A Most Haunting Graphic -- August 29, 2014

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.

Yahoo!Finance graph only goes back to 1985, but the line was fairly flat and unchanging for the previous decades also. The challenge: coming up with an explanation for the dramatic "change" -- marked by the red line, from 1993 to 2001:

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Random Update On WTI Futures

This past week, very quietly, it appears WTI hit bottom and turned. It's up almost another dollar today, coming off its lows of $93 earlier this week to solidly above $95 at the moment.  Operators who had contracts for $100 oil this past week did very, very well.

Whiting surges. EPD continues its move. CLR is up over 1%. The EPD, CLR stories are interesting. I'm not sure what to make of WLL. Are KOG investors moving to WLL? KOG continues to report great wells. 

Week 35: August 24, 2014 -- August 30, 2014

I'm doing this early because I will be traveling later today/tomorrow, and don't when/if I get to the internet.

Operations
Shale operators have positive cash flow; first time since 2008 
Halcon with two "high-IP" wells
Statoil cutting back
Ron Burgundy no longer confidential
September NDIC hearing agenda released

Bakken costs
Transportation costs for fracking sand from Wisconsin

Natural gas
Possibility of mega-natural gas power plant in Emmons County

CBR
New CBR terminal proposed; Plaza, ND (near Parshall)
NYT fails to mention the Keystone XL

Pipelines
Wind Ridge Pipeline, one of the largest in decades

Bakken economy
Map of Watford City development, one subdivision
Man-camps going upscale
Port of Vancouver inks deal with North Dakota
Update of new underpass in Williston
Update on Harvest Hills, The Ridge, northeast of Williston

For investors
CLR, EPD to splits shares 2:1

Update On Wind Ridge Pipeline, One Of The Largest Gas Pipelines To Be Built In North Dakota In Ten Years -- August 29, 2014

Updates

April 11, 2016: update on this pipeline -- the application for this project has been withdrawn. 

The application for regulatory approval by the Federal Energy Regulatory Commission for the planned Wind Ridge Pipeline to carry natural gas to near Spiritwood has been withdrawn, according to Tim Rasmussen, public relations manager for WBI Energy Transmission, owner of the project.

The planned 96-mile pipeline would have connected to the Northern Border Pipeline near Zeeland, N.D., and angled to the northeast to near Spiritwood where it was intended to provide natural gas to the planned CHS fertilizer plant. 

Original Post

 

The problem with blogging on the Bakken, or following the Bakken, or driving around the Bakken, everything becomes a blur. So much is happening, that unless "-est" is in the headline, the story may not catch one's attention.

Wind Ridge Pipeline is just one of a thousand examples. I assume I've come across Wind Ridge Pipeline before, but never paid any attention to it until Steven sent me the link to the story, and I happened to see a word in the lede with "-est" in it.

The Jamestown Sun is reporting:

One of the largest natural gas pipelines in North Dakota in the last decade is in the planning and permitting process, according to Tim Rasmussen, spokesman for WBI Energy, a division of MDU Resources Group.

Rasmussen said Wind Ridge Pipeline LLC will cost an estimated $120 million and will serve the proposed CHS nitrogen fertilizer plant at Spiritwood.

“Construction of the pipeline is contingent on CHS moving forward,” he said. “In order to meet their timelines we had to start the pre-filing process now.”

The pipeline will transfer natural gas from the Northern Border Pipeline near Zeeland, ND, to the CHS plant at Spiritwood for conversion into nitrogen fertilizer. The 95-mile pipeline project will cross Mcintosh, Logan, LaMoure and Stutsman counties with 16-inch pipe.

I have blogged at least twice on the Spiritwood fertilizer plant, but had missed or did not know about the "largest" pipeline that would be built to bring natural gas to the plant.

Other posts regarding the CHS plant:

• propane off-loading facility coming along
• Yahoo!In-Play
• RBN Energy
• EPA okays CHS
• largest-ever fertilizer plant has final approval

As Joe Biden would say, this is "a really big freakin' deal."

By the way, going back to all those links brings us back to all those propane-shortage stories. Somehow we weathered that, also.

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Meanwhile, Back At Refinery....

The Dakota Prairie Refinery southwest of Dickinson is about 80 percent complete ...

The Dickinson Press is reporting:

With an estimated 20 percent of work still to finish — “the hardest,” said project manager Jeff Rust — the $350 million refinery is on schedule to begin processing roughly 20,000 barrels of crude oil per day later this year. It will produce about 300 barrels of natural gas and 7,000 to 8,000 barrels of diesel per day, much of which will be sent to local wholesalers and sold in the community.

