Sunday, November 23, 2014

Another "Silly Story" From The New York Times; Musings On A Sunday Night -- November 23, 2014


November 27, 2014: the Times article was "pretty silly" -- EnergyInDepth.

November 26, 2014: North Dakota officials respond to New York Times article

November 25, 2014: The New York Times has provided a very impressive graphic of all the wells in North Dakota. It would be interesting to superimpose all the windmills that would be needed in the same amount of space to generate the same amount of energy.

November 25, 2014: John Kemp, over at Rigzone, provides a very nice essay in response to "the" New York Times article on the Bakken. My comments on "the" New York Times article on the Bakken in the original post below; the first section.
Original Post

This is going to be a long, meandering note. It will be a long note so I can hide a lot of stuff in it. I assume folks don't read long notes.

First of all, that NY Times article, about the Bakken boom. It was clearly an editorial which will be used by movers and shakers in Washington to support their case that the environment is too important to leave it up to state regulators. It was printed to support Obama's decision later this year to enact the new EPA rules and regulations on methane. And yes, he will sign off on the new EPA rules; but like everything else, it will be phased in over two years, leaving the package for his successor to implement. Having said that, in my mind the NY Times failed to make their case. The entire article was bogus. How do I know?
  • had there been any truth to the article, The Dickinson Press would have been all over this issue six years ago, even before the boom began;
  • the article didn't mention that back in 2010, state regulators and courts (and maybe even federal regulators, I forget) tried to shut down the entire Bakken because of six dead ducks --;
  • the article did not mention that after almost 75 years of drilling for oil in North Dakota, no one has been able to find any evidence of any groundwater contamination -- again, nada, zilch, zero;
  • the article did not mention that there have been no earthquakes in North Dakota -- okay, there have been at least two; one back in 1909, and one back in 2012; it appears that extreme fracking turns the potential for large earthquakes into tremors so small that only US Navy submariners can pick them up on their sonar; not one North Dakota earthquake has ever resulted in a tsunami;
  • the Times kept mentioning "North Dakota" in the article, when in fact, about four counties (out of 53) are really doing much drilling; and,
  • the same newspaper, some years ago, said fracking for natural gas would never amount to anything, thereby losing all credibility except for the gullible.
It should be noted that whereas the wind industry has been given blanket immunity to kill an unlimited number of golden eagles, bald eagles, whooping cranes, there have been no reports -- nada, zilch, zero -- reports of any more ducks killed by the oil industry in the past four years, much less any other birds.

Okay, got that one out of the way.

The second story has to do with the Bakken "petering out" (their words, not mine). Don sent me that story. It was so bad, I didn't know what to do with it. It looks like someone is trying to resurrect the "Peak Oil" / "Oil Barrel" blog. But folks kept sending in comments on the article, so to cut down on all the comments, I thought I had better address it. I didn't read much more than the headline and the lede. The thesis, apparently, is that based on newer Bakken wells not being as productive as older Bakken wells suggest that the Bakken is "petering out." (By the way, here's the link:

Hello!!! There are so many variables with regard to oil production and oil companies hold so much so close to their collective chests, there's no way to sort out why production numbers are what they are. I just mentioned it a few weeks ago. I would assume production is going to flatten, perhaps ... OMG ... even decrease over the next few months. For a bunch of reasons:
  • winter is coming;
  • new flaring rules;
  • Burlington Northern Santa Fe (that's Warren's railroad that has a virtual regional monopoly in the Bakken) has said they are going to cut back on oil transportation to make room for grain and other commodities;
  • a slump in oil prices;
  • winter is coming;
  • the holidays are coming;
  • people are getting tired; and, have I mentioned,
  • winter is coming.
But this is something that no one has talked about: E&P. Publicly traded oil companies -- you know, I talked about this a long time ago -- I've probably discussed it several times -- why am I talking about it again -- whatever -- publicly traded oil companies need to manage their assets. Part of their market capitalization (part of their value) is based on how much oil they still have in the ground (reserves). For example, let's say KOG just announced they were going to drill all the oil they have and all the oil they ever hope to have in 2015, drawing their reserves down to zero (0) by the end of 2015. Yes, KOG shares would plummet and that would pretty much be the end of KOG. Of course, KOG isn't going to drill out their inventory next year. But if an oil company doesn't find more reserves, it will eventually run out of oil, all things being equal. That's the "P" part of the story ("P" stands for production). But oil companies are E&P companies; the "E" stands for "exploration."

