Monday, July 14, 2014

Monday, July 14, 2014; New Production Record Set In North Dakota; Twelve (12) New Permits; Three Of Six New Wells To DRL Status

North Dakota sets a new production record. Production up about 4% month-over-month.

The Real Shale Revolution, John Kemp, Reuters. A historical review of horizontal drilling.
Fracking has been in widespread use for more than 50 years.
U.S. companies began to experiment with using fracturing to release coal seam gas in the 1940s. "The basic principle behind underground coal gasification seeks to find an economically feasible process of burning coal seams that are so situated that they do not lend themselves to being mined profitably," the New York Times explained in 1954 ("New tests made to gasify coal", Oct. 31, 1954).
Wells coming off confidential list Tuesday:
  • 25492, drl, QEP, Johnson 1-4-9BH, Grail, no production data,
  • 25637, 186, American Eagle, Harvard State 16-36S-164-101, Colgan, t3/14; cum 11K 5/14;
  • 26325, 343, EOG, Austin 42-1708H, Parshall, 39 stages; 12 million lbs sand, t2/14; cum 18K 5/14;
  • 26517, 938, WPX, Independence 2-35HY, Mandaree, t5/14; cum 9K 5/14;
  • 26840, drl, Hess, HA-Thompson-152-95-2017H-6, Hawkeye, no production data, 
  • 27268, drl, BR, CCU Red River 34-9TFH, Corral Creek, no production data,
Comment: the Austin 42 well (#26325) not particularly impressive considering it was fracked with 12 million lbs of sand. 

Active rigs:

Active Rigs192186215178133

Twelve (12) new permits --
  • Operators: Oasis (4), Hess (4), Emerald (2), Enduro, Whiting
  • Fields: Alkali Creek (Mountrail), Robinson Lake, (Mountrail), Heart River (Stark), Stoneview (Divide), Ray (Williams)
  • Comments:
Wells coming off confidential list over past three days posted earlier; see sidebar at the right.

Six (6) producing wells completed:
  • 24796, 1,076, Slawson, Blackdog 3-13-14H, Stockyard Creek, t4/14; cum 59K 5/14;
  • 26455, 477, XTO, Broderson31X-27C, Siverston, t5/14; cum --
  • 26909, 328, Triangle, Hagen 149-100-9-4-6H, Ellsworth, t6/14; cum 9K 5/14;
  • 27312, 553, Slawson, Nightmaker 4-8-17TFH, Big Bend, t3/14; cum 18K 5/14;
  • 27377, 487, Triangle, Monson 152-102-35-26-4H, Elk, t6/14; cum --
  • 27378, 852, Triangle, Monson 152-102-35-26-3H, Elk, t6/14; cum --  
Part-Time America

A recurring theme on the blog has been the effect of ObamaCare on the economy. It appears The Atlantic is getting a bit "defensive."


Global Warming

The (London) Telegraph: people who worry about climate change use more electricity than deniers.

IceAgeNow is reporting: Yesterday’s high of 15.7 degrees Celsius was the coldest July 13 in Winnipeg since 1884.

Whatever you want to call it and whether you are a warmist or a denier, unseasonably chilly air is headed for parts of the northern and northeastern U.S at the height of summer this week, according to The Washington Post.

Gonna be cold in Ontario in July. Local2Canada is reporting:
Many of the cold weather outbreaks this past winter were attributed to something called a Polar Vortex. This is where a flow pattern establishes in the upper atmosphere that draws cold arctic air down across the Canadian Prairies and down into the American mid-west and the Great Lakes region. The summer-time version of the Polar Vortex is about to arrive this week, bringing unusually cold air to the Great Lakes and much of central North America.

Climatologically the middle part of July is usually the warmest time of year in Northern Ontario. Temperatures typically climb into the mid 20s during the warmest time of the day, while overnight lows remain above +10°C.

So this Polar Vortex couldn’t arrive at a worse time. Instead of warm summer-like conditions it will feel more like fall. Temperatures are likely to be 5-10°C below normal. This will keep daytime highs buried in the teens with overnight lows in the single digits. This cold air is expected to move as far south as Texas where record low temperatures could be broken.

