Thursday, May 29, 2014

Keystone XL South Leg Not Mentioned, But Probably Explains A Lot

Rigzone is reporting:
The price of oil rose above $103 / barrel Thursday on a drop in supplies at the main U.S. oil trading hub and signs of growing gasoline demand in the U.S.
Benchmark crude for July delivery rose 86 cents to close at $103.58 a barrel in New York.
Brent crude, a benchmark for international oil used by many U.S. refineries, rose 16 cents to close at $109.97 a barrel in London.
The Energy Department said Thursday that supplies fell by 1.5 million barrels last week in Cushing, Oklahoma, where U.S. benchmark crude is priced, although overall U.S. inventories rose by 1.7 million barrels.
Gasoline supplies fell by 1.8 million barrels, suggesting demand for fuel is strong and refiners will need to buy more oil to keep up.
Two data points, one not mentioned. The first data point: why supply inventories fell by 1.5 million barrels last week in Cushing, OK. Keystone XL South? As a reminder, this is how much oil is going into the Keystone XL South every week.

Second data point:  Gasoline supplies fell by 1.8 million barrels, suggesting demand for fuel is strong and refiners will need to buy more oil to keep up.  I assume this data did NOT include the 3-day Memorial Day weekend.

See for the graphic for gasoline demand at this post

Improving Bakken Wells -- May 29, 2014

I'm in the process of going through all the 2006 Bakken wells; I'll post the data later, but it is very, very obvious the Bakken wells have really improved over the years. That shouldn't be a surprise, but the degree to which the wells improved is the big story.

In EOG's most recent presentation, one sees how much the wells have improved:

EOG has 90,000 net acres in what they call their "Core Area" and another 10,000 acres in what they call their "Antelope Extension."

Eleven (11) New Permits -- The Williston Basin, North Dakota, USA; 5 Of 7 Wells To DRL Status

Wells coming off the confidential list Friday:
  • 25612, 329, Triangle, Frederick James 149-101-3-10-4TFH, Antelope Creek, t1/14; cum 26K 4/14;
  • 26002, 549, Oasis, Kelter 7-6HTF, Eightmile, 4 sections, t3/14; cum 4K 4/14;
  • 26401, drl, Mountain Divide, Reistad 23-14-1H, Fortuna, no production data,
  • 26631, drl, CLR, Mack 10-2H3, Antelope, no production data,
  • 26650, drl, XTO, Jan 14X-34F, Siverston, no production data,
  • 26675, drl, Petro-Hunt, Burian 144-98-14A-23-1H, Little Knife, no production data,
  • 26877, drl, CLR, Lawrence 8-24H3, North Tioga, no production data,
Active rigs:

Active Rigs187183218172119
Eleven (11) new permits --
  • Operators: Hess (5), QEP (3), Oasis, Whiting, Enduro
  • Fields: Hawkeye (McKenzie), Grail (McKenzie), Enget Lake (Mountrail), Sanish (Mountrail), Newburg (Bottineau)
    Comments: Enget Lake (see below)
Wells coming off the confidential list were posted earlier; see sidebar at the right.

Enget Lake: it's rare to see permits in Enget Lake oil field. From the dockets:
  • Case 21850, Oasis, Enget Lake-Bakken, 16 wells on some or all of the 1280-acre units, Mountrail,
  • Case 21038: Oasis, Enget Lake-Bakken, 15 wells on some or all of the 1280-acre units; Mountrail
Five (5) CLR permits were renewed: Chandler 1-9H, Flint Chips 2 and 3; and, Dennis 2 and 3.

