Tuesday, July 1, 2014

Canadian Government Pulls The Plug On Keystone XL -- Will Build Pipeline To West Coast; Oil To Asia

This was previously posted. See story here.

Headline: "Thanks Obama: Canada pulls the plug on delayed Keystone XL pipeline, will instead send oil to Asia via a new pipeline."

In an unrelated story (memo to self: insert laughing emoticon here): Marylanders will pay record-high gasoline prices this July 4th. 

5 Of 7 Wells Go To "DRL" Status; WPX With A Gusher In The Bakken; Seven (7) New Permits -- North Dakota

Wells coming off confidential list Wednesday:
  • 24156, drl, KOG, Koala 16-32-29-2H, Poe, no production data,
  • 24478, drl, Statoil, M. Olson 20-29 4H, Painted Woods, no production data,
  • 25011, 1,533, WPX, FBIR 13-24HZ, Van Hook, t3/14; cum 66K 5/14;
  • 26576, 1,812, MRO, Flicka USA 13-16TFH, Four Bears, 16K first month; t4/14; cum 37K 5/14;
  • 26857, drl, Hess, EN-State D-154-93-2635H-7, Robinson Lake, no production data,
  • 26978, drl, Gadeco, Alexander 26-35 4H, Epping, no production data,
  • 27063, drl, Hess, EN-KMJ Uran-154-93-2734H-9, Robinson Lake, no production data,
25011, see above, WPX, FBIR 13-24HZ, Van Hook:

DateOil RunsMCF Sold

Active rigs:

Active Rigs189192215172129

Cut flaring or else:
  • North Dakota regulators tell crude oil explorers to cut the flaring of natural gas or face limits on the amount of oil they can pump from the Bakken shale formation.
  • The state's crude output has surpassed 1M bbl/day, behind only Texas, but while Texas captures all but 1% of the natural gas produced, North Dakota burns 30% of its output as waste as the rate of production has outstripped companies' ability to capture gas through pipeline connections at the source.
  • The North Dakota Industrial Commission is aiming for a 26% reduction in gas flaring statewide by Q4 of this year and another 23% by Q1 2015.
Seven (7) new permits --
  • Operators: Hess (4), OXY USA (3)
  • Fields: Hawkeye (McKenzie), Cabernet (Dunn), Fayette (Dunn)
  • Comments:
Wells coming off the confidential list were posted earlier; see sidebar at the right.


Yellow River, Christie

Trenton Diesel Refinery Update: 20,000 BOPD Crude Oil Refinery; Diesel Fuel; To Commence Operations In 2016 -- A Huge Story -- Perhaps Biggest Story Of The Week

A reader sent me this update on the "Trenton Diesel Refinery." Readers might recognize "Calumet" which is also involved with the diesel refinery west of Dickinson, a joint venture with MDU.

The source of the information below is from a SEC filing at this source, a PDF. The data of the SEC filing is shown to be June 17, 2014.

This seems to be the key paragraphs (with some editing for easier reading):
Entry into a Material Definitive Agreement. Dakota Oil Processing, LLC (DOP) is in the process of developing a 20,000 barrel per day crude oil diesel refinery in Trenton, North Dakota (the “Trenton Refinery”).

The Trenton Refinery is expected to commence operations in 2016.

Calumet Lubricants Co., Limited Partnership has entered into various agreements with DOP to govern the relationships of the parties thereto with respect to the Trenton Refinery.

Crude Oil Purchase Agreement:  On June 17, 2014, Calumet entered into a Crude Oil Purchase Agreement with DOP. Calumet has agreed to sell and deliver to DOP, and DOP has agreed to purchase from Calumet, 20,000 barrels of crude oil per day at a price equal to the amount per barrel ....

The Crude Oil Purchase Agreement is effective as of June 17, 2014, with deliveries commencing prior to the date that the Trenton Refinery commences commercial operations.

The Crude Oil Purchase Agreement has an initial term of five years, will automatically renew for successive two-year periods and may be terminated by either party on written notice delivered at least 120 days prior to the end of the then-current term.