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Twelve (12) new permits --

• Operators: Slawson (7), CLR (4). Hunt
• Fields: Big Bend (Mountrail), Dollar Joe  (Williams), Parshall (Mountrail)
  Comments:

Seven (7) producing wells completed:

• 23256, 642, SM Energy, Arnold 16X-12H, Siverston, t4/14; cum 28K 6/14;
• 23257, 776, SM Energy, Dorothy 16-12H, Siverston, t4/14; cum 55K 6/14;
• 24476, 1,890, Statoil, M. Olson 20-29 6H, Painted Woods, t7/14; cum --
• 26212, 1,967, EOG, Wayzetta 40-1424H, Parshall, 1920-acre although it's technically a long horizontal, in fact it really only drains one section (section 23), t3/14; cum 124K 6/14;
• 26346, 2,384, Statoil, Cvancara 20-17 7H, Alger, t7/14; cum --
• 26750, 615, SM Energy, Rick 16X-12H, Siverston, t4/14;
• 27080, 1,070, Arsenal, Allison Ann 10-3H,

Port Of Vancouver (Washington State) Inks Deal With North Dakota Department Of Agriculture -- August 29, 2014; Man-Camps Going Up-Scale

I thought I posted this story linked at another site, but I guess I didn't. I think I wrote it up, and then decided to delete it. There were reasons for deleting it, but now a reader sends me another link on the same story, with a bit more background. The Columbian is reporting:

Aiming to boost trade between North Dakota and the Pacific Rim, the Port of Vancouver has launched a new venture of leasing rail cars to move agricultural products to the West Coast.

The port's executive director, Todd Coleman, traveled to Fargo, N.D., on Wednesday to sign a memorandum of understanding with the North Dakota Department of Agriculture to move the program forward.

Rail cars carrying steel pipe, aluminum ore and other oil-industry equipment from the port to North Dakota now often return to the port empty. Under the agreement, rail cars leased by the port will return west filled with wheat, corn, soybeans and other crops. The rail cars would then be offloaded and put into ships bound for Asia and Latin America.

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About five minutes ago, I mentioned that it is literally impossible to keep up with everything going on in the Bakken. There are now weekly periodicals devoted only to the Bakken.

One digression: boy, this is amazing -- I'm blogging from a coffee shop on Main Street in Williston. I mentioned earlier that one of the biggest changes I've seen this visit has been the change in demographics in Williston since my last visit: I am seeing lots of children; young, single women; families; couples. (This would lead to another digression on how the "wild, wild West" was transformed but I can't keep getting off on tangents.) What leads me to this digression: at a nearby table are six women, mostly 25 to 30, but one 40-ish-year-old woman. The group appears to be led by a woman in her mid-20's, possibly late 20's, clearly with an MBA background. Her ethnicity is interesting: she may have a tinge of Asian. They are working some business issues; if they are in the Bakken, it must have to do with oil and gas. A huge truck is now stopped in front of the window, here on Main Street, loaded with 3-inch polyethylene tubing, no doubt for the huge infrastructure project on south Main. Two more young women, individually, have stopped by, gotten their coffee and are heading for work. I do believe there were more women visiting the coffee shop this morning than men.

But back to what I had planned to post. This is from Market Watch  -- and now another young woman enters the coffee shop -- again, this is such a change from last year -- so a national web site notes htis: "Airgas opens new location in Dickinson, North Dakota, to service Bakken shale oil region."

Airgas, Inc. one of the nation’s leading suppliers of industrial, medical, and specialty gases, and related products, today announced that it has recently opened a new location in Dickinson, North Dakota, significantly enhancing its local product and service capabilities for customers in the Bakken shale oil region. 

n addition to core industrial gases, welding-related equipment and safety supplies for in-store purchase or local delivery, customers in the region can now more easily access Airgas’ unrivaled national capabilities at a local level – from Red-D-Arc’s rental welders and power generation equipment to Airgas Specialty Gases’ complex hydrocarbon blends for BTU measurement and process stream analysis to the expertise of Airgas’ product and process specialists. Airgas On-Site Safety Services, which specializes in safety monitoring, certification, and equipment rental services at customer sites in the oilfield and construction industries, also serves customers through Airgas’ new Dickinson location. 

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. 

And now, four people in line for coffee: three women, one man. Yes, the demographics in the Bakken are changing. And they all have smiling faces. Seldom is a discouraging word heard in the Bakken.

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It Never Quits

The Bismarck Tribune is reporting:

Due largely to the success of its man camps in places like North Dakota’s Bakken oil field, Reliant Asset Management was named the third fastest growing private business by Inc. Magazine.

Businesses can apply to be part of the magazine’s annual list. Those accepted to the 2014 list had the highest growth in revenue from 2010 to 2013, said Reliant co-founder Barry Roman.