It's been pretty much agreed by everyone that the middle Bakken has been fully delineated in North Dakota. How do I know that? Lynn Helms has said that. But the Three Forks has barely begun to be delineated. In fact, there are some folks reading this right now who have not even heard of the Three Forks. I assume those folks arrived on this site by mistake looking for that NY Times article. Up until a year or so ago, "we" only knew of "Three Forks not otherwise specified." Up until a year ago, Three Forks wells were pretty much "upper" Three Forks. It turns out there is also the Sanish, and also the Pronghorn sands, and now, there are four benches, three of them in the "lower" Three Forks. We don't even know if all benches will be productive, and which ones will be most productive.

Oil companies have not even fully delineated the upper Three Forks, much less any of the benches. How do I know that? Lynn Helms has said that. I haven't counted the wells but among the Bakken pool wells drilled to date, I bet the ratio is a 100 middle Bakken wells for every Three Forks well (I'm probably off by a factor of ten, but I'm trying to make a point. Give me a break). If you are interested in the exact ratio, you can do the math at the the NDIC site that has all the statistics.

So the operators are delineating the upper Three Forks, which I guess is now considered the first bench, and the other three or four benches, depending how you count them. It would only make sense that the new wells might not be as good as the middle Bakken wells drilled just last year. But, the drillers have been improving on their middle Bakken wells over the past seven years and are still trying to sort out the best ways to complete middle Bakken wells. I assume there will be a learning curve for the Three Forks sub-formations.

Okay, enough of that. Take it for what's it worth. But, yes, I'm betting that we will see a flattening of oil production in North Dakota or even a decrease in oil production month-over-month starting in November, 2014 (but we won't know until the Director's Cut comes out February 15, 2015), but it won't be because the Bakken is "petering out" for the reasons apparently suggested by that writer in the article I didn't read.

You know, I have to chuckle. If the middle Bakken sweet spots are "petering out," someone hasn't told the operators: they are planning to put in 56 wells in some drilling units in the sweet spots. That doesn't sound like a "sweet spot" petering out ... it sounds like things are just getting started.

There is so much else I could add, but at some point one needs to move on.

A third story, the slump in oil prices. I don't know what more can be said that hasn't already been said. The one metric I'm following is the number of active drilling rigs. Yes, I know there are errors in the number of active rigs being reported and the number includes spudding rigs and "drilling" rigs, but that's been true from the beginning. The number of active rigs as reported by the NDIC as the data comes in: "it is what it is."

So, why am I using the number of active rigs as the single metric that means the most to me right now? Because I can get my hands / my mind around the number "200" or more accurately, "191," the number of active rigs in North Dakota as being reported tonight by the NDIC. It's a simple metric to follow. Much could be written about rig count but I've discussed it in the past ad nauseum. The reason the number of active rigs is important to me is for one simple reason: an active rig means roughnecks are working; geologists are employed; truck drivers are delivering pipe, sand, and water. If there's a better single metric to follow in the Bakken that correlates with activity, I would be interested in hearing what it is. For any number of reasons, my "floor" is 175. As long as there are 175 active rigs in North Dakota, the Bakken will do just fine. But for the roughnecks, truck drivers, geologists, I hope the number doesn't get that low.

Hey, speaking of that, I don't recall much about Welter Consulting. One of their wells will be coming off the confidential list tomorrow. Welter's track record in North Dakota: three permits. Two resulted in dry Madison wells (#22690, #25291) northwest of Minot. Their third of three wells will be coming off the confidential list tomorrow.