A 3% Contraction In The Economy During A RECOVERY Is Now Referred To As A "Weather-Induced Slump" -- Reuters; 2014 GDP Estimates Now SLASHED -- Reuters

Collapse ... Slashed ... perhaps words one does not like to see in business reports (unless perhaps the slashing has to do with cost cutting). 

Don sent me the link. Reuters is reporting:
The reports were the latest to suggest the economy rebounded in the second quarter after a weather-induced slump earlier in the year. However, another report showing construction spending barely rose in May indicated that second-quarter growth could fall short of expectations.
Economic growth contracted at a 2.9 percent annual pace in the first quarter, also weighed down by a slow pace of inventory accumulation by businesses.
Economists last week slashed their second-quarter growth estimates after weak consumer spending in May. Growth forecasts are now running as high as a 3.5 percent pace and as low as a 2.1 percent rate.
Construction spending edged up 0.1 percent to an annual rate of $956.1 billion, the Commerce Department reported. However, April's data was revised up to show a 0.8 percent rise in construction spending, taking some of the sting out of the report.
A "weather-induced slump"? The economy contracted almost 3% in 1Q14, the worst setback in five years (and one trillion dollars) into this recovery. And now it's described as a "slump"? Earlier Reuters called it a collapse of the economy. But now it's a slump. The business reports are getting as biased as the jobs reports. Both appear to be press releases issued by the White House. One could probably find copies of them on Lois Lerner's hard drive if her hard drive could be found.

I made these comments before I read the article (just saw the headline):
I alluded to this in my meandering musings last night at the blog: Wall Street is doing very, very well.* Main Street not doing well at all. The 800-pound gorilla in the room is ObamaCare, and now with two years of executive orders (his words, not mine) facing us, the uncertainty factor is overwhelming. Folks are waiting to see how the mid-term elections turn out. I assume 2Q14 GDP will be superb based on analysts' comments, but I wouldn't be surprised if 2Q14 GDP fails to impress.
After one of the coldest winters ever that resulted in the collapse of the economy in the first quarter (their words, not mine), one would have expected construction to have taken off like gangbusters this spring. But there it was: up a measly 0.1 percent for the month of May. At best 0.1 percent is a rounding error, not statistically significant, and not reproducible (we will see that when the revised number comes out next month).

By the way, for the record, I don't buy that weather story about being responsible for the contraction. The US has been through much worse -- weather, war, and hand-wringing, and the economy muddled through. Winter in January-February-March does not explain a 3% contraction DURING a recovery.

*Wall Street is doing very well. From Yahoo!Finance, 11:04 a.m. CDT, July 1, 2014:
U.S. stocks have started the third quarter with a bang. The S&P 500 and the Dow industrials are challenging resistance at all-time highs, while the Nasdaq Composite is at its best level since April 2000.

The New Buzz? Fertilizer Plants In North Dakota -- Random Update On New Fertilizer Plant In Grand Forks Area

Water authorizations obtained, December 7, 2014: project is now estimated at $1.85 billion.

The Twin Cities is reporting, June 28, 2014:
Backers of a proposed $1.7 billion nitrogen fertilizer plant in Grand Forks, N.D., have reached a fundraising goal. Northern Plains Nitrogen has topped its seed capital target of $3 million, says Darin Anderson, a Valley City, ND, farmer and Northern Plains Nitrogen's president and managing partner.
The seed capital raised will be spent on a pre-FEED (front-end engineering and design) study, the results of which will be shown to potential investors, he says.
The Grand Forks Herald is reporting, June 2, 2014:
A new study says North Dakota would enjoy some major advantages if it were to produce fertilizer, which could happen as early as 2017 at a proposed plant near Grand Forks.
An earlier Prairie Business story, August 28, 2013:
A group planning a nitrogen fertilizer plant near Grand Forks said Tuesday they are in the process of purchasing a site and are meeting other goals for the $1.5 billion project.

In May, the group announced its plans for a fertilizer plant to produce a variety of nitrogen fertilizer products, with a planned construction start in 2015.

For Investors Only; Market Surges First Day Of New Quarter, July 1, 2014


Later, 6:34 p.m. CDT, after the market closed. How did the market do? First back to CHK/SSE, updated see below.

Trading at new 52-week highs: BHI, BK, Baytex, BKH, CRR, CFN, CHK, CLR, EEP, ETP, EPD, ERF, HK, HAL, HP, HES, MRO, NBR, NFX, NOV, OKE, QEP, SLB.