One (1) producing well completed:
  • 26078, 842, OXY USA Evelyn Stroh 2-17-20H-143-96, Fayette, t5/14; cum --

Musings -- May 29, 2014


June 1, 2014: in the original post I talk about the two schools of thought regarding replenishing the diminished natural gas stores -- some think it will be easy to replenish the natural gas stores this summer; others think it will be more difficult that some analysts think. I remain neutral, somewhat perplexed; there are too many variables. One variable: the president's speech on greenhouse gases tomorrow. From Platt's via Investor Village:
US natural gas demand could increase by 3 Bcf/d to 10 Bcf/d by 2020 under an expected Environmental Protection Agency plan to reduce carbon dioxide emissions from power plants, analysts said Friday.

Using its authority under the Clean Air Act, EPA is expected Monday to announce proposed rules designed to limit the amount of COs emitted by existing power plants.

Gas will be one of the winners under every assumption about new source performance standards for existing power plants, analysts said Friday. They differed only on the size and scale of how much gas would be needed, saying that will depend entirely on how strict or lax the new regulations are on coal-fired plants.
Bottom line: this speech Monday could be a hugely bullish speech for natural gas operators. Huge.  
Original Post

Wow, talk about a busy day in the news. Not much real news in terms of big stories, but all put together, it was quite a day, in terms of "things" I am interested in with regard to the blog: investing and the Bakken.

First, a huge "thank you" to the readers who provided additional background to some of the Vern Whitten photographs. The photographs are quite a hit, and folks love a bit of the background behind the pictures.

Second, the market was very interesting today to say the least. I will spend a few minutes on the market, but it's not for purposes of investing (though that might be hard to believe based on what I write and how I write) but in the big scheme of things, talking about the market helps me put the Bakken into perspective.

Many of the stories were sent to me by readers.

The Dow started off a bit tentative and remained so most of the day, up only ten points or so. However, it finished nicely (for bulls), up about 65 points. Surprisingly, after dropping a bit yesterday, oil finished up almost 1% today.

That, of course, had some effect on the Bakken players:
  • OAS, up almost 2%, over $50/share, again
  • KOG, also up over 2%, closing in on $13, again
  • CLR, traded at a new 52-week high, up almost 2%
  • WLL, up similarly
I no longer consider EOG a Bakken operator, it's moved a new level, but EOG also traded at a new 52-week high.

Other non-Bakken energy companies that I enjoy following:
  • SD: up over 2%
  • CHK: up about 2%
So, it was an interesting day.

But what really caught another reader's attention (I would have missed it), HK and CLNE had incredible days:
  • HK: up over 5%
  • CLNE: up almost 9%
One of the "Big Stories" I follow is the "North American Energy Revolution." In any revolution, there are winners and losers. I originally focused on the shale oil and gas story as the basis of the North American Energy Revolution, but I think I was wrong on that. It is much more than just the amount of oil and natural gas production being produced in Canada and US. That, I think, could be simply nothing more than a result of free market capitalism. There may be other reasons, but for now, let's lump all this shale oil and gas "talk" into the discussion of "free market capitalism."

But there's another story, just as important: the political story. I'm not sure whether to call it ideology,  cronyism, demagoguery, but in the big scheme of things it doesn't matter. It was the president's war on coal that has been going on for quite some time now.

It was clear some years ago that the numbers for renewable energy did not add up. Investors in renewable energy (wind, solar) would do well, but as an "industry," wind and solar would remain a niche player in the big world of energy. A reader sent me this story today from Bloomberg. The story seems to have no theme; it wanders all over the place. It starts out as a "renewable-energy-is-a-must" story but then seems to come around to reality that it's all about fossil fuel. This little bit from a very, very long article is the reality:
Even as investors have embraced fracking, more Americans tell pollsters they oppose the practice than support it, according to a September survey by the Washington-based Pew Research Center. It’s true that windmills as tall as 40-story buildings are still sprouting in the Great Plains, and more solar panels are appearing on Americans’ roofs, including at the White House. The U.S. is generating more power from these sources than ever before.
Yet the pace is slowing. Combined capacity for solar and wind power expanded 9 percent to 76,326 megawatts in 2013, down from a 30 percent increase in 2012.
And the use of fossil fuels still dwarfs that of renewables. Half of new power-plant capacity in the U.S. last year was natural gas -- 6,861 megawatts, according to the Energy Department. That’s enough to provide electricity to the state of Massachusetts. It’s also 25 percent more than the combined capacity additions for solar, wind, biomass and water power. 
A huge part of the "political" story, of course, is related to EPA regulations, as seen again, in a story sent to me by another reader:
Before President Obama took office in 2009, the amount of electricity being produced by coal-fired utilities was approximately fifty percent of the total. Today it is approximately forty percent and, when the Environmental Protection Agency regulations take effect as of June 2, more such utilities are likely to close their doors.
It didn't take a nuclear engineer, especially after the nuclear debacle in Japan, to figure out that if renewables were not the answer (renewables cannot even be the long-term solution as the activists like to argue; the numbers simply do not add up; God simply did not make enough earth for all the turbines and solar panels that would be needed) and the war on coal was a success, the only recourse was natural gas. And that takes us back to free market capitalism.

