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Tuesday, July 15, 2014

July 15, 2014 -- Main Street / Wall Street; Miscellanous News From The Bakken And Elsewhere; OPEN BORDERS A Resounding Success --WND

Main Street

This is kind of interesting -- the linked article below -- the opening sentence says it all: "... overall retail sales increased far less than economists expected" and then the writer spends the rest of the article trying to tell us things are actually going quite well...

USA Today is reporting:
Overall retail sales increased 0.2% in June, far less than economists expected. But sales excluding autos, gasoline, building materials and food services jumped a better-than-expected 0.6%. Economists say that closely watched measure feeds more directly into economic growth.
Sales of general merchandise, clothing, sporting goods and non-store retail items all rose solidly. Also encouraging: retail sales for April and May were revised upward.
Still, sales so far this year are up 3.8% at an annual pace vs. 4.2% in all of 2013.
"It's just modest growth," Greg Daco, chief U.S. economist of Oxford Economics says of Tuesday's data. "It's not the breakout report."
Many economists expected consumers to spend more freely this year, driving a stronger recovery. Consumer spending makes up nearly 70% of the economy. Higher household wealth — a result of a roaring stock market and rising home prices — and sharply reduced consumer debt were expected to fuel the increased outlays.
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Wall Street

Triangle Petroleum announces pricing of $450 mln offering of senior notes; increased from previously announced $350 mln due to high demand: aggregate principal amount of 6.75% senior unsecured notes due 2022. The Notes were sold at par. The size of the offering was increased to $450 mln from the previously announced $350 mln due to high demand.

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

Occidental Petro names Marshall D. Smith as Chief Financial Officer of California Resources: Following its separation from Occidental, California Resources Corporation will be an independent oil and natural gas exploration and production company focused on high-growth, high-return conventional and unconventional assets exclusively in California.

Dominion's subsidiary, Dominion Virginia Power, to install Northern Virginia's largest solar energy project to date at Prologis Concorde Distribution Center: Dominion Virginia Power will install more than 3,000 solar panels capable of generating more than 800 kilowatts of electricity -- enough to power nearly 200 homes -- at the Prologis (PLD) Concorde Distribution Center in Sterling, Va. The panels will be installed on the rooftops of two adjacent buildings on its campus and will cover nearly 102,000 square feet.

Trading at new highs: BK, CSX, INTC, KOG, MSFT, WLL.

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Hoping The Stars Align

Philly.com is reporting:
The Federal Energy Regulatory Commission (FERC) is set to rule this summer on Dominion's application to export up to 770 million cubic feet of natural gas a day from Maryland, the closest export outlet for producers in Pennsylvania's booming Marcellus Shale region.
"Thanks to technological advances, the U.S. has enough natural gas to meet not only America's consumer demand, but also to export some supply in the form of LNG without significant impacts on domestic prices," Diane Leopold, president of Dominion Energy, told a House Foreign Affairs Committee panel in May.
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Chinese Economy Expanding

At least their economy expanded... more than one can say about the US economy, 1Q14. Reuters is reporting:
Asian stocks held stubbornly steady on Wednesday after China reported economic growth that was just ahead of market expectations, drawing a sigh of relief from investors rather than outright applause. China's economy expanded by 2.0 percent in the second quarter from the previous quarter, taking annual growth to 7.5 percent. "
The US economy "collapsed" (their word, not mine) in 1Q14.

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Developing Mexico's New Shale Oil Fields

The Dallas Morning Herald is reporting:
Pemex officials believe shale has the potential to provide Mexico with more oil and gas than the country has produced since it first struck oil in the early 20th century. “Mexico has the sixth largest gas shale fields in the world. And you’re all welcome to come join the exploration opportunities,” Emilio Lozoya, Pemex chief executive officer, told an energy conference in Houston in March.
Developing those resources would require up to $1.2 trillion in capital spending, according to an analysis earlier this year by Goldman Sachs. By way of comparison, the world’s four largest publicly traded oil companies spent less than $180 billion worldwide last year.
The hope at the highest echelons of Mexican politics and business is that development of the energy reserves will not only boost government revenue but expand the country’s industrial and manufacturing economy far beyond anything envisioned 20 years ago, when the North American Free Trade Agreement was enacted.
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ObamaCare: A Washington Success -- Paul Krugman