Williams Cos completes acquisition of GP and LP interests in Access Midstream Partners; reiterates proposal to merge partnerships:
  • As previously announced, Williams is proposing the merger of Williams Partners L.P. with and into Access Midstream Partners, L.P. Williams is proposing that the entities merge in a unit-for-unit exchange at a ratio of 0.85 Access Midstream Partners units per Williams Partners unit. 
  • Assuming the merger is completed in 2014, the merged MLP is expected to have a 2015 distribution increase of at least 25 percent above Access Midstream Partners' current guidance of $2.79 per unit, which represents an increase of more than 40 percent above current 2014 distribution guidance. The merged partnership is expected to have a best-in-class distribution growth rate of 10 to 12 percent annually through 2017, strong coverage and strong investment-grade ratings. Distribution coverage is estimated to be approximately 1.2x in 2015 and at or above 1.1x through 2017.
  • Williams plans to increase its third-quarter 2014 dividend 32 percent to $0.56, or $2.24 on an annualized basis. In addition to the third-quarter 2014 dividend increase announced June 15, Williams also previously provided new dividend-growth guidance of approximately 15 percent annually - from the higher third-quarter 2014 base - through 2017 with planned dividends of approximately $1.96 in 2014, $2.46 in 2015, $2.82 in 2016, and $3.25 in 2017.
Original Post
Chrysler smashes analysts' forecasts. Business Insider is reporting:
Chysler saw its June U.S. auto sales jumped 9.2%, beating expectations for a 5.9% gain. This is the company's 51st straight month of growth.
Throughout the day, the world's big auto makers will be announcing their June sales results.
Analysts estimate June sales slipped to an annualized rate of 16.4 million, down from 16.7 in May.
Along with record sales of US homes (pending sales, I guess), it looks like Americans are shaking off the coldest winter in decades, you know, the one we just had in the middle of global warming.

As discussed last night in the blog, this morning the market is surging, already up nearly 100 points in early trading. WTI crude oil is up a whopping 0.5%. Whopping because the word on the street was that the price of oil should start falling now that events in Iraq are being discounted.

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

Yes, as expected, CHK is trading down almost 6% but that's entirely due to the spin-off. I don't see SSE over at Yahoo!Finance, but it does show up at GoogleFinance. SSE is up over one percent and currently trading at $24.22.
So, let's see.

  • 1,000 shares of CHK yesterday at $31.49 (52-week high): $31,490.
[Updated] Today, at the close,
  • 1,000 shares of CHK at $29.224: $29,240
  • 70 shares of SSE at $25.06: $1,754
  • Total: $30,994

July 1, 2014 -- First Day Of Third Quarter -- Chesapeake's Spinoff Starts Trading Today; Slawson Exercises Option To Acquire 50% Interest In SSN Well In Stockyard Creek

Active rigs:

Active Rigs188192215172129

RBN Energy: the US southeast -- epicenter of US gas industry. This is really an incredible story. Of course, the Obama administration will tell them they did not build that, but considering the federal obstacles put in place, it is quite remarkable what private enterprise and free market capitalism is doing in Louisiana. RBN Energy has another great series, this time on the transformation of the natural gas industry in the southeast.
With U.S. natural gas production continuing to hit all-time records, the big question for the gas market is demand. Where is all that gas going to go?  Well, we are pretty sure that most of the supply growth will be absorbed by the triad of new gas fired power generation, industrial demand and exports.   The funny thing is that most of the volumes associated with these demand sources are located in one region – the southeastern U.S., with a heavy concentration of demand in Louisiana, home of the Henry Hub.  This shift is turning what was a major supply area into an epicenter of natural gas demand, with the need for extensive new transportation paths into, rather than out of, the region.  Today, we explore the implications of this transformation.
Historically Louisiana has had many roles in the natural gas market. It has long been a supply state, with significant onshore and offshore production.  Cheap natural gas encouraged the development of major petrochemical and other industries along the Mississippi River corridor, across the Gulf Coast region and elsewhere.  And Louisiana has functioned as a conduit, funneling gas from Texas, New Mexico and other states to pipelines feeding the Southeast and Northeast. 
But a few decades back, all that market activity ground down to a crawl. Louisiana onshore and offshore production started a long, slow decline in the 1970s.  Regulatory and supply problems hit the market and prices started to increase.  Many of those industrial facilities closed up shop and moved overseas.  Increasingly Louisiana’s gas market role became more focused on that of a conduit, and a major pricing point with the selection of the Henry Hub as the delivery point for the NYMEX futures contract.  In the mid 2000s there was a brief spurt of new production growth from the Haynesville in Northwest Louisiana, one of the highest profile early shale plays.  But Haynesville’s dry gas and expensive wells eventually fell victim to low gas prices, and those production volumes started to decline as well.
Chesapeake's spin-off begins trading under ticker symbol SSE today. Today, all things being equal, CHK should open lower.  Those holding CHK will receive one share of SSE (Seventy Seven Energy) for every 14 shares of CHK.

