Another Seeking Alpha Article On EOG In The Permian -- The Leonard -- April 5, 2015

Earlier today I said "EOG was the company to watch." And just the other day I linked a SeekingAlpha article on EOG in the Permian (Bone Spring play in the Delaware Basin. Now, Seeking Alpha has another article on EOG in the Permian  -- this one the Leonard:

Summary

• EOG Resources is expanding its presence in the Leonard shale play down in the Delaware Basin this year.
• Strong double-digit returns on its wells in the area, even when realizing $55 per barrel of oil, justifies its drilling, exploration, and optimization efforts.
• If oil prices substantially increase, EOG will have the infrastructure in place to ramp up activity at another high-return American shale oil play.

In an attempt to bulk up its high-return drilling inventory so it has the ability to withstand low oil prices for longer and bolster its returns overall, EOG Resources is developing the prolific Leonard [sometimes referred to as the Avalon] shale play down in the Delaware Basin.

With 80,000 net acres in the play, EOG Resources thinks it will be able to extract at least 550 million barrels of oil equivalent [BOE] from its Leonard acreage.

The average well targeting the Leonard formation costs $5.5 million to drill, complete, and bring online. Like its other high-return drilling locations [like the Eagle Ford], EOG Resources is to able to generate a 35% before-tax rate of return on its wells in the play when realizing $55 per barrel of oil. If that were to increase to $65, EOG's BTROR would bounce up to 60%.

Disclaimer: 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. 

 

Monday's Wells Coming Off Confidential Status -- Most To DRL Status -- April 5, 2015

Active rigs:

	4/5/2015	04/05/2014	04/05/2013	04/05/2012	04/05/2011
Active Rigs	94	192	187	208	171

Wells coming off the confidential list:

Monday, April 6, 2015

• 21385, drl, White Butte, Panzer 1-20MLH, Antelope, no production data, (see also another White Butte Panzer well at this link);
• 28584, drl, Hess, LK-A Qtr Cir-147-96-1807H-7, Big Gulch, no production data,
• 28659, 190, Hunt, Scorio 159-101-10-3H-1, Zahl, t1/15; cum 6K 2/15;
• 28660, 355, Hunt, Scorio 159-101-15-22H-1, Zahl, t1/15; cum 7K 2/15;
• 28721, drl, Hess, EN-Neset-156-94-0706H-3, Big Butte, no production data,
• 29354, 41, Enduro, NSCU O-708-H2, Newburg, a Spearfish/Charles well, t12/14; cum 2K 2/15;

Sunday, April 5, 2015

• 28437, drl, Zavanna, Arrowhead 10-3 2TFH, East Fork, no production data,
• 28850, drll, American Eagle, Shelley Lynn 4-4N-163-101, Colgan, no production data,

Saturday, April 4, 2015 

• 21713, 525, CLR, Sloan 2-17H, Jim Creek, t2/15; cum 15K 2/15;
• 21789, SI/IA, Enerplus, Earth Lodge 148-93-22A-21H TF, South Fork, no production data,
• 28170, 480, Emerald, D Annunzio 4-7-6H,  Boxcar Butte, t10/14; cum 19K 2/15;
• 28585, drl, Hess, LK-A Qtr Cir-147-96-1807H-6, Big Gulch, no production data,
• 28720, drl, Hess, EN-Neset-156-94-0706H-4, Big Butte, no production data,
• 29174, drl, XTO, Renbarger 34X-20C, Arnegard, no production data,

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Just Saying

As usual, Mark Perry, Carpe Diem, has some great links, comments, and graphics. 

"They" Found "New" Storage For All That Crude Oil -- FuelFix -- April 5, 2015

Back to the crude oil storage discussion.

Before we get to the "new" article, let's post a couple of numbers so we can put things into perspective (some numbers rounded):

• Cushing, Oklahoma, PADD 2: 150 million bbls
• nationwide "additional" shell capacity: 20 million bbls
• US strategic petroleum reserve: 700 million bbls

Okay, now the "new" article on crude oil storage. FuelFix is reporting:

Louisiana’s offshore oil port, with huge underground storage caverns, was built to handle imported oil but is now leasing space to traders who need to store U.S. crude.

The Louisiana Offshore Oil Port (LOOP) recently auctioned 11.3 million barrels of monthly storage space and has scheduled another auction Tuesday [April 7, 2015].