The Weekly Standard is reporting:
In March 2010, Obamacare was about to be voted upon by the House of Representatives, and the Democrats were in the process of deciding whether to ignore public opinion at their peril.  At that time, the Congressional Budget Office (CBO) projected that Obamacare would cost $938 billion over a decade and would reduce the number of uninsured people by 19 million as of 2014 (with a reduction of 1 million prior to 2014 and 18 million in 2014 alone).  Unimpressed, the American people overwhelmingly opposed the intrusive overhaul — with 20 of 21 polls taken that month showing it to be unpopular, most of them by double digits. The Democrats willfully passed Obamacare anyway and lost 63 House seats that November. 
Two years later, the Supreme Court declared Obamacare’s coercive Medicaid expansion to be unconstitutional as written, and the CBO adjusted its projection for the number of uninsured accordingly. 
The CBO projected that Obamacare would reduce the number of uninsured by 14 million as of 2014 (2 million before 2014 and 12 million in 2014 alone), at a 10-year cost of $1.677 trillion — or $739 billion more than the 2010 projection.  (This February, the CBO projected that Obamacare’s 10-year cost would eclipse $2 trillion.)
The op-ed goes on, and then this:
Yet Paul Krugman says that “health reform is — gasp! — working.”  Only in Washington could something that fails to hit even half of its original target be considered a gasp-inducing success
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OPEN BORDERS Policy a Resounding Success -- WND

Of the tens of thousands of communities across the United States, only a handful of communities -- perhaps a dozen or less -- are protesting the relocation of immigrants streaming across the border. The vast majority of US communities have not reacted and are probably ready and waiting with OPEN ARMS to accept these future US citizens. WND is reporting only eleven cities that have concerns (and in one city it's just the "south side").

It appears that this is a two-step program:
  • OPEN BORDERS: entering the US
  • OPEN ARMS: relocation  
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"Most Expensive Music Video Produced At The Time" -- Fleetwood Mac, Opus Collection

Gypsy, Fleetwood Mac

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Pulling A Bergdahl

Whenever Hamas and Israel have reached this point in the past, the US has stepped in and convinced Israel it was in its best interests to "stop." This time the US is silent.

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Never Mind

By the way, all those kids streaming across the border under the president's OPEN BORDERS policy has little, if anything, to do with Central American violence. Another inconvenient truth

Runaway/Crime Story, Del Shannon


July 15, 2014: Back Up To 194 Active Rigs; Twenty-Four (24) New Permits; Sinclair Reports A Nice Well Wednesday

Wells coming off the confidential list Wednesday:
  • 26814, 1,247, Sinclair, Martens 5-6XH, Sanish, t5/14; cum 16K 5/14;
  • 27067, drl, Hess, EN-KMJ Uran-154-93-2734H-5, Robinson Lake, no production data,
  • 27097, drl, Hess, EN-Johnson-155-94-2017H-6, Manitou,
  • 27252, 356, CLR, Greene 1-3H1, Ellisville, t4/14; cum 14K 5/14;
Active rigs:


7/15/201407/15/201307/15/201207/15/201107/15/2010
Active Rigs194186215178132

Twenty-four (24) new permits --
  • Operators: Zavanna (7), Hess (5), Oasis (4), Whiting (3), WPX (2), Murex, KOG, XTO
  • Fields: Stony Creek (Williams), Ellsworth (McKenzie), New HOm e(Williams), Ray (Williams), Reunion Bay (Dunn), Sanish (Mountrail), Musta (Divide), Truax (Williams), Long Creek (Williams), Siverston (McKenzie)
  • Comments:
Wells coming off the confidential list today were posted earlier; see sidebar at the right.

