Eight (8) New Permits -- February 25, 2015

Dividends of note:

• Home Depot increases dividend from 47 cents to 59 cents
• Comcast increases dividend from 22.5 cents to 25 cent

Reporting tomorrow:

• Northern Oil & Gas, forecast 19 cents; big beat, 95 cents; press release here; shares up;
• SandRidge Energy (SD), forecast 0; big beat; 8 cents; press release here;
• Sempra Energy (SRE), forecast $1.09; nice beat; beats by 14 cents at $1.23; Zacks here;
• WPX Energy (WPX), forecast a loss of 15 cents; huge beat; earns 3 cents/share; Zacks here;
• Bonanza Creek Energy (BCEI), forecast 27 cents; miss, 24 cents; press release here;
• CLNE, forecast 67 cents; after market close:
• Herbalife, forecast $1.22, AP story here; huge beat, $1.42/share;
• Southwestern Energy (SWN), forecast 50 cents; beat, 52 cents; press release;

From Kemp, Rigzone, via Bakken.com:

North Dakota’s oil producers have pulled back to the core areas of the Bakken formation to cut costs and maximize output amid the slump in prices.

The number of active rigs in the state has fallen to just 121, from 190 a year ago, according to an active rig list published by the state’s Department of Mineral Resources (DMR) on Wednesday.

The rig count is now below the threshold of “at least 130″ DMR Director Lynn Helms identified last month as needed to sustain output at the current level of just over 1.2 million barrels per day.

But more important than the raw number is their distribution across the state, with drilling now increasingly concentrated in only the most promising areas.

Of the 121 rigs active on Wednesday, 115 are drilling in just four counties at the heart of the Bakken – Dunn, McKenzie, Mountrail and Williams.

Active rigs:

	2/25/2015	02/25/2014	02/25/2013	02/25/2012	02/25/2011
Active Rigs	121	190	181	204	169

Wells coming off the confidential list today were posted earlier; see sidebar at the right.

Eight (8) new permits --

• Operators: BTA (3), Whiting (2), SM Energy (2), Oasis
• Fields: Beaver Creek (Golden Valley), Sanish (Mountrail), Poe (McKenzie), Baker (McKenzie)
• Comments:

One permit canceled: another Zavanna Usher permit in McKenzie County.

Seven (7) producing wells completed:

• 29018, 2,129, Whiting, Mrachek 21-26-4H, Nameless, t2/15; cum --
• 29198, 2,248, Whiting, Mrachek 21-26-5H, Nameless, t2/15; cum --
• 27605, 1,272, BR, Bullrush 34-10TFH-A, Elidah, t2/15; cum --
• 28287, 2,285, BR, Shenandoah 24-36MBH, Keene, t1/15; cum --
• 29490, 2,285, Whiting, Fladeland 31-12TFH, Sanish, t1/15; cum --
• 28365, 1,320, BR, CCU Pullman 6-8-7TFH, Corral Creek, t1/15; cum --
• 28074, 1,643, BR, Shenandoah 14-36MBH, Keene, t1/15; cum --

Wells coming off the confidential list Thursday:

• 26954, drl, CLR, Ryden 2-24AH1, Jim Creek, no production data,
• 27038, drl, SHD, Canon 12-36H, Clarks Creek, no production data,
• 28848, drl, MRO, Sydney 14-9TFH, Bailey, no production data, 

RBN Energy: holding by production, part 1.

Will hold-by-production (HBP) drilling by producers acting to preserve their leases for the longer term end up sending U.S. oil and gas production volumes higher when energy fundamentals and prices suggest production should slow down? This has happened before, with one of the highest profile instances in the Haynesville Shale between 2009-13, leading to even lower natural gas prices. Could it happen again in the Marcellus this year?  Today we continue our look at HBP lease provisions with a focus on the Marcellus.

In Part 1 we looked at the HBP provision that is a standard component of oil and gas land lease agreements between producers and mineral rights owners in the U.S. Producers can pay bonuses of thousands of dollars per acre for rights to conduct exploration and production activities on parcels of private land. However lease agreements typically dictate that drilling rights expire after an initial term, (that varies by negotiation but is typically 3-5 years) unless the lease operator produces minimum commercial quantities of oil or gas from the acreage to hold the lease by production. Once HBP’d the lease begins a second term that lasts as long as minimum production continues.

We discussed how HBP clauses sometimes lead to “forced drilling” by producers to preserve drilling rights beyond the primary term. In the Haynesville, LA dry gas play there was a leasing frenzy in 2008-09 as producers rushed in to sign up landowners – typically with a 3-year initial term. Just as they began developing the shale in earnest, gas prices tumbled below breakeven levels ($4/MMBtu at the time in the Haynesville). But despite the poor economics, producers continued drilling because of the need to secure their leases by production. After the 3-year terms expired around 2011-12, new drilling and production declined. For reference, Figure 1 is the graph from Part I that shows the Haynesville lease timeline, production volumes, gas prices, and breakeven.