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Friday, May 9, 2014

EOG Adds Four New Plays To Its Inventory

Rigzone is reporting:
Houston-based EOG Resources Inc. announced it is ramping up production goals in 2014 with an expansion of the company’s activity in the Eagle Ford, and with the addition of four new plays.
EOG Resources, which is a major player in the Eagle Ford shale formation, currently has 26 rigs running in the formation, and the company plans to drill 520 new wells in the Eagle Ford this year. Some of the company’s wells in the formation produced more than 4,000 barrels of oil daily (bopd).

For 2014, EOG has added four horizontal plays in the DB Basin (Colorado) and the Powder River Basin (Wyoming): the Codell, Niobrara, Parkman and Turner plays. The four plays are expected to add 735 net drilling locations to EOG’s inventory, Thomas said.
This was previously reported in the post about EOG's 1Q14 earnings. 

Too Robust To Bust -- Keep In Draft In Case Original Source Archives Behind Paywall

The current crude oil price environment – in the vicinity of $100 per barrel (bbl) – comfortably exceeds the break-even economics of U.S. Light Tight Oil (LTO) production from the Bakken, Eagle Ford and other shale formations. But what proportion of LTO reserves would remain economic at, say, $75/bbl? According to Wood Mackenzie, the answer is a significant majority – at least 70 percent.

"There is not much U.S. producers can do to influence global oil prices," Harold York, Wood Mackenzie's principal downstream research analyst, said in a late-March communique from the consultancy. "Supply and demand fundamentals and non-market dynamics around the globe keep the price environment well above the break-even economics levels of several U.S. tight oil plays."
"With Brent crude oil pricing in the late-2013 range of $108 per barrel of oil … in early 2014, almost all tight oil proven reserves are commercially viable, even if global oil prices fell toward $75/bbl, over 70 percent of U.S. tight oil reserves would remain economic," York continued.

Wood Mackenzie's conclusion about what effect $75 oil would have on the economics of LTO reserves places more weight on logistical considerations rather than global oil prices. Sustainable break-even prices are largely a factor of how much it costs to get oil from the wellsite to the pricing point such as Cushing, Okla., or St. James, La., York asserted during a presentation at the American Fuel & Petrochemical Manufacturers annual conference in Orlando, Fla., in March.

"A single play can have multiple refining values and transportation costs, therefore a producer may realize a higher netback by selling their crude oil in to a refining center with higher transportation costs," he said in March.

Interestingly, however, York does not expect varying costs of shipping oil from a single LTO play to have a major dampening effect on the play's economics. To learn more about his insights on this and other aspects of Wood Mackenzie's stance that the U.S. LTO market is, in the words of the consulting firm, "too robust to bust," read on.

Rigzone: You assert that North America tight oil is too robust to go bust, but boom-and-bust cycles have existed throughout the history of the modern oil and gas industry. Is it your belief that the U.S. oil sector is moving beyond a boom-and-bust era? Why or why not?

York: There is always a "life-cycle" to virtually all commodity volumes and prices, not just oil. Typically the peaks and troughs are driven by external shocks to the existing system, such as rapid growth in demand that surges faster than supply can respond (price peaks) or rapid uptake of a new technology that puts downward pressure on the commodity price. The focus of our paper on tight oil not going bust is Wood Mackenzie's perspective on recent chatter  the industry has seen the best that tight oil can offer and the production profile is on the verge of decline. Recent monthly production gains continue to defy that assertion. Our paper posits four of the larger risks we could see to growing tight oil and offers our analysis that the likelihood each of the risks materializes is rather small. Of course we do not offer a guarantee any of these risks (or a "Black Swan") will not appear.

Rigzone: What are some of the key "supply and demand fundamentals and non-market dynamics around the globe" – a quote from your March press release – that are keeping oil prices above break-even for U.S. LTO plays?

York: The key supply/demand fundamental that keeps global oil prices above LTO break-even is the need for marginal global oil supply from developments, other than tight oil, requiring a break-even price above $90/bbl, which is higher than most U.S. tight oil opportunities. There also is the loss of volume from production interruptions (both planned and unplanned), which can move from region to region, but impacts supply on a regular basis.
The "non-market dynamics" are factors such as market psychology that drives the price away from marginal cost of production economics. The best current example is the Ukraine crisis which can drive oil prices, either up or down, several dollars per day.