Producing wells completed:
  • 26063, 2,538, MRO, Swift Eagle USA 31-15TFH, Moccasin Creek, t6/14; cum --
  • 26929, 133, Wayzetta 148-0311H, Parshall, t6/14; cum --
  • 26228, 1,097, SM Energy, Wilson Federal 1X-20H, Charlson, t2/14; cum 70K 5/14;
  • 26592, 387, SM Energy, Paul 3-4HS, Alexandria, t3/14; cum 26K 5/14;
  • 26374, 992, SM Energy, Loraine 1X-20H, Charlson, t2/14; cum 65K 5/14;
  • 25332, 1,994, XTO, Martin Federal 21X-33E, Cedar Coulee, a Bakken well, t6/14; cum --

Historical Look At Taxable Sales And Purchases, North Dakota -- Some Idle Chatter -- July 15, 2014

Updates

Later, 5:33 p.m. PDT: I stand corrected. I am wrong with some of what I wrote in the original post; take that into consideration when you read the original post. A reader tells me that much of the "stuff" used to drill a well is, in fact, taxable. The reader wrote:
Just read your post on taxable sales and purchases.  You are probably right that most of pipe, sand, and ceramic are bought out of state but ND has a Sales and Use tax which means you must pay a use tax on materials used in ND.  To verify that this could apply to oil wells I found this document:
http://www.nd.gov/ndic/ogrp/info/g-015-033-faq.pdf

Here is an excerpt:
Does the state collect “use tax” or “sales tax” on all the steel and equipment being used?  
Sales tax is paid on everything that is permanently installed in or on the well. With booming oil activity, the sales tax revenues in western North Dakota cities have been growing at a record pace each quarter.
A huge thank-you to the reader for catching this; something (among many things) I did not know.

Original Post
 
For the archives, from The Williston Wire:

-------------------------- -Fargo ----- Bismarck ----- Williston ------- Grand Forks -- Minot ---  Dickinson

Some idle chatter.

My hunch is that much of the "stuff" used to drill wells is not bought in Williston. Rigs, pipe, sand, ceramic, comes from out-of-state. Much of the house-building was done with pre-manufactured frames also coming from out-of-state (Colorado?). As folks move into their homes, they will be maintaining their homes, furnishing their homes, and refurnishing their homes. Unlike many areas of the country, existing homeowners and new homeowners have money to spend.

Not only do the folks in Williston have money to spend, they have LOTS of money to spend. Williams County leads the state in average annual salary: $78,390
  • North Dakota average annual salary: $48,000
  • National average annual salary: $49,000
That's quite a delta between $80,000 and $50,000.

Without a Menard's, Home Depot, Target, Nieman Marcus in Williston, folks are driving to Bismarck, Minot, and Dickinson to do their shopping. Okay -- some exaggeration there, but one gets the point.

I think there are two important data points that are not reflected in the current taxable sales and purchases going forward:
  • how much is being spent by Willistonites going to Minot
  • how much will be spent by Willistonites simply because there are "more things" and "more places" to spend their money as these retailers are established
This is way out of my area of expertise, but my hunch is that more money stays in the area maintaining and servicing wells than drilling wells. Again, except for personnel costs, I assume most costs associated with drilling a well are "out-of-state" -- the big expense being the rig, pipe, sand, ceramic. However, on a day-to-day basis, maintaining and servicing existing wells would be local: gasoline/diesel for transportation to/from the site; meals on the road by the servicing crews; local supplies for minor repairs, etc.

With regard to drilling, all indications are that they will continue to drill about 200 new wells/month for the next (fill in the blank here) years. And, I know it's hard to believe, but each new well being drilled does not mean an old well is plugged and abandoned. Nope. The two hundred new wells are added to the existing 5,000 wells [yes, a small number of wells are plugged and abandoned every year, but the rate of such abandonment is probably decreasing as the economics (higher prices for oil) improve].

I think we agreed that the minimum amount of money being spent to maintain an existing well is at least $5,000/month. Unlike drilling a well, my hunch is most of that money (except perhaps for workover rigs) is spent locally.