Finally, last but not least. This is such an incredible story, I may post it again as a stand-alone post. Don caught it. Again. He has a knack for finding these stories. This story is so preposterous I took a screenshot of it because I'm sure it will be corrected or removed.

Iraqi News is reporting:
The President of Kurdistan, Massoud Barzani confirmed that Baghdad will send $500 million to Erbil (Kurdistan) as part of the agreement settled upon between the two sides last week.
Barzani said, “We have agreed with Baghdad that it will send one billion dollars in two batches; we will give 150,000 barrels of oil to Baghdad in return,” adding that both sides agreed on the amount of oil to be exported from Kirkuk via Kurdistan pipeline to Turkey.
In case you missed that: Baghdad will "move" one billion US dollars up to Erbil, Kurdistan, for 150,000 bbls of oil in return.

Perhaps that was a misprint. But no, it's repeated again in a subsequent paragraph:
The Ministry of Finance announced on November 19, 2014, $500 million are to be transported to the Kurdistan region, noting that this step comes after the regional government implemented the item related to delivering 150,000 barrels.
It's a little unclear whether they are paying $500 million for 150,000 bbls of crude oil or $1 billion for 150,000 bbls of crude oil. I read it as $1 billion for 150,000 bbls of crude oil. One billion American dollars.

The math is not hard: $1,000,000,000 / 150,000 = $6,666.67 dollars / bbl. 

Whatever the Kurds are paying their negotiator, it is not enough. If oil is being "exchanged" between Kurdistan and Baghdad, for almost $7,000/bbl, watch out for a spike in the price of oil tomorrow. I would say we could see WTI going for $4,000/bbl over the holidays.

This story is so incredible, I took a screenshot of it, just in case:

Something tells me there was something lost in translation. Unfortunately the best I could do for this:

Suntory Time, Lost In Translation
In Other News For The Archives
I see Finland is worried about a hostile takeover by Russia (I can't make this stuff up). To the best of my knowledge Finland is known for three things: a) licorice; b) Tesla; and, c) Nokia. To the best of my knowledge only one of the three is still doing well in Finland, and to the best of my knowledge, Putin is not a big licorice afficionado.

Ferguson: game time, 9:00 p.m. Tuesday Monday (updated, 1:00 p.m. CDT, November 24, 2014). Pre-game show begins at 6:00 p.m. same day. Officiating, Eric Holder. [Game time moved up one day with hopes that holiday "shopping" can be completed by Thursday, Thanksgiving, and all the football games.]

Two country singers announce that they are gay. Photographs of two individuals are posted at that story: Ty Herndon (who I have not heard of); and, Dolly Parton (who I have heard of). I cannot make this stuff up. Generally, "things" come in threes. 

Two girls, ages 4 and 6, recently visited Sierra Leone (not Disney World?), and upon return to the states developed a fever. They both tested negative for Ebola; they have the "flu." Ebolaland flu. At least it's hard to catch. I can't make this stuff up.

What else are we going to be talking about tomorrow? In Saturday's Wall Street Journal:

Lois Lerner's lost letters? They've been found! As many as 30,000 missing e-mails have been found. Just in time for GOP Senate and GOP House hearings. Something tells me Lois will wish these e-mails would have been found in time for the Dem-led Senate to have reviewed them and for Harry Reid to have called them irrelevant.

Pre-game show in Ferguson: "officials" lay out rules for police handling the protests. High on the list: don't shoot anyone.

Biden warns Russia on Ukraine. The short note did not say anything about whether a "red line" had been drawn.

In tonight's Los Angeles Times:

It looks like the umpteenth deadline in those Iranian talks will be extended.