So, the North American Energy Revolution is part political, and part free market capitalism.

One of the best things for me, personally, to have come out of blogging, was to make me a better investor. I never took investing very seriously (and still don't, based on number of annual reports I read per day [zero, on average]). Don sent me this story earlier today, from the EIA: US exports of NG to Mexico are about to surge. This is from our own EIA.  I replied to Don:
I haven't read the entire story yet, just the headline and the first paragraphs, but this is a very, very good example of how the blog has made me a better investor. I was aware of this story about two years ago it seems ... it was the tea leaves, as I often say. All the energy stories that I find on my own, or that readers send me, told me that Mexico was going to be importing a lot of natural gas in the next few years; then the stories about certain utilities (such as SRE) that were positioned to take advantage of that. I never would have known about these stories had I not been blogging day in / day out -- many of the stories were unrelated to the Bakken directly, but they all helped me understand the bigger energy picture and help put the Bakken in perspective. 
I wouldn't have thought much more about the story, but then this little meteor ended up in my backyard moments later, from Seeking Alpha:
  • The Obama administration announces a major overhaul of its review process for approving U.S. liquefied natural gas exports
  • Under the proposal, the Department of Energy would no longer issue conditional approvals of projects; instead, the DoE would decide whether an LNG export project is in the national interest only after the FERC had issued a final environmental review.
  • The change to the export process aims to help expedite reviews by focusing only on most commercially viable projects that have finished the FERC process.
Well, isn't that interesting. I don't trust anything presented as "good news" coming from this administration, but if this is accurate, some long-term investors in natural gas companies with Mexico on their radar scopes will be very, very happy. [Update, May 30, 2014: it looks like my first suspicions were correct; things may not be so rose as the Seeking Alpha snippet suggests. The WSJ has a much more in-depth article. The lede:
The Obama administration said it would perform a more rigorous upfront review of proposals to export liquefied natural gas, offering a mixed bag for the roughly two dozen projects seeking federal approval.
The U.S., which is enjoying a natural-gas boom, is expected to start exporting LNG in significant volume next year. The administration has only approved one export facility, but about 25 additional proposed projects are under review.
A few projects far along in the approval process could benefit from the proposed rules change because they could be cleared as others are delayed by the new requirements. The Energy Department said Thursday that the proposed revisions would require export-terminal proposals to first undergo a more expensive regulatory review by the Federal Energy Regulatory Commission involving an environmental impact assessment before the DOE reviews the permit application.
The DOE previously was granting conditional approval either parallel to or before completion of the environmental review, a process that allowed companies to get a project started with a smaller financial commitment.
It would not surprise me a bit if the administration said ALL projects had to have the environmental impact study completed before approval -- a "do-over" for everyone, just like the administration has required a complete "do-over" of the review of Keystone XL North.]