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Cherry Picking

1Q10:
  • Fargo: $460K
  • Bismarck: $277K
  • Williston: $216K
  • Minot: $200K
1Q11:
  • Fargo: $481K
  • Bismarck: $302K
  • Williston: $447K
  • Minot: $255K
1Q12:
  • Fargo: $541K
  • Bismarck: $386K
  • Williston: $791K
  • Minot: $357K
1Q13:
  • Fargo: $543K
  • Bismarck: $393K
  • Williston: $790K
  • Minot: $322K
1Q14 (city, taxable sales for the quarter, percent change from 1Q10):
  • Fargo: $563K (22.4%)
  • Bismarck: $385K (40.0%)
  • Williston: $779K (261.0%)
  • Minot: $309K (54.5%)
There are a number of observations that one could make from those data points. First, there seems to be a new normal:
  • Fargo: $550K
  • Bismarck: $400K
  • Williston: $750K
  • Minot: $325K 
There is nothing to suggest that trend will not continue, all things being equal.

The data I don't have is the split between "direct oil-related taxable sales" and "other." Let's be sexist here, and call the "direct oil-related taxable sales" those dollar amounts associated with "dad" and the "other" sales those associated with "mom." I assume the huge jump in taxable sales in Williston from
 1Q10 and 1Q12 (and that's a huge jump) was due to "dad." Taxable sales attributable to "dad" should start to level out as the oil industry matures in the Williston Basin.

On the other hand, the taxable sales attributable to "mom" should start to increase as more folks move into their own homes. As retail opportunities expand in Williston, "mom" will do more of her Neiman Marcus shopping in Williston rather than driving to Minot. I doubt we will see huge increases in the near term, but all things being equal, it's very possible "mom" will spend more of her dollars in Williston than in Minot.

Quick: what retail sector might show the most growth over the next five years in Williston? I would not be a bit surprised if it might not be .... drum roll ... drum roll ... automobiles and trucks. Two huge data points:
  • the huge delta between the average salary in Williston and the rest of North Dakota
  • as more and more families move in, more and more adult teenagers -- and hey, where are they building the new high school? Hint: not in walking distance for anyone except perhaps one housing subdivision on the northwest side of town. How many high school students do you know that enjoy taking the bus to school? LOL.
See this story, and this story
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Dickinson

A special note about Dickinson. Of the six cities listed below, one could argue that one of the six has not plateaued to the same extent as the other five: that would be Dickinson:

1Q10: $87K
1Q11: $131K
1Q12: $217K
1Q13: $249K
1Q14: $310K (256% change from 1Q10). 

It appears that Dickinson, unlike the other five cities, may not have reached its "new normal." With the MDU-Calumet refinery and the potential of the Tyler, Dickinson might be the surprise story over the next five years.  It's possible Williston, Watford City, and Dickinson still have a significant way to go to reach their "new normals," but Dickinson may be the most exciting in terms of new growth.
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Geography

Say what you want, but the delta between $750K (Williston) and $325 (Minot) is not trivial. I challenge a person who has never been to North Dakota before to spend one day in Williston and one day in Minot and tell me which city is "bigger." Hint: it's not Williston. Minot is THE big city between the geographic center of North America (Rugby, North Dakota) and Havre, Montana, a distance of 500 miles.

Between Regina, Saskatchewan (Canada) and Rapid City, a distance of almost a thousand miles, there are only two cities of any size: Williston ($750K) and Dickinson ($300K -- about the same as Minot).

For Investors Only -- July 15, 2014

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or what you think you may have read here. I'm posting this for reasons other than investment advice. 

The price of oil has fallen fairly quickly the last few days and has now broken below $100 (WTI crude).

Shares in Bakken operators have similarly fallen back, and some quite significantly.

Following the WLL-KOG announcement, Bret Jensen over at Seeking Alpha suggested Oasis and Emerald could be takeover targets.

