From The "For What It's Worth" Department -- May 21, 2015

This is not an investment site. Do not make any investment or financial decisions based on anything you read here or think you may have read here.

I received a long note from an analyst in the UK -- one of many such notes I receive in the course of a  day. I normally don't read them, consign them to spam, and move on. For whatever reason this one caught my attention, and so I will post it. It's from "Jonathan Lacouture, GlobalData’s Upstream Analyst for Onshore Americas."

Of the nine short paragraphs in the analyst's comments, here are six paragraphs (the analyst based his comments on IP30 -- a well's average production over its first 30 days of active life):

While the 12 counties with Bakken production between North Dakota and Montana have lost the majority of their horizontal rigs over the last eight months, core areas of the shale play remain attractive, especially as oil prices creep towards $70 per barrel, says an analyst with research and consulting firm GlobalData.

Lacouture explains: “Mountrail and Mckenzie Counties both possess median IP30 values of 550 barrels per day, between 17% and 50% greater than the other counties which contain productive Bakken areas.

“Both counties possess break-even prices that still generate profit in the current market; however, the margin of this financial gain is dramatically lower than the same date last year. This is reflected starkly by the over 50% drop in active rigs capable of multi-stage lateral drilling in the Bakken.”

The analyst adds that rig activity will likely remain depressed until prices are up to twice their break-evens. Rig counts have already begun to level off in core areas as the price continues to slowly rise and economic returns increase with it.

Lacouture continues: “The scalable nature of the Bakken affords it a flexibility which allows marginal cost barrels to be gradually added or removed, as quickly or slowly as prices allow.

The analyst concludes: “If a given Bakken well produces over 50% of its total estimated ultimate recovery (EUR) in the first nine months of activity, withholding on drilling and completing wells by a few months to a year, until prices climb to, say, above $70 per barrel, will prove more economically fruitful than the alternative.”

Wells in the best Bakken should have in excess of 1 million bbls EUR. I am unaware of any Bakken wells have produced 500,000 bbls in the first nine months of production. I honestly don't see (m)any Bakken wells producing 50% of their EUR in the first nine months of production. Poorer Bakken wells on the edges of the Bakken with EURs of 350,000 bbls are certainly not going to produce 175,000 bbls in the first nine months of production.

But I could be wrong. Way wrong. Take what I say with a grain of salt and don't make any decisions based on what you read here or what you think you may have read here. This is simply an opinion from someone with no formal training and no background in the oil and gas industry. I blog about the Bakken simply because I am trying to understand it better and it gives me something to do when I'm not with our granddaughters.

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Will The Chinese Build Another North American Railroad?

Reuters is updating:

Chinese state firms are poised to be strong contenders in the race to make high-speed trains that will sprint between Los Angeles and San Francisco, part of a $68 billion project to bring the service to the United States for the first time.

While "bullet train" manufacturers from Germany, Japan, South Korea, and France are expected to be among those jockeying for the estimated $1 billion train contract, China’s ability to offer low prices and hefty financing appear to make it the one to beat, say lobbyists and industry insiders.

Lacking experience in the technology, California must turn to foreign firms to build the trains – albeit domestically and with American workers - setting off a geopolitical race to grab a foothold in the nascent U.S. high-speed rail industry.

Germany's Siemens is expanding its rail factory in Sacramento to incorporate a “high-speed lot.” Japan has voiced its interest, boasting a record of no fatal accidents in over 50 years operating high-speed trains. France’s Alstom, which produces rail cars in upstate New York, is also a potential contender.

Awarding a piece of America’s most ambitious and expensive infrastructure project in decades to strategic rival China – over a long-term ally such as Japan - would be prone to political controversy.