Friday, August 15, 2014

Mexico To Import US Light Oil? Kurds To Ramp Up Oil Production Now That US Has Stopped ISIS Advance In The Oil Fields -- August 15, 2014

Two interesting stories being reported by Reuters over at Rigzone.

First, Mexico's Pemex may be getting ready to import light oil from the US:
Mexico's state-owned oil company, Pemex, is poised to abandon a decades-old devotion to self-sufficiency in crude oil, entering talks with U.S. companies about importing light crude from its northern neighbor, where output is booming. Chief Executive Emilio Lozoya said in an interview late on Thursday that Pemex was very likely to start importing light crude from the United States in the next few months, to generate more value from the Mexico's six domestic refineries.
Lozoya said importing light crude from the United States was "a very good idea" that Pemex was analyzing, noting that it could help the company's refining unit boost output of products it is often forced to import, including gasoline and diesel.
"There has been a very big prejudice within Pemex to import crude," he said, pointing to an opportunity for Pemex given booming light crude output in the United States, particularly in the Eagle Ford Formation in Texas.
Analysts have said that light crude imports from the United States could increase gradually to 200,000 barrels per day over the course of the next year.
Second, despite the ISIS advance in Iraq, the Kurds say things are going so well, they plan to ramp up oil exports:
Oil production at Iraqi Kurdistan's largest-producing field is set to rise to as much as 140,000 barrels per day (bpd) by the end of the month despite the advance of Islamist militants, the general manager of the operating company told Reuters.
"We have a target to ramp up production towards 140,000 bpd and I believe we would achieve this by the end of the month," Onder Tekeli from Taq Taq Operating Co (TTOPCO), a joint venture of Anglo-Turkish Genel Energy and Sinopec's Addax Petroleum said late on Thursday.
Radical Sunni militants of the Islamic State last week advanced to within a half hour's drive of Arbil, the capital of Iraq's Kurdish region and a hub for international oil companies, before U.S. military air strikes thwarted their advance.
Several Western oil companies including U.S. giants like ExxonMobil and Chevron operating in the previously stable Kurdish enclave have evacuated some of their staff while some smaller producers like Afren have halted production. 
Call me cynical but I will believe it when I see it. On the other hand, it certainly looks like the Baraq Iraq re-engagement is all about the oil, American air strikes coming just when it looked like ISIS might be icing the Kurdish oil fields.

Investing 301

This is pretty complicated stuff and something I knew nothing about. But having accumulated a fair amount of BNI before Warren Buffett bought the railroad, this article in SeekingAlpha explained a lot. It's very possible this article will disappear shortly so you may want to look at it sooner than later. The summary:
  • Warren Buffett is generating new sources of float in capital intensive businesses using depreciation
  • Thanks to 'Uncle Sam', deferred taxes will soon surpass insurance as the primary float generator
  • Understanding how deferred taxes work for fixed assets will be crucial to valuation going forward
  • Why Buffett is spending large amounts of capex on BNSF and MidAmerican to grow tax float.
  • What is the intrinsic value of deferred tax float, and valuation implications for Berkshire Hathaway

Week 33: August 10, 2014 -- August 16, 2014

Director's Cut: June data
Hess is getting very active in the Bakken
Pace of drilling in the Bakken 
Initial production numbers getting better and better
Random update of EOG's Wayzetta wells in Parshall oil field
Random update of KOG's P Vance wells in Truax oil field

Bakken economy
Photo of 5-lane bypass southeast of Watford City

Hess Is Getting Very, Very Active In The Bakken -- August 15, 2014

Active rigs:

Active Rigs194185203191142

Ten (10) new permits --
  • Operators: Hess (8), Corinthian, Newfield
  • Fields: Blue Buttes (McKenzie), Truax (Williams), North Souris (Bottineau), Clear Creek (McKenzie)
Wells coming off the confidential list today were posted earlier; see sidebar at the right.

