Wednesday, February 25, 2015

Follow-Up On That $181 Million Nuverra Lawsuit -- February 25, 2015

I had forgotten all about this one. 

The original story was posted here. At that time, despite the $181 million lawsuit, "...based on the pre-award analysis of the case, Heckmann Water Resources exposure in this matter was not expected to exceed its available insurance limits of $16 million."

Here is the follow-up in a Nuverra press release, dated July 16, 2014:
Nuverra has agreed to fund $5.5 million of the total settlement amount to fully resolve the matter. The settlements were fully approved by the District Court of Dimmit County on July 15, 2014. Terms of the settlements, including the total settlement amounts and the portion paid by the Company’s insurer, are confidential. These settlement agreements include all plaintiffs and the Company’s insurer and release Nuverra and all of its subsidiaries from all past and future claims or liabilities related to this matter.
The Company will take a charge related to the settlement in the second quarter ended June 30, 2014, which will include the $5.5 million one-time cash payment and related legal fees and defense costs. 
Surprise, surprise -- came in well under the "available insurance limits."

I wonder how the jury came up with the initial $181 million, rather than, let's say, $179 million or $183.5 million. Ya gotta love these Texas juries.

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
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:

Active Rigs121190181204169

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.

ONEOK To Halt Work On Three Mid-Continent Gas Plants -- February 25, 2015

Link here.

The three projects:
  • In mid-2014, Oneok announced plans for the 200-MMcfd Knox plant in Grady and Stephens counties, Oklahoma. It was to spend $365-470 million by expected plant start-up in late 2016. The Knox plant was to increase Oneok’s Oklahoma gas processing capacity to 900 MMcfd. Estimated costs included $175-240 million to build the plant and $190-230 million to build related systems, including gas gathering pipelines and compression.
  • The 100-MMcfd Bronco plant being built in southern Campbell County, WY, was to serve production from the NGL-rich Turner, Frontier, Sussex, and Niobrara shales. At its announcement in second-half 2014, Bronco was expected to cost $215-305 million to build towards a third-quarter 2016 completion. Oneok was spending $130-190 million to build the plant; $45-60 million to build a 65-mile, 10-in. NGL pipeline to connect it to Oneok’s Bakken NGL pipeline lateral; and $40-55 million to build related gas systems. 
  • The 200-MMcfd Demicks Lake plant in McKenzie County, ND, is part of 500 MMcfd of processing under way in the county, including the 100-Garden Creek III plant that was to be completed at yearend 2014 and the 200-MMcfd Lonesome Creek plant scheduled for completion in fourth-quarter this year. 
I track the ONEOK natural gas processing plants in North Dakota at this post

A "Re-Set"? -- February 25, 2015

On February 23, 2015 I wrote:
I don't know when we will see the low in the price of oil, but whatever it is and whenever it occurs, that's the "re-set" as Hillary would call it. Whether the low is $50 or $40 or $20, at some point oil will hit its low. I'm pretty convinced that the low of $20 or $40 or won't last for years; possibly $50, but I doubt it; even $60 for several years seems a stretch. But whatever the low is, that will be the new "low," the new re-set going forward. If the the low hits $20, and oil goes back to $40 in 2017, that's a doubling in price. I'm not looking for those numbers, but just suggesting how the "re-set" becomes quite interesting -- for investors.  
An example of the "re-set" for investors: SM Energy surged 13% today.

See disclaimer. This is not an investment site. Do not make any investment decisions based on anything you read here or think you may have read here. I have never bought any shares in SM Energy and don't plan to do so in the near future.

Tweeting now:
Guinea, Liberia, Sierra Leone report 99 new confirmed Ebola cases in week ending Feb. 22, per World Health Organization - @Reuters
At least it's hard to catch. 

Boston To Host Early Winter Olympics, June, 2015 -- Rumor; What Causes Reasonable People To Doubt Reason?

I was sent a rumor that Boston will be hosting an "early" Winter Olympics, June, 2015, in the MIT parking lot. This is the site for downhill ski races and the bobsleds:

The "early" Winter Olympics is contingent upon the light rail system (the "subway") being back on track (pun intended) by then.


