Two Very Interesting Bakken Wells On Edge Of The Basin -- June 10, 2014

Updates

February 1, 2015: note the unusual production profile for these two wells at this post.  

Original Post

A reader brought this to my attention the other day. Look at these two wells:

• 25995, 642, Cornerstone, Anderson B-2413-6191, Clayton, t5/14; cum 97K 7/17;
• 26033, 626, Cornerstone, Hinds C-0631-6190, Northeast Foothills, t4/14; cum 95K 7/17;

These are middle Bakken wells.

The Anderson well:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	4-2014	27	14218	13866	46520	3641	3506	0
BAKKEN	3-2014	26	8929	8662	44574	6812	6682	0
BAKKEN	2-2014	5	694	243	8466	103	78	0

The Hinds well:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	4-2014	28	16174	16147	54815	14583	14443	0
BAKKEN	3-2014	24	7218	6919	36202	6655	6535	0
BAKKEN	2-2014	10	2410	1993	16587	2170	2120	0

 Look at the jump in production, as just one story line. One has to assume the frack occurred late in the month of March.

There are a number of things to learn from the frack report, but the sundry forms are not yet part of the NDIC file.

But none of that is the BIG story regarding these two wells.

Here's the BIG story:

One well is located in Northeast Foothills oil field and the other in Clayton oil field, right next to each other. In the overview map, one can see (perhaps just barely, the little red rectangle) that the fields are in the far north edge of the North Dakota Bakken. From everything I've read, and what the reader noted, middle Bakken wells as good as these wells might be were not expected to found this far north. It was expected that Three Forks wells would make the news here, not middle Bakken wells.

It's also interesting that it was Cornerstone who drilled these wells, not "big names" like EOG, Hess, KOG, or WLL.

A lot more needs to be sorted out, which will occur over time.

For newbies: all those singular black dots without horizontal laterals are "old" Madison wells, many (most?) of which are still active.

WTI - Brent Spread Narrowing

After widening for quite some time (the past few weeks), the spread between Brent and WTI oil is starting to narrow, again, as predicted some time ago by RBN Energy. Tonight, the spread is about $5.00:

• WTI: $104.48
• Brent: $109.72
• Delta: $5.24

I track Brent-WTI spread here. 

Wow, Wow, Wow -- Who Needs The Keystone XL North

Reuters via Rigzone is reporting:

A Vancouver-based company said on Tuesday it was planning to build a C$10 billion oil refinery on the north-west coast of British Columbia that could eventually process up to 1 million barrels per day of oil sands bitumen. Pacific Energy Future Corp, which was set up in January, is looking at three potential building sites in Prince Rupert, BC.

The project is the second new refinery proposed for Canada's west coast to process the large quantities of crude oil coming out of Alberta's oil sands and export the refined products. Pacific Energy Future Corp Executive Chairman Samer Salameh said the refinery could be producing products such as gasoline and diesel in about seven years.

The announcement comes a week before a federal government decision on whether to approve Enbridge Inc plans to build a 525,000 bpd pipeline from the oil sands to Kitimat, BC, where crude would be loaded on to supertankers and shipped to international markets. That project, known as Northern Gateway, has run into fierce opposition from environmental and First Nations indigenous groups who say the risk of a crude oil spill is too great.

Musings posted earlier today -- yes, things are moving very, very fast, much faster than many folks realize. 

Now that we are into the sixth year of ObamaDithering on the Keystone XL, any guesses how the Canadian government will decide on this, the Northern Gateway? Regular readers will remember that it was just yesterday that the Canadian Finance Minister (think US' Tim Geithner) said the Canadian economy will be in deep doo-doo (not his exact words) if the country fails to move its western Canadian sands oil.

This will be interesting to watch play out. The link at musings is getting more and more relevant with each passing moment.

OPEC In Disarray -- May Not Raise Productiion -- The AP

The AP is reporting:

All is not well within OPEC as the oil cartel focuses on how much crude to pump for the rest of the year.

Kurds in Iraq are defying the central government and selling their oil directly abroad. Nigeria is hurting due to shale oil production in the United States, its most important customer.

While worrisome for the two countries, such problems may help global supplies. But there is trouble in production, as well.

Sales from Iran, normally second only to Saudi Arabia, are severely crimped by sanctions. And internal conflicts and domestic chaos have slashed Libya's exports. The upshot is that OPEC oil ministers are likely to keep their production targets unchanged at their meeting Wednesday. 

The article fails to mention that things may be changing in Kurdistan now that Al Qaeda has taken Mosul. 

Earlier this evening, oil futures were flat. They are now slightly up. Ah, yes, the musings at the second linked post.