Global production now exceeds consumption by about 1.5 million barrels a day.

Storage fees:

• ocean-going tankers: around $1/bbl/day
• Cushing: 30 cents/bbl/day -- but will change with the market; some charging as much as $1/bbl/day -- but no takers, yet, at that price
• LOOP: highest price: 10 cents/bbl/day

The caverns:

LOOP and the CME Group, formerly the Chicago Mercantile Exchange and Chicago Board of Trade, are offering contracts to store up to five grades of oil in LOOP’s eight caverns. The facility will auction 7 million barrels of storage space per month, or a total of 84 million barrels’ worth for the year.

The article also stated that oil companies would begin constructing more storage capacity if necessary.

A huge "thank you" to a reader for finding this article. A lot of data points which helps me put the Bakken into perspective.

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A Private Enterprise "Strategic Petroleum Reserve"

I find this incredibly fascinating. It will be interesting to see how much oil will be put into non-SPR storage.

It's hard for me to believe we won't see some kind of "oil-shock" coming out of the Mideast sometime in the next ten years but with all that is in the US SPR and all the crude that appears to be filling the "new" non-SPR, private-enterprise storage facilities, it seems an "oil-shock" in the near future will be nothing like the "oil-shocks" of the past. However, nothing surprises me any more.

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69 Years Later

I normally don't post these links, but this one is particularly good.  If the link breaks, it's a 2014 comparison of Hiroshima and Detroit "69 years later."

Nothing New Under The Hot Sun In California -- April 5, 2015

Updates

April 6, 2015: the WSJ weighs in -- "green" policies are exacerbating drought conditions in California.

Later, 10:52 p.m. CT: well, that was fast. WeatherUnderground is reporting:

Forecast: Western Snow Significant.  Snow is likely in the Cascades, Siskiyous, Sierra Nevada, Bitterroots from Easter Sunday through early Wednesday. Total snow over parts of the Sierra and Siskiyous may top 1 foot through Wednesday.

Later, 8:41 p.m. CT: another reader provided this comment --

California has lost ALL PERSPECTIVE on the supply and uses of available fresh water supplies in the state. Believe it or not, there is a fresh water inventory on supply and uses of water, based on dry, normal and wet years in CA. 

The public and media ignorance on this is alarming. Notice the official California water supply and usage inventory maintained by the CADWR linked below. This inventory shows that in a dry year, TOTAL URBAN use of water is only about 13%.

ENVIRONMENTAL WATER is 35%, and AGRICULTURAL USE is about 52%. Of course the percentages of Urban use (and the other 2 categories) is less during average and wet years as you might expect. 

See chart at bottom of this page: http://www.water.ca.gov/swp/watersupply.cfm. I  have seen other data showing that of the 8% to 13% (depending on wet, avg, and dry years), only a little more than half of those amounts are used for OUTDOOR residential watering in CA. 

The Sierra Club used to have a webpage showing this but have removed the page from their website. A PDF printout of the Sierra Club's publication (The Yodeler) provided data obtained from state agencies. They show the breakout of water use in more detail.

Again some simple math can give you the percentages. One immediately notices the extremely small amount of water used by residential households both for indoor, and outdoor water use. All these restrictions are "hammering down" on the wrong sources of usage. The water use is for environmental purposes is huge -- much of which is simply fresh water drained into the Pacific and various CA inlet areas to protect the flora, fauna, and fishes. 

My comments: a) California's leaders and the top 15 "green" Hollywood actors have lost perspective on more than just water usage; b) I've also noticed websites coming down once the story line does not fit environmentalists' agenda; and, c) as the implications of the drought worsen, the battle among environmentalists, farmers, and the uninformed will get much worse.

Later, 8:33 p.m. CT: a reader sent in two comments regarding the post below.

First: I grew up in North Dakota and lived there until I went to college in Arizona in 1969. I have had bad allergies since early childhood. These allergies went away when I moved to Arizona. I did not have any problems for 15-plus years. Then the Midwest people started importing all those non-desert plants from home including the weeds that came with the plants and my allergies came back. So the desert at one point was a good place for someone with allergies to live. It is till not as bad as North Dakota. Arizona now has laws that ban importing some of those plants.

Second: With regard to Lake Mead, back in the late 90's there was hardly a "bathtub ring." A recent picture of Lake Mead sugggests the ring is 100 feet. The marinas I used on Lake Mead back then are not even there anymore. 