The cover story in this month's issue of The National Geographic (March, 2015): "The War on Science" with this list on the cover:
  • climate change: does not exist
  • evolution; never happened
  • the moon landing: was fake
  • vaccinations: can lead to autism
  • genetically modified food: is evil
I was surprised to see that these two were not added to the list:
  • the Keystone XL: will add to CO2 emissions
  • fracking: causes earthquakes
What's causing reasonable people to doubt reason, the editors ask? Exhibit A:

Update On Canadian Oil Sands -- February 25, 2015; BP Begins Exporting Ultralight Crude Oil From Houston

Before we get to the Canadian oil sands story, this short blurb from Houston Business Journal:
London-based BP has begun exporting ultralight crude oil, called condensate, from the Houston Ship Channel.
While exporting crude oil remains illegal, the federal government has begun to allow more leeway for exporting lightly processed condensate produced from Texas' Eagle Ford Shale, even though exact clarity on what is allowed is somewhat lacking.
Reuters is reporting:
Oil sands cash flows will fall by $23 billion in the next two years, energy consultancy Wood Mackenzie said in a report on Tuesday, as low global petroleum prices make it less economical to extract bitumen from northern Alberta.
Canada's oil sands hold the world's third-largest proven crude reserves after Saudi Arabia and Venezuela, but operating costs are among the highest globally, according to Wood Mackenzie principal analyst Callan McMahon.
Current operating costs reach $37 per barrel for thermal projects, in which steam is pumped underground to liquefy tarry bitumen so it can flow, and $40 per barrel for mining projects.
With benchmark U.S. crude trading around $50 a barrel, down from more than $100 in June, McMahon said the oil sands region's cash flows would drop by $23 billion in 2015 and 2016 combined.
Producers including Suncor Energy Inc, Cenovus Energy Inc and MEG Energy have slashed 2015 capital expenditures in response to the oil price slump.
CAFE Standards? What CAFE Standards

Bloomberg Business is reporting:
Something strange happened two years ago at Switzerland's annual caucus of ultra-luxury car makers. Rolls-Royce, a brand dedicated to the driven, not the driver, unveiled a vehicle that had just two doors, an engine the size of a small Jacuzzi, and a transmission that pinged satellites in order to adjust to the road ahead. The Wraith, as it was called, had no space for a jar of Grey Poupon.
“We’re evolving,” says Eric Shepherd, president of Rolls-Royce North America, about the shift into a sportier model. “Take a 22-year-old guy who just sold his app company for $22 million. When he gets behind the wheel of a Wraith, he’s hooked.”
Things have grown ever more strange for the one percent on four wheels. The fancy cars seem to be multiplying and taking unexpected shapes. Bentley moved to build an sport utility vehicle in 2013, a decision matched by Rolls last week. 
Ferrari has brought out a 963-horsepower supercar with an electric motor, which has since been joined by an $840,000 Porsche with two electric motors. Orders and eager deposits started have been pouring in.
By the way, this makes the Tesla problems all the more interesting: there are no shortage of multimillionaires and billionaires ready and willing to buy expensive cars -- but apparently not Teslas. One almost gets the feeling that Tesla couldn't be at a worse price point: too expensive for most of us, but not expensive enough for the top one percent.

Once the weather improves and I start biking again, I'm going to look for some Ferrari / Porsche re-charging stations here in DFW metroplex. LOL.

Statue of Liberty Probably Won't Go Underwater This Year -- Or Ever, Despite National Geographic Cover

Forbes is reporting:
Yet another bitterly cold, snowy winter is destroying alarmist global warming claims, proving once again that over-the-top global warming predictions are proving no more scientifically credible than snake oil.
This morning, stunning photos show New England lobster boats frozen in port, looking like they are stranded deep within the Arctic Circle. The boats have been frozen in place for weeks, which would be remarkable enough if this were the middle of January. However, the calendar is about to turn to March.
Connecticut is experiencing its coldest February in recorded history. So is Michigan. So is Toronto. Cleveland and Chicago are experiencing their second coldest February in recorded history. Frigid and record cold temperatures are being set from Key West to International Falls. At the same time, blizzard after blizzard is burying much of the nation with record winter snow totals, with winter snowfall records beings set from Boston to Denver.
The Kennedy children and grandchildren are seeing more snow than ever this year:
Many global warming activists are still attempting to defend the discredited IPCC prediction, claiming a single winter does not invalidate a long-term trend. The problem with such an assertion is that last winter was exceptionally cold and snowy, too. And winters nationwide have been getting colder for the past 20 years.
Objective scientific data show winters have been getting colder and colder throughout the United States for the past two decades. When global warming alarmists claim winters will become warmer and free of snow, yet their predictions are proven false for 20 years in a row, at some point logical people come to realize that global warming alarmists are selling snake oil.
Another global warming activist tactic is to argue that global warming actually causes more snow. Of course, this is exactly the opposite of what they used to claim, as shown in the IPCC prediction. Moreover, real-world scientific data prove their new claims false.
Global warming activists argue that warmer air can hold more moisture, so winter snow storms that used to bring 12 inches of snow now bring 14 inches of snow. The problem with this new assertion is – as documented above – winter temperatures are substantially colder now than they used to be. Global warming activists cannot claim recent record snowfalls are caused by warmer winters when winters are in fact much colder than they used to be.