Reliant is based in Arlington, Va., but has eight man camps in North Dakota, as well as camps in Alberta and Texas. Man camps now account for two-thirds of Reliant’s business nationwide and in Canada. The 1,300 beds the company has in the state account for 30 percent of its rooms.

“The crew camps as you know them have really changed in North Dakota,” Roman said. “You’re not going to see 200 to 500 guys sleeping in the same building.”

Roman said many oil related companies are not paying for living and travel expenses like they were two years ago. He said now many are compensating their workers per diem to incentivize them to move and live in North Dakota. Because of this, he said Reliant’s more cabin-like camps are becoming popular.

I noticed the same this trip. The man-camps are a'changing. Going more upscale. 

Independents Have Positive Cash Flow For First Time Since 2008. Does It Matter? August 29, 2014

Updates

Later, 8:49 a.m. CDT: from a reader -- Halcon put 18 wells online in 2nd quarter (all Fort Berthold)... all of them exceeded the 801K EUR type curve ... all of their wells now consistently IP over 2,000 with the recent wells all IP's over 2500 .... staggering....
 

Original Post

I don't know how closely readers follow this story, but when The Oil Drum was up and running, there were several common themes running through that site as well as across other sites as well. One of those common themes was "The Red Queen" and derivatives of "The Red Queen." One of the derivatives of this argument was that drilling the Bakken was so expensive that operators had to drill as fast as they could to maintain a cash flow to keep drilling. I always argued the "seed corn" analogy. (I always hated that phrase, "seed corn," but it certainly works in some cases, but I digress).

Now there's a report out from Reuters being reported over at Rigzone: free cash flow says little about shale.

The independent companies at the forefront of the U.S. shale boom will finally earn enough from selling oil and gas to cover their capital expenditures next year, for the first time since 2008.

Free cash flow, which measures operating cash flow minus capital spending, for the 25 leading independent oil and gas producers is expected to show a surplus of $2.4 billion in 2015, according to a consensus forecast in the Financial Times.

That compares with a shortfall of around $9 billion in 2013 and $32 billion in 2012 ("Shale oil and gas producers' finances lift growth hopes" FT, Aug 27).

During the years of negative free cash flow, independents relied on equity issues, borrowing and asset sales to sustain their drilling programmes.

That led some analysts to conclude the shale boom was unsustainable or even liken it to a Ponzi scheme, which will collapse when fresh capital inflows cease.

"It is not clear that the U.S. independents are profitable," Steven Kopits, managing director of Princeton Energy Advisers, wrote recently for Platts. "An industry can see a boom irrespective of profits or free cash flow if banks and investors are willing to underwrite the promises of future profits. The Internet bubble showed us that" ("Hamilton has it right on oil" July 30).

It's a great, great essay. But the concluding paragraph:

Positive free cash flow will make the shale industry look healthier than it has done in recent years, but in reality it says little about the long-term sustainability of the business model, any more than the losses did between 2009 and 2013. 

I agree completely. But all things being equal, I prefer "positive cash flow" over "negative cash flow" and discussions about "burn rates."

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EOG In The Permian

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. 

Over at Seeking Alpha, an update on EOG's prospects in perhaps the best field in America right now, the Permian. I don't think there's anything new in this article that regular readers don't already know. One data point:

One big difference that makes the Leonard play special is its production mix. The average Leonard well produces 50% crude, 26% NGLs, and 24% dry gas. EOG's other 100% ATROR areas tend to have a much heavier crude production mix, like 92% in the core Bakken or 78% in the Eagle Ford and Codell formations, yet the Leonard is just as profitable.

On its 134,000 net acres that are capable of accessing the Wolfcamp intervals, EOG expects to make only a 70% ATROR as the production mix is 31% oil, 33% NGLs, and 36% dry gas. That is still a very strong return, but isn't quite in the triple digit sweet spot. Luckily, EOG's Permian operations could receive a major boost from more NGL export capacity.

Friday, Heading Into Labor Day -- August 29, 2014, 2Q14 GDP 4.2%;

Reposting. This is a huge story. The Bismarck Tribune is reporting:

In what would be major economic and energy development for the central region, Basin Electric Power Cooperative says it is scouting for land in Emmons County to locate a mega-scale power plant fueled by natural gas.

The Missouri River and the Northern Border Natural Gas Pipeline go through both Emmons and Morton counties and each has transmission lines to take the 600-megawatt power load.

2nd Quarter GDP revised upward: 4.2%, up from previous estimate of 4%.

Corporate profits surged last quarter while the U.S. economy posted robust growth, putting the economic expansion back on steady footing headed into its sixth year.Corporate profits surged last quarter while the U.S. economy posted robust growth, putting the economic expansion back on steady footing headed into its sixth year. Gross domestic product, the broadest measure of goods and services produced across the economy, grew at a seasonally adjusted annual rate of 4.2% in the second quarter after accounting for inflation, the Commerce Department said.