Rigzone: Wood Mackenzie contends that more than 70 percent of U.S. LTO reserves would remain economic at prices approaching $75/bbl. Looking at this in a historical context, how significant is 70 percent-plus at such a pricing level? Is 70 percent an extraordinarily high percentage, and how does the scenario change below $75/bbl?

York: It's difficult to make a comparison to history because it would require going back to what the industry thought break-even costs were for some other giant opportunity (e.g., Alaska, North Sea) and compare those historical break-evens and market prices (adjusted for inflation) to LTO. What can be said is that monthly oil prices have averaged more than $75/bbl for over 4 years and about 75 percent of the time since 2007, including the Financial Crisis. Anecdotally, the industry does talk about LTO with an enthusiasm I've only seen once or twice in my 20-plus years in the industry.

Rigzone: How is the shale revolution changing the refining community's long-held assumptions about the oil market, and how are these evolving assumptions changing how refiners operate?

York: Light-ends handling in the crude distillation (CDU) and fluid catalytic cracking (FCC) unit tend to be the bottlenecks we hear most. There also is some concern that tight oil can be "too sweet" in that it would unload sulfur plants to below minimum operating rates. A number of refiners have announced a variety of projects to improve light ends handling, including the ability to process more LTO through additional CDU capacity or even on-site condensate splitters. All told, we see about 350,000 barrels per day of distillation capacity coming to the market in the next few years.
Most refiners see the discount of U.S. crudes from international refining value as providing sufficient margin to keep run-rates very high. With flatish oil demand in North America, coastal refiners increasingly look to export markets to place product barrels coming from the increased refining capacity.

Rigzone: How are North American logistics constraints influencing the break-even prices of LTO?

York: Logistic constraints do not impact break-even prices for LTO. Break-evens are set by production costs (capital recovery plus operating) at the wellhead. Logistic constraints do put downward pressure on wellhead realizations (as logistics constraints raise the cost of transportation away from the wellhead). The impact on LTO production growth is if wellhead realizations drop below production costs. Wood Mackenzie does not foresee transportation costs having a material negative impact on LTO wellhead realizations.

Rigzone: What are some key developments to watch to relieve the logistical constraints, and what effect might they have on LTO break-even prices?

York: Easing of logistics constraints is really about reducing the cost of transportation out of a play. That cost reduction would typically be the addition of pipeline evacuation capacity from a play. However, producers in some of the key plays (e.g., Bakken) are becoming more commercially savvy and thus looking to maximize wellhead realizations rather than minimizing transportation costs. That wellhead realization might require incurring a higher transportation cost (e.g., rail versus pipeline) in order to reach a market that puts a higher relative value on LTO (e.g., Pacifica Northwest versus U.S. Gulf Coast).

Rigzone: In regard to relaxing U.S. curbs on exporting crude oil, what impacts would you anticipate, both upstream and downstream, should this become a reality? Also, is there a "middle ground" in this contentious issue that both exploration and production companies and refiners could live with?

York: Wood Mackenzie expects there to be continued debate on the crude oil export policy in 2014, but maintain our reference case assumption that the current policy remains in place.
Wood Mackenzie does not think the lifting of the ban would have an impact on the Brent price because the global supply/demand balance for oil would remain the same in any case. An easing of U.S. crude oil export restrictions could change the trade flows of crude oil, but not total supply. We would expect an impact on crude oil price differentials in conjunction with these changing trade flows. There could be some narrowing of Brent-WTI, but the magnitude of the narrowing could be a function of which barrels would be exported. One hypothesis is that Eagle Ford versus Bakken barrels could have a different impact on differentials due to their quality differences.
Any narrowing of differentials between U.S. produced and internationally priced crude would benefit U.S. producers, but U.S. refiners would still be better off relative to the rest of the world. If the quality of the crude oil export barrel impacts the degree of narrowing, that might lead to some producers benefiting more than others. Producers in the play that exports the barrel could see wellhead realizations rise more than the differential narrows as a whole.

Rigzone: What are the major variables that could undermine your basic assertion that U.S. LTO is "too robust to bust"?

York: The two big risks to LTO would be a global drop in oil prices or a significantly widening of price differentials between the global price (e.g., Brent) and U.S. inland crude prices (e.g., WTI). However, we do not foresee either of these risks materially impacting the wellhead economics of LTO.

The combination of growing oil demand and the market needing non-tight oil with higher break-evens than LTO combining to keep global oil prices high enough to keep LTO opportunities attractive. Certainly there will be volatility around oil prices, but producers have the ability to mitigate that impact through hedging. Brent-WTI (which proxies the discount of U.S. inland crude prices to its global refining value) is expected to be wide enough to support rail movements to North America's east and west coasts. However, we also expect the differential to remain narrow enough to not threaten tight oil wellhead economics.

