Tuesday, May 13, 2014

For Investors Only

Over at Rigzone: Anadarko raised its dividend 50%. Regular readers know why I'm posting/linking that. Also, Anadarko previously increased its dividend last August.

Wow, Wow, Wow -- Exactly What I Said Just A Few Hours Ago -- Top Story Over At Rizone

Reuters is reporting over at Rigzone:
Oil production from shale plays in North Dakota will likely top 1 million barrels per day (bpd) in April after missing expectations in March due to severe weather conditions, according to a state regulator.
The state's output hit 977,000 bpd in March, after winter weather interrupted well operations, Lynn Helms, director of the state's Department of Mineral Resources, said on a conference call on Tuesday. 
I said the very same thing earlier this afternoon: North Dakota oil production probably went over the 1-million-bopd milestone in April

Again, that was the top story over at Rigzone.

I'm surprised Rigzone didn't cite The Million Dollar Way. LOL.

Staggering; Just Some Bakken Back-Of-The-Envelope Doodling

Note: see first comment. The reader correctly points out that I often forget to distinguish between "barrels of oil" vs "barrels of oil equivalent" when talking about EURs, IPs, etc. I'll try to do better but it is very difficult when analysts themselves often don't make it clear what they are referring to. I'm not even sure if the original Leigh Price paper differentiated "oil" vs "oil equivalent." The same goes for the price of oil -- the source of oil (WTI, Brent, Saudi) is often not provided, just assumed. 

Disclaimer: this post is a good example of my difficulty expressing my thoughts. The post is a bit disjointed, but hopefully you will get the point.  

Just some doodling on the back of the proverbial envelopes.

One needs to go back to the very early days of blogging to remember how big the Bakken was. I've actually forgotten the numbers; there was a quite a range between what the USGS said, what Harold Hamm said, and what others said, somewhere in between.

A couple of data points.

In general, the operators told us they were recovering 1 - 5% of the original oil in place through primary recovery. Early on, it was said that operators were recovering somewhere between 1 and 3% of the OOIP. Then, it was said that they were getting as much as 5%. Then in one of Whiting's presentations, or conference calls, it was said that some wells were recovering as much as 8%. Hold that thought.

CLR says the average Bakken well will have a EUR of 603,000 bbls. [EUR is "estimated ultimate recovery" -- the total amount of oil that a Bakken will produce over its lifetime.] Hold that thought, too.

Then, in a story yesterday, some analyst suggested the average EUR of all Eagle Ford wells drilled between 2008 and 2013 was 168,000 bbls.

With regard to the Bakken, Halcon did not take exception to CLR's estimate of 603,000 bbls. In its 1Q14 conference call, Halcon said: a) EURs of 801,000 bbls in their better acreage (Fort Berthold); and, b) 447,000 bbls in Williams County.

I was thinking about all that, when I re-read this observation at another post:
... every 1% in incremental recovery factor translates into an additional nine billion barrels of estimated ultimate recoverable reserves in the field ...
What exactly is 9 billion bbls compared to the current EURs?

Some folks suggest the minimum number of wells that will be drilled in the North Dakota Bakken will be on the order of 50,000 wells. Others say as many as twice that number.

But let's go with 50,000 wells.

If operators were able to increase the recovery rate another 1%, or 9 billion bbls, then consider this:
9,000,000,000 divided by 50,000 wells = 180,000 bbls
That 180,000 bbls increase in EUR exceeds the current EURs of the Eagle Ford. That 180,000 is on top of the 477,000 bbls EURs (Williams County/Halcon); 603,000 bbls EURs (Bakken/Continental Resources); and/or, 801,000 bbls EURs (Fort Berthold/Halcon).

I don't know about others, but I find these numbers simply staggering.

Is This Insane, Or What? WTI Hits $102; Twenty-Four (24) New Permits -- The Williston Basin, North Dakota, USA -- Twenty-Four May Not Be A Record, But It's Awful Close

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. 

Saudis say $100 oil is "fair" price.

Libya protestors say that they will open the ports "tonight." Which means there should be more oil coming to market. Saudi, a month ago or so, said they were boosting production to record levels.

And yet, on a very quiet day, with not much news, WTI goes up well over 1% and closes over $102/bbl. (After hours, it dropped back a bit.) Is this insane or what? I never, yesterday, would have predicted that oil would have gone over $102 today on such quiet news. It must be all those speculators getting back into the market. LOL.

Anyway, it is what is.

The big story today, for investors: BHI raised its dividend, the first time the company has raised its dividend since 2008. Anadarko raised its dividend by 50%. Now, I look for an announcement that CVX or XOM or both to announce a 2-1 split. COP did the spin-off and raised dividends significantly in the last couple of years; CVX beat the Ecuador rap, and XOM is, well, XOM. So, we'll see.