When you average the temperatures we have seen for the first 9 days of July we are already 3°C below normal. Adding on this upcoming cold outbreak will likely cause the entire month to end up below average. This would mean that six of the first seven months of 2014 have brought below normal temperatures in Northern Ontario - with only June being near normal.
By the way, it was unseasonably cold today at Huntington Beach (California). Used to hot Texas weather, I was wearing my hoodie all day at the beach.

Director's Cut; Data For May, 2014; Another New Production Record; Production Increased By Almost 4% Month-Over-Month

The July Director's Cut is out.

Bakken oil hype

  • May, 2014: 1,039,635 bopd (preliminary; new all-time high)
  • April, 2014: 1,003,256 bopd (revised; first month to go over 1 million bopd) 
  • April, 2014: 1,001,149 bopd (original)
  • delta: 36,379 bopd
  • 36,379 / 1,003,256 = 3.6% (fairly significant)

Disclaimer: this update is always done in haste; typographical errors are likely. This is for my use only. Others should go to the source

Producing wells:
May, 2014:  10,892 (new all-time high)
April, 2014: 10,665
  • May, 2014: 234
  • April, 2014: 233
  • All-time high was 370 in 10/2012
  • Today, 2014: $84.50
  • June, 2014: $90.02
  • May, 2014: $88.31
  • April, 2014: $85.68
  • March, 2014: $86.72
  • February, 2014: $86.89 
Rig count:
  • Today: 191 (all time high was 218 on 5/29/2012)
  • June, 2014: 190
  • May, 2014: 189
  • April, 2014: 188
  • March, 2014: 193
Director's comments:
Number of wells waiting completion: 610, pretty much unchanged. US natural gas storage is now 28% below the five-year average indicating increasing prices in the foreseeable future. The percentage of natural gas flared dropped to 28% as the new Tioga gas plant increased to full capacity. The historical high was 36% in 09/2011.

Update On Williston Crossing -- July 14, 2014

A huge apology to a reader: I apologize for taking so long to post this article. No excuses. This is an incredible article on new development in Williston, heart of the Bakken.

International Business Times is reporting:
Terry Olin plans to change that. As the cofounder of Switzerland-based investment company Stropiq LLP and a North Dakota State University alum, Olin is building a $500 million real estate project in the center of town. Named Williston Crossing, the center will carve out 1 million square feet for retail space, entertainment, a hotel, an office complex and multifamily buildings. Already, Stropiq is polishing a 93-unit apartment complex in the city whose apartments will be available to rent in August.
Then, follows, a must-read interview.

Some data points:
  • high-end, but not luxury apartments
  • ND native; huge successes in Russia over past 20 years
  • pleased with anchor stores that will open; not allowed to name them
  • mentions the $73 million rec center north Williston
Bottom line:
We might do something else in the Bakken. This is a once-in-a-lifetime opportunity. I’m not sure that’s even putting it quite strong enough. There’s a monumental population shift, and the technology has created an industry that wasn’t here before. The Bakken is the center of that. Today, we have the only place in the U.S. and maybe in the developed world where a population of 50,000 is a minimum one hour away from a Target or similar retail. We’re in the center of 150,000 people who have to drive hours to get to retail. There’s so much to be done. We really don’t need to look at other markets. We just hope we get to know our own. 

For Investors Only -- July 14, 2014; For Second Consecutive Year, ND Is #1 In Beer Consumption (Per Capita); Early Morning Trading On A Big Day For Bakken Investors


Later, 10:20 p.m. PDT: trading at new highs today -- BAX, KOG, WLL.

Original Post

The big story today, of course, is the news that Whiting will buy KOG. A reader with mineral rights asked my thoughts on what this might mean for mineral owners. My response to that question and what it might mean to 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.