Later, 2:32 p.m. CT: a reader found this interesting PDF that dates back to the California drought back in 1977. The pdf: http://0055d26.netsolhost.com/friedman/pdfs/newsweek/NW.03.21.1977.pdf

Original Post

Does anyone recall this? Years and years and years ago, folks in the Midwest who had severe "hayfever" allergies (weeds, flowers, and trees) were advised to move to the desert, and that's part of the reason Phoenix is Phoenix today.

But then, unbeknownst to all those allergy sufferers and allergist physicians, Phoenix, vis-a-vis pollen, was no different than Williston, North Dakota -- maybe worse. With irrigation, Phoenix turned desert into AllergyLand.

Same with California, but to a lesser extent because much of California already had a vibrant flora environment.

Wouldn't it be interesting if the water shortage in Californa (which will soon extend to Utah, Nevada, New Mexico, and Arizona) reversed that phenomenon as folks replace their luxuriant temperate-based yards and gardens with a desert look (or more likely: green-painted cement yards)?

For the archives, this article from The New York Times: California Drought Tests History of Endless Growth.

For more than a century, California has been the state where people flocked for a better life — 164,000 square miles of mountains, farmland and coastline, shimmering with ambition and dreams, money and beauty. It was the cutting-edge symbol of possibility: Hollywood, Silicon Valley, aerospace, agriculture and vineyards.

But now a punishing drought — and the unprecedented measures the state announced last week to compel people to reduce water consumption — is forcing a reconsideration of whether the aspiration of untrammeled growth that has for so long been this state’s driving engine has run against the limits of nature.

The 25 percent cut in water consumption ordered by Gov. Jerry Brown raises fundamental questions about what life in California will be like in the years ahead, and even whether this state faces the prospect of people leaving for wetter climates — assuming, as Mr. Brown and other state leaders do, that this marks a permanent change in the climate, rather than a particularly severe cyclical drought.

This state has survived many a catastrophe before — and defied the doomsayers who have regularly proclaimed the death of the California dream — as it emerged, often stronger, from the challenges of earthquakes, an energy crisis and, most recently, a budgetary collapse that forced years of devastating cuts in spending.

These days, the economy is thriving, the population is growing, the state budget is in surplus, and development is exploding from Silicon Valley to San Diego; the evidence of it can be seen in the construction cranes dotting the skylines of Los Angeles and San Francisco.

But even California’s biggest advocates are wondering if the severity of this drought, now in its fourth year, is going to force a change in the way the state does business.

My hunch is that the drought is incredibly serious. My hunch is that until water bills for consumers become much more onerous, not much will change. 

By the way, did you all notice that in bold, "... now in its fourth year ..." Quick, have we ever seen this in California before?

The lede from this article as reported by The Los Angeles Times:

While most citizens are encouraged to drive dusty cars, let their lawns turn brown and forgo ordering water at restaurants, Southern California's major theme parks and water slide complexes will be splashing through business as usual this summer.

California enters its fourth drought-ridden summer next month, according to state water officials, but the millions of visitors at Disneyland, Magic Mountain, Knott's Berry Farm and five other amusement parks won't have to worry about coming through dry on Splash Mountain, Tidal Wave or Big Foot Rapids.

Theme parks will be the last to feel cutbacks, said Tim Scrove, Metropolitan Water District media representative.

"They are industries," he said. "They employ a lot of people. In a water-saving situation, the industry and economy are protected at all costs. There will be mandatory residential restrictions before (the) industrial base is infringed upon."

"...  California enters its fourth drought-ridden summer ..." --- when was that article written.

In 1990.

Nothing new under the hot sun.

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Memories

I lived in California during the 1976 - 1977 "short-term drought." The drought was pretty severe. I got married in 1977 (if I recall correctly) and had dated four wonderful women in those two years (1976 - 1977).  My courting, as they say, with my wife-to-be was, in retrospect, very much a whirlwind affair. The biggest thing I remember about the "short term drought" in 1976 - 1977 was the admonition by Sacramento for folks to take showers together. I know in San Francisco that went over very, very well. That may have accelerated our whirlwind affair, but I don't recall the specifics.