Although Zacks is not a huge "believer" in SRE, their recent update is interesting with regard to SRE:
Recently, the company reported impressive first quarter earnings that were driven by favorable weather as well as by underlying growth and operational performance. The company's diversified basket of businesses insulates its operations to a significant degree from regulatory rate risks. Also, geographic diversity in its assets exempts the company from any region specific risk. Thus, Sempra Energy presents a lower risk profile relative to its peers.

Mexico’s state-owned electric utility, Comision Federal de Electricidad (:CFE) recently announced five pipeline bids. These bids comprise three in the U.S. with an estimated cost of $1.2 billion. Sempra Energy’s unit Sempra U.S. Gas & Power seems to be well positioned to grab the opportunities here. These ventures will be supported by long-term take-or-pay contracts and have targeted operation dates of Mar 2016 through Mar 2017.

Sempra Energy is also focused on its Cameron LNG Liquefaction-export Project. A Sempra Energy unit, Sempra LNG, is the prime company developing this project, which comprises three liquefaction trains with a nameplate capacity of approximately 13.5 million tons per annum of LNG. The construction is slated to start later this year and the company has several large projects in Mexico and Peru coming online in the second half of 2014.
The downside, of course: a) this is all very capital-intensive; and, b) SRE operates in the land of fruits and nuts. As Zacks notes:
SRE operates in the state of California which maintains an aggressive 20%-plus renewable portfolio standard, with the targets ramping up to 33% by 2020. This entails significant investments in renewable energy projects that would require more funds.
I'm not worried. I won't go into that now, but lessons learned from as far away as Germany and as near as Minnesota tell me "not to worry."

One last thought: with regard to refilling the depleted natural gas storage sites there are two schools of thought: a) it will be very challenging; b) it will be very easy. In none of the articles or stories I have read about this debate has a very interesting data point been mentioned. I can't remember if I've blogged about it. I'll come back to that in another post, if I remember.

But now, forward and onward, to the daily activity report.

How Popular Are The Vern Whitten Photographs? Very.

At the sidebar at the right, there is "segment" that lists the most popular ten posts on this blog: note how two of the top three most popular posts right now are the recent photographs from Whitten Photography, links that were posted in the last two days. The "top ten" list is based on some Google/Blogger algorithm that comes with the application. I don't have any control over it.

Update On A Vern Whitten Aerial Photograph Linked Earlier

One of the challenging "things" about the blog is how to update older posts. Actually, that's not the problem. It's easy to update older posts. The problem is that some really great updates are lost to readers. I post 5 - 10 posts/day (sometimes more) and update even a larger number of older posts every day.

A few moments ago I updated an earlier post that I think readers will enjoy: a reader sent in an "explanation" of the rigs and the wells that were "featured" in one of the incredible photos that Vern Whitten sent yesterday.

This is the post.

For Investors Only: AAPL Continues To Trade At New 52-Week Highs -- And So Does OXY

Trading at new 52-week highs: AAPL, CSX, DIS, NFX, NRG, OXY, WIN.

SLB, up over 1%, is near its 52-week high. BHI, likewise, is up about a percent. EPD, down a bit today, is very near its 52-week high. AAPL is surging -- another 1% -- on top of recent gains. Talk is that this $600 stock will test the $700-mark again. T is holding its own. WMB, having hit new highs recently, is holding its own, staying flat, near its 52-week high. BRK-B is near its 52-week high. CLNE is surging.