Active Rigs In North Dakota Up To 191; Newfield Reports Two Nice Wells -- November 23, 2014

Active rigs:

Active Rigs191185183202161

Wells coming off confidential list over the weekend, Monday:

Monday, November 24, 2014
  • 26809, drl, SHD, Mattie 13-36H, Clarks Creek, no production data,
  • 26949, drl, CLR, Oakdale 4-13H1, Jim Creek, no production data,
  • 27741, 1,649, XTO, Brandvik Federal 24X-13F, Corral Creek, t9/14; cum 5K 9/14;
  • 28214, 356, Petro Harvester, Busch 32-1H, Portal, a Madison well, t8/14; cum 29K 9/14;
  • 28237, conf, MRO, Mattie 13-22TFH, Chimney Butte, producing,
  • 28328, conf, Hess, EN-Freda-154-94-2635H-7, Alkali Creek, no production data,
  • 28388, conf, Welter Consulting, Miller 31-3, Wildcat, far northeast of the core Bakken; on a line directly from Kenmare to Minot, the well is about 2/3rds of the way from Minot to Kenmare (closer to Kenmare than Minot); Madison or Spearfish country; a vertical well, not a Bakken
Sunday, November 23, 2014
  • 23806, 437, CLR, Bismarck 4-9H, Brooklyn, t9/14 cum 4K 9/14;
  • 27426, 1,218, Whiting, Pavlish 11-30PH, South Heart, t6/14; cum 44K 9/14;
  • 27427, 1,433, Whiting, Pavlish 41-20PH, South Heart, t6/14; cum 39K 9/14;
  • 28067, drl, Hess, EN-State C-156-93-1615H-9, Alger, no production data,
  • 28074, drl, BR, Shenandoah 14-36MBH ULW, Keene, no production data,
  • 28094, 1,367, Newfield, Wehrung 150-99-14-23-5H, South Tobacco Garden, t7/14; cum 41K 9/14;
Saturday, November 22, 2014
  • 26810, drl, SHD, Marc 13-36H, Clarks Creek, no production data,
  • 27694, drl, CLR, Berlain 3-30H, Patent Gate, no production data,
  • 28095, 1,967, Newfield, Wehrung 150-99-14-23-4H, South Tobacco Garden, t7/14; cum 41K 9/14;
  • 28212, conf, Legacy, Legacy Et Al Berge 12-6 2H, North Souris, a Spearfish well, t7/14; cum 6K 9/14;

Mystery Of The Missing Multi-Well Pad -- November 23, 2014

1. Put in the coordinates of this well into google maps:
  • #26052, 997, CLR, Winston 4-12H, t3/14; cum 76K 9/14; latitude, 48.083073; and, longitdue, -103.363728.  On the google map zoom in and you will see what appears to be a 2-well pad, on the north side of County Highway 11A. 
2. Now scroll to the left (to the west) about 3,500 feet, at the intersection of County Highway 11A (46th St NW) and 124th Rd NW. There, on google maps, if you zoom in, you will see another pad with two batteries of tanks, one battery on the north side, one battery on the south side (each battery with four oil tanks); in the northeast corner of that pad is a pretty good flare; in the southeast corner there is either an old flare, or a very, very tiny flare.

3. The interesting thing is that on the NDIC GIS map server, #26052, CLR's Winston 4-12H is designated, but there is no designation for any well (or wells) at the intersection of County Highway 11A (46th St NW) and 124th Rd NW.

A reader noted this; called it to my attention.

This is perplexing enough that if no one has the answer, it might be worth a letter or an e-mail to the NDIC.

It doesn't show up on the UND-EERC interactive map either but that map seems to be a bit behind in showing new wells.

Random Look At Newer Wells In Banks Oil Field -- November 23, 2014

Recently there was a fairly ridiculous article with regard to the Bakken (it was so ridiculous, I did not link it) suggesting the wells in the Bakken were not as good as they once were. (Oh, oh, that reminds me of a song.) The writer missed a big, big point, but I'm too busy to go into it now. If anyone is interested, remind me, and maybe later I will come back to it. Whatever. 

A random look at a Three Forks second bench well in the Banks oil field:
  • 27112, 506, Oasis, Hagen Banks 5298 42-31 4T2, Banks, 13-ft target zone; gas units max at 1,254 units; methane gas (characteristic gas of second bench); drilling days, 20; 36 stages; 3.7 million lbs sand/ceramic; t7/14; cum 56K 9/14;
By the way, if the EPA gets its way, ... see this Dickinson Press article.