Wednesday -- February 25, 2015; Huge Earnings Report For Target

This is really quite amazing, concerning all the headwinds: the DOW, S&P, and NASDAQ are all trading at or near new highs. Target is particularly interesting among the companies reporting today. 

Reporting today:
A Note to the Granddaughters

Back on May 6, 2014, I mentioned that I was reading / had almost completed Rocket Girl: The Story of Mary Sherman Morgan, America's First Female Rocket Scientist, c. 2013. Ms Morgan was one woman among 901 employees at North American Aviation (later renamed Rocketdyne). She was the inventor of hydyne -- the rocket propellant that boosted America's first satellite, Explorer 1, into orbit. Her invention helped rescue America's tarnished reputation in the wake of Russia's launch of Sputnik 1 and 2.

I happened to pick the book up again this morning, for something to read while waiting to pick up the granddaughters for school. It's an incredible book.

Her story stands in stark contrast to President Obama's veto of the Keystone XL.

Speaking Of The Veto

This is kind of interesting. Generally the number of comments to any business article run from none (0) to maybe 20. Occasionally there maybe 50 comments but it's rare. Don told me to look at the number of comments to the AP article after President Obama vetoed the Keystone XL. Within the first few hours, the number of comments exceeded 14,000. Today, the number is up to over 17,000. The general gist of the comments decried the short-sightedness (and other words to describe) the president's veto, especially coming just days after that horrific railroad derailment in West Virginia carrying highly explosive Bakken crude oil.

This is from the Fiscal Times:
The bipartisan nature of the vote (in Congress) represented, and perhaps underrepresented, the broad approval of Keystone XL among the American electorate. A CNN poll in January showed that 57 percent of Americans wanted it approved, while only 28 percent opposed it. ...
With this level of general agreement on a significant issue, one might think that a president who wants to find ways to “work together” with Republicans on bipartisan initiatives, as Obama repeatedly promised, would have signed the Keystone XL bill. That, however, assumes that Obama wants to “work together,” and actually supports moderate and bipartisan initiatives. This veto shows clearly that Obama, as Louisiana Governor Bobby Jindal said in his response to Obama’s action, is “a pawn of the radical Left.”
Obama has talked about generating jobs in America. The Keystone XL project would create tens of thousands of direct and indirect good paying jobs for the duration of its construction phase, and would continue to support job creation in Louisiana, a point Jindal emphasized in his response as well.
The Obama administration has been dismissive of this claim, pointing out that the jobs would be temporary. That’s true – but the mythical “shovel-ready jobs” from Obama’s 2009 stimulus plan were just as temporary, if not more so, being mostly generated in public-infrastructure maintenance that only lasted a few months to a year. Plus, this project did not require massive government spending, as the companies that benefit from the pipeline would have funding most of the effort. It would cost Obama almost nothing to create those jobs other than the ink it took to affix his signature to the legislation.
The statement that Obama issued with his veto fumbled through excuses and hypocrisy while failing to give any good reason for blocking the project. He accused Congress of “attempt[ing] to circumvent longstanding and proven processes” for approving cross-border pipelines. Congress intervened, though, because Obama sat on the project for the entire six years of his presidency rather than allow those processes to come to a conclusion.
Obama insisted that he wants to wait for the existing process, through the State Department, to be complete before making a decision on Keystone. A decision now “cuts short through consideration of issues that could bear on our national interest,” Obama states, as though six years isn’t sufficient time to consider anything.
We fought and defeated Nazi Germany and imperial Japan simultaneously in less than four years. In this case, State issued a finding over a year ago that the pipeline project would be neutral on climate change and would not have a serious impact on the environment. That was actually the second time in two years the State Department reached that conclusion. Congress didn’t attempt to circumvent the process; they want Obama to quit stalling.
I don't think the president has done one thing in his administration on his own; he has always let others run the show. Pelosi, Reid, Schumer, Baucus ran the ObamaCare show. And now with the Keystone, he says he wants the State Department to take the lead.

President Obama: leading from behind. Actually not even leading; most golfing. Enjoying the good life, along with Michelle.

Another Note To the Granddaughters

One of the pleasures I often share with our older granddaughter is stargazing. I keep a huge, circular star map in the back of the car just for that purpose. Growing up in Williston, I remember that whenever walking home late at night -- especially during the winter -- I would look for the North Star, the Big Dipper, and Aurora Borealis. It appears that down here in Texas, the constellation Orion is the easier one to find, and then, of course, one can find the rest.