Warren Buffett Continues Investing In His Railroad In The Bakken

The Wall Street Jouirnal is reporting:

BNSF Railway Co. will continue making massive investments to build out rail transport for America's oil boom, Matthew K. Rose, the company's executive chairman said in an interview with The Wall Street Journal.

Mr. Rose said the railroad will open a new 10-mile stretch of track that will double-track—or parallel—existing track in its Bakken Shale region next month, and will build another 10 miles of track after that. The segments of track are $25 million to $40 million projects, part of the $1 billion in capital spending BNSF plans this year to expand service along its Northern Corridor that cuts through North Dakota and Montana and borders the Bakken Shale oil region.

That region is where cold weather and bigger-than-expected grain and coal shipments combined with its new crude oil business to cause massive delays and rail traffic tie-ups this past winter.

These are nice stories for a number of reasons, not least of which it puts into perspective Mr Buffett's investments.

Earlier today it was reported that Mr Buffett was going to invest $15 billion in renewable energy for the tax credits. Fifteen billion dollars sounds like a lot. But here, in one little piece of the Bakken, in a little part of a sparsely-settled state, Mr Buffett is investing in at least $1 billion. And unlike investing $15 billion for tax credits which benefits a few a few BRK investors, investing in the railroad will actually improve the quality of life for hundreds, if not thousands, nay hundreds of thousands of Americans.

The Cost Of Mining Frack Sand In Illinois

Regardless of what side of the fence you are on when it comes to mining fracking sand or fracking in general, this article provides a number of interesting data points. 

The Chicago Tribune is reporting:

Dallas-based Eagle Materials Inc., poised to start operating in LaSalle County, estimates it would sell at least 900,000 tons of sand a year from a single mine on 564 acres. At $110 a ton, the company estimates the mine will generate $99 million a year over the next 45 years, according to a state permit application. Analysts who follow Eagle Materials say about $40 of the $110-per-ton price is pure profit.

"Mining frac sand is a lot like mining regular sand except it's wildly profitable, and that's why everyone wants to do it," said Todd Vencil, managing director of equities research at Sterne Agee, a privately owned brokerage firm based in Birmingham, AL.

The company paid $8 million to buy the land, according to property and state records, and it expects to invest $25 million to $50 million to get the mine running, according to company filings.

Dakota Plains Holdings Frack Sand Transloading Facility, New Town, North Dakota, Begins Operations; A Train Wreck (ObamaCare)

Updates

December 12, 2014: Storage expansion construction underway and on schedule.  

Original Post

The press release:

Dakota Plains Holdings, Inc. is pleased to announce the commencement, on June 12, 2014, of its frac sand transloading operations at the Pioneer Terminal in New Town, North Dakota, through its new sand transloading joint venture.

As announced in August 2013, Dakota Plains and UNIMIN Corporation, the world's leading producer of quartz proppant, executed an agreement to construct a frac sand automated terminal with 8,000 tons of storage and a throughput capacity of 750,000 tons per year. The terminal is fully operational and will start-up this week.

Dakota Plains' sand joint venture has entered into an agreement with Rail Link, Inc. , a wholly owned subsidiary of Genesee & Wyoming Inc., under which Rail Link will operate and maintain the Company's frac sand transloading facility. 

A big thanks to a reader for spotting this.

For an earlier story on same subject, November 13, 2013.

List of CBR facilities in North Dakota, original post dated May 1, 2012.

Stand-alone post on Dakota Plains Holdings CBR terminal, May 1, 2012. 

Back-of-the-envelope:

• 4 million lbs/2,000 lbs = 2,000 tons per Bakken well
• 750,000 tons / 2,000 = 375 wells / year

It will be interesting to see if there is more to the story, for example, the source of the proppant that
UNIMIN will ship. Genesee & Wyoming, losing some coal business, gains some sand business.

*******************************

Emergency Room Visits Surging Under ObamaCare

A Train Wreck

Over at Carpe Diem:

Who-d a-Thunk It? More patients flocking to emergency rooms under Obamacare? Did anybody really think costs would go down, not up?

I assume this is a rhetorical question. In fact, the Million Dollar Way predicted this and discussed it in at least two earlier posts:

• First, in The Los Angeles Times, May 21, 2014
• Second, in The Wall Street Journal and personal experience, December 23, 2013

$56 Million Recreation Center For Watford City; To Go Forward With New Hospital

The Dickinson Press is reporting:

Voters in Watford City have overwhelmingly approved a 1.5 percent sales tax to finance a new recreation and events center, a new hospital and other community projects.