Whiting Looking To Increase Supply Of Bakken Crude Oil To The Northeast US; Idle Rambling On Operators In The Bakken -- April 5, 2015

I can not (or is it "cannot") keep track of all the pipelines being proposed and/or already under construction in the US right now. It's possible I've posted a story story similar to this one earlier, but I doubt it. Philly.com is reporting:

Whiting Petroleum Corp. is "actively working with a couple of parties" on an oil pipeline that would connect the Bakken region in North Dakota with refineries in the Philadelphia area.

Whiting, the third-largest oil driller in the Bakken, is willing to work exclusively with a pipeline developer and would commit its crude to a line to Philadelphia, chief executive officer Jim Volker said at Hart Energy's DUG Bakken and Niobrara conference in Denver on Wednesday.

The producer is currently moving crude to Philadelphia Energy Solutions L.L.C.'s refinery via a combination of pipeline, rail, and barge. "What's the best market for Bakken crude?" Volker asked. "In my opinion, it's the Midwest and the Northeast, in particular the Philadelphia refining complex. Our contribution to that formula, getting oil there by pipeline, is to say publicly and privately to anybody who will listen, 'We'll commit our crude to that line.'

This fits into an earlier data point: North Dakota ships more oil to the East Coast than all other regions in US combined. 

Yesterday, someone asked me who the "top" five or six oil companies in North Dakota were right now -- not necessarily in terms of overall production or overall acreage but their focus, their long-term plans, their operations, their production and acreage (of course), and other intangibles.

KOG was bought by WLL last year; that was just one company bought, but it certainly changed the landscape. I can't comment on companies that don't trade publicly but this is how I see the landscape in North Dakota, in 30-second soundbites.

For newbies (regular readers know all this): I could be way off on all this; I don't have any hidden sources. I only know what I know from reading many articles from many sources quickly. I often make simple mistakes and I often come to wrong conclusions based on my lack of insight. And lack of background in finances, economics, and the oil and gas industry. 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.

With the slump in oil prices, it certainly appears to me that Whiting has changed the most. Ever since I started blogging about the Bakken, it always seemed Whiting was open to being acquired. That doesn't seem to be the case any more. If anything, Whiting is the "new CLR." Whiting seems to be, "full steam ahead, damn the price."

CLR seems to be on autopilot, managing its assets in a traditional manner facing any oil company during a significant downturn in oil prices.

Oasis remains a bit of a quandary for me. It doesn't have the deep pockets that some others might have, but it, too, seems to be completing its wells with gusto. But Oasis permitting seems to have come to a stop with minor exception of some pad-permits. In other words, Oasis may have a dozen new permits, but a dozen permits could involve two rigs for two different pads, or maybe just one rig.

Whiting is doing the same: lots of permits, but mostly pad drilling. CLR still has lots of singleton permits.

CLR's Brooklyn wells are turning out to be better than I originally expected.

Oasis' Tyrone wells are perhaps a bit better than I originally expected.

EOG is still the company to watch.

XTO is also an enigma; it has great drilling locations and it has very deep pockets. It's big in the Bakken, but just a part of a much bigger company.

So, that's WLL, CLR, EOG, XTO, Oasis. Did I leave anyone else out? Oh, yes, the "bedrock" of the oil capital of North Dakota: Hess. Like EOG, Hess is another company to watch -- a lot of activity that might not get reported because it is simply "mundane" or "routine" but activity, just the same, that could make a big difference for either the company or the state.

One can skim through the list of operators in the Bakken, and ask why I did not include other companies in that short list above. Yes, one can ask.

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Seek First To Understand, Then To Be Understood

I stopped by the Apple store in Southlake (Texas) yesterday just because I was in the area. I always enjoy talking with the employees. There is generally no pressure to buy anything; they seem to enjoy the discussion -- someone must have worked with them on Steve Covey's Seven Habits of Highly Effective People. Surprisingly, it even has a web page.  His fifth habit (or rule): Seek first to understand, then to be understood.

That aphorism has served me well in discussions with our older granddaughter. 

 But I digress.

I mentioned to Justin, the Apple employee, yesterday, that over at the Macrumors discussion boards the conversation seems to have changed from "who would ever buy an Apple watch, " to "OMG, there may not be enough Apple watches," or "I need to have one."

Apple will sell the Apple watch very differently than its other products (previously discussed). But I believe one can order the Apple watch starting on April 10th, for delivery on April 24th.