From the blog, a quick look at Emerald:

Emerald Oil (VOG acquires Emerald Oil, announced July 11, 2012) (chronological; most recent data at top)
Small, small operator.

Enterprise value about $470 million.

$470 million / 70,000 acres = $6,700/acre in some pretty nice areas in the Bakken.

Whiting Reports High Background Gas Units At the Mork Farm Wells In Pleasant Hill Oil Field

Simply idle chatter:
  • 26023, 2,213, Whiting,  Mork Farm 24-8-2H, Pleasant Hill, no frack data; gas averaged 4,139 units and peaked at 9,995 units; t6/14; cum --
  • 26024, 2,532, Whiting, Mork Farm 24-8H, Pleasant Hill, no frack data, gas as high as 5,761 units, t6/14; cum --
  • 28089, 1,856, Whiting, Mork Trust 21-17-7H, Pleasant Hill, no frack data, background gas averaged 2,587 units and peaked at 8,609 units; t6/14; cum --

Playful Joke Or Is Newfield Naming Their Own Fields In The Bakken?

Where best to drill a "barracuda" well? In the Aquarium oil field, of course. Unfortunately, to the best of my knowledge there is no "Aquarium oil field" in the Williston Basin.

From the Newfield geology report, Barracuda 150-100-11-2-3HR (#25994): "... subject well is being drilled in the Aquarium Field, located 1 mile north of Arnegard, McKenzie County, North Dakota ..."

According to the NDIC GIS map server, the well, in fact is in the Sandrocks oil field. Newfield's report noted the Aquarium oil field numerous times.

So, it begs the question: what about the other two Barracuda wells on the 3-well pad -- what do the reports say for these two wells:
  • 25455, also being drilled in the "Aquarium oil field," according to Newfield
  • 25457, also being drilled in the "Aquarium oil field," according to Newfield
I have not seen a request from Newfield to change the name of this field to the Aquarium Oil Field but perhaps that is coming.

Elsewhere in the immediate area, but not on the same pad:
  • 18205, Manta Ray -- also  drilled in the Aquarium oil field --
  • 20155, another Barracuda well -- also drilled in the Aquarium oil field

Tuesday -- July 15, 2014; Global Warming In North Dakota; Portland, OR, To Impose Tax On Breathing

Global warming: from the US National Weather Service --
This is still July right? Here are the lows this morning through 730 am CDT (North Dakota):

Hettinger: 36
Tioga: 37
Glen Ullin and Watford City: 39
Dickinson: 40
Hazen and Fryburg: 41
Bowman and Center: 42
Williston: 43
Bismarck: 46
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Active rigs:


7/15/201407/15/201307/15/201207/15/201107/15/2010
Active Rigs193186215178132


RBN Energy: more big consumers buying into natural gas production.

The Wall street Journal

Top story: fighting continues to rage in the Mideast.

Two more US pharmaceutical companies unveil foreign mergers to help them slash tax rates.  US stands to lose billions from corporate-tax inversions.

California expected to order mandatory statewide water restrictions for the first time, as a prolonged drought across the West shrivels reservoirs.

Photo-op: US flies 38 to Honduras in expedited deportation. 38 out of 60,000 -- okay.

Politics: "With his legislative agenda run aground, the president has been seeking solace away from the White House in recent weeks, traveling the country and cultivating the image of a pool-shooting, beer-drinking regular guy."

Energy executives buzzing at US oil-export opening.

Volkswagen to invest $900 million in SUV plant in its Chattanooga, TN.

 The Los Angeles Times

Israel  resumes airstrikes hours after cease-fire fails. [Comment: Israel declared a unilateral ceaefire; Hamas responded with a barrage of rocket attacks.]

How funny: there it is -- the photo op of the planeload of Hondurans arriving back home. I can't make this stuff up.