In addition, the following well will soon come off the confidential, a "Bakken" NOS well:

NDIC File No: 27111    
Location: SESW 31-152-98      Longitude: -103.276288
Current Well Name: HAGEN BANKS 5298 #42-31 5B
    Field: BANKS
Monthly Sales Data:
DateOil RunsMCF Sold


Then, look at this Three Forks, Third Bench well:
  • 27109, 1,668, Oasis, Hagen Banks 5298 42-31 7T3, Three Forks, Third Bench; the third bench was 55 feet thick; Banks, 36 stages; 3.8 million lbs sand/ceramic, t7/14; cum 9K 9/14; the geology report does a great job describing the middle Bakken, the Pronghorn, the first 3 benches of the Three Forks (note, Pronghorn was above the Three Forks first three benches); background gas units were very low (147 - 249);
  • Note, the scout ticket below refers to this as a "Bakken" well, NOS; it is, in fact, a Three Forks, third bench.
NDIC File No: 27109    
Well Type: OG     Well Status: A     Status Date: 7/12/2014     Wellbore type: Horizontal
Location: SESW 31-152-98    Latitude: 47.935319     Longitude: -103.276557
Current Well Name: HAGEN BANKS 5298 #42-31 7T3 
Total Depth: 21400     Field: BANKS
Spud Date(s):  1/19/2014 
Completion Data
   Pool: BAKKEN     Perfs: 11768-21400     Comp: 7/12/2014     Status: F     Date: 7/31/2014     Spacing: 2SEC
Cumulative Production Data
   Pool: BAKKEN     Cum Oil: 9081     Cum MCF Gas: 7864     Cum Water: 15766
Production Test Data
   IP Test Date: 7/31/2014     Pool: BAKKEN     IP Oil: 1,668     IP MCF: 3286     IP Water: 4963
Monthly Production Data
PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare


I track the Banks oil field here.

As Good As I Once Was, Toby Keith

Random Look At Two Recently-Reported CLR Wells In Elidah Oil Field -- November 23, 2014

Recently CLR said it was changing its completion techniques. Note the number of stages and the amount of proppant used in these two recently-reported Elidah oil field wells:
  • 27562, 993, CLR, Rolfsrud 2-11H, middle Bakken, t7/14, started lateral May 31; reached TD June 8; background gases as high as 3,216 units; 30 stages; 6 million lbs sand/ceramic; cum 25K 9/14;
  • 27561, 960, CLR, Rolfsrud 3-11H1, Three Forks, gas as high as 9,225 units recorded; 30 stages; 6 million lbs sand/ceramic; t7/14; cum 29K 9/14;
The number of stages is unremarkable; the amount of proppant is quite remarkable.

As an example, here is a previously reported CLR well from the Elidah oil field; note the dates and the amount of proppant:
  • 19083, 183, CLR, Shafer 1-21H; t10/10; cum 146K 9/14; fracked 4/11; 24 stages; 2.5 million lbs
With a slump in oil prices, there is an expectation that fewer wells will be drilled in US shale (whether that occurs or not is yet to be seen). If fewer wells are drilled, there is an expectation that costs of wells will go down as demand drops for oil services and for sand/ceramic. CLR's announcement that it might increase the volume of proppant was made PRIOR to the slump in the price of oil, if I recall correctly. Whether that is accurate or not, CLR was certainly aware of their findings prior to the slump in the price of oil. Funny how things work out.

Day prices for rigs will also drop. 

I track the Elidah oil field here.

Regular readers have probably noticed an increase in the number of permits being issued for the Elidah oil field in the past few months.

Idle Musings Sunday Morning -- November 23, 2014

The other day I mentioned that I wondered how long Saudi would continue giving away its only natural resource to the Chinese at a greatly discounted price. The EU has an enquiring mind, also.

This is quite a story coming out Reuters this morning. The EU is deeply concerned about the staggering drop in the inflation rate. The sluggish economy was to blame for years, but now the severe slump in oil prices is adding to the problem.