The second big story, of course, is that North Dakota probably hit the one-million-bopd milestone in April, 2014 (i.e., 13 days ago) coming within 24,000 bbls by the end of March. It's hard to imagine that North Dakota did not produce an additional 24,000 bopd in the month of April, but we won't know until mid-June, will we? My hunch is that the NDIC is crunching the numbers as we speak and already has a pretty good idea one way or the other.

A third story, I suppose: according to the NDIC, there are 635 wells waiting to be fracked. That's a lot wells drilled total depth, now waiting to be completed. Two thousand truckloads in and two thousand truckloads out for water and sand for each well, or something like that. I've long forgotten the specifics.


Active rigs:

Active Rigs190187209173114

Twenty-four (24) new permits --
  • Operators: BR (11), Hess (6), MRO (5), Enduro (2)
  • Fields: Corral Creek (Dunn), Antelope (McKenzie), Bailey (Dunn), Mouse River Park (Renville),
  • Comments: All eleven BR permits are in Corral Creek
Wells coming off the confidential list were posted earlier; see sidebar at the right.

Three (3) producing wells completed:
  • 25157, 314, CLR, Tallahassee 3-16H, 2 sections, Baker, t4/14; cum --
  • 25158, 657, CLR, Tallahassee 2-16H, 4 sections, Baker, t4/14; cum --
  • 26017, 2,727, MRO, Zimmerman 21-26TFH, Killdeer, t4/14; cum --  
Converted to injection:
  • 22064, 110, Corinthiann Exploraiton, Corinthian Skarphol 8-33 1H, North Souris, a Spearfish well, t4/12; cum 48K 3/14;
Wells coming off confidential list Wednesday:
  • 25037, 535, American Eagle, Lynda 15-32-164-101, Colgan, t2/14; cum 18K 3/14;
  • 25782, 150, Fidelity, Justine 25-36H, Green River, t1/14; cum 21K 3/14;
  • 26377, drl, KOG, P Vandeberg 154-99-1-1-12-15H, Stockyard Creek, no production data,
  • 26436, drl, BR, CCU Powell 41-29MBH, Corral Creek, no production data,
  • 26582, 255, Whiting, Maus 21-26, Camel Hump, a Red River well, t1/14; cum 12K 3/14;
  • 26670, drl, Cornerstone, Martinsen D-3427-6191, Little Butte, no production data,
  • 26977, A, CLR, Ellison 1-21AH1, Stoneview, just beginning to produce

Will The Grid Hold? How's Renewable Energy Working Out In California? Meanwhile, Duke Replaces Coal, Nuclear With Natural Gas

Heat wave in California. 

Bloomberg is reporting:
California is grappling with a record drought that’s reducing hydroelectric supplies at a time when inventories of natural gas, a fuel used to produce power, are hovering near a decade low. While resources are adequate, the grid operator said last week, the state faces reliability challenges and higher prices, especially after the shutdown of the Edison International’s San Onofre nuclear plant.
On-peak power at Northern California’s NP15 hub, including San Francisco, for next-day-delivery rose $4.01, or 7.1 percent, to $60.25 a megawatt-hour at 4:51 p.m. New York time yesterday, the most for this time of the year since 2008, according to broker data compiled by Bloomberg.

The Wall Street Journal is reporting:

On Tuesday Duke Energy unveiled plans to remake its power-generating facilities in Florida, including the construction of a natural gas-powered facility near its Crystal River facility. Data points:
  • $1.5 billion
  • 820 megawatts to come online in early 2016
  • 820 megawatts to come online in late 2018
  • will retire two coal-fired units at the Crystal River complex when new NG facilities come online
  • will also decommission a Crystal River nuclear power plant due to structural problems
One can talk about wind and solar energy until the cows come home, but in the big scheme of things, it's all about natural gas these days. I sure hope those estimates of all that natural gas are accurate. Seriously, this really takes fracking off the table as something that needs to be banned: if the activists convince the government to ban fracking, there's really nothing left. I'm impressed how quickly the private sector can respond.

Update On US LNG Exports From Maryland, Dominion Resources Cove Point

Post-Gazette is reporting on this project -- a $3.8 billion project that will convert the company’s Cove Point LNG import facility on the shores of the Chesapeake Bay into one of the country’s first natural gas export terminals:
The project faces several regulatory hurdles and legal challenges. The Federal Energy Regulatory Commission will release its environmental assessment of the proposed project Thursday, kicking off a 30-day public comment period. FERC already has committed to holding a public hearing about the proposal during that period.
Mr. Frederick expects the commission to authorize the project in July. The Department of Energy approved the plan in September.
“We expected to have FERC authorization before now,” he said.
But the Cove Point plan has become a target of environmental groups that believe the project will disrupt marine wildlife, add more greenhouse gas emissions, increase pollution in the Chesapeake Bay community and amplify fracking in the Marcellus and Utica shale plays.
Dominion is involved in a dispute — and a civil lawsuit — with the Sierra Club and its Maryland chapter over Sierra’s assertion that Dominion is not authorized to export natural gas on that site, according to terms of a 1972 environmental protection agreement that Sierra struck with facility’s original owners. Dominion sued, and a local judge and an appellate judge both have sided with Dominion in the matter.
The Maryland Court of Appeals, the state’s highest court, has received the case.