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Other News

Portland, OR, to impose tax for breathing. The mayor calls it a "transportation user fee." Anyone who lives along a road in Portland, OR, will pay a monthly fee. Businesses will pay more. If one has two driveways to streets meeting at a corner, the fee is doubled. The "fee" is required, says the mayor, to pay for crumbling streets in Portland. Twenty (20) percent of the money collected will be used for public transportation subsidies and bicycle lanes. And not all of the rest of the 80 percent would be used for maintaining the streets; some of that would be used for "safety improvements." The fee would appear on city water and sewer bills starting in July 2015. Isn't this the city that is also considering a $15 minimum wage? Memo to self: change retirement plans.

Home Depot, Menards -- Williston, North Dakota Update

A reader sent this in as a comment. I posted it as a comment but am bringing it up here to make it easier to access and to search on google. The comment:
On KUMV-TV news: the manager of the Williston Home Depot satellite store said if business is good, they will potentially put up a full size Home Depot.  
Just an FYI. I have been following blogs on both Home Depot and Menards. Home Depot said they will decide on a full-size Home Depot in Williston after a 6 - 9-month review of business.  
Menards had Bid Letting on July 11th and ground breaking on July 21st for the new Williston Meanrds store. http://dodgeprojects.construction.com/Menards--Williston--ND-Home-Improvement-Store_stcVVproductId136953049VVviewprod.htm
From the Dodge Leader center bidding site (which, by the way, is linked at "Data Links"):

Menards (Williston, ND) Home Improvement Store
  • Valuation: $12,000,000
  • Owner Type: Private
  • Location: ND (Williams)
  • Report #: 201100561732 v. 7
  • Dodge Report Dodge BidPro Report
  • Description:
  • This project consists of 3 buildings - The main retail building will be between 168000 - 201000 (approx) sf and will consist of slab-on-grade concrete floor construction - EIFS and masonry exterior walls - excavation - site utilities - asphalt paving - landscaping - large parking lot and paved access rood to loading and warehouse areas - steel framing - steel joists - steel deck - membrane roofing - Mechanical - electrical - plumbing - 2nd floor partial mezzanine - public restrooms - meeting room offices - painting - flooring - public restrooms - The ware house will be between 35,000 and 45,000 sf - - slab on grade concrete floor construction - wood siding - wood framing - wood trusses - wood deck - shingled roofing - there is a small guard shack that is wood.
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USAF Procurement

This is really cool, and coincidental. I am reading a most interesting book on the development and procurement of the premier USAF fighter, the F-15. The book is written by Colonel (Ret.) Donn A. Byrnes, c. 2007.  I picked the book up, of all places, at the National Museum of Nuclear Science and History in Albuquerque, NM, on our cross-country trip from Dallas to Los Angeles. [I see the paperback is available for $64.29 (new) at Amazon.com. One can still get a brand new copy at the museum for much less than that.]

The F-15 is a single-seat fighter, noted for its ability, among other things to accelerate when ascending vertically, the first American fighter to be able to do that. There were a limited number of two-seat F-15's used for training with approximately one to two two-seat F-15s assigned to every F-15 fighter squadron, each of which had approximately 30 aircraft (at least overseas back in the 1980's and 1990's); I forget (or possibly never knew) the exact number. I was fortunate enough to have had almost exactly 100 sorties in the F-15D model over the course of about two years, all in Europe, mostly in Germany.

The book is an entertaining (to say the least) look at the procurement process in the US military and, most likely, the US government in general. Now, I see the process begins for a new US long-range bomber. The top story is being reported at Fox News
Not much is known about the Long Range Strike-Bomber project, which has been run as a classified program since 2011. But the bat-winged stealth bombers would likely cost around $550 million each, and the Air Force hopes to contract for as many as 100. That would add up to as much as $55 billion -- for a fleet of fighter planes the likes of which the world has never seen. Still, the pricetag would be lower than the B-2 currently used.
“The LRS-B is a top modernization priority for the Air Force. It will be an adaptable and highly capable system based upon mature technology,” Air Force secretary Deborah Lee James told the U.S. Naval Institute.
Any young captain working on this new LRS-B project might do well to read Donn Byrnes book on the F-15.