Friday, January 9, 2015

It's Starting -- The Implosion -- January 9, 2015


January 10, 2015: it's getting serious now -- why oil prices could go below $35/bbl

January 10, 2015: without the details, China appears to have simply restructured $20 billion of debt with Venezuela "over the next decade."

Original Post

This is a huge story a reader sent to me, reported by Bloomberg. Folks are worried about Greece. There's a bigger worry coming down the pipeline (pun intended). I have no idea how big a deal the Greece story is (and I'm probably really, really ignorant on the subject) but however bad Greece is, one can only assume if Venezuela defaults and if Venezuela falls into anarchy, that's going to be a much, much bigger story.

Then the western African oil nations; they're next.

Libya, more of the same.

I wouldn't be a bit surprised if Mexico becomes a big, big story due to the slump in oil prices.

More on this later, but the linked Bloomberg story is huge. Didn't want to forget posting it.

The Bloomberg story begins:
Shoppers thronged grocery stores across Caracas today as deepening shortages led the government to put Venezuela’s food distribution under military protection.
Long lines, some stretching for blocks, formed outside grocery stores in the South American country’s capital as residents search for scarce basic items such as detergent and chicken.
“I’ve visited six stores already today looking for detergent -- I can’t find it anywhere,” said Lisbeth Elsa, a 27-year-old janitor, waiting in line outside a supermarket in eastern Caracas. “We’re wearing our dirty clothes again because we can’t find it. At this point I’ll buy whatever I can find.”
A dearth of foreign currency exacerbated by collapsing oil prices has led to shortages of imports from toilet paper to car batteries, and helped push annual inflation to 64 percent in November. The lines will persist as long as price controls remain in place, Luis Vicente Leon, director of Caracas-based polling firm Datanalisis, said today in a telephone interview.
Government officials met with representatives from supermarket chains today to guarantee supplies, state news agency AVN reported. Interior Minister Carmen Melendez said yesterday that security forces would be sent to food stores and distribution centers to protect shoppers.
Stories To Follow Up On

From Rigzone: nearly 2% of global crude oil could be cash negative at $40/bbl Brent.
A recent analysis by Wood Mackenzie found that 1.6 percent, or 1.5 million barrels of oil per day, of global oil supply could be cash negative on an operating basis if Brent crude falls to $40/barrel. Wood Mackenzie’s analysis of 2,222 producing oil fields, which account for 75 million barrels per day of total liquids production, determined at three price points the impact on oil production and percentage of global supply which will turn cash negative. The firm concluded that producers would begin shutting in production at $40/bbl Brent crude or lower, to a point where a significant reduction in global supply would result.
From Rigzone, John Kemp: Bakken oil producers need $55 to keep production steady.
North Dakota needs an oil price of around $55 per barrel at the wellhead and a fleet of about 140 rigs to sustain production at the current level of 1.2 million barrels per day, the U.S. state's chief regulator told legislators on Thursday.
Department of Mineral Resources Director Lynn Helms outlined breakeven rates for wells across the state and production projections for a range of prices in a presentation for the House Appropriations Committee of the State Legislature (
Breakeven rates for new wells, the level at which all drilling would cease, range from $29 in Dunn county and $30 in McKenzie to $36 in Williams and $41 in Mountrail. These four counties account for 90 percent of the drilling in the state.
Breakevens in counties on the periphery of the Bakken play, which have far fewer rigs, range up to $52 in Renville-Bottineau, $62 in Burke and $73 in Divide. But Flint Hills Resources' posted price for North Dakota crude was just $32, Helms said, compared with almost $49 per barrel for WTI. Wellhead prices, which are roughly an average of the two, are around $40 and have been falling since the start of this year.
Even before prices hit these minimum levels, drilling will slow sharply. The number of rigs operating in the state has already fallen to 165, down from 191 in October, according to the department.
From Rigzone, Shell to cut 5 to 10% of jobs at Canada oil sands.
Royal Dutch Shell will cut from 5 to 10 percent of the about 3,000 jobs at its Albian Sands mining project in northern Alberta, a company spokesman said on Friday, but refrained from connecting the move to plunging oil prices.
Spokesman Cameron Yost said the actual number of job reductions at the Canadian operation had not yet been finalized, adding it would be "well below" 10 percent.
The cuts were announced to Shell employees internally on Thursday. "It's not layoffs in the traditional sense of the word," Yost said. "It's adjustments to the organizational structure."
Albian Sands is the mining portion of Shell's Athabasca Oil Sands project near Fort McMurray, Alberta, which also includes the 255,000 barrel-per day Scotford upgrader.
Last February, Shell halted work on its proposed 200,000 bpd Pierre River oil sands mine in Alberta, saying it was re-evaluating the timing of various asset developments. Asked whether the reductions were related to the halving of global oil prices in the past six months, Yost said: "Even if oil price had remained stable we would still be looking at these areas of our business."