Data points

• 364 residents say yes; 63 voters said no
• McKenzie County can go forward with plans for a new hospital
• sales tax would help fund a proposed $56 million indoor recreation center

I believe the new recreation center in Williston was around $70 million.

WLL A Better Buy Than CLR -- FItzsimmons

One of only a handful of analysts I trust with regard to the Bakken, Michael Fitzsimmons, posts an update on Whiting over at Seeking Alpha.

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

Fitzsimmons says:

I admit it: I have a love/hate relationship with Whiting Petroleum. Years ago I decided to invest in the emerging Bakken shale and boiled the choice down to two companies: Whiting Petroleum and Continental Resources. At every metric I looked at, WLL looked cheap and undervalued. I bought in. Big mistake. Quarter-after-quarter CLR outperformed Whiting both operationally and financially, so did its stock. After holding on through many disappointing quarterly conference calls, I finally threw in the towel and sold WLL. The company just could not seem to grow production and EPS as fast as its #1 peer in the Bakken. Although I did make a few bucks on the transaction, the timing of my sale could not have been worse. I sold right before it became apparent that WLL's new completion technique had taken the company to another level and the stock took off. Can't win 'em all! However, today Whiting still looks undervalued as compared to Continental Resources yet the operational and financial performance gap has closed. In addition, there are some positive catalysts for Whiting that will lead to surprisingly good results in 2014.

Fitzsimmons says this about WLL's new completion technique, new coiled tubing unit conveyed frac technology at Missouri Breaks:

ignificantly, note the new completions technique test well (#4, Skov 31-28-3H in the above graphic) was physically located between previously drilled wells #2 and #3. The incremental well costs ($8.8 million or +11%) led to a 73% increase in the IP rate as compared to the open annulus with sliding sleeve completion well that served as the reference case. However, well #2 should really be the reference case (cemented liner plug-n-perf) since this is pretty much the default technique these days. That said, well #4's IP was still up 50% over well #2 while well costs were up only 9%. I expect the company may upgrade type curves in the play once these wells are online for 6-9 months and the production increases prove to be sustainable. This would lead to an increase in EURs estimates and additional reserve increases.

Lake Sakakawea To Rise Significantly This Month

I've done the math at least twice before, so I'm not going to do it again, but trust me, there's more than enough water in North Dakota for fracking the Bakken.

However, if there's any doubt, now we hear there will be even more water in Lake Sakakawea this month. The Bismarck Tribune is reporting:

People along  Lake Oahe and Lake Sakakawea and those who use the lakes can expect a significant rise in water levels this month.

The U.S. Army Corps of Engineers said Tuesday that runoff in the Missouri River Basin above Sioux City, Iowa last month was 4.3 million acre-feet, or 130 percent above normal. An acre-foot is the amount of water that would cover an acre, a foot deep.

Based on soil moisture and snowpack conditions, the corps said the forecast for the 2014 runoff season has decreased slightly from 31.7 million acre-feet last month to 31.1 million acre-feet, still 123 percent of normal. Average annual runoff is 25.2 million acre-feet.

This is all part of global warming, I suppose. [For the record: global warming has taken a 18-year pause.] Lake Sakakawea is expected to rise five (5) feet.

And still my favorite song:

Yellow River, Christie

Poll

There are two big events happening this week in North Dakota. The most important "event" will be the release of the monthly (June) NDIC "Director's Cut."

I forget the second event ... oh, yes, that's it: the president will be golfing at the Links of North Dakota visiting Standing Rock Indian Reservation where he will join Ms Elizabeth Warren (in spirit if not physically) as an honorary Native American. (Ms Warren is a genuine Native American, just for the record.)

The monthly "Director's Cut" generally comes out on/about the 15th of the month. It seemed like it was always coming out on the 15th, and then the past few weeks it came out as early as the 13th. I have never seen it come out on the 12th, and if it has ever come out after the 16th, I am not aware.

This month's "Director's Cut" could be quite an "event." If, in fact, North Dakota goes over the one-million-bopd milestone that story will eclipse (almost) everything else. I suppose an exception would be a visual sighting of a Williston dustball and then the Dickinson Press would run that as their headline story.

So, the question is this. Supposing (or not supposing) that North Dakota hits that milestone, one-million-bopd, will the Director's Cut come out on Friday, while the president of the United States (POTUS) is visiting Standing Rock Indian Reservation?
 
The poll is posted.