Director's Cut Is Out: Huge Shout-Out To Roughnecks And Truckers -- North Dakota May Have A New All-Time Production Record Despite That Historically Tough Winter; Indications: North Dakota Exceeded One Million BOPD In April, 2014; 635 Wells Waiting To Be Completed

Link here.

March, 2014: 977,051 bopd (preliminary; if it holds, a new all-time record)
February, 2014: 952,055
  • that's almost a difference of 25,000 bbls (24,996 to be exact)
  • the increase represents almost a 3% increase (2.626% to be exact)
  • the delta between 1 million and 977,051 = 22,949
Disclaimer: this update is always done in haste; typographical errors are likely. This is for my use only. Others should go to the source

Producing wells:
March, 2014: 10,457 (preliminary; new all-time high)
February, 2014: 10,199
March, 2014: 250
February, 2014: 180
All time high was 370 in 10/2012
Today, 2014: $87.00 
April, 2014: $85.68
March, 2014: $86.72
February, 2014: $86.89
Rig count:
Today: 192
April, 2014: 188
March, 2014: 193
February, 2014: 189
Director's comments:
The drilling rig count was up slightly but well completions were up sharply from 70 to 200. There are still about 50 wells shut in due to Tioga gas plant conversion in an attempt to minimize flaring. In March, 2 -3 days at the beginning with temperatures well below zero, and then later 7 - 12 days with winds too strong for completion work, and then 8 inches of snow on the last day of the month.

About 635 wells waiting to be completed, a decrease of 15 from previous month.
Wells waiting to be completed: some wells are waiting to be completed due to weather-related issues. I don't think there is any shortage of frack spreads right now. The big reason for wells waiting to be completed, I think, is due to pad drilling. Generally, operators wait until all wells on a pad are drilled to total depth before they frack all the wells. There are exceptions. 

Oil Back Over $101; For Investors Only; Baker Hughes Increases Dividend -- First Increase Since 2008; Zeits On Halcon's 1Q14's Earnings

Here we go again. Reuters is reporting that the government regulator is going to make it easier for folks to get mortgages:
Federal Housing Finance Agency Director Mel Watt, in his first public speech since taking office in early January, also said the two government-controlled firms would ease standards that govern when banks must buy back faulty loans from the two mortgage finance giants, which could also help loosen the credit taps.
"FHFA will not use its authority as conservator to reduce current loan limits," Watt told the Brookings Institution. "This decision is motivated by concerns about how such a reduction could adversely impact the health of the current housing finance market."
In easing standards for so-called mortgage put-backs - when banks are required to repurchase faulty mortgage they sold to the two companies - Watt took aim at a risk lenders cite for the still-tight credit that has hindered the housing recovery.
Tight lending standards have made it especially hard for first-time buyers and those with weaker credit to get mortgages.

Six companies increase dividends or distributions, including BHI. This is the first time since July 31, 2008, that BHI has increased its dividend.  Since 2008 when it was 13 cents. It's been 15 cents all this time. Now the increase will take it to 17 cents. Whoohoo!

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.

Before the year is out, look for CVX to announce that it will split its shares. Just a hunch. XOM, too, is way overdue for a 2-1 split. 

At its annual shareholders meeting, ConocoPhillips reaffirmed its goal of delivering 3%-5% growth in both volumes and margins with a "compelling" dividend, and says it expects to spend an average of ~$16B/year over the next several years.


After the 1Q14 shareholders meeting, CEO Ryan Lance explains that COP is investing in the barrels of oil where it can get the greatest amount of profit for every capital dollar it spends, and the best margins are
  • in North America, where it can make $40/bbl; and,
  • in the oil sands in Canada, those margins hover ~$30/bbl
Lance also says geopolitical turbulence in the Middle East would have created a spike in global oil prices if not for the rise of light crude in the U.S. and oil sands in Canada. [I've blogged about that many times: predictability and minimal volatility is preferable to spikes, even for oil companies.]  