Some random thoughts:
  • I won't hazard a guess how it will affect investors (shares in either company). I wouldn't be surprised if someone else (XOM, CLR) comes in with a higher bid. WLL is NOT paying a premium for KOG based on share prices of either company on Friday. [That will change if WLL's share price appreciates, which appears to be happening as we speak -- up 6% in early morning trading on first trading day after the announcement.]
  • I think the consensus for many years was that KOG was setting itself up to be sold. It was just a matter of time. Mineral acres in the Bakken seemed to have plateaued in value; perhaps KOG saw that, and felt this was "as good as it was going to get." 
  • Whiting is more interesting. I also thought there were reports over the past two years that WLL would accept a buyout if there was a suitor. The only buyers able to buy a Whiting would have been one of the majors (XOM, COP, CVX) and generally the majors don't want to be nuisanced by small players. Perhaps WLL realized it was too small for XOM, COP, CVX, but too big for anyone else. So, it had to acquire significantly more acreage, making it a much bigger company, to capture the attn of XOM, COP, or CVX. Whiting buying KOG seems to have surprised everyone. It would not have been a surprise had it been CLR buying KOG, on the other hand; not a surprise, but simply audacious.
  • The Whiting CEO, James Volker, has been around for a long, long time. He is 67 years old; has been with the company 14 years, I believe. Was this his swan song? One last deal before he retired? 
  • For mineral owners, it will guarantee deep pockets for continued drilling; whether or not much changes in the big scheme of things? I don't think so. I am probably way wrong on this, but I get the feeling that North Dakota is willing to let oil production plateau for awhile, while they put in the infrastructure: to reduce flaring, improve pipelines, manage the negative publicity surrounding CBR, etc.
Don suggested, and I had forgotten, it was getting to the point, in the eyes of some, that KOG wold soon have to raise more money to drill at the rate it projected. Issuing more shares was not a good option. KOG has done that, almost once too often. Don is much more savvy than I on these things, but I assume this was only one piece of all that went into this deal between WLL and KOG.

It will be interesting to see what Zeits, Filloon, others have to say.

Early Morning Trading

WLL is surging on the announcement: up 6% in early morning trading.

KOG appears to be tracking WLL. Each KOG share will be worth 0.177 share of WLL when the deal closes by the end of the year.

How is this announcement affecting other Bakken players:
  • WLL: up 6.2%
  • KOG: up 4.6%
  • TPLM: up 4.2%
  • HES: up 1%
  • CLR: down slightly; flat
  • OAS: up 0.5%
  • AMZG: up 3.3%
  • HK: up 2.2%
  • MDU: down 0.7%
Remember: some of these companies have had significant pullbacks over the past week or so.

AAPL is surging -- hits a new high, $96.67. Remember, this follows a 7-1 split, so the $1.42 jump today represents almost a $10 jump today. I still think a lot of this has to do with a lot of shorts being squeezed. Whatever it is, it's nice for those holding AAPL (I don't invest or trade in AAPL; never have, never will. I simply missed this one twenty years ago. Memo to self: place sad face here.)

UNP is up almost 1% trading near its all-time high.

BRK-B (another railroad company) is up about 0.3% -- almost a new high.

I don't follow banks, but the headlines say banks are surging due to "Citi deal." I don't follow that. BK is up about 0.3% and trading near all-time highs.

Other shale players:
  • SD: up 0.3%; seems to be treading in a narrow trading range
  • EOG: up about 1.2%; near it's all-time high
Pipelines (remember, the market is surging today):
  • EPD: down about 0.4%
  • EEP: down about 0.1%
  • ENB: up about 0.45%
  • OKE: up about 0.3%
  • KMI: up over 1.2%
For Beer Drinkers Only

The Dickinson Press is reporting:
North Dakota is the No. 1 state for beer consumption per capita, a recent report shows. Residents drank 43.3 gallons of beer on average in 2013, topping the ranking for the second straight year.
For Floor Traders Only

I won't be adding this to my "Big Stories" site (at least not yet) but it begs the question: is this part of the tectonic change I perceive in America -- the "traditional" middle class and upper middle class being squeezed?

This is the top story over at Yahoo!Finance at the moment:
UBS AG's trading floor in Stamford, CT, once teemed with traders occupying a space equal to two football fields. The Guinness World Records recognized it as the biggest such facility on the planet. And the Swiss bank used it to showcase its Wall Street credentials.
Stu Taylor, a former UBS managing director in trading who now runs trading-technology company Algomi Ltd., remembers when guests were brought around the gallery regularly. "It was very much a showpiece," he said.
Today, there are virtually no traders shouting into their phones or staring at terminals. UBS's cavernous floor is taken up mostly by back-office, legal and technology staffers, according to people familiar with the bank.
A spokeswoman for UBS said the trading floor was built for 1,400 traders, but wouldn't disclose the number of employees at the facility.
Out here in California, on the surface, things look really, really good. But just beneath the surface, I'm not convinced everything is so hunkey-dory. Two things that one can't fail to notice almost immediately: the number of cars parked in driveways and on the streets in residential neighborhoods; and the price of gasoline, now pretty much averaging $5.00/gallon. Yes, I know, it's probably closer to $4.39 or $4.59 for the least expensive grade, but for all practical purposes, we're looking at $5-gasoline. In some locations is it well above $5.00. I mentioned that the other day: $5.29/gallon for unleaded regular, 87-octane-rated at Needles. Our younger daughter and her husband drove in last night from Portland, OR, and mentioned they saw highest-price gasoline ever somewhere along I-5 in the Sacramento area. They didn't mention the price but I assume it was about $5.50/gallon.

