Saturday, June 28, 2014

Week 26: June 22, 2014 -- June 28, 2014

"The Sleeping Giant"
Could it be the next Marcellus?
Strata-X strike natural gas east of the Bakken

The Dockets
Continental Resources to put 56 wells in one spacing unit

US Lifts Ban On "Oil" Exports
Something tells me Congress will act
RBN Energy says "hold your horses"
Why VLO was hammered; PSX dropped
The first post on this story
Price of WTI oil jumps on this story

North Dakota wells average 100 bopd; the US national average is but 10 bopd
MRO's 2nd Tyler formation well comes off confidential; no new information
Legacy Oil & Gas buys Corinthian: A cross-border Spearfish play
Slawson case 22272, NDIC order 24606: almost 500 wells in Big Bend oil field

Belle Fourche Pipeline #2, Billings County to Dickinson Prairie Refinery
EPD to build Bakken-to-Cushing crude oil pipeline
North Dakota approves Enbridge's Sandpiper Pipeline
Energy Transfer Parnters proposes Bakken-to-Patoka (IL) crude oil pipeline

Bakken Economy
Largest US fertilizer plant ever gets go-ahead approval; Jamestown; $2 billion
Hess donates $5 million for new energy complex at the university
Bakken ethane now reaching feedstock facilities in Alberta, Canada

Bakken 101
Discussion of "zones" in the Bakken 
How well density might affect a mineral owner

Cold Weather To Blame For The Collapse (Their Word, Not Mine) Of The Economy; A Random Update On "The Road To New England"; How Bad Was The Winter Of 2013 - 2014?

Cold Winter To Blame For Collapse Of Economy

I find it incredible that Reuters continues to insist it was a "bitter winter" that caused the collapse (their word, not mine) of the economy in 1Q14. In all my years of investing, I never once heard the phrase that the economy collapsed because of bad weather. With all the talk of global warning, it just sounds so .... well, ludicrous. [Update, some hours later, when I was proof-reading this for errors, I broke out laughing: Hurricane Katrina was blamed on a president; the collapse of the economy was blamed on less than three months of a "severe winter'; the collapse had nothing to do with DC policies.]

Reuters notes that the contraction at a rate of 2.9% in 1Q14 was the "worst decline in five years." Five years -- Reuters failed to note that this was five years into the "recovery."

Reuters has expanded the list to three items why the economy collapsed (that, by the way is what one is taught in writing classes -- always make it a list of three): a bitter winter, end of long-term unemployment benefits, and failure of businesses to restock.

The failure of businesses to restock: that sounds like circular reasoning, or cause/effect confusion, or more bluntly what came first, the chicken or the egg. If the economy was in "recovery" mode, why did businesses fail to restock?

The end of long-term unemployment benefits probably contributed to the economic collapse (their word, not mine) but it speaks volumes about the world's largest economy requiring unemployment benefits to keep it afloat.

So, we get back to the "bitter winter." And global warming. Oh, well.

As I've said many times, any news article on the economy that fails to mention the 800-pound gorilla in the room is less a news article and more an op-ed disguised as a news article. During a recession/recovery, the worst thing a government can do (see The Grand Pursuit, Sylvia Nassar) is increase taxes and ObamaCare was the biggest tax increase this country has seen in quite some time, and maybe the biggest tax increase if one took the time to add up the effects of national health care as it permeates through the entire economy. The three biggest business concerns with ObamaCare: a) uncertainty; b) 50-full-time-worker threshold; and, c) 29-hour work week.

I doubt most folks are paying close attention to ObamaCare but the number of "bad news" ObamaCare stories continues to increase. My hunch is that as more and more folks are impacted by national health care, the pace of such stories will increase. Ironically, one President Obama's biggest supporters, The Los Angeles Times seems to be reporting a "bad news" ObamaCare story every other day or so.