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


Earlier today I sent this note to Don, regarding today's a) initial claims report; and, b) today's revised GDP which showed a 1% contraction (a huge story, by the way):
First, the unemployment story: whether fictitious or not, it's the headline story that gets repeated.
Second, and much, much more important. That story on -1.0% revised 1Q14 GDP -- a huge contraction and much worse than originally reported -- the original report, as bad as it was, at least showed some growth. The revised report, not only showed contraction, but a huge contraction. This is why it's a huge story in my mind. They blamed it on the weather. The weather will not be a factor for the rest of the year, no matter how bad hurricane season is.
More importantly: the 0.1% was the headline story folks like you and me were told. One knows that the movers and shakers (like Janet Yellen, Donald Trump, Dennis Gartman, Jon Corzine) knew what the real number was when they had their staff look deeply into their own beige books. So, the movers and shakers knew that the economy contracted long before the rest of us. And despite that knowledge, they kept investing in the market: not only did the market hold its own, but it is currently hitting new records.
If movers and shakers kept buying into the market when they knew the revised number was going to be awful, that tells me they were not concerned. In fact, they were bullish.
A lot of folks will say that the movers and shakers think the 1.0% contraction will mean Yellen will have to keep printing money and when she stops the party is over. Maybe. But I don't think she will stop printing money this year. She will taper, but the movers and shakers have already baked that into their won numbers.
So, when I see that the market held its own, and subsequently set new records, despite an incredible contraction of 1.0%, that blows me away. And even if one argues the movers and shakers did not know, it's history. The 1.0% contraction is behind us. If analysts stick to their guns that GPD will grow 3% for the entire year, it's gonna be a humdinger of a year, these last three quarters to make up the contraction that has already occurred.
That's what I wrote. Now, later, I read this summary in Yahoo!In-Play talking about the market today:
The stock market ended the Thursday session on an upbeat note despite receiving some disappointing data ahead of the open. The S&P 500 settled higher by 0.5% with nine sectors registering gains, while the Dow Jones Industrial Average (+0.4%) underperformed throughout the trading day.

Shortly before the open, the second revision to Q1 GDP revealed a 1.0% contraction, while the consensus expected a smaller decline of 0.5%. Interestingly, the subpar report led to just a brief stumble in the futures market, which recovered swiftly. That recovery may have been aided by today's initial claims report, which suggested the labor market remains on solid ground.
Interesting, huh?

The Number Of Active Rigs In North Dakota Down To 187; 1Q14 GDP Horrendous -- Blame It On The Weather -- LA Times

I mentioned I had trouble finding this story today, but here it is, in The Los Angeles Times, a headline story: economy shrinks in first quarter; 1Q14 GDP slowdown MUCH worse than thought; instead of a paltry 0.1% growth in GDP, it turns out the Obama 1Q14 economy contracted 1.0% -- is this the first time the GDP contracted in his presidency of "recovery"? 

The Los Angeles Times is reporting:
The economy performed worse than initially estimated amid severe winter weather in the first three months of the year, contracting for the first time since 2011, the Commerce Department said Thursday.
The nation's total economic output decreased at a 1% annual rate from January through March, down significantly from the government's first estimate of weak, but positive, 0.1% growth for the period.
Recent data indicate that the recovery has picked up this spring.
But the new report shows just how bad things were during the winter and how much ground the economy has to make up to hit the 3% overall growth for 2014 that economists had been hoping for.
This news is incredibly bullish for investors.

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.

Now, back to the Bakken.

Active rigs:

Active Rigs187183218172119

RBN Energy: talk of exporting oil (won't happen in my investing lifetime).
Crude oil exports from the United States are heavily restricted by Department of Commerce regulations introduced in the 1970’s that are administered by the Bureau of Industry and Security (BIS).
These regulations prevent the export of US crude oil except to Canada or in specific circumstances from Alaska and California.  In Episode 1 of this series we discussed the consequences of a partial end to the ban on crude exports that might occur as a result of a change to the BIS definition of lease condensate – a very light hydrocarbon that is nevertheless defined as crude that cannot be exported.
Production of lease condensate is booming in shale plays like the Eagle Ford in South Texas. Our analysis imagined that if the condensate export ban were lifted tomorrow, much of this material would be exported to Asia as a petrochemical feedstock.
This time around we widen the debate to wonder what would happen if there were a complete removal of the ban on crude exports – including lease condensate.
The crude export regulations were written at a time when a shortage of oil threatened US security and prompted legislators to prevent domestic producers sending supplies overseas. Between the mid-80’s and 2009, US crude oil production was in long term decline meaning that dwindling domestic supplies were eagerly snapped up by US refiners and the export ban was never more than an occasional issue (such as when Alaska North Slope – ANS- production exceeded West Coast refinery requirements in the 90’s). Since 2010, however, the US has undergone a dramatic crude renaissance, principally as a result of the shale oil revolution. Current production is over 8.4 MMb/d – its highest level since October 1986 – up 50 percent since the start of 2011. And while production is soaring, proved reserves are increasing even faster – laying the groundwork for continued output.
The Wall Street Journal

 Shinseki. Drip, drip, drip, ...