The world seems topsy turvy:
  • the EU is worried about falling inflation
  • OPEC seems flummoxed by the Bakken: too much oil, and more is coming
I certainly did not see this coming ten years ago. "Everyone" was predicting higher prices for oil and inflation dangerously out of control by now.

From the linked article:
European Central Bank President Mario Draghi has moved closer to launching sovereign debt purchases and data this week will show just how dangerously low inflation has fallen in the $13 trillion euro zone economy. 
And then this:
A spectacular drop in crude oil prices over the past month will be the center of discussion when ministers from the world's top oil exporters meets in Vienna on Friday.
The key question there is whether Saudi Arabia, which signaled last month it was comfortable with lower oil prices, accelerating a plunge in the price of crude to a third since June, will stick to that view.
But rapidly-increasing U.S. oil production, coinciding with shaky demand from China and Europe, is likely to keep a lid on the price no matter what the Organisation of Petroleum Exporting Countries (OPEC) decides.
China cut its rates last week, pushing the US stock market, yet again, to new highs. And it may not be over. 

Reuters, in an accompanying article, is also reporting that China is "ready to cut rates again on fears of deflation."
China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making.
Friday's surprise cut in rates, the first in more than two years, reflects a change of course by Beijing and the central bank, which had persisted with modest stimulus measures before finally deciding last week that a bold monetary policy step was required to stabilize the world's second-largest economy.
Economic growth has slowed to 7.3 percent in the third quarter and policymakers feared it was on the verge of dipping below 7 percent - a rate not seen since the global financial crisis. Producer prices, charged at the factory gate, have been falling for almost three years, piling pressure on manufacturers, and consumer inflation is also weak.
Remember: This is not an investment site. Do not make any investment, financial, or relationship decisions based on what you read here or what you think you may have read here. Make no travel plans based on what you read here. I post quickly and frequently; typographical and factual errors are likely. If this information is important to you, go to the source.

Normally one might be able to make predictions about what the US stock market would do this week with two stories suggesting that BOTH the EU and China were ready to "print more money" to stimulate their economies, but the Thanksgiving holiday will probably make it more difficult to predict.

Here in Texas, some school districts have the entire week "off." Both our granddaughters started their 9-day Thanksgiving vacation last Friday, at around 3:00 p.m.

Oil Imports

The two data links that will be become increasingly interesting over the next two years:
The slump in oil began the summer/autumn of 2014. I assume "we" are working our way through existing contracts and historical trading partners. My hunch is it takes about six months to work our way through those contracts. January, 2015, would be the earliest that we might see changes in imports (the first link, US oil imports from all nations), and it might take until March/April, 2015, to really start seeing changes.

I think it's going to be incredibly fascinating.

Some data points from the two links to US oil imports that surprise me:
  • with all the talk of sanctions on Russia, imports of crude oil have remained fairly unchanged over the past two years; in fact, imports in July and August (the most recent month for which we have data) actually increased by 50% from June, 2014. I believe this was the period in which sabre rattling surged in the Ukraine. The average over the past 20 months was 11,826 bbls/month; in August, US imports from Russian exceeded that average at 12,226 bbls). (Russia, monthly totals, in thousands of bbls):
  • of the OPEC countries, Ecuador and Iraq seem to be the big winners (US oil imports) at the expense of Saudi Arabia (again, Saudi imports will never drop to zero; Saudi has 50% ownership of world's largest refinery in the US):

OPEC In A Lose-Lose Situation

Bloomberg is reporting that Iran would like to see OPEC cut production by a million bbls per day. That won't happen and even if it did, it wouldn't make a difference. 

I think OPEC is in a lose-lose situation.
  • OPEC can't cut production enough to get OPEC oil back above $90 (according to the article). 
  • if OPEC dithers and announce that they won't cut production at their November meeting (which is what the article suggests), my hunch is that OPEC oil will drop again in price, and perhaps significantly. "Speculators" will pounce on that announcement to drive prices lower. 
Off-shore drillers, Russia, Venezuela will feel the most pain. Canadian oil sands, possibly.