Back to the cars in driveways and on the streets. In middle class neighborhoods, houses were built for two-car households; now it appears it is not uncommon to see three-, four-, and five-car households. These are all sedans, pick-ups, SUVs, not recreational off-road vehicles. Local folks probably noticed this some time ago, but are now finally talking about it: multiple generations of same family living in three-bedroom homes. Across the street is a typical example, noted by many: grandparents, young adult children (both working), and elementary school children living in a small three-bedroom house, probably 1,500 square feet. Four cars. My brother-in-law lives in middle class neighborhood where townhouses are now going for $750,000 -- in Williston they would be $350,000 houses; in Williston, before the boom, they would have been $100,000 houses. His house and his neighbor's house share one wall. The neighbors are renting. The landlord is probably unaware of living situation: the landlord thinks a nice young couple moved in. In fact, there are three families living in the house: the parents and two of their adult children, both married. The parents and one son/wife life in the house; the second son/wife live in the garage. There are eight adults altogether in the house. The homeowners' association allows only two cars per townhouse to be parked in the complex. It took six months to a year to finally get the family to play by the rules; they now park six of their eight cars on a street outside the complex. A very, very nice family; all/most work at Disneyland (security guards, operating rides, etc; none professional as far as we know). No judgement. Simply a new phenomenon.

Earlier this month, my brother-in-law/wife took a vacation with close family friends to Yosemite Park. The family had two college students who both live at home because they cannot afford the cost of the dorm experience; at Yosemite, no dining out -- bought groceries to make meals in room, etc., again to save costs. Everything suggests the middle class / upper middle class are getting pinched.

On the surface things look really, really good out here, but one just gets the feeling it's not all it seems.

One thing to consider: city governments depend on property taxes. Three families in one home: three families using city services, roads, and schools. One homeowner paying property taxes. Just an observation.

And that $5.00/gasoline: that takes a lot of money out of retailers' pockets when folks are paying $50 - $100 at the pump each time they fill up. 

Williston Wire Updates: Williston Economic Director Tom Rolfstad To Retire; Home Depot Opens In Williston;

I am just relieved Tom Rolfstad survived the "Bakken" hurricane and can now retire. A well-deserved congratulations. A toast that he will have 39 wonderful years in Hawaii.

Quarterly Sales Tax Results For Major Cities In North Dakota
Williston Again Leads The State

1Q14 sales tax results for North Dakota:
  • Williston: $779, 088,093
  • Fargo: $562,591,475
  • Dickinson: $309,758,391
  • no other ND city over $400,000
1Q13 sales tax results for North Dakota:
  • Williston:  $790,192,261
  • Fargo: $543,190,714
  • no other city over $400,000
1Q12 sales tax results for North Dakota:
  • Williston: $791,005,325
  • Fargo: 541,856,567
  • Williston: $447,058,253
  • Fargo: $480,906,616
  • Williston: $215,924,254
  • Fargo: $460,281,371
The record quarter for Williston:
  • 3Q12: $952,804,340

Williams County leads the state in average annual salary: $78,390
  • North Dakota average annual salary: $48,000
  • National average annual salary: $49,000
Home Depot opens in Williston.

Cornerstone Development (southern California-based) celebrated a ground breaking ceremony at the Pheasant Crossing Subdivision, near 42nd Street and University Avenue: 57 single family homes; 36 twin sites, and 144 apartment units.

New apartment unit opens, Eagle Crest Apartment Homes: 168 units; 3710 26th Street West in Williston.

