastructure found in places like the North Sea.

Cold Winter Weather In Wisconsin Results In Fracking Sand Shortage

Wisconsin winter puts a chill on Texas oil drilling. Why? Shortage of sand.
Frigid temperatures in Wisconsin may be holding up oil and gas drilling in Colorado, Texas, and Pennsylvania. The problem? A sand shortage.
Fracking for oil and natural gas relies heavily on sand. In the hydraulic fracturing process, sand, water and chemicals are pumped into the ground to break up dense rock and coax out more fuel.
The sand acts like a stent, propping open tiny fissures that allow oil and gas to flow more freely to the surface.
Sand mines have been popping up all over Wisconsin because the state is home to a special variety of white silica that has strong, perfectly rounded grains well suited to holding open those underground cracks created by fracking.
But as any Green Bay Packers fan can attest, weather conditions in Wisconsin aren't exactly beach-like. Sand mining in ice-covered northern states was disrupted by winter weather, according to Nabors Industries Ltd., one of the biggest drillers in the U.S.
Sand shortage? EOG has it's own sand "mines" and a 20-year supply.

WSJ By-Line, Williston, ND

Front-section WSJ: Oil Boomtown Williston, ND, Looks for a Stable Future. 
This oil boomtown, known for its brawling roughnecks and their spare living conditions, is starting to smooth off its rough edges.
But not all of them. Muddy pickup trucks still jam the streets, but they drive past recent additions to town, including more than a dozen new restaurants like Buffalo Wild Wings. Subdivisions are springing up along the hills and a $73 million recreation center opened last weekend.
Actually, having just visited the Bakken, muddy 18-wheelers jam the by-pass. Willistonites probably wish it were only muddy pickup trucks jamming the streets. But the restaurant problem/shortage is a thing of the past. And coffee shops with free wi-fi are easy to find.


History Is Made In The Oil And Gas Industry -- BBR

If you have time to read only one external link, read the RBN Energy link today -- posted earlier. History in the oil and gas industry was made again, this time last month when the first unit train shipment of bitumen -- western Canadian oil sands heavy oil -- made it the 3,000 miles from its source to to the US Gulf Coast. I'm calling it BBR.

CBR: crude-by-rail; generally Bakken crude oil to the east and west coasts, but also to the Gulf
BBR: western Canadian oil sands heavy oil, from Alberta to Texas

In addition to "everything else," this article provides some background to the reason bitumen is being shipped to the US Gulf Coast and why Bakken crude is not the best fit for US refineries in the south. Wiki also reminds us that Venezuelan oil is also bitumen.

This particular linked post is one of series on the subject. RBN Energy will compare the costs of BBR vs BBP (bitumen by pipeline). Folks said CBR would not work because of the cost. Folks said CBR was a temporary fix to a short-term problem. The jury is still out whether CBR is here to stay. Regardless, one gets the feeling we might be seeing the same paradigm shift with regard to bitumen-by-rail. Does it really matter whether it's 100 miles or 3,000 miles for a unit train when it comes to "time"? Yes, the additional distance incurs an additional cost, but a) remember all the television commercials telling us how inexpensive it is to ship by rail; and, b) once the unit trains start rolling, it becomes a continuous process.

Oh, by the way, the same trains can return to Canada carrying the diluent from the Texas coast that is needed if one wants to ship bitumen by pipeline or by rail. Western Canadian operators get the needed diluent by rail from the Gulf coast.

West Canadian Sands Oil To The US By Rail (BBR) -- RNB Energy,

WOW! Remember that article from Filloon that the price of sand could go parabolic in 2014? Here it is. In the WSJ

Front-section WSJ: Oil Boomtown Williston, ND, Looks for a Stable Future.

Active rigs:

Active Rigs192184207170103

RBN Energy: bitumen-by-rail (BBR) -- another must-read article.
Last month (March 4, 2014) the first unit train shipment of railbit blend bitumen crude from Southern Pacific Resources Western Canadian oil sands project arrived at Genesis Energy’s Natchez, MS terminal on the Eastern Gulf Coast. This is the first railbit unit train to hit our radar screen. Railbit has less light hydrocarbon diluent blended with it than the 30 percent required for making heavy Canadian bitumen crude flow in pipelines. So using rail to ship railbit saves some of the “diluent penalty” that pipeline shippers incur by buying diluent for blending and shipping it with their crude. Today we look at the logistics behind this ground-breaking shipment.
This blog returns to a topic that we have covered several times in the past two years. That is the transport of heavy Canadian bitumen crude. This thick, viscous crude is extracted from oil sands in the Western Canadian Sedimentary Basin and requires complex processing to extract valuable refined products. Some bitumen crude is upgraded close to the wellhead in Canada but growing volumes are being extracted and shipped to refineries closer to market – most in the United States. The largest refining market for Canadian bitumen in the US is the Gulf Coast region that houses 1.5 MMb/d of the complex coker unit capacity best suited to refining bitumen.
Without that Keystone XL 2.0 North, it's just more CBR, and now BBR, across the United States. Don't blame the oil companies. [It was on February 24, 2014, that President Obama was quoted as saying that it was just a "couple of months" before he would make a decision on the Keystone.]

The Wall Street Journal

Top story: GM CEO criticizes failure to fix switch. Well, duh, what else could she say?

Signs of cheap energy in the US: factory activity picks up. Manufacturers reported a small piockup in activity in March, a jump supporting the view that the economy is strengthening after a weather-related pause. So, what is going on in pre-market trading? The Dow is up slightly.

What a hoot: Yellen tried to humanize the plight of individuals affected by long-term unemployment. The problem: two of the three have a criminal record.

More doubts about the value of mammograms. I remember blogging about this subject when I first started blogging back in 2007. I also remember talking to Air Force spouses about this subject back in the 1990s.

NATO doesn't see likelihood of Russian shift on the Crimean/Ukraine. So what is oil doing in pre-market trading? Down about 50 cents, solidly below $100 now.

Airlines, in light of the Malaysian Airlines tragedy, is warming up to tracking of "practically" all airliners in flight by satellite.

Does Tesla need a $5 billion battery? Tesla founder seeks sites in four southwestern states for a giant electric-carbattery factory but some industry experts and rivals are skeptical. Comment: I think forks are forgetting that Tesla is a battery company, not a car company.

Caterpillar's tax strategy stirs Senate debate: let's see if the Senate does anything. LOL.

Tokyo Disney sees record number of visitors.

What's all this talk about a "bad" market. S&P 500 finishes at record high yesterday.

Corn futures jump again; seven-month high; lower planting planned this spring.

The Los Angeles Times

I knew it was bad; I did not know it was this bad. LA's job growth since the 1990 was worse than Detroit's.  

Crimea crisis highlights Germany's aversion to being in the vanguard.