The top story today, front page of The Los Angeles Times: confusion, costs plague state's ObamaCare enrollees. That's the headline. By the way, that was the word used in the headline: "Obamacare." With an lower case "c," however. I point that out because from the beginning I used the word "ObamaCare" and was taken to task for using that word in a pejorative sense. Not true. I used it because a) it was easier and faster than the full name; b) it was a more honest name than the "real" name of the national health care bill); and, c) "everyone" called it ObamaCare. Anyway I digress. The story at the link:
Frustration and legal challenges over the network of doctors and hospitals for Obamacare patients have marred an otherwise successful rollout of the federal healthcare law in California.
Limiting the number of medical providers was part of an effort by insurers to hold down premiums. But confusion over the new plans has led to unforeseen medical bills for some patients and prompted a state investigation.
More complaints are surfacing as patients start to use their new coverage bought through Covered California, the state's health insurance exchange.
"I thought I had done everything right, and it's been awful," said Jean Buchanan, 56. The Fullerton resident found herself stuck with an $8,000 bill for cancer treatment after receiving conflicting information on whether it was covered.
Whatever the 2Q14 GDP turns out to be, it would have been much better had it not been for ObamaCare, but if 2Q14 GDP comes in under expectations, which now run the gamut from 2.0 to 8.9, it seems, Reuters will no doubt blame the "late" spring, and the icebergs still on Lake Superior. 

[Much of the article focuses on UC Irvine Medical Center. UC Irvine? Really?]

[With regard to the collapse of the economy, we did not even address the president's energy program, using the term "program" lightly.]

The Road to New England

Another great article sent by a reader. The Bangor (Maine) Daily News is reporting:
Natural gas, which was used to generate 43 percent of New England’s power in 2012 and 2013, exerts an increasingly significant impact on the region’s electricity prices. With domestic production on the rise, it is considered an inexpensive, reliable energy source because natural gas-fired power plants can be turned on relatively quickly. But New England’s pipeline infrastructure is inadequate to handle the volume of natural gas that could be pumped east from U.S. shale fields.
“The fact is that Maine people are being hurt terribly by the natural gas pipeline constraints,” said Tony Buxton, an attorney who is lead counsel for the Industrial Energy Consumers Group, which represents many of the state’s paper mills and other large energy consumers.
Greg Cunningham, a Portland-based attorney with the Conservation Law Foundation, disagrees. He takes issue with the process he said began with a conclusion: that more natural gas pipelines are the answer.
“What’s objectionable in the process is that they have leaped over other alternatives,” Cunningham said, proposing that greater pipeline efficiency, added gas storage facilities, LNG infrastructure and other changes to the power grid could help solve the problem.
“Those aren’t part of the solution that the [Maine Public Utilities Commission] or [the New England States Committee on Electricity] is looking at. They are going immediately to the most expensive, highest-risk and most permanent solution.”
But Buxton said a new pipeline is the only solution to the delivery bottleneck that prevents Maine from tapping enough of the new, cheaper supply of domestic natural gas to drive down energy costs in a way that is needed.
None of [the other measures] make a significant difference in the absence of pipeline capacity — that’s the overwhelming [cost] driver here,” he said.
Every time I read these stories, I'm reminded of either "the ant and the grasshopper fable" or "The Little Red Hen" story. I have no dog in this fight, but it is entertaining to watch the road to New England.

It looks like, thanks to the Conservation Law Foundation, the good folks in New England will see another year, and another winter, go by having made no new progress in solving a problem. Perhaps more windmills off the coast.

How Bad Was The Winter of 2013 - 2014?

Our granddaughters love making little snowmen out of stryofoam balls, putting said snowmen on skis (popsicle sticks), etc). The other day we noted a snowman on our granddaughter's desk, something we had not noticed before. Apparently she also thought the winter was bad enough to hang a snowman in effigy off her desk lamp:

Idle Chatter, Saturday Afternoon, Could "The Sleeping Giant" Be The Next Marcellus? -- June 28, 2014


June 30, 2014: from a reader, which adds more perspective to the original post:
A $1.5 billion plant is planned for Grand Forks as well. Not sure where they are at with their permitting or investors. I imagine with the fertile Red River Valley and all of the sugar beet producers, a plant at the north and south end would be good for the farmers. 
Original Post

I track "The Sleeping Giant" story here.

A reader, overnight, sent me some thoughts regarding "The Sleeping Giant" which I've incorporated in the following note.

In this week's issue of Bloomberg Businessweek the lead story is "The $28 Trillion Writedown." For current investors in oil, gas, and coal, it's a bullish, bullish story. Embrace it.

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. 

But any time 2/3rds of a commodity is removed from the market, it just makes the holder of that commodity that much better off, all things being equal. Ban all oil production in the US overnight, and tomorrow morning Saudi Arabia's worth triples, quadruples.

Right now, the tea leaves suggest natural gas is in the "sweet spot." Wind and solar are in the 1% niche. No one except the French like nuclear power these days. No one except Germany and China like coal, and that's only because of necessity. That leaves natural gas. Everyone "likes" natural gas.