Apple to buy Beats to regain music mojo.

Republican governor raises state's minimum wage to $9.25 / hour by 2018; Michigan.

Ukraine says "nyet."

Just after his speech saying he will partner with allies, Obama unilaterally sends 1,000 US Marines toward Libya.

H-P layoffs continue. Won't be fast enough. 

The Los Angeles Times

Obama to bypass Congress to cut greenhouse gases. Boehner rolls over.

Looks like "they" need the jobs: Irwindale no longer says the hometown icon and factory is a nuisance.

Jobless Claims Drop So Much, Not Even A Headline Story Any More; 1Q14 GDP Worse Than Originally Reported: Contracted At An Annual Rate of 1.0 Percent; Obama Administration Initially Said There Was Growth, Though Paltry, At 0.1%

This is quite remarkable, how difficult it is to find the weekly report on jobless claims. Today, with another record-breaking drop in US jobless claims, one would have expected it to be the top news story of the day. Earlier this morning, I had trouble finding the numbers. I went off to breakfast assuming it would be the #1 story today, and yet nowhere in the liberal press/mainstream media is the story making the headlines. That speaks volumes.

Deep down among the other ho-hum Yahoo!Finance stories this headline: US jobless claims drop, continuing claims lowest since 2007. Reuters is reporting:
The number of Americans filing new claims for unemployment benefits fell more than expected last week, pointing to a strengthening labor market.
Initial claims for state unemployment benefits declined 27,000 to a seasonally adjusted 300,000 for the week ended May 24, the Labor Department said on Thursday.
The prior week's claims were revised to show 1,000 more applications received than previously reported.
Economists polled by Reuters had forecast first-time applications for jobless aid falling to 318,000 last week.
This is truly incredible, the lowest number since 2007, and dropping an astounding 27,000 -- seasonally adjusted. 

And it's not even a headline story. 

The boiler-plate:
The four-week moving average for new claims, considered a better measure of underlying labor market conditions as it irons out week-to-week volatility, fell 11,250 to 311,500 last week, the lowest level since August 2007.  
The good news: all that talk about extending unemployment benefits probably just that -- talk. With the jobs market surging, and everyone now able to find a job, not much reason for extending the unemployment benefits. 

The big question is: how huge is the rally on Wall Street with all this good news? Ah, yes, the market is up ... drum roll ... 10 points (0.06%). Zeropointohsix percent is 0.0006. 6/10,000 points. I was really hoping for a lot more. 

Let's check my bellwether stock for the day: ERF, after a recent jump. It's down. And so it goes.

Interestingly, this story got very little play. I challenge readers to find mainstream press talking about it. I assume it was not on NBC Nightly News with Tom Brokaw (or whoever the current "reader" is). Remember the original number? 1Q14 GDP grew at just 0.1%. 

See if you can find the "revised" number. It is very, very difficult. I'm not even sure this is for the US, it's so hard to find, but I think it is. bizzyblog is reporting;
The overall number is worse than anyone thought
Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 1.0 percent in the first quarter according to the “second” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 2.6 percent.
The GDP estimate released today is based on more complete source data than were available for the “advance” estimate issued last month. In the advance estimate, real GDP was estimated to have increased 0.1 percent. With this second estimate for the first quarter, the decline in private inventory investment was larger than previously estimated.
The link provides an incredible background of data and analysis.