Is The US Tight Light Oil (TLO) Market "Too Robust To Bust"? -- Wood Mackenzie, Rigzone

Is the US tight oil market too robust to fail? A nice Friday night article over at Rigzone:
York: The key supply/demand fundamental that keeps global oil prices above LTO break-even is the need for marginal global oil supply from developments, other than tight oil, requiring a break-even price above $90/bbl, which is higher than most U.S. tight oil opportunities. There also is the loss of volume from production interruptions (both planned and unplanned), which can move from region to region, but impacts supply on a regular basis. The "non-market dynamics" are factors such as market psychology that drives the price away from marginal cost of production economics. The best current example is the Ukraine crisis which can drive oil prices, either up or down, several dollars per day.
Rigzone: Wood Mackenzie contends that more than 70 percent of U.S. LTO reserves would remain economic at prices approaching $75/bbl. Looking at this in a historical context, how significant is 70 percent-plus at such a pricing level? Is 70 percent an extraordinarily high percentage, and how does the scenario change below $75/bbl?
York: It's difficult to make a comparison to history because it would require going back to what the industry thought break-even costs were for some other giant opportunity (e.g., Alaska, North Sea) and compare those historical break-evens and market prices (adjusted for inflation) to LTO. What can be said is that monthly oil prices have averaged more than $75/bbl for over 4 years and about 75 percent of the time since 2007, including the Financial Crisis. Anecdotally, the industry does talk about LTO with an enthusiasm I've only seen once or twice in my 20-plus years in the industry.
This is a "keeper" for the archives.

There are so many story lines in this article. I will leave it at that for now.

Hauling Bakken Crude Oil Out Of The Killdeer Mountains, North Dakota, USA

No audio with this video of hauling Bakken crude oil out of the Killdeer Mountains, North Dakota, so while watching the video, play "Pipeline" or Slim Dusty in the videos farther below. The "Killdeer" video is over 17 minutes long so you will have to repeat "Pipeline" and/or Slim Dusty numerous times. There could be worse things one might have to do.

Hauling Bakken Crude Oil In The Killdeer Gap Mountains, North Dakota, Thanksgiving, 2013


Pipeline, Stevie Ray Vaughan and Dick Dale


Lights On The Hill, Slim Dusty

Number Of Active Rigs In North Dakota Continues To "Inch" Higher; Late Evening And Daily Activity Report Not Posted -- Someone At NDIC Forgot To Post It? Eleven (11) New Permits In The Williston Basin; Amateur Video Of New Subdivision Northwest Of Williston

Active rigs:


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Eleven (11) new permits --
  • Operators: CLR (5), Oasis (2), BR (2), American Eagle (2),
  • Fields: Antelope (McKenzie), Alkali Creek (Montrail), Elidah (Williams), Willow Creek (Williams)
  • Comments: American Eagle has permits for two (2) wells in Divide County
Wells coming off the confidential list were posted earlier; see sidebar at the right.

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This video was taken on/about May 1, 2014. It will be meaningful only to those who lived most of their lives in Williston. Turn the sound off before viewing the video. For music, play "Private Idaho" in the video below the Williston video. None of what you see in the Williston video was there before 2011; most of it was not there in 2012, and even as recently as 2013, much of this is new. This is northwest Williston.



Northwest Williston, North Dakota, May, 2014

This is northwest Williston, all new since 2012, much of it new since 2013.
  • at 14 seconds: first of two "round-abouts" on this road; note the new gas station/convenience store
  • at 43 seconds: coming up on a very small apartment complex; one of scores that have gone up in the last year or so
  • 1:18: note the lack of street striping/markings/center lines, or minimal striping
  • 1:23: another apartment complex; several buildings in the background; all identical
  • 1:32: coming up on the huge 4-well BEXP pad northwest of Williston; will be hidden behind green mesh fencing and evergreen trees; if you look closely you will see the four pumpers
  • 1:48: the second of two "round-abouts' -- taking you out to a huge development that was just beginning to move dirt in the autumn of 2011
  • 2:06: we are traveling north; again, all of this to the left (east) is brand new; to the right is a new development just going in
  • 2:27: look at all the duplexes; these homes overlook the valley in which Williston sits, to the east; it's actually quite a nice view
  • 3:04: all houses (for the most part) were built in Denver or elsewhere, transported up here by truck and "attached" to garages, the only part of the building that was built locally; 
  • 3:10: I could be wrong, but the three structures under wraps are probably modular units brought up from Denver (elsewhere) to be "built" into homes in this subdivision; it takes minimal manpower locally to put this all together
  • 3:16: more apartments in the distance
Remember, this is just one of many subdivisions going up in Williston to support the Bakken boom.