For newbies: the Director's Cut provides data for the month ending about six weeks earlier. So the June report will have the April data. It is established beyond a shadow of a doubt that the roughnecks, roustabouts, and truck drivers were capable of getting "us" to the one-million-bopd milestone in April. If the milestone was not reached in April, it was due to events beyond any ordinary man's control, even beyond that of Mr Lynn Helms', and should be declared a force majeure, by a lawyer trained in oil law. Had the frosty hands of Mother Nature not interfered with the grand plans of several oil men, the milestone would have been reached in January, 2014.

The following is not the official route that will be undertaken by the president when he visits North Dakota. It is presented for illustrative purposes only. No one should make plans (or change plans) based on this illustration.

Williston is the city for which the Williston Oil Basin was named.

Killdeer is the city that Jim Cramer of CNBC fame has visited. 

I assume the estimated time for travel is based on expected road conditions at this time of year and posted speed limits. Traveling time will be much reduced if traveling in a high-speed SUV motorcade. And yes, that's where Google places "Standing Rock Indian Reservation."

Since SRIR straddles the North Dakota/South Dakota border, one could actually poll readers on which side of the border the President will actually stand. Perhaps he could stand in one state, and have the teleprompter in the other state. That would be more fair.

Thirteen (13) New Permits -- The Williston Basin, North Dakota, USA; Halcon With Another Huge Well;

Wells coming off the confidential list Wednesday:

• 23014, 865, CLR, Sacramento Federal 5-10H, Brooklyn, Three Forks, a max gas of 2,783t4/14; cum 16K 4/14; frack data not yet available;
• 26045, 2,084, BR, Capitol 14-7TFH, Westberg, t5/14; no production data,
• 26420, drl, CLR, Montpelier 2-14H, Indian Hill, middle Bakken, no production data,
• 26627, drl, CLR, Mack 13-2H3, Antelope, no production data,
• 26841, drl, Hess, EN-Leo-154-94-2324H-2, Alkali Creek, no production data,

Active rigs:

	6/10/2014	06/10/2013	06/10/2012	06/10/2011	06/10/2010
Active Rigs	190	187	213	169	124

Thirteen (13) new permits --

• Operators: Hess (4), WPX (3), OXY USA (3), Petro-Hunt (2), Enduro,
• Fields: Big Gulch (Dunn), Reunion Bay (Dunn), Fayette (Dunn), Little Knife (Dunn), Newburg (Bottineau)
• Comments:

Wells coming off the confidential list today were posted earlier; see sidebar at the right.

One (1) producing well completed:
24270, 2,452, HRC, Fort Berthold 147-94-3B-10-5H, t4/14; cum 6K 4/14;

OXY USA cancels two permits:

• 23138, PNC, OXY USA, State Jaeger B 2-34-27H-144-97, Cabernet,
• 23139, PNC, OXY USA, State Jaeger B 3-34-27H-144-97, Cabernet,

Price / Acre In The Permian -- June, 2014

From Seeking Alpha today:

• Aubrey McClendon would seem to be overpaying in his $2.5B purchase of 63K acres in the Permian Basin "unless he knows more than we do," Jim Cramer says while acknowledging that McClendon - a "genius" a buying energy-rich land - probably does.
• Some companies have figured out the "code" to drilling in the Permian Basin, and McClendon is unlikely to have overpaid in the long run, Cramer says.
• McClendon's American Energy Partners is not publicly traded, but investors can benefit from the Permian Basin boom by buying stocks such as Pioneer Natural Resources, EOG Resources, and Cimarex Energy, Cramer believes.

Back-of-the-envelope: $2.5 billion / 63,000 acres = $40,000 / acre.

For that price, Chesapeake should have stayed a bit longer in southwestern North Dakota looking for the Three Forks.

Musings On The Global Oil (And Natural Gas) Situation

Late in the evening on June 9, 2014, I was checking oil and natural gas futures. After the recent run-up in prices, I was surprised to see that WTI crude oil was holding its own, after a big day, and was even "in the green" for further gains. I was convinced that we would start see profit-taking.

To the best of my knowledge there is no impending "shooting war" in the Mideast that would result in this screen shot (the time for these futures, 23:33:34 EDT, June 9, 2014):



I never talk about where the price of oil is headed (or at least I try not to; I assume I have violated that rule on occasion); I've learned that it's impossible to predict oil prices except perhaps under extreme conditions. If Saudi Arabia were to announce a full export embargo, for example, I could safely predict the price of oil would go up.

What surprised me was that oil was holding unto its gains. According to some analyst some time ago, this is the longest period in history of sustained "high prices." I assume by "high prices" he meant greater than $90/bbl. I can't find the link for that story, and maybe there is no story; perhaps I dreamt it.

But I'm pretty sure I'm correct. This is the longest period in history where oil has held above $90/bbl for months on end. No volatility.