RBN Energy: the growing domestic market for LNG.

Say “LNG” and the first thing that comes to mind for most of us is the potential for liquefied natural gas exports to Asia and other overseas markets. One of the hottest LNG markets right now, though, is domestic, and involves super-cooling natural gas into LNG and using it to power drilling rigs and hydraulic fracturing pumps, as well as ships, locomotives, and long-haul trucks. A number of small liquefaction plants have been operating for years in the US – most connected to peak shaving generation facilities but projects with capacity totaling more than 2 million gallons/day are under construction or being planned.  Today we begin a new series examining the increasing use of LNG as a cheaper, cleaner alternative to diesel and shipping fuel, and the LNG production capacity being developed to keep pace with rising demand.

The fuel costs associated with oil and gas drilling and fracking operations are a big deal. On average, a drilling rig uses about 1,750 gallons/day (g/d) of diesel that costs as much as $3/gallon (off-road diesel does not incur the same federal and state taxes as on-road). The pump-related fuel costs for a typical fracking job, meanwhile, can average $125,000 or more. As we will get to, running the engines that power drilling rigs and fracking pumps on a 30/70 blend of diesel and gas from LNG can reduce fuel costs by 30% or more, and running the engines on 100% gas from LNG can save even more. The cost of fuel also is paramount in the transportation sector. A Great Lakes bulk carrier can burn 2 million gallons of marine distillate or marine residual oil (also known as bunker fuel) per year, while a diesel locomotive hauling 3,000 tons of freight 500 miles might burn 3,200 gallons of diesel. (CSX’s locomotives alone used 482 million gallons of diesel in 2013.) A long-haul 18-wheeler, meanwhile, might consume 12,000 gallons of diesel annually (and there are three million 18-wheelers in the US). All could realize substantial fuel-cost savings by switching to all gas or a blend of gas and oil-based liquid fuel.

Active rigs:

	8/29/2014	08/29/2013	08/29/2012	08/29/2011	08/29/2010
Active Rigs	195	183	190	201	141

The Wall Street Journal

Top story: the president does not plan escalation against Islamic state. Apparently pretty unbothered about the whole thing. Says the US has the strongest military in the world and could wipe ISIL out if it wanted, but they would just come back. That's why I no longer spray for cockroaches; they just keep coming back. Talk about cognitive dissonance. ISIL, or somebody, abducted 43 UN peacekeepers as the insurgents (these were the guys the US was supporting) fought Syrian government forces (these were the guys the US tried to topple) in the Golan Heights area. Goland Heights, UN peacekeepers, ISIL. This can't be good news for Israel.

Ukraine says Russia has invaded. the president does not plan on any military action. Thank goodness. Can you imagine? Estonia is watching closely. Poland is watching closely. The EU is watching weather forecasts for this coming winter.

Dead? Government-bond yields touched new lows in the US and Germany, as investors piled anew into ultrasafe debt.

Blinked? The Obama administration has reached a deal with Republican Pennsylvania governor to expand the state's Medicaid program under ObamaCare.

Fracking? With groundwater levels falling across the state, theCalifornia legislature is considering regulating underground water for the first time.

Minimum wage in Mexico may be raised to $6. In 2015. Per day. Any wonder why folks stream across the border?

Dark roast? Dunkin Donuts to launch first hot dark-roast coffee. As mentioned earlier, the Burger King-Tim Horton deal had nothing to do with taxes.

I just love these 30-second analyses. The headline: yesterday the stock market fell "as renewed tension on the Russian-Ukraine border overrode any enthusiasm for upbeat economic reports." Market futures are up today; I guess traders have moved on, less than 18 hours later. By the way, I first mentioned Helmerich and Payne on June 29, 2010. At the time HP was trading for $36. I see that HP is trading for $103 today.

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. 

The Los Angeles Times

Really? Oil, gas leasing to resume in California after reports OKs fracking. (And, yes, that's how the LA Times spells "fracking.")  This decision comes out days after the biggest earthquake in 25 years in California, in Napa where they don't frack, as far as I know.

Another line in the sand gone? The president said he would act on immigration, on his own, by the end of the summer. Today, the headline: "Obama suggests he'll need more time on immigration policy." Yes, it's only been six years. Unfortunately the talking paper on immigration policy is on top of his white paper on the Keystone XL project.

Cognitive dissonance? Does Antarctic sea ice growth negate climate change? Scientists say "no." LOL. At least they all agree now that Antarctic sea ice is growing. And all these years we were told the biggest risk of global warming was rising sea levels. I guess the Antarctic will suck up all that water. By the way, agricultural reports coming out of North Dakota, Montana suggest global warming certainly hasn't been detrimental in this area.

Enough of this. Time to move on. Good luck to all.