Because of that, some utilities could be winners, some could be losers. Right now, I think MDU sits in a "sweet spot." Yes, it has a lot of coal, but coal is easy. What MDU has, to put it in the "sweet spot" is location, location, location, and experience in unconventional plays, something they simply stumbled into, I think.

All those meandering dots lead to another meandering dot. "The Sleeping Giant." A few people knew about the Bakken long before the boom, but no one knew how to get to it. "The Sleeping Giant" is different; everyone knows there's natural gas throughout the entire state of North Dakota. I've blogged about it before. Natural gas is found in every county in North Dakota, except ironically, Sioux County, which lies entirely within the Standing Rock Indian Reservation. Yes, that Standing Rock Indian Reservation.

The reader got me to thinking about this suggests that "The Sleeping Giant" could be a "big deal." He suggests that the Niobrara formation lies beneath 2/3rds of North Dakota, which is right below the Pierre Shale, and which surfaced south of Marmarth, North Dakota, and where Fidelity (MDU) has had natural gas wells for eighty (80) years.

In addition to the current national glut of natural gas, the other problem for natural gas operators in North Dakota has been the lack of infrastructure to gather, process, and transport that commodity. But with the Bakken, much of that infrastructure is now being built out.

Someone asked where the Rohweder natural gas would go. I noted that the Bakken is just a short hop, skip, and a jump over Mr McGregor's farm to the west, where the infrastructure is being put in on a daily basis.

But let's say that someone is thinking outside the proverbial box, or thinking outside the Bakken box. Only eighty-five (85) miles to the northeast of the Rohweder natural gas well is Jamestown, North Dakota. So what, you ask.

Spoiler alert: the proposed $2 billion fertilizer plant at Jamestown just received final regulatory approval to begin building (posted earlier). Its feedstock is natural gas. By language in the permit, they need to start building within 18 months.

Then this little pearl which I had forgotten. I had forgotten this but the reader pointed this out to me: the WBI (yes, another division of MDU) pipeline that was rerouted from Watford City, North Dakota, to Williston, to the northeast corner of North Dakota, was originally shown as going to Bismarck, then Jamestown, and then east to Fargo to hook up with regional/national grid in Minnesota.

Could the "Sleeping Giant" be another regional Marcellus/Utica in the making?

INCORRECT: Original "RUMOR" Incorrect -- No Indication That OXY USA Selling Some Assets In North Dakota? June, 2014


June 30, 2014: Disregard all information in original post suggesting that OXY USA might be selling some of their North Dakota assets. The reader who originally sent me that information says he called the private buyer but was told they were buying assets in a basin other than the Williston Basin. 

Original Post

I never know how best to handle some information that is sent to me. A reader sent me a note last night saying that a mineral owner received a royalty check this month suggesting that OXY USA was selling some of its North Dakota assets. The buyer mentioned is a private firm that specializes in direct investments in oil and gas assets. According to their map of operations, their assets are located only in the United States and currently show no assets in the Bakken.

For now,  I will leave it at that. A couple of years ago, OXY USA corporate presentations suggested that OXY USA was looking to divest its Bakken assets, but then nothing ever came of it. Maybe, finally, some movement.

In OXY USA's two most recent presentations, May 21, 2014, and May 30, 2014, the Bakken is barely mentioned. It's pretty much all about California and the Permian.

Some data points from the recent presentations --

CAPEX, 2013
  • Permian: 20%
  • California: 17%
  • Willisont: 6%
CAPEX, 2014e
  • Permian: 22%
  • California: 18%
  • Williston: 5%
Stand-alone slides: Permian, California, Mideast-North Africa (MENA)
  • Even on the one slide that mentions "other" assets, the Bakken is not mentioned, though the state of North Dakota is identified as one of several states where OXY has assets
There is nothing in either presentation that suggests OXY spends much time thinking about the Bakken.

In fact, looking at the presentation, OXY USA could easily change its name to OXY PERMIAN; it seems the "new" OXY is going to be all about the Permian.


After posting the above, and then receiving a couple of comments, and then recalling the two OXY USA presentations, this is the big takeaway: in 2013, OXY USA CAPEX in the Bakken represented 6% of the company's total CAPEX; in 2014, it will decrease slightly to 5%. That data point (those two data points) speaks volumes.