The price of oil is less a problem than volatility. Producers, consumers, governments can adjust to high prices; they can adjust to low prices; what is difficult is adjusting to volatility.

What interests me is the stories that come from this sustained period of high-priced oil. What follows will be true even if oil drops to new lows, back into the $60-bbl range.

For me, these are the "big stories" which I follow elsewhere.

In the "old days," there was really just one, maybe two, centers of gravity when it came to oil: OPEC, and maybe, Russia.

Today, there are four centers of gravity: OPEC, Russia, Asia, and North America. One could add Europe but the EU will be a side-story based on what happens in the other areas; one could separate the North American story into the US and Canada, and in one of the links I do just that.

I often use "tectonic plates" as a metaphor for activity in the four centers of importance in today's oil and gas industry. But "tectonic plates" suggest slow, ponderous, glacial movement.

When I saw the $104/bbl price holding for futures and then noted some stories appearing at the same time (see below) and other stories playing out since the Sochi 2014 Paralympic Winter Games, I felt that "tectonic plates" as a metaphor was inappropriate. Things are moving a lot more quickly behind the scenes in the oil and gas industry than the average person-on-the-street realizes. It's almost like a hurricane, rather than a tornado. The latter strikes fast with little warning. The former, on the other hand, build up for weeks before they arrive. It's the "calm before the storm."

The best analogy I can come up with right now for what I'm seeing in the global oil and gas industry is the "Scramble for Africa" from 1880 to 1900.

I cannot articulate well what I am thinking, so for now, the stories and the data points that intrigue me will have to stand on their own. None of the points (except my "personal observations" at the bottom, perhaps) are new or unique. They are the views and data points provided by others. So here goes, the stories behind the "calm before the storm":

• President Obama is an ideologue and cannot "relate" to the events occurring in the global oil and gas industry. It's a blind spot in his "make-up." If I'm wrong, the alternative is "scarier" and much more concerning. It is what it is; it's not a partisan statement. Remember, the analogy is the scramble for Africa, 1880 - 1900.
• The Russian-Chinese deal -- previously posted. The global power shift: Russia-China hegemony. 
• The Russian-Ukraine-American chess game -- previously posted. 
• The US-Canadian race to export oil to Asia. (An example of Obama-Reid-Schumer-Pelosi missing the big story. This is similar to the "Scramble for Africa" - 1880 - 1900.)  See below.
• How the Russian-Chinese deal benefits Japan. Japan's energy crunch. See below.
• Europe at a tipping point (one of the "big stories" tracked elsewhere).
• The recent IEA report: Saudi Arabia needs to produce at record levels to mitigate record oil prices by the end of the year (2014).
• China's insatiable appetite for oil. See below.

The Immigrant Song, Karen O with Trent Reznor  

Looking at some of the points above in more depth:

The US-Canadian race to export oil to Asia. (An example of Obama-Reid-Schumer-Pelosi missing the big story. This is similar to the "Scramble for Africa" - 1880 - 1900.). Rigzone is reporting:

Within the energy sphere, Canada and its southern neighbor are engaged in a different type of competition: the race to gain first-mover advantage for exporting crude oil to markets throughout the Atlantic and Pacific basins. According to the U.K.-based research and consulting firm GlobalData, Canada is outperforming the United States in this rivalry by advancing three critical pipeline projects.

• TransCanada's Energy East Pipeline, which would carry 1.1 million barrels per day (bpd) of crude from Alberta and Saskatchewan to refineries and terminals in Eastern Canada

• Enbridge's Northern Gateway Pipeline, a twin pipeline that would carry up to 525,000 bpd of crude oil westbound from Northern Alberta to the Pacific port of Kitimat, British Columbia, and 193,000 bpd of condensate on the eastbound leg 

• Kinder Morgan's Trans Mountain Expansion Project, which would twin an existing pipeline from the Edmonton, Alberta, area westward to Burnaby, B.C., to boost its capacity from 300,000 to 890,000 bpd.

How the Russian-Chinese deal benefits Japan. And also Japan's energy crunch. Rigzone is reporting:

The China-Russia agreement, the biggest gas deal ever, unlocks new gas supplies and could bring down gas prices across Asia, a development that would pay the biggest dividends for Japan, the world's top buyer of liquefied natural gas.

China's insatiable appetite for oil. There may be month-to-month variability, but the overall trend is up, and an increase of 11% y/y the first five months of 2014, I would think, is significant. If I read this correctly, China is importing (more than) 6 million bopd, about two-thirds the total amount the US produces on a daily basis ([less than] 9 million bopd). Numbers are rounded in the story below:

China's crude oil imports rose 9 percent in May from a year earlier to 6 million barrels a day (bopd), latest government data showed.