Update on NRG, a familiar story we are seeing in the market this year:
NRG Yield completed its previously announced acquisition of three Right of First Offer assets from NRG Energy for $349 mln in total cash consideration; raises FY14 Pro-Forma Adjusted EBITDA guidance:
  • As a result of the completed acquisition, NRG Yield is raising its full-year 2014 Pro-Forma Adjusted EBITDA guidance to $410 mln, from $292 mln, and Cash Available for Distribution guidance to $140 mln, from $115 mln. The company is also reaffirming 2nd quarter Adjusted EBITDA guidance of $75 mln and CAFD guidance of $22 mln.
  • Primarily driven by positive year to date results and the closing of the first ROFO transactions, the Company is now targeting an annualized dividend of $1.50 per share by the 4th quarter of 2014, which represents a 25% increase to NRG Yield's initial annualized dividend of $1.20 per share
  • Further, with a pipeline of nearly 2.1 GW of assets identified by NRG as being eligible for drop-down and giving effect to the pending acquisition of the 947 MW Alta Wind portfolio, NRG Yield is also raising its 5-year target dividend per share compound annual growth rate to 15-18% from 10-15%.
Update on Samson Oil & Gas:
Samson Oil & Gas provides weekly operations update: Co announces an update on the infill development plan for North Stockyard is to drill 8 middle Bakken wells and 8 Three Forks wells.

  • Slawson has exercised its option to acquire 50% of Samson's interest in the Billabong well following the successful conclusion to the drill pipe recovery workover
  • Frontier Rig 24 has drilled to kick off point of 10,813 feet and is tripping out of the hole to pick up the curve drilling assembly on the Bootleg 7-14-15TFH well. The rig will then skid to Bootleg 6-14-15TFH well to drill the surface and intermediate holes. 
  • Drilling operations have been completed in the Bluff 1-11 well. Preliminary planning for two cased hole tests has been completed and will be presented to the working interest owners for their consideration.
Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or anything you think you might have read here. 

Before we get to the top story in the WSJ, just a reminder with regard to ObamaCare:
The law doesn’t contain specific language about which denominations or religions would qualify for an exemption, but it does specify that individuals belonging to religious groups for exemptions if they have religious beliefs opposed to health insurance or medical treatment. These kinds of exemptions exist for other federal programs, and there are rules for determining who qualifies.
Based on who has obtained exemptions from other federal programs like Medicare and Social Security, it looks like the Amish would qualify, as would Mennonites.
The Wall Street Journal

US Supreme Court makes religious exception to ObamaCare.

Mr Obama to bolster border security. Helloooo! The horse is already out of the barn. Whatever. Apparently immigration reform known as "open borders" not working so well. My hunch is we will see a US High Commissioner on Refugees named in the not-so-distant future, probably after the news cycle ends on a Friday night in the dog days of August. The last thing the administration needs to see is the video of multiple human tsunamis flooding the borders of a) Texas, b) New Mexico, and c) Arizona. By the way, that's why the feds are trucking, busing, and flying these new immigrants to New York state, California, and Minnesota. No doubt any immigrant placed in a "detention" camp will be eligible for reparations once the paperwork for citizenship is started. Just to be clear: none of this was in The Wall Street Journal, except that bit on Mr Obama plans to bolster border security.