Week 1: January 4, 2015 -- January 10, 2015

MDU will delay marketing Fidelity E&P (Bakken acreage)
Random update on three huge Whiting wells
SM Energy to exit mid-Continent, close Tulsa office; focus on Bakken, Eagle Ford
QEP with another huge well in the Grail

Just how tight is takeaway capacity in the Bakken?

MDU's refinery near Dickinson to be operational early 2Q15; looking at second refinery in Minot area;

Bakken economy
North Dakota best state for job creation, 2014
Random update on building permits in Dickinson

Did Harold Hamm's wife accept divorce agreement?
Blowout in McKenzie County; 600 bbls; no injuries; no follow-up stories in Dickinson Press
18 months in the Bakken -- Vern Whitten Photography

Record for number of wells coming off confidential list in one day?

MillionDollarWay went over 7,000,000 page views

Timing Is Everything -- Can The Tuscaloosa Marine Shale Survive -- January 9, 2015

RBN Energy: Can the Tuscaloosa Marine Shale Survive?
Producer pioneers in the Tuscaloosa Marine Shale (TMS) are finally figuring out how best to wring large volumes of Light Louisiana Crude from the oil-rich play’s notoriously complex geology. But are they “cracking the code” at just the wrong time, when crude prices are crashing and investors are shifting their focus to shale-play sweet spots with low drilling costs? Some say no; that fine-tuned completion formulas, declining drilling costs and a favorable tax environment make the TMS a “go”, even in these tough times. But others say yes; that it’s time to move on from the TMS, at least for now. Today we revisit the still-promising TMS in central Louisiana and southwestern Mississippi, and assesses whether the play many consider to be the next big thing needs to wait for higher oil prices to shine.
These articles are generally archived very quickly. 

Canadian Crude Oil Exports To The US

Market Realist is reporting:

US Oil Imports

Market Realist is reporting:

Four (4) New Permits -- January 9, 2015

Active rigs:

Active Rigs167193182200163

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

Four (4) new permits --
  • Operators: EOG (3), Hess
  • Fields: Parshall (Mountrail), Ellsworth (McKenzie)
  • Comments:
Five (5) producing wells completed:
  • 26644, 1,849, MRO, Big Eagle USA 41-17TFH, Van Hook, t12/14; cum --
  • 27816, 1,952, QEP, TAT 33-28-34-27LL, Grail, t8/14; cum 63K 11/14;
  • 27836, 1,415, MRO, Richanda USA 21-4H, McGregory Buttes, t12/14; cum --
  • 28111, 1,675, MRO, Susana 14-23TFH, Bailey, t11/14; cum 19K 11/14;
  • 28233, 681, Statoil, Myron 9-4 5H, Squires, t11/14; cum 2K 11/14;
Well name changes:
  • CLR is changing the names of three Thorvald wells suggesting different targets. In two of the cases, it is simply swapping the middle Bakken for the upper Three Forks and vice versa, but in the third name change, CLR appears to be targeting the middle Bakken instead of TF2. This may mean "nothing" or there may be a reason why they are doing it at this time.

Californians May Want To Keep A Hand On Their Wallets, Purses -- Though It Won't Do Much Good -- Look For More Fees, Taxes -- January 9, 2015

Two stories.

Governor Brown releases $164.7-billion budget plan, calls for restraint:
“Now we have a carefully balanced budget, more precarious than I’d like, but it is balanced,’’ Brown said at a morning news conference at the Capitol. “It’s not a time for exuberant overkill on our budget spending.’’
Among the most notable aspects of the governor’s proposed budget was what was missing. The spending plan did not set aside funds for providing Medi-Cal for undocumented immigrants, a proposal under consideration in the California Legislature.
The proposal does not include an extra $100 million that the UC Regents say is necessary to avoid a tuition hike. Instead, Brown said his administration will work with university leaders to “reduce the costs structure.’’
Brown’s proposed budget also lacks funding for a major overhaul of state roadways and pressing other infrastructure needs in the state. Brown did say, however, that he will work with Democratic and Republican leaders in the Legislature to craft a plan to address those needs.
I guess you can balance any budget if you don't include all the "must-pays." I know when I was much younger I could balance my budget and still have money left over if I didn't pay the rent or make the car payment. LOL.