(Living In Your Own) Private Idaho, B-52s

For Investors Only -- Friday Starting Out Slowly

Wow, thirteen companies announce increased dividends or distributions, including Cardinal Health (a healthy increase, in fact); Phillips 66 (a huge increase from 39 cents/share to 50 cents/share); and Whiting USA Trust II.

This is interesting: all things being equal, the price of oil should fall if the dollar strengthens. Today the dollar index holds on session highs, and the price of oil is about 0.6%.

Trading at new 52-week highs, not many: ... and none that interest me. But ... did the Dow set a new record today? CNBC said it did

Crude oil ended the day slightly lower.

Good for Amazon. Amazon bans company that threatened to sue the individual who posted a negative review.

Enerplus Announces Strong 1Q14 Results; Magnum Hunter Resources Production Surges Almost 60%

Press release: ERF announces strong 1Q14 results.
  • funds flow increased 22% from the previous quarter (remember, the current quarter was hampered by all that bad weather that shut down clipboard-carrying bureaucrats in Washington, DC; apparently the same weather had less effect on the roughnecks working in the Bakken oil patch)
  • average selling price: $91/bbl (1Q14) vs $78/bbl (1Q13)
  • natural gas: 58% (1Q14) vs 52% (1Q13)
Press release from Magnum Hunter Resources pending. A headline suggests MHR production surged almost 60%.
Magnum Hunter misses by $0.02, beats on revs: Reports Q1 (Mar) loss of $0.15 per share, excluding non-recurring items, $0.02 worse than the Capital IQ Consensus of ($0.13); total rev rose 98.2% year/year to $107.4 mln; oil and gas sales +102% to $70.2 mln; rev consensus was $98.47 mln consensus; adj. EBITDAX was $38.9 million, compared with $20.6 mln last year. 
Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here.

How Good Is The Canadian Three Forks? Crescent Point Reports 100% Drilling Success In 1Q14; Upwardly Revises Production For 2014; CAPEX Unchanged; New Discovery Is An Extension Of The Company's Three Forks Play In North Dakota; Water Flooding In Play

Based on page view numbers, this turned out to be one of my more visited posts: in Canada, the Three Forks is known as the Torquay.

So, how did Crescent Point do? If I recall (I scanned through it fairly quickly), it did okay. So, a more in-depth look.

Here's the press release. Some highlights:
  • funds flow from operations: $1.45/share (1Q14) vs $1.20/share (1Q13)
  • net income: $31 million (1Q14) vs a loss of $1.6 million (1Q13)
  • average daily production: 119K bopd (1Q14) vs 107K (1Q13) -- a 12% increase
  • average selling price: $93/bbl oil (1Q14) vs $80/bbl oil (1Q13)
The narrative:
  • achieved a new production record in 1Q14, averaging 131K boepd
  • that new record was weighted 91 percent to light and medium crude oil and liquids
  • success rate of drilling: an astounding 100%
  • drilling and development expenditures came in 10% under budget
  • production levels were 5% over budget
What does this mean?
Crescent Point is upwardly revising its 2014 guidance while keeping expenditures unchanged
Other news:
  • announced the delineation of a significant Torquay discovery at Flat Lake in southeast Saskatchean: in one year (12 months), Crescent Point grew net Torquay production from zero to 5,100 boepd; this is an extension of Crescent Point's Three Forks play in North Dakota
  • Crescent Point's wells in that area of Saskatchewan have high rates of return, in part due to significantly lower capital costs relative to similarly drilled wells in North Dakota
  • Crescent Point will acquire more acreage in this area by acquiring CanEra Energy Corp
Water-Flooding
To put the Company's significant waterflood program into perspective, the two largest pools in western Canada, the Weyburn Midale pool and the Pembina Cardium pool, are producing approximately 30,000 bbl/d and 60,000 bbl/d, respectively. Crescent Point's waterfloods are expected to ultimately lower production declines and improve rates of return on adjacent producing oil wells. Based on results to date, the Company estimates it has reduced decline rates by up to 10 percent in waterflood-affected areas compared to areas not under waterflood. 
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USPS Update

Almost one year ago to the day, I posted that the USPS lost $1.9 billion in 2Q13.  So, one year later, where are we? Groundhog day: another $1.9 billion lost in 2Q14. Uncanny. Reuters is reporting:
The United States Postal Service ended its second quarter with a net loss of $1.9 billion, as first-class mail volumes continued to tumble and the government was unable to provide relief, the agency said on Friday.
Its net loss for the fiscal second quarter ended March 31 surpassed the first-quarter's loss of $354 million, but it remained flat from the year-ago quarter. It was the 20th of the last 22 quarters that the agency has posted a loss, USPS said.

