Many Oil Firms Plan No North Dakota Layoffs -- Wednesday, February 4, 2015

Headline: GM reports much higher-than-expected fourth-quarter profit; raises dividend; possibly a larger dividend later this year; excluding special items, the largest U.S. automaker earned $1.19 per share, compared with the analysts’ average estimate of 83 cents; net income rose to $1.1 billion, or 66 cents a share, from $900 million, or 57 cents a share, a year earlier. North American profit margins for the full year were 6.5 percent.

MPC beats; see below.

Staples buys Office Depot for $6 billion.

I talked about this yesterday or the day before. The Market Realist is asking whether Europe is the "new Japan"?

Yesterday, yields on German 10-year bonds fell as low as 0.305%, while Japanese 10-year yields rose as high as 0.358%.

If your mouth is gaping wide in amazement right now, relax your jaws a bit until after you read the following point: The yield on the 10-year Swiss bond just reached -0.322%!

It almost sounds like we are making this up as we go along, but sadly the data is all true.

The ECB’s new 1.1 trillion euro quantitative easing plan and recent deflationary readings have propelled many regional European yields to negative levels.

Consumer prices have fallen 0.6% in Europe this year according to Eurostat, signalling that inflation will be well below the government’s 2.0% target for the foreseeable future. Is this a good thing? It could be positive for EU asset prices, as we saw with the U.S. five year quantitative easing experiment, but the European version of QE could be even worse for individual borrowers and the middle class than ours.

In fact, Swedbank (Sweden) just commented that “negative rates could trigger lending contraction” in response to bets that Sweden’s central bank will lower its repo rate below 0%.

So, QE would actually decrease lending in a negative rate environment? U.S. Treasury Secretary Timothy Geithner complained for years about the lack of U.S. bank lending holding back the recovery during QE, but that was only a lending slowdown with 0% rates. What if outstanding loans in Europe actually fell materially in a negative rate environment?

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Back to the Bakken

Active rigs:

	2/4/2015	02/04/2014	02/04/2013	02/04/2012	02/04/2011
Active Rigs	142	190	184	202	165

Many oil firms plan no North Dakota layoffs -- Reuters is reporting:

WILLISTON, N.D. (Reuters) - Halliburton, Statoil ASA, Hess Corp and other North Dakota energy companies have decided, for now, not to lay off staff in the No. 2 U.S. oil producing state, hoping to be prepared for any prolonged rebound in crude prices.

Many oil producers and their contractors are trying to strike a balance between cutting costs and maintaining workforce reserves after a more-than 50 percent drop in oil prices since last June.

Remember, HAL, SLB, Sanjel, BHI, and many other firms are looking at 750 wells that need to be fracked; the number could grow if fracking is slowed due to winter weather and spring road restrictions. 

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Bakken boom slows -- Rigzone is reporting:

The drop in crude oil prices in recent months has likely gone uncelebrated in the North Dakota town of Williston, or in the state as a whole, as exploration and production companies reduce or halt their drilling activity in the Bakken, that vast shale formation underlying North Dakota and neighboring Montana.

But how much has the state’s drilling activity been affected, and how long is the slowdown likely to last? The abrupt arrival of sub-$50 oil prices has been a shock to the oil industry, and the subsequent decline in drilling activity in the Bakken could, if continued, prove painful for a state that had until recently been riding high as an oil producing state and an economic powerhouse.

Between 2006 and 2013, North Dakota went from being the ninth-largest oil producing state to the second, behind only Texas, according to Bakken.com, an online shale publication centering on activity in North Dakota. It was not always that way.

Early in the new millennium, the state was steadily losing population and brainpower as new college graduates struck out for more alluring opportunities elsewhere. North Dakota’s future looked increasingly dim, if not dismal. 

More at the link; this article will likely be archived for subscribers only by the source.

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RBN Energy: Bakken CBR after the "crash." This article will likely be archived for subscribers only.

The combination of crashing crude prices and freight costs for long distance transport to refinery markets is tightening pressure on Bakken crude producer break-even economics. There is plenty of more expensive rail transportation capacity and not enough cheaper pipeline capacity to carry all production to market. For the moment producers appear to be sticking to favored markets on the East and West Coasts that can only be reached by rail. New pipeline capacity is two years away. Today we review the big shifts in North Dakota crude transport options.

At the end of December we provided an update on crumbling crude netbacks (crude selling price minus transport costs back to the wellhead) for North Dakota Bakken producers, following the price crash in the second half of 2014 (see Boom Clap The Sound of My Netback).

Since then U.S. benchmark crude West Texas Intermediate (WTI) prices have fallen below $50/Bbl – meaning the situation for crude producers has gotten worse. With North Dakota located in the middle of nowhere, much of the crude has to travel long distance to coastal markets where most refineries are located. In the absence of adequate pipeline capacity producers have used more expensive rail transport to get Bakken crude to refineries on the East and West Coast. That made sense back in 2012 when pipelines were highly congested and crude prices at coastal locations were at a premium.

Today cheaper pipelines should be the preferred option but rail is still the dominant method of transport to market. If production stays at current levels or increases, there isn’t enough capacity available anyway to ship all North Dakota production by pipeline. As a result, some barrels will still be shipped using more expensive rail options – further pressuring producer returns. Relief - in the shape of new pipelines - is still two years away - if those pipelines ever get built. Meantime more crude continues to be transported by rail than pipeline in-spite of the higher cost and resulting lower producer netbacks.

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Again, just a reminder, The Coyote Blog is one of the best blogs out there. Go to the link and simply scroll through all the posts. I think you will find the blog quite enjoyable.