Three (3) producing wells completed:
  • 27081, 1,080, Arsenal, Craig Allen 10-3H, Stanley, t7/14; cum 16K 6/14;
  • 27843, 600, Whiting, Fladeland 42-9TFH, Sanish, t7/14; cum --
  • 24919, 660, Slawson, Jeriyote 7-5-32TFH, Big Bend, t7/14; cum --
Hess is getting very active in the Bakken (also, look at recent random "look" at Hess):
  • on 11 August: 10 new permits; of those, 6 to Hess (all in Robinson Lake)
  • on 13 August: 18 new permits; of those, 10 to Hess (6 in Cherry Creek; 4 in Ellsworth)
  • on 15 August: 10 new permits; of those, 8 to Hess (5 in Blue Buttes; 3 in Truax)
Name changes:
  • OXY USA is changing three well names (#19710, #28163, #28164) from the Alina Tormaschy wells to "Federal Bud" wells, in 32-143-96 and 20-143-96, Dunn County.

For Investors Only -- August 15, 2014; Economists' Forecasts For 2H14 - A Wash; Whatever Happened To Global Warming?

Economists raising estimates of GDP for 3Q14. The headline is more stimulating than the article. In fact, the body of the article suggests the headline should read: it's a wash; economy remains on same trajectory -- 3% GDP for last half of 2014.  Reuters is reporting:
Economists raised their forecasts for U.S. economic growth in the third quarter but trimmed their estimates for the balance of 2014, though the outlook for both job growth and lower unemployment was strengthened.

Analysts see the economy growing at an annual rate of 3.0 percent in the current quarter, up from a previous estimate of 2.9 percent.
The same boilerplate on job growth and unemployment. I don't think that boilerplate has changed in five years.

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

Oil & Gas E & P Stagnation in the Mideast

A great Reuters review of how things are going in the Mideast -- with regard to oil and gas exploration and production: not good. Essay by John Kemp:
Following four decades of war, sanctions, nationalization and unrest, oil and gas producers are gradually adjusting to rely less on the Middle East.
The countries around the Persian Gulf and on the Arabian Peninsula still contain the greatest concentration of giant and super-giant fields anywhere in the world and have some of the most attractive oil and gas geology.
But the increasingly hostile political environment above ground has forced oil and gas companies to hunt for new reserves in other parts of the world where the geology is tougher but political conditions are much easier.
Diversification away from the Middle East is one of the main reasons why oil prices have remained virtually unchanged as unrest has spread across much of the region since 2011.
The article is full of interesting statistics, as well as a historical review. The North American shale revolution is mentioned, but I didn't see a specific reference to the Bakken or the Eagle Ford.

It Wasn't My Imagination

Just the other day I posted that it was my perception that we weren't getting the stories we used to get of super-hot days in NYC, Chicago, Washington (DC), when the elderly were dying and there were photos of inner-city children playing in fire hydrants opened by the fire department to help folks cool off. I remember all those stories when I was growing up in Williston; now we don't seem to see them any more.

It turns out it wasn't my imagination. The Washington Post is reporting:
There’s one constant about D.C. summer, and that’s a lot of hot days. Right?
Not always.
While 2014′s average temperature for meteorological summer (Jun-Aug) is running fairly close to “normal,” as defined by the 1981-2010 climate period, it’s undoubtedly been among the more pleasant in recent memory when it comes to daytime heat.
With only 16 days featuring high temperatures at or above 90 degrees this year, we’re a week behind last year’s tally year-to-date, and 32 days (more than a month!) behind the pace of the scorching 2010-2012 summers.  
The average year-to-date total is around 29.
Of course, the crazy summers that kicked off the 2010s averaged about three weeks more 90 degree days than the average around 36 days. 2010 even gave us a tie for the most on record at 67.
Two words for the warmists: cognitive dissonance.


Meanwhile, CBSlocalPittsburgh is reporting a record "cold" summer:
Pittsburgh is dealing with one of the coldest summers in history, and it’s having an effect on the trees.
Friday morning temperatures fell into the 40s in Western Pennsylvania.
Meteorologists say these cold temperatures are leading to trees changing colors in the middle of August.
I can't make this stuff up.

Eighteen years of cooling.

The Truth Will Out

The Weekly Standard is reporting:
The National Treasury Employees Union is an independent union representing, according to its own figures, "some 150,000" federal workers from many different agencies.
With a Republican-controlled House of Representatives that was elected on a message of reining in federal spending, the NTEU's been on alert for any and all legislation that proposes reducing pay and benefits for federal workers.
Among the bills is H.R. 1780, sponsored by Michigan Republican Dave Camp. The NTEU says the bill could hurt workers because it would "require most federal employees to leave the Federal Employees Health Benefits Program...and instead join health plans established under the Affordable Care Act."
I can't make this stuff up. It's still a trainwreck (their word, not mine).

