Monday's Review -- March 23, 2015

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This is going to be a long rambling post. Sorry.

Some days there is just too much to blog and this is one of those days. In addition, family commitments are such that a major portion of each of my days for the next two to three weeks could severely limit my blogging.

1. The Whiting story. This story seems to have more twists and turns than any story in the Bakken. It seems from "day 1" there was talk of Whiting looking to be sold. And we are still talking about it and a sale seems further away than ever. Note the disclaimer at the link and the blog's disclaimer. [Update: on DFW talk radio, it is being reported that WLL in pre-market trading is down 20% on Tuesday morning -- the morning after the announcement -- talk radio says this will have a ripple effect through the oil and gas industry.]

2. The Bakken as a laboratory. There are several stories coming out in the last 72 hours that look at the Bakken as a laboratory. These articles are very superficial but they might provide a bit of insight into the Bakken. This might be the most important for the general follower of the Bakken or the newbie: how Bakken operators are working to thwart OPEC. (The story is printed also at Rigzone.) I brushed over it in passing at this post but it deserves another "shout out." Perhaps if you have time to read only one article on the Bakken this week, this might be the one to read. From the linked article:

OPEC and lower global oil prices delivered a one-two punch to the drillers in North Dakota and Texas who brought the U.S. one of the biggest booms in the history of the global oil industry.

Now they -- the US drillers -- are fighting back.

Companies are leaning on new techniques and technology to get more oil out of every well they drill, and furiously cutting costs in an effort to keep U.S. oil competitive with much lower-cost oil flowing out of the Middle East, Russia and elsewhere.

“Everybody gets a little more imaginative, because they need to,” says Hans-Christian Freitag, vice president of technology for the drilling services company Baker Hughes.

Spurred by rising global oil prices U.S. drillers learned to tap crude trapped in shale starting in the middle of last decade and brought about a surprising boom that made the U.S. the biggest oil and gas producer in the world.

The increase alone in daily U.S. production since 2008 — nearly 4.5 million barrels per day — is more than any OPEC country produces other than Saudi Arabia.

But as oil flowed out and revenue poured in, costs weren’t the main concern. Drilling in shale, also known as “tight rock,” is expensive because the rock must be fractured with high-pressure water and chemicals to get oil to flow. It became more expensive as the drilling frenzy pushed up costs for labor, material, equipment and services. In a dash to get to oil quickly, drillers didn’t always take the time to use the best technology to analyze each well.

When I first start blogging, it took 45 - 60 days drill a well to total depth, and the majority of those were short laterals (about a mile). Now they are drilling two-mile lateral two miles down in ten (10) or less. Completion (fracking) tacks only a few additional days but may be delayed for weeks or months, for operational reason or financial reasons.

Different processes are being used for completion: keep your eye on coiled tubing.

When I first started blogging, I was used to seeing one (1) million lbs or less of proppant and 14 stages or less; now the standard seems to be around four (4) million lbs of proppant and 30 stages, but EOG is completing two-mile (long) laterals with 48 stages and upwards of 15 million lbs of sand.

When I first started blogging, there was a backlog of around 250 wells that needed to be fracked each month. The backlog was simply because of a shortage of frack spreads. The backlog increased over time, to 450 wells that needed to be fracked, and most attributed this to operational reasons (pad drilling). The consensus seemed to be that the frack teams could keep up but operationally (pad drilling) necessitated a delay in fracking. Suddenly, with the slump in oil prices the backlog went to 750 (in December, 2014) and then, incredibly, to 850 in the most recent report (January, 2015). North Dakota rules/regulations require that wells be completed / fracked within a year after they have been drilled. It will be interesting to see if a) that rule is not waived; and, b) if not waived, what happens this summer as the deadline approaches for an increasing number of wells.

3. Then there's this fascinating story: why is North Dakota so stable? Tectonically speaking. With regard to earthquakes. This is in the Pioneer Press:

Swarms of earthquakes have been rattling Oklahoma, Texas and other central states with a history of little or no seismic activity. The recent quakes, according to scientists, may be the fault of deep underground injections of wastewater left over from fracking.

But in North Dakota, where wastewater injection wells are abundant, the ground has remained largely unshaken.

So why are other oil-producing regions significantly more wobbly?