US pending home sales surge 6.1%. A gauge of pending home sales jumped in May, the latest evidence that the US housing recovery began to regain its footing this spring. I guess all those college graduates are finding jobs and buying homes. Whatever.

California cities cracking down on water use. Businesses such as golf courses and lawn care are seeing revenue dry up due to water restrictions.

Setting up a patchwork of fracking-free zones, New York state's highest court said communities can ban fracking.

The next man to be thrown under the VA bus? A former CEO of Procter & Gamble to be named next secretary of the Department of Veterans Affairs.

US Supreme Court: some workers can avoid union fees. This was a narrow ruling but it opened the door to more litigation.

GM recalls 8.5 million more cars. Previously reported, but the number keeps changing; it started at 8.2, then went to 8.4 last night; now up to 8.5 million.

North Dakota's latest fracking opportunity: managing flaring. A huge opportunity for entrepreneurs and investors.

Devon will sell some non-core assets to Linn Energy for $2.3 billion as the company continues to shift from gas to oil.
The Los Angeles Times

I missed a great screenshot. Earlier this morning, the top story was the "unrest" in Iraq. A sub-headine bullet suggested that civil war could break out in Iraq. Say what? I almost had another nominee for the 2014 Geico Rock Award, but interestingly enough, the LA Times has removed that sub-headline text. I guess the managing editor pointed out to the writer that, yes, indeed, there was a civil war already going on in Iraq. The Iraq story is still the headline story but the focus is on Baghdad's Shiite Muslim milita's re-emergence which is "giving US pause."

Many California community college students need four years to graduate. And I assume that's after many have taken an extra year of pre-college (remedial) studies to qualify for admission.

Hillary Rodham Clinton calls Hobby Lobby ruling a "slippery slope." Not providing increased security for our Libyan ambassador after his pleas for more protection was probably a "slippery slope" also. But what does it matter (her words, not mine)?

Oh, here it is. I was wrong. Yes, we have another nominee for the 2014 Geico Rock Award. Shasahnk Bengali is reporting that "nearly 60% of Iraqis killed in June are civilians. The fierce Sunni (the peacful ones) Muslim insurgency that led to the deadly month threatens to plunge Iraq back into civil war." I honestly thought that's what we had in Iraq, a civil war, although I have to agree, it's more akin to an uncivil war. And to think this all began with George W. Bush the crusades back in the 12th century.

The World Has 53.3 Years Of Oil Left -- BP

I missed this story over the weekend, posted in USA Today, a short note by Motley Fool on this year's annual BP oil and gas review. This has all been reported previously and/or linked previously;
BP has provided an intriguing update to its global oil reserves estimate in the company's latest yearly review of energy statistics. BP raised its reserve estimate by 1.1% to 1,687.9 billion barrels, which is enough oil to last the world 53.3 years at the current production rates. However, there's likely a lot more oil left in the tank beyond what BP sees today.

A good portion of the growth in global oil reserves in BP's report comes from the United States. According to BP, the U.S. has 44.2 billion barrels of oil reserves, which is 26% higher than it previously thought. It's also quite a bit more optimistic than the U.S. Energy Information Administration, which recently increased its estimate to 33.4 billion barrels of reserves, or 15% more than previously thought.
The overall cause for that surge in oil reserves is that America's shale oil plays -- the Bakken, Eagle Ford and Permian Basin -- are now being unlocked through horizontal drilling technology.
Despite the big boost in reserves over the past year, there appears to be much more oil potential in each shale play, with the Permian Basin really standing out.
As that slide points out, Pioneer Natural Resources now estimates the Spraberry/Wolfcamp shale formations in the Permian Basin contain 75 billion barrels of recoverable oil and gas. That number is actually a major upward revision from last year when Pioneer estimated the two formations held 50 billion barrels of recoverable oil and gas.
If, however, 8% of a trillion-bbl reservoir can be recovered in the Bakken, that's 80 billion bbls of recoverable oil in the Bakken. I think the most optimistic number is about 45 billion bbls from the Bakken. 

On another note, think about this: 53.3 years of oil left at the current rate of consumption and current reserve estimates. The large increase in recoverable reserve estimates is due to fracking. Something tells me fracking is not going to go away.