Sounds Like The Bakken -- August 15, 2014; SecState Kerry Tells Starving Africans To Quit Creating New Farms

Wow, this sounds like the Bakken. Reuters is reporting:
Oil production from the burgeoning Permian Basin of West Texas is outpacing pipelines' ability to transport oil to the Gulf Coast, causing coastal refiners to pay an additional premium to acquire oil.
On Monday, that bottleneck caused oil for delivery at Midland, Texas to trade at nearly $20 a barrel less than Gulf Coast benchmark Light Louisiana Sweet, the deepest discount in 17 months.
It was little changed on Tuesday.
The deep discount is a consequence of the U.S. shale revolution, which has unleashed a revival in U.S. production, unlocking billions of barrels of reserves of crude oil, boosting the economy and potentially outstripping domestic demand. In shale formations in the Permian Basin of Texas and New Mexico, the rate of growth for oil production is set to increase for the sixth consecutive month in September, according to data from the EIA's drilling productivity report.
The formation's growth rate is outpacing Texas' Eagle Ford, where growth slowed between February and August, and North Dakota's Bakken fields, where growth has been relatively stable in recent months.
Yes, the Bakken is relatively stable: increasing producing about 2 - 4% month-over-month.

Almost Criminal

SecState John Kerry tells starving Africans to stop creating new farms because they contribute to global warming.  This is beyond bizarre.

Director's Cut For June, 2014, Production; Deere Announces Layoffs -- August 15, 2014

This is what caught my eye going through the Director's Cut (down below) with June, 2014, data:
  • 1,092,617 bopd (preliminary; new all-time high) (third consecutive month of 1MM bopd)
  • 5% increase month-over-month is staggering when you think about it
  • doing more with less; rig count remains well below all-time high
  • weather is perfect; additional frack teams coming on board -- so why does number of wells waiting completion remain so high (600 a month ago; still 585 waiting completion -- NDIC says there was a decrease of about 25, and yet, the delta may be even less)? Two answers -- operational calendar/scheduled due to pad drilling; and, significant shortage of sand
  • the number of active rigs on federal grassland up four times (4x); from 1 to 4
  • flaring is still a problem despite all the new processing capacity; 28% is better but it's still ... 28% 
And, of those six data points, the most incredible data point? Five percent (5%) increase month-over-month. Scroll through this history and one will note how rare it is for a 5% month-over-month increase in production. 


Track "Director's Cuts" here.

The August Director's Cut is out -- June, 2014 data.

Bakken oil hype

The Data

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

  • June, 2014: 1,092,616 bopd (preliminary; new all-time high)
  • May, 2014: 1,040,469 bopd (revised; second consecutive month to go over 1 million bopd) 
  • May, 2014: 1,039,635 bopd (original)
  • delta: 52,147
  • 52,147 / 1,040,469 = 5.0% (very significant)
Producing wells: 
  • June, 2014: 11,079 (new all-time high) 
  • May, 2014: 10,902
  • July, 2014: 265
  • June, 2014: 247
  • May, 2014: 234
  • All-time high was 370 in 10/2012
  • Today, 2014: $79.50
  • July, 2014: $86.20
  • June, 2014: $90.03
  • May, 2014: $88.31
  • April, 2014: $85.68
  • March, 2014: $86.72
  • February, 2014: $86.89 
Rig count:
  • Today: 194 (all time high was 218 on 5/29/2012)
  • July, 2014:  192
  • June, 2014: 190
  • May, 2014: 189
  • April, 2014: 188
  • March, 2014: 193
Director's comments:
  • number of wells waiting completion: 585 (a decrease of about 25)
  • US natural gas storage:  19% below five-year average
  • percentage of natural gas flared in North Dakota:  28% (Tioga plant below full capacity due to delayed expansion of gas gathering from Lake Sakakawea)
  • number of rigs actively drilling on federal grassland: up to 4 (generally it's been 1 rig)
  • future gas prices could make shall gas exploration economically feasible; first exploration well is underway in Emmons County; will be on confidential list until 12/23/14
Fracking regulations:
Draft BLM regulations for hydraulic fracturing on federal lands were published last year. BLM received over 177,000 comments and withdrew the rule. A new proposed rule was published in the federal register on 5/24/2013 and the comment period ended 8/23/2013. This time BLM received over 1.2 million comments. Thanks to all who provided comments in support of a “states first” policy. Department of Interior has announced a goal of issuing a final rule by year end of 2014. In addition they have started the process of new venting and flaring regulations and held input sessions in Denver, Albuquerque, Dickinson, and Washington, DC.
EPA input:
EPA has published an advanced notice of proposed rule-making to seek comment on the information that should be reported or disclosed for hydraulic fracturing chemical substances and mixtures and the mechanism for obtaining this information. The proposed rule-making is in response to a petition from Earthjustice and 114 other groups who are opposed to the use of the GWPC-IOGCC FracFocus website process of chemical disclosure and any type of trade secret protection for hydraulic fracturing fluid mixtures. These groups are requesting EPA regulation of chemical disclosure under the federal Toxic Substances Control Act. Comments are due by 5pm EDT 8/18/14.
Non-Bakken Economy