This Is Not An Investment Blog ...

Update

May 26, 2014: Anup Singh on CLNE over at Seeking Alpha -- three reasons why CLNE is a buying opportunity.
Clean Energy has been building its fueling infrastructure and in-house capabilities over the past couple of years in anticipation of a 12-liter natural gas engine coming to the market, leading to an increase in demand. This decision has turned out to be right, as today, Clean Energy has 96 truck-friendly fueling stations open, which is four times of what its closest competitor has.
The release of the Cummins Westport 12-liter engine will act as a catalyst for the heavy-duty trucking industry, which will begin its transition to natural gas fueling. As stated by Seeking Alpha writer, Michael Fitzsimmons -- see linked article for the rest of the story.
This is a very interesting story: there seems to be a race between Tesla, electric vehicles, and electric charging stations across the United States, AND, CLNE, GE, Cummins, and natural gas trucking. It looks like CLNE and its team might be winning.

Original Post
 
... but the North American energy revolution is getting more and more fascinating.

The first thing I did this morning was to see how much Halcon fell back in profit taking. I was surprised. It held its gains yesterday and was actually (barely) in the green.

Then a reader mentioned that CLNE was moving: yes, it is. Up 12% on a day that the market opens lower. The other day someone much smarter than I suggested that "North American energy" will be the new darling of Wall Street, taking the place of biotech. Perhaps.

More on CLNE:
More to follow. We're just getting started, folks. But remember, this is not an investment site; do not make any investment decisions based on what you read at this blog or what you think you may have read here.

The same reader noted that GE is getting more and more like Berkshire Hathaway: investing in (or outright buying of) companies in diverse sectors. In this article, GE is buying a company that combines high tech (cyber-security) with the mundane world of refining and electrical grids. Actually, when I saw the note, I thought the reader was talking more about what GE and Berkshire Hathaway both seem to have in common: adding more and more to their energy portfolios. Berkshire Hathaway recently changed the name of its MidAmerican Energy Holdings Company to Berkshire Hathaway Energy, a holding company that is 89.8% owned by Berkshire Hathaway. Berkshire has owned a controlling stake since 1999.

Coiled Tube Fracking -- May 9, 2014

A reader provided this note on coiled tube fracking:
Coiled Tube fracking consists of using a Coiled Tubing Unit (CTU) to set bridge plugs, perforate and using CTU packers to frack against. If one uses larger diameter Coiled Tubing, you do not run into the severe pressure drops across the ball drop seats of the frack sleeve type completions.
The "rate" you pump the frack jobs at is by far the most important factor of all in regards to the most effective frack jobs in the Bakken and Three Forks. Higher rates = way better fracks. That's why so many operators are going to cemented liners these days versus frack packers and sliding sleeves. Plus, it gives you flexibility in going back and re-completing the wells down the road way easier than utilizing frack packers.
Coiled tubing fracking is just a variation of cemented liners "plug and perf" completions.

My guess is the day of sliding sleeves/frack packers is rapidly coming to an end in North Dakota.
This is a great note; I've added to my "Trackin' the Frackin'" page. 

Coiled Tube fracking became a "big deal" when it was discussed at length in Whiting's 1Q14 earnings conference call.

Friday Gets Off To A Very Slow Start

Active rigs:

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RBN Energy: Permian pipeline system, part 3.
Permian Basin crude production is expanding rapidly. At over 1.5 MMb/d it already represents nearly 19 percent of total US crude output. Midstream companies are busy developing more than a dozen gathering system extensions and additions to deliver Permian production to about 1 MMBbl of mainline pipeline capacity coming online between the start of 2013 and 2015. In today’s blog “Come Gather ‘Round Pipelines – Part 3: Plains Permian Crude Gathering System Expansions” Sandy Fielden details planned improvements to the Basin and Cactus pipelines.
The Wall Street Journal

Absolutely nothing in The Journal that's worth posting.