But imports fell 6.5 percent from a daily record high of 6.8 million logged in April, according to data released by the General Administration of Customs. Crude oil imports in January-May period went up 11 percent from the same period of 2013 to 6.25 million bpd.

China is the world's No. 2 oil consumer after the US. Earlier this year, the US Energy Information Administration (EIA) said it projects China is likely to surpass the US in net oil imports on an annual basis by 2014 as US oil production and Chinese oil demand "increase simultaneously." The Middle East remains China's largest source of crude oil imports, according to the EIA.

***********************************

 Personal Observations

I follow the oil and gas industry fairly closely. Some things jump out at me. I am unaware of President Obama being involved in any anticipatory (rather than reactive) position with regard to the global energy situation. The four centers of gravity come together in four locations: a) the Arctic; b) Russia-EU; b) Russia-China (Asia); and, North America-OPEC.

T. Boone Pickens has talked at length about the relationship between North America and OPEC, and the relative advantages North America has, so I won't go into that. Suffice it to say, there is no indication that the US government has an anticipatory stance with regard to OPEC.

The US has pretty much ceded the Arctic to the rest of the world with regard to oil and gas exploration. I have linked any number of stories along that line over the past several years. The US, compared even to Norway, appears uninterested in the Arctic when it comes to oil and gas exploration.

The US is minimally involved in the other two locations (Russia-EU and Russia-China) and, in any event, appears to be in a reactive stance, rather than an anticipatory stance. For example, I am unaware of any coherent national (US) policy to "help" China with its energy needs.   

The screen shot of oil futures with the price of WTI oil at $104/bbl doesn't really have a direct connection with any of the meandering in these notes, but the $104/bbl got me to thinking about the bigger picture.

So, when things are going pretty well in the world (i.e., no major "shooting war" in the Mideast or a major terrorist event in Saudi Arabia) oil remains at the highest price in years. It looks like WTI oil will close slightly above $104/bbl today.

******************************

Updates

June 11, 2014: Iraq is spiraling out of control. President Obama refused to come to Maliki's aid (Maliki is the leader of Iraq, capital is Baghdad) a few days ago, and now the Iranian/Syrian Sunni insurgents have taken Mosul, Tikrit, and are "sweeping" towards Baghdad. It appears to be fait accompli that we will have a new government in Iraq by the weekend. Oil speculators are confused; afraid to go over $105.30 and yet common sense says Iraq may not be shipping much oil in the near term. IEA has asked Saudi to maximize production; OPEC refuses to increase production, coming out of their Vienna meeting last week.

Later, 10:27 CDT: OPEC signals it will NOT increase production. 

Later, 7:31 CDT: from a message board regarding the Mosul-Kurdistan pipeline --

The original Kirkuk to Ceyhan pipeline with capacity of 1.6 million bopd, the one constantly being blown up, goes right past Mosul.So good luck with that.

The new Kurdistan to Ceyhan pipeline which goes thro' Kurdistan controlled territory & then links in with the Kirkuk to Ceyhan pipeline inside Turkey should still be okay.

Maliki has threatened legal action re two shipments that have left Ceyhan that originated in Kurdistan & hasn't reached agreement with Erbil.

Baghdad itself ( & Maliki ) must now be at risk with Isis coming down from Mosul & in from Fallujah.

So entire Iraq exports of 2.6 million bopd must be questionable in medium term.

Will Iran act? Will Turkey act?

U.S. can hardly continue to arm (good )rebels in Syria when these arms are just going to end up with Al Qaeda/ISIS. For that matter do they continue to send arms into Iraq?

Later, 6:20 pm CDT: I am so cynical about the whole Mideast, I was not even aware that al Qaeda had taken back Mosul. The White House calls this serious, but that's as much as we'll hear from President Obama on this. He knew that once the US left Iraq, the country would implode, but there's no way he would go back in. On so many levels, he could never go back into Iraq. Al Qaeda knew that.

If this is accurate, that al Qaeda has taken Mosul, the capital of Kurdistan, this is bad, bad news for several oil companies operating in northern Iraq; bad news for Iraq; and, bad news for consumers. Iraq was already limping with regard to oil exports; Kurdistan was actually somewhat successful. But if this news story is accurate, this is bad, bad news. It will be interesting to see how this affects oil futures. If there is little change, it tells me the movers and shakers (and the speculators) had already baked "the loss of Iraqi oil" into their equations.

For Investors Only; Active Rigs In North Dakota Down A Bit, Nice RBN Energy Article On Future Price Points For Natural Gas

Trading at 52-week highs: AAPL, CAT, COP, DAVE, DVN, HAL, HES, MRO, NOV, NRG, SLB, UNP, WIN.