Deere announces factory layoffs :
  • Co announced it will reduce the size of its manufacturing workforce at some agricultural equipment factories in response to current market demand for its products. The action will place more than 600 employees at four locations on indefinite layoff. 
  • In addition, Deere is implementing seasonal and inventory adjustment shutdowns and temporary layoffs at several of the affected factories. When Deere announced third quarter earnings on Wednesday, the company said it planned to reduce agricultural equipment production in the company's fourth quarter.


Both the quilt and the baby are brand new (and the same age).
Quilt by Kathy.

Friday, August 15, 2014 -- Photograph Of New 5-Lane Bypass Southeast Of Watford City

Active rigs:

Active Rigs194185203191142

RBN Energy: mud.
A quarter million dollars for mud?  Mud for a single horizontal well can cost that much and more.  As horizontal well laterals keep getting longer, they need that much more mud.   So the $10 billion drilling mud fluids business is growing fast.  The industry has a unique supply chain, with production, storage and distribution infrastructure that rival other aspects of the oil & gas drilling business.  But you don’t hear a lot about mud.  It is one of those unsung heroes of the shale revolution, getting little attention in industry press or the investment community. But producers know they can’t do their job without just the right mud formula.  Today we begin an in depth look at drilling mud fluid and its importance to shale drillers.
Update on 5-lane bypass southeast of Watford City. Photo sent by reader (huge thank-you). The 5-lane bypass should be completed by mid-October. Hard to believe how fast things move in the Bakken.

Don tells me: Knife River, a division of MDU, got the contract for this bypass project. Their Fidelity division should have run a natural gas pipeline under the right-of-way (under/along the bypass).

Europe At A Tipping Point
Pricing Itself Out of the Energy Market

I track "Europe at a tipping point" here.

Don sent me this story. Time Magazine is reporting:
With industrial production stagnant, mass unemployment still a problem, and inflation on a downward trend, economists such as The New York Times' Paul Krugman worry that Europe is turning into Japan.
The former second largest economy in the world has spent over 20 years in a deflationary depression, a spiral of falling prices which encourage people to sit on cash, causing prices to plunge even further. Europe — with its aging population — has similar demographics to Japan, too, worsening the likelihood that it might end up in the same trap.
That might be bad, but it's still a lot better than total collapse — which is what was widely feared in 2011 and 2012 when government interest rates rose drastically in countries like Italy, Spain, Greece, Ireland, and Portugal over fears about the sustainability of their sovereign debts.
Under the euro, countries don't control their currencies, so they run a real risk of running out of money. The architects of the euro system, such as Romano Prodi, knew that this would be a problem, but decided that they would cross that bridge when they came to it.
Three things the article doesn't mention:
  • the cost of energy (double to triple that of the US) and the reasons why
  • regulations that stifle hiring (once hired, almost impossible to fire)
  • why work? free medical care, monthly government stipend for unemployed = living wage, great beaches
If I recall correctly, much of Spain's sovereign debt can be traced back to ill-made renewable energy decisions. But, you know, if those windmills and solar panels can replace all the natural gas that Russia sends to Europe, things should be hunky dory.