A reader sent me a link to a story on other stargazers: Forbes is reporting --
A mission by the European Space Agency to measure and map the Milky Way promises to give astronomers a precise, detailed, and three-dimensional view of our galaxy. The five-year project will generate more than a petabyte of data on the makeup, position, motion, and other characteristics of a billion stars.
The satellite will record the position, brightness, and color of every “celestial object” within view. In fact, it will measure them repeatedly. That way, astronomers will be able to calculate the distance, speed, and direction of motion of the objects and chart variations in their brightness.
The thing that struck me about this story, is the absolute immensity of the universe. This project is "simply" tracking the stars in the Milky Way.
 The mission will result in a 3D map of the Milky Way that plots stars to a distance of 30,000 light years. An earlier star-mapping ESA mission called Hipparcos—launched in 1989 and concluded a few years later—recorded about 118,000 stars at distances of 300 light years.
Even with the vast scope of this mission—mapping a billion stars over five years—Gaia is only scratching the surface of what’s out there. The Milky Way contains more than 100 billion stars.
Nope, Incorrect

The headline is absolutely incorrect. Kemp has a long piece in Rigzone, February 25, 2015, commenting on President Obama's veto of the Keystone XL.

I've always "respected" Kemp but the headline really caught my attention:
Kemp: Keystone Shows Environmental Review Process Is Broken
Say what? The presidential veto of the Keystone XL bill (and the president's long objection to the Keystone XL) has nothing to do with the environmental review process. This was all politics and ideology, though I imagine more politics than ideology.

Fortunately the article is much more "correct" than the headline. Early in the commentary:
But by citing established procedures and the need not to short cut a thorough examination of the issues, after more than six years of environmental reviews, the president's staff demonstrated they have absolutely no sense of irony and a deeply cynical approach to governing.
The president's advisers insist the administration has not yet taken a decision on the merits of the pipeline and is still waiting for the State Department to finish its long-delayed review.
The president's spokesman has insisted it is still "certainly possible" that he could authorise the pipeline in the normal way if he concludes that is in the national interest.
The administration insists its objections are procedural and centre on the attempt to take a decision that is notionally about foreign relations, a traditional area of executive branch prerogative, out of the president's hands.
But the fiction that the administration is keeping an open mind about the project while insisting the normal process is observed is becoming impossible to sustain.
The president himself has made a series of increasingly critical comments in recent months about the pipeline which strongly suggest he has made up his mind to reject it.
On the other hand that sounds very naive. Everyone in the US knew the president would veto the bill. I assume before rejecting the bill, he called both Reid and Pelosi to confirm he was doing what they wanted him to do.

Wednesday -- February 25, 2015

Active rigs:

Active Rigs121190181204169

RBN Energy: why "high" production will continue even as rigs are coming down.
Producer rates of return are far below where they were a few months back, and the Baker Hughes crude rig count is down 553 since November. A third of pre-crash crude rigs are now idled. That means that crude oil production will be falling soon, right?  Not necessarily.  There are a number of factors working to keep production up, not the least of which is the rapidly declining cost for drilling and completion services.  Today we examine the impact of these factors, review RBN’s crude oil production scenarios and consider what it all means for the long-term relationships between prices, returns and production volumes.
This blog builds on our analysis of production economics, productivity improvement and factors influencing producer behavior in several postings over the past few weeks.  In It Don’t Come Easy Part 1, Part 2 and Part 3, we showed that with prices in the $50/bbl range, rates of return for most crude oil plays are breakeven at best.  We made the point that there are a lot of assumptions imbedded in that analysis, including no change in current producer productivity and no change in drilling/completion costs from last year. We’ll get back to that one a little later. 
In Getting Better all the Time – Productivity Improvements, Crude Production and Moore’s Law we showed how much drilling productivity has improved over the past few years, and speculated that new rounds of improvement could be driven by producers doing what it takes to survive in a world with lower oil prices.
Tesla Skyfall

Business Insider is reporting:
Given that Tesla missed on earnings expectations for its fourth quarter and was unable to deliver 1,400 cars (out of a total of 35,000) in 2014, all eyes are now focused on whether the company can justify its still lofty stock price and $26 billion market cap.
That's why Lovallo's bearishness is important. He's predicting a nearly 70% decline in Tesla's stock price.
That's a massive collapse. Massive. Bottom line: Lovallo thinks Tesla is a lot of smoke and mirrors:
We believe Tesla has seemingly managed to offset a steady stream of negative news and weak financial results by issuing long-term targets that, in our view, are often quite difficult to fathom. We believe that baring a significant reset in investor expectations, this strategy is certain to lose its luster, particularly considering what we see as the long road of challenging financial results and cash burn that lie ahead. 
Lovallo's bear case is part of a larger trend among Tesla's financial followers. Since the middle of last year, Tesla's story has changed from being a narrative about a booming stock to being a tale of a manufacturing company with a lot of ground to cross between where it is now and where it says its business will be in five or 10 years.
I've always felt Tesla was a scam as an automobile company. I've always felt it was a battery company disguised as a car company. But if it can't come up with a battery, it will go the way of A123.