Six companies that will benefit from fracking. CNBC is reporting. 

Active rigs:

	6/10/2014	06/10/2013	06/10/2012	06/10/2011	06/10/2010
Active Rigs	190	187	213	169	124

RBN Energy: natural gas prices going forward ...

It is important to remember that these forward curves are not forecasts – they represent the value of futures contracts for deliveries out into the future - typically governed by market sentiment on the day. Not all of these 150 delivery month contracts out into the future are necessarily traded each day, but if futures market participants hold open contracts then the CME provide a settlement price each trading day.

Looking at six different historic curves like this provides a snapshot of the history of gas prices for the past six years. You can see the range of prices that natural gas futures have traded at (just in the month of June, don’t forget). The lowest value on the chart is $2.40/MMBtu for the July 2012 contract in June 2012 – that was a couple of months after gas prices crashed below $2/MMBtu in 2012 following the “non-winter” of 2011-2012 and fears that there would not be enough demand to soak up surging shale gas supplies. That year the reality of bounteous shale supplies sunk in and even though power generators burned up a lot more gas at $2/MMBtu there was a step fall in gas market prices. You can see that the 2012 curve is much lower than the 2011 curve – on average prices for the 2012 curve are $2/MMBtu lower than for 2011.

Since 2012, gas prices have traded in a lower range so that instead of values in the $4-$9/MMBtu range for 2009-2011 prices from 2012 to 2014 have been in the $2-$7/MMBtu range. For the record the highest settlement value on our chart is $9.01/MMBtu at the end of the 2010 curve for delivery in December 2022. Bet producers wished they had that contract hedged!

Meantime we turn the spotlight onto the most recent curve for yesterday, June 9, 2014.

The first thing to note about June 2014 is the odd shape at the front of the curve that looks like a giant molar pushing up from the baseline. That giant molar is the footprint left behind by last winter’s freezing polar vortex weather that sucked up a huge amount of natural gas storage inventories by the end of March. The empty gas storage tanks in March and the implied threat of a shortage of gas at the start of next winter this coming November has led current market prices for gas to jump to $4.645/MMBtu (about $0.65/MMBtu above where they were at the same time last year).

After July, the forward prices on the curve fall 30 cnts this summer and then increase next winter from November through January before falling back to $4.636 in March 2015, when they promptly fall off a cliff – dropping $0.48/MMBtu in April 2015 to $4.156/MMBtu. Now it is normal for prices to fall between March and April after the threat of winter cold recedes, but the fall off we are seeing next April is wider than usual and represents a readjustment of the curve to a more “normal” shape that continues out in a straight trajectory until 2026.

What is significant in this forward curve is that futures market sentiment seems to be saying – “yes – we are worried about shortage for next winter but as soon as we get through this next winter everything will be back to normal."

And by “normal," you can see that we actually mean “much lower than normal." In fact current market expectations of prices in December 2023 ($5.65/MMBtu) are a whopping $0.63/MMBtu lower now than they were in June 2012 and $1.24/MMBtu lower than they were in June 2013.

Go to the linked article for superb graphs and an interesting summary.

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Do The Math

I can't make this stuff up. ThinkProgress is reporting:

Over the last 40 or so years, natural drivers would have caused cooling, and so the warming there has been (and some) is caused by a combination of human drivers and some degree of internal variability. I would judge the maximum amplitude of the internal variability to be roughly 0.1 deg C over that time period, and so given the warming of ~0.5 deg C, I’d say somewhere between 80 to 120% of the warming. Slightly larger range if you want a large range for the internal stuff.  -- Dr. Gavin Schmidt, NASA's newly appointed Director of its Goddard Institute for Space Studies (GISS).

Yes, somewhere between 80 to 120%. Say what? Whatever. Literally whatever.

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The Wall Street Journal

General Shinseki stopped sending "turaround experts to underperforming hospitals, just as a growing number of VA facilities showed consistently high death and complication rates. President Obama's "pick" for next VA chief told the President, "thank, but no thanks." Not many folks have the self-control to turn a president down.

The president took personal credit, if I recall correctly, for the swap. Now, it turns out, the president tells us, it was SecDef who made the final decision. Hagel will explain on the Hill. It is getting awful crowded "under the bus."

Russia-Ukraine gas talks stumble. Surprise, surprise.

Bulgaria suspended construction of the Russian-backed South Stream natural-gas pipeline -- at the request of the EU -- and Senator John McCain.