How coincidental. Just minutes after posting highlights from Halcon's 1Q14 conference call (see below), Richard Zeits weighs in with his thoughts on same thing over at SeekingAlpha:

During earnings season it's hard to keep up with reports. Here are some high points from the transcript for Halcon's 1Q14 earnings (posted elsewhere, also):
  • Halcón finished drilling its inaugural TMS well, the Horseshoe Hill 11-22H-1 in Wilkinson County, without mechanical problems and in a near-record time (39 days for a 7,751-foot lateral); the $13 million cost guidance is impressive given the large amount of "science" work involved.
The TMS remains the most important factor currently driving the company's stock price. A home-run result from the Horseshoe Hill well has the ability to galvanize the stock for further recovery. On the other hand, a weak result bears a risk of a pullback.
While the TMS opportunity is without doubt significant, Halcón is in a great need of "hitting the ground running" in this technically challenging play. The company continues to outspend its operating cash flow by a wide margin and may have difficulty growing into its current debt and valuation solely via organic production increases. The stock, therefore, remains an "asset play" and the company's ability to demonstrate potential future asset value in the TMS is paramount for the stock price.
Motley Fool also weighed in:
Despite rough winter weather Halcon Resources was able to deliver production that was actually 3% above what analysts' were expecting. That's pretty surprising as peers like Kodiak Oil & Gas actually blamed the weather as the reason why it missed production guidance in the first quarter.

In fact, first quarter production for Kodiak Oil & Gas actually dropped 6% sequentially. That drop in production was so significant that Kodiak Oil & Gas doesn't think it will be able to meet its previous production guidance for the full year. Meanwhile, Halcon Resources actually saw its Bakken production surge 73% over last year's first quarter achieving a rate that was 7% above its own guidance for the quarter.

Strong well results really led the way for Halcon Resources. Instead of being forced to drill weaker wells in the dead of winter just to hold on to leases like Kodiak Oil & Gas, we saw Halcon Resources drill some of its best wells last quarter. The company's wells in its Fort Berthold area saw a 32% surge in the average 30-day initial production rates compared to wells drilled just last quarter.

May 13, 2014: 1Q14 Halcon transcript -- 
  • almost 75% production growth qoq -- despite very harsh winter
  • 25,000 bopd
  • IPs improving, 10% better qoq
  • in the Fort Berthold area, slickwater fracks continue to outperform the 801K EUR that the company released just a few months ago
  • will test slickwater in Three Forks/Fort Berthold, but company thinks "hybrid" fracks will work better
  • currently drilling 6 new wells from a single pad; 660 feet apart; IP from one of these wells set a company record of 4,225 boe
  • Williams County slickwater completions outperforming the 477K EUR previously set
  • El Halcon in East Texas, almost exponential; growing over 800% qoq; 10,000 boepd
  • added some TMS acreage; now 316,000 TMS acres
  • this is surprising: water is a cost that Halcon struggles with (as do all operators, I assume); it depends on where one is in the basin
  • lessons learned in the Bakken will be taken to the TMS
  • going from 4 rigs in the Bakken to "three to four rigs" but will complete just as many wells
  • will concentrate on Fort Berthold this year; Williams County yet to have its day in the sun
  • near the end, mentioned "coil fracking" in passing; so slickwater, coiled, and hybrid all mentioned in this conference call; no major change for Halcon how they complete their wells

Tuesday, May 13, 2014; Update On Northstar Center; RBN Energy Has Another Post On Flaring In North Dakota

A billion-dollar development is taking shape northwest of Williston. KNET is reporting (a huge "thank you" to a reader for sending me these to links): 
Murphy Motors is navigating the high-speed course of the Bakken. 
When Pat Murphy was looking for a place to expand, he decided to go with a custom build.
He's abandoning Million Dollar Way, moving North to a billion dollar development.

Northstar Center will be a mixed use development, 535 acres all within city limits.
I've been told Murphy Motors is the #1 Chevrolet Corvette dealer in the United States (see first comment).

See also Northstar Center promotional release at its own website.


Active rigs:

Active Rigs192187209173114

RBN Energy: can ND flaring be cut to levels seen in Texas?
There is talk that natural gas flaring in the Bakken is peaking and will soon start to decline. But even the most optimistic forecast has the share of gas being flared falling from the current 30% plus to between 5 and 10% by 2020. That goal is still 10 to 20 times the 0.5% share of gas being flared in Texas. Can more be done to reduce Bakken flaring to Texas levels? Today we look at what it would take to slow Bakken flaring to a flicker.
The Wall Street Journal

Washington State insurer expects to lower health insurance premiums next year (2015).

Not everyone in Michigan is happy with a $200 million aid package to speed Detroit out of bankruptcy.

Three railroad employees were arrested and will face charges of criminal negligence in connection with July's derailment of a Bakken-crude-carrying train in eastern Canada that killed 47 people.