"It's actually a really good question," said Michael Stickney, director of earthquake studies for the Montana Bureau of Mines and Geology. "And I don't know that I have a good answer to it."

As it happens, a study published last month by researchers at the University of Texas at Austin explored the question, comparing drilling activity in Oklahoma and the Williston Basin, which holds the oil-rich Bakken Formation.

The study found no definitive explanation as to why earthquakes are rare in the Bakken, but one reason may be that higher volumes of wastewater are injected into some Oklahoma wells. 

Due to constraints of time, I will leave it at that. 

4. With regard to CBR, there has been a suggestion by our good neighbors in Minnesota, and specifically, a former writer for Saturday Night Live that trains should be re-routed around the Twin Cities. The Star Tribune via Bakken.com is reporting:

Government-ordered rerouting of private rail traffic is not exactly a snowball in hell. It is more like a blizzard in Bahrain — possible, but unprecedented.

In Minnesota and around the country, “rerouting issues ought to be high on everyone’s agenda,” said rail safety expert Fred Millar, who fought unsuccessfully against railroads to move chlorine trains out of the District of Columbia.

“But rerouting has been pushed off the table.”Congress created the Federal Railroad Administration in 1966. In nearly half a century it does not appear to have forced any railroads to reroute trains around big cities for safety reasons, despite computer modeling that estimates routing changes could lower citizens’ risks to hazardous materials derailments by 25 to 50 percent and reduce casualties in an actual derailment by half.

If CBR is important to you, a) be happy that Obama is preoccupied with Netanyahu and the Lynch-for-attorney-general nomination; and, b) Warren Buffett runs the Bakken Railroad.

4.  The 3% reduction in North Dakota oil production month-over-month (December, 2014 - January, 2015) means nothing. I won't be impressed with month-over-month production decreases until we see a) production decreases each month from here on out; or, b) production decreases of more than 5% month-over-month from here on out; or, c) a drop in production to less than 1 million bbls/day.

5. New metrics of interest to me: a) projected number of new oil permits for 2015; and, b) the number of wells waiting to be fracked each month. We are approaching the century mark: 100 active rigs in North Dakota. One-hundred rigs in 2015 can produce as much oil as 175 rigs did back in 2010.

6. Another story to follow: closing of man-camps. This was always the way it was planned. Man-camps during the boom, but once the boom ended, then workers in man-camps would migrate to fixed structures (motels, hotels, apartments, houses) as overall number of roughnecks and truck drivers in the Bakken decreased.

7. I am not going to the link the stories, but there is more and more "evidence" suggesting that Saudi Arabia is coming under more and more pressure from other OPEC countries and non-OPEC oil producing countries regarding the price of oil. "Everyone" blames Saudi Arabia for current slump in oil prices; Saudi Arabia refuses to take sole blame / responsibility. I can see Saudi Arabia's point, but I don't know why they are so defensive.

8. It seems there are two big stories that are inter-related and yet the mainstream media never connects the two. The first story is the slump in oil prices due to glut of global oil; the second is the unrest in the Middle East. If the prize for ISIS is Saudi Arabia, things could get very interesting very soon.

9. This will be a most interesting story to follow. Some say this will hurt the Seattle restaurant industry. Others say "not to worry." The Los Angeles Times is on record as saying the $15 minimum wage won't have any effect on restaurant industry in Seattle. Fox News is reporting:

Seattle restaurants are warning that the looming hike in the city’s minimum wage to $15 an hour could soon force them to cut back their staffs and raise prices. 

For an industry with a slim profit margin to start with, the wage hike could have a profound effect, even as supporters say it will benefit the economy in the long run. 

The increase, up from $9.32 an hour, is set to be phased in starting April 1. The initial minimum wage will be $11 an hour. Employers with 500 or fewer workers must increase their pay to $15 an hour by January 2019. Larger employers, having 501 or more workers, have just two years to raise their worker compensation to $15. 

If this law applies to McDonald's -- minimum wage of $15 / hour -- my hunch is that we will finally see iPad kiosk ordering. For the life of me, I've never understood why we haven't see this already.

Seattle's minimum wage increase is "somewhat gradual," compared to what they did in Oakland. Carpe Diem takes up the story from here.