California's soaring healthcare costs bode ill for the budget.
California's budget, which bounced back after years of deficits, is now being squeezed by rising healthcare costs for the poor and for retired state workers.
The mountain of medical bills threatens to undermine Governor Jerry Brown's efforts to strengthen state finances — his central promise of the past four years.
Enrollment in the state's healthcare program for the poor, known as Medi-Cal, has exploded by 50% since President Obama's signature law took effect. Although the federal government picks up most of the tab, state costs have also been growing, and faster than expected.
Meanwhile, the annual bill for healthcare for public retirees — a benefit promised decades ago — has more than doubled in the last decade. Current and retired workers have accumulated $71.8 billion in healthcare benefits as of June last year, and the state has set aside almost nothing to cover the costs.
University of California officials say more funding is necessary to avoid a tuition increase that the governor opposes. State roads need tens of billions of dollars in overdue maintenance. And some of Brown's fellow Democrats are already pushing for more services for the poor.
This particular linked story goes into much more detail how onerous health care costs will be.

And so it goes. 

It will be interesting to see if we see articles on declining oil and gas revenue in California this year: Jerry Brown wants folks to use less, much less, gasoline, and with slump in oil prices, one would expect less CAPEX spending on the front end and less tax revenue on the back end.

More On Apple

Yahoo!Finance is reporting:
If more apps equals more phones, Apple Inc. could be headed for a record-breaking quarter.
Many analysts already felt that the tech giant had sold a large number of iPhones. Apple reinforced that belief when it announced that customers spent nearly $500 million on apps and in-app purchases during the first week of January.
Better still, Apple set the all-time record for single day App Store sales on New Year's Day 2015.
"I think this is a wakeup call for all the analysts," Global Equities Research analyst Trip Chowdhry told Benzinga.
"More developers equals more applications, [which] equals more devices being sold. This is the only reason why Apple will be wickedly successful and why the competition will be a total failure because the competition is clueless about the winning equation."
Apple Pay is gearing up for a big year in 2015, while PayPal may expand further into traditional retail banking.
Apple Pay, Apple Inc.’s  answer to avoiding a wallet full of plastic, will be the next big star on prime-time television.
Product placement is as prevalent as ever on television.
Apple Pay will likely appear in a major TV show in 2015, and will enjoy a spike of consumers and merchants accepting its usage as a result.
Apple is also likely to push the product overseas and “Europe seems the next stop."
A recent job posting for an internship to help oversee non-disclosure correspondences with partners in Europe is a “pretty strong indication” that Apple Pay Europe is coming soon.
Disclaimer: I post links to articles on Apple for several reasons. First, I grew up with Apple. I am officially Apple Fanboy #3. Or maybe unofficially. I don't invest in Apple directly; I have never owned shares of Apple in my name, but I can no longer say I never will. I love the technology; I love the story (coming from out of nowhere in 1984); I love the vision Steve Jobs had. 

Second, I need to follow some technology company to sort of keep up with technology. Right now I'm listening to my own personal "radio station" on iTunes through the "new" UE Boom. No advertising. No interruptions. Just non-stop, free music. 

Third, I'm doing this for a reader of the blog who happened to mention some time ago he/she owns shares in Apple.

And there was a fourth reason, but I forgot. Be that as it may, this is not an investment site. Do not make any investment, financial, or relationship decisions based on what you read here.  

MDU (Fidelity) To Delay Marketing Of Its Bakken Acreage; MDU Looking At Second Refinery In Minot, ND, Area -- January 9, 2015

It's cold out there. I just talked to my dad in Williston, North Dakota. He has lived a lot of winters in Williston -- ever since 1950 or thereabouts. He says this is a pretty tough winter ... but he wouldn't want to be living anywhere else. He celebrates his 93rd birthday this year and still goes into the office every day. He was in the office today even though the bus was not running because it was too cold -- yes, you read that correctly. It was too cold for the daily bus to run. Dad found a neighbor to drive him to work on the other side of town. I doubt my dad knows phone numbers of his neighbors, so he probably walked outside and walked up to the first person he saw who was warming their car. Dad says he is not bashful. LOL.

He has about a half dozen places to go each morning: the office, the bank, the post office, and then to lunch. He goes to the bank to check the market. The bus normally takes him but he says he can always find someone to take him where he needs to go.

I did not mention to him that it is actually warmer on Mars today than it is in much of the US. The Daily Mail is reporting: Temperatures on the red planet were warmer on Thursday than fourteen states from Washington to Maine.

Dad told me it's just as busy as ever in Williston, though he operates in a smaller world than most folks in the oil patch so he may not be aware of some changes in activity.