Free market capitalism in Pennsylvania: the state may allow Tesla to operate its direct-sales model. But then this: the proposed legislation would not allow other manufacturers from bypassing franchised dealers. Would this hold up in court?

Canadian Finance Minister says Canada will be in deep doo-doo (not his exact words) if the country fails to find new markets for the country's energy products.

US Supreme Court rules against mom-and-pop; rules for big corporations in environmental lawsuit case. Man bites dog? 

The Los Angeles Times

Friendly fire may have killed five (5) US soldiers. Story written by Hashmat Baktash and Shashank Bengali.

Gunman reported dead after shooting at Troutdaly, Oregon high school (east of Portland). I would assume Oregon has some tough gun laws, but I could be wrong.

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Top Yahoo!Finance Story: Drought Can't Stop Fracking

The emphasis the mainstream media puts on these stories always surprise me. NBC is now the most partisan of the three non-partisan major networks (NBC, ABC, CBS), so it is not surprising to see CNBC feature this as the top story, but it still surprises me. Of all the things that investors need to know about, this seems pretty unimportant in the big scheme of things. CNBC is reporting, as the Yahoo!Finance top story at the moment: 

Critics of fracking, may have hoped drought-ridden states might be inclined to shut down the oil and gas abstraction method that uses lots of water.

But just last month, in the midst of the worst drought in California's history, the state Senate killed a bill that would have put a moratorium on the state's use of hydraulic fracturing.  

The battle over water and the need to drill for energy is likely to get worse, said Christiana Peppard, a professor of science, theology and water ethics at Fordham University.

Although the hook of the story was "drought," the author(s) were able to drag in every myth about fracking. 

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Buffett and Renewable Energy

Before anyone gets into the "I told you so" mode, note that Warren Buffett is investing $15 billion into renewable energy (and another $15 billion if he finds something he likes) not because he "believes in renewable energy" but because he likes the tax credits.

Berkshire has been able to plow so much into renewable energy because it can use tax credits to offset profit at other businesses, Abel, the 52-year-old CEO of Berkshire Hathaway Energy, said yesterday.

For the record, I also invest in wind and solar; there are niches for renewable energy investments.

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.

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Military Housing

A Note for the Granddaughters

One of the big challenges for the families in the military was finding adequate housing around the world. I remember the challenge of finding such housing every two or three years when we moved. Even in the best locations, a top concern was being located near a "good" school for your mother and your aunt. As an officer, I had it pretty good. I was often appalled by the substandard housing they put young enlisted families in. I remember responding to a medical emergency at Grand Forks AFB, ND, and was absolutely aghast to see the house this young family with a young child was living in. And before they got into that "house," they had been on a waiting list for base housing. Base housing waiting lists were often up to a year, especially overseas. Many folks simply fell off the list, tired of waiting. There was never enough money for housing. That's what we were told.

Now I read that the commander-in-chief, President Obama, has opened up a third military base for all the illegal immigrants, mostly children. This has occurred under his watch. I am not aware of military bases ever being opened in the past to house illegal immigrants. But I guess there's enough money available for military housing for illegal immigrants, even if there is still not enough money for families of active duty military. 

It will be a real eye-opener for the next medical response to a house on a military base housing an illegal immigrant family, while the medical responders may in fact be on the waiting list for base housing.

I no longer have a dog in this fight. I was fortunate to have served many of my military years under a commander-in-chief that appreciated his military. 

By this time next week we will be down to less than 950 days left.

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By The Numbers

A Note for the Granddaughters

A reader sent me this data. I have not verified it. I normally don't post this data (or similar data) because it is to far removed from the Bakken, ObamaCare, and global warming extreme weather, but sometimes things are such, they need to be posted.

And, again, this is for the granddaughters and for the archives.

According to the reader, the US ranks third in murders. However, if you take out Chicago, Detroit, Washington (DC), and New Orleans, the United States is near the bottom of the world list, specifically, only three countries worldwide have a higher murder rate than the US if you remove four US cities, all well-known for having the toughest gun control laws in the country. All four cities have something else in common, and it ain't the weather.

According to Wiki: New Orleans' average annual per capita homicide rate of 52 murders per 100,000 people overall (1980–2012) is the highest of U.S. cities with average annual homicide totals that were among the top 10 highest during the same period.

By the way, in the 503 days since the Trayvon/Zimmerman verdict, there have been 10,865 African-Americans killed by African -Americans.

I don't recall any story in the mainstream media about any of the 10,865. Surely there must have been one story that had a human interest angle. Almost 11,000 homicides since that earlier story and not one national mainstream media story that I came across.

Again, the data was sent to me by a reader. It has not been verified, except for the wiki comment.