Monday, July 14, 2014 -- More On Whiting-KOG Deal; ONEOK To Build Seventh NG Plant In North Dakota

North Dakota approves another ONEOK natural gas gathering and processing plant. The Bismarck Tribune is reporting:
The North Dakota Public Service Commission unanimously approved the proposed 200 million cubic-feet-per-day Lonesome Creek natural gas processing plant.
Some data points:
  • $280 million
  • the company's sixth such plant since 2010
  • the company's seventh plant in the state
  • 300 - 400 construction jobs
  • permanent jobs: 250
  • will require 50 megawatts to operate
Commissioners worried about electricity base in North Dakota:
Commissioner Randy Christmann expressed concern over the spiking demand for additional electrical power capacity in the state — especially in the oil patch.
“It just frustrates me that no base load power generation applications are coming in,” Christmann said.
He said he’s concerned about a growing reliance on wind power until more capacity is created through traditional energy sources. He has said on numerous occasions that he believes over-reliance on wind energy could create issues with reliability on the grid and increased costs to consumers. [The "road to Germany."]

Fedorchak noted that the grid does currently have capacity for the Lonesome Creek plant and will be serviced by a new substation to be built nearby.

Active rigs:

Active Rigs191186215178133
Just over a week ago (July 3) Reuters reported that Enterprise Product Partners sold their first 400 MBbl export cargo of condensate to Japanese trader Mitsui. That export follows private letters from the Bureau of Industry and Security (BIS) to Enterprise and Pioneer that represent a change in the government’s interpretation of 40-year-old legislation banning the export of unprocessed crude and condensate from the US. The apparent relaxation of the rules could open up export opportunities for shale producers – especially in the wet gas / condensate window of the Eagle Ford in South Texas. Today in the first of a two part series we describe existing stabilizer capacity and export routes to market in the Eagle Ford.
Three weeks ago we posted a blog the day after news broke that the US Department of Commerce BIS issued private letters to Enterprise and Pioneer granting them permission to export lease condensate from their Eagle Ford production.
Since the private letters were revealed, few other details have emerged, except for confirmation from the two companies concerned that the BIS has accepted their assertion that passing condensate through their wellhead stabilization units represents sufficient processing for the export restrictions to no longer apply.
This determination that stabilization is “processing-enough” to allow for exports represents a change to the previously accepted market assumption that condensate needed to be processed into component fractions such as naphtha and NGLs – for example in a condensate splitter – in order to get past the export regulations. 
The Wall Street Journal

Whiting to buy KOG.
Whiting Petroleum Corp. said it would buy Kodiak Oil & Gas Corp. for $3.8 billion in stock plus the assumption of $2.2 billion in debt, creating a new top producer in the Bakken Shale and Three Forks formations.
The two companies together produced 107,000 barrels a day of oil equivalent in North Dakota and Montana in the first quarter. That compares with Continental Resources Inc. CLR -2.18% 's output of around 97,500 barrels of oil equivalent a day in the region.  
Global turmoil.
Sen. John McCain in a CNN interview Sunday, said the world is "in greater turmoil than at any time in my lifetime." Many of the seeds of instability in the Middle East have taken root since the upheaval that followed the Sept. 11 terror attacks. At the same time, post-Cold War shifts are continuing as superpower influence has receded.

The breadth of global instability now unfolding hasn't been seen since the late 1970s, U.S. security strategists say, when the Soviet Union invaded Afghanistan, revolutionary Islamists took power in Iran, and Southeast Asia was reeling in the wake of the U.S. exit from Vietnam.

In the past month alone, the U.S. has faced twin civil wars in Iraq and Syria, renewed fighting between Israel and the Palestinians, an electoral crisis in Afghanistan and ethnic strife on the edge of Russia, in Ukraine.
The article did not mention the president's OPEN BORDERS policy which could create significant turmoil in Mexico before this is all over.

Flood of child migrants spurs local backlash. The federal government is scrambling to find temporary housing for thousands of children streaming across the Mexican border, asking states for help as an increasing number of governors and local officials protest efforts to send the migrants to their communities. 60,000 children, some as young as 4 and 5 years of age, arrive almost "simultaneously" during the first week of July, crossing the entire country of Mexico. Well-staged.

Thousands fleeing Gaza strip.

The Los Angeles Times

Jay Leno and his cars.