He is very, very happy with his investment portfolio (no bonds that I know of; he is fully invested in equities and has a long horizon, about 20 years, I believe. I wish I could provide some of his better holdings, but a) it would not be appropriate, and, b) most folks would not believe me what he has invested in. He is a better investor than I am and he doesn't use the "internets." 

Slump In Oil Prices 

Earlier posts comparing internal rates of return and "break-even" costs in the various oil plays around the nation appear to have been fairly accurate. See AP report on the Permian.

In addition from Rigzone: Tough Times Ahead for Offshore Norway in 2015.
In northern Europe, offshore Norway has in recent years been regarded as one of the more profitable, and even exciting, regions for oil and gas operators to be involved in.
Norway represents a rare combination in the world's oil and gas industry in that it offers energy companies the stability of a maturing basin with well-developed infrastructure along with frontier exploration opportunities.
Not only have companies like Statoil ASA led a technologically-driven approach to maximizing recovery of hydrocarbons from the Norwegian North Sea, squeezing ever more energy out of fields that are often decades old, but the promise of Arctic oil treasure has also seen exploration forays into the Norwegian zone of the Barents Sea.
However, the sudden rapid drop in the price of oil in recent months poses a question about how much new activity will be taking place on the Norwegian Continental Shelf over the next year or so.
For example, Statoil suspended more than a third of its fleet of exploration rigs in 2014 and in early December the firm took the decision to extend the suspension of three drilling rigs as part of its struggle to cut costs as its profit margins shrink.
It has also decided to postpone until October 2015 a decision that had been due in March about whether to go ahead with a new platform at the Snorre field in the Norwegian Sea.
Statoil believes the project could be used to extract an additional 240 million barrels of oil from the Snorre field, but it would also cost the partners in the field more than $5 billion.

Initial production numbers have been posted for wells coming off confidential status today

Active rigs in North Dakota:

Active Rigs166193182200163


MDU will delay marketing of its Bakken acreage:
The company also announced that it expects the Dakota Prairie Refining facility, which it is developing in conjunction with Calumet Specialty Products Partners, L.P., to begin commercial production of diesel fuel and other products in the second quarter of 2015.
Dakota Prairie Refining had expected to begin production by December 31, 2014, but experienced delays from severe winter weather in November and late revisions to electrical systems and controls.
The facility’s cost now is expected to be more than $400 million. Construction costs and returns are shared equally with Calumet.
“Although we are disappointed in the delay and cost increase at the refinery, we anticipate good returns from this facility,” Goodin said. “In the future, we expect there will be opportunities to improve financial performance of the refinery through debottlenecking and other strategies. We also will benefit from experience gained with this project to help develop future projects, such as a second plant presently being evaluated near Minot, North Dakota.”

US payrolls rise "solidly"; unemployment falls to 5.6 percent; participation rate continues to drop.
Nonfarm payrolls increased 252,000 last month after a revised 353,000 jump in November, the Labor Department said on Friday. The unemployment rate fell 0.2 percentage point to a 6-1/2 year low of 5.6 percent. However, some of the decline reflected people leaving the labor force. 
Some data points from Bloomberg:
  • Job growth last month was highlighted by the biggest gain in construction employment in almost a year. Factories, health care providers and business services also kept adding workers in December.
  • The median forecast in a Bloomberg survey of economists called for a 240,000 advance in payrolls. Estimates of 99 economists ranged from gains of 160,000 to 305,000 after a previously reported 321,000 November increase. 
  • The participation rate, which indicates the share of working-age people in the labor force, decreased to 62.7 percent from 62.9 percent. 
  • Wage gains have lagged behind the pace of employment growth. But that should improve with new minimum wages in almost every state of the union. 
This is the most interesting data regarding falling wages: wages fell by 5 cents, but more notable, hours are average 34.5 hours/week. Remember: with ObamaCare, employers are encouraged to keep "full-time" employees at less than 29 hours so as to be able to call them "part-time" and not provide health care.

And, of course, the market knows why the unemployment rate dropped -- folks dropping out of the labor force. The average American does not know how the unemployment rate is calculated.


Disclaimer: this is not an investment site. Do not make any investment, financial, or relationship decisions based on what you read here. See disclaimer.

NAT: raised its dividend from 14 cents to 22 cents.

EEP: raised its dividend.

US oil imports dip.

It appears the terrorists in Paris who killed 12 innocent people were first driven to terrorism after seeing the Abu Ghraib pictures posted in The New York Times.  I'm not saying I condone what happened in the prison, but it was the photos released by The Times that incited the terrorists to begin with. Yes, I know, the photos would have shown up anyway without The Times.