The wording and timing of the new section suggests that Apple Watch in-store reservations will be available April 10, a move that would generate more foot traffic in Apple Stores on Apple Watch launch day.

Nevertheless, there remains a slim possibility that reservations will begin on April 24. Apple did not immediately respond to request for comment, although we will update this post if we receive confirmation. 

I was told, yesterday, by the way, that this is the first time Apple has ever had the new product in its store before the day that it would be available to consumers.

Wind -- April 5, 2015

The hypothesis is this: if wind and solar are "so good" and economically competitive with fossil fuel, this country would be saturated with solar and wind farms, and after 30 years of advocacy, subsidies, grants, and tax credits, renewable energy would be the dominant energy source in the US.

They say the stock market is "efficient." I don't know. But the free market / capitalism is certainly more "efficient" than the alternative(s), and free market / capitalism is certainly an example of economic "survival of the fittest."

With that in mind, after 30 years of advocacy, subsidies, grants, and tax credits, solar electricity when rounded to the nearest whole number, accounted for zero (0) percent of US energy consumption last year. That number is expected to double over time. How much time, I don't know. But it will double.

Now, on to wind, the energy source that has governmental carte blanche to slice and dice migratory birds at will with the blessing of local Sierra Club franchises.

The other day I linked a wiki article on "energy return on energy invested" (EROEI) for various forms of energy sources. I could tell by the numbers that there were a lot of assumptions made when working out the numbers. In addition to EROEI and EIEIO, the acronym GIGO came to mind (garbage in, garbage out).

Two things caught my eye: a) EROEI for ethanol; and b) EROEI for wind. I thought the numbers were way too generous for both but did not comment at the time.

Three data points.

First, from a reader speaking directly to the wiki numbers. From another source, the reader sent me this regarding wind:

...EROEI for turbines is usually based on 30 years at utilization greater than 0.3, while actual turbine life is less than 20 years and actually closer to 15 years, and actual average utilization is under 0.2, just this two things drop the EROEI of wind turbines from 18 to 6.

Add reserve grid capacity and you will be lucky to get over 1 for EROEI.

Add dismantling - and you will be firmly under 1.

I understand that probably there are some factors I don't know regarding wind turbines. So there could be mistakes in my calculations. But still even if any one of the angles proves to be reasonable - wind power EROEI is greatly exaggerated.

Along with that note, the reader sent me this most interesting article -- the largest wind operator in Germany declared bankruptcy last year:

Prokon, which has been rumored for the past weeks to be teetering on the brink of default, finally filed for insolvency.

The company, which runs over 50 wind parks with hundreds of windmills in Germany and Poland, and employs 1,300 workers, is Germany’s biggest, with a capital of 1.4 billion euros, collected from over 75,000 private investors.

These, however, are not shareholders in the normal sense; the “shares” they own at Prokon are certificates only, which do not give holders any say in the running of the company, nor any sound legal base for requesting detailed information from the management on the company’s doings. All they learn comes from media reports on Prokon.

Certificates operate in a legal gray zone in Germany, and the Prokon default has prompted new calls for legislation to impose strict controls or better, a total ban on these “financial products.”

There have been voluminous withdrawals of capital, altogether 280 million euros in the past weeks, after critical reports appeared in the German media that questioned whether Prokon’s profits matched its interest payments: indeed, accounts published on Prokon’s own website show, that in the first nine months last year, it paid out interest of [Euro]67.2 million, double its earnings before interest, tax, depreciation, and amortisation of [Euro]33.5 million for the same period.

With a yield of 6-8 percent promised to certificates owners, Prokon has particularly attracted people whose normal savings accounts did not offer any revenue near that. The company apparently ran a classic Ponzi scheme, paying old investors from the money new investors brought in. Prokon last week denied running a Ponzi scheme, claiming: “Our projects are merely unconventionally financed.” The end of Prokon is, however, a rather conventional one, appropriate for a Ponzi scheme. The state prosecutor’s office in Luebeck, northern Germany, is investigating Prokon.

Think about this. If XOM went bankrupt this year, do you think that would have been reported by ABC, NBC, CBS, Rachel Maddow, and the Huffington Post? Do you think you might have heard about that? Quick: name Germany's biggest wind energy operator that went bust last year. I couldn't, and I'm somewhat well read. This speaks volumes on the slanted reporting by ABC, NBC, and CBS.

By the way, doesn't that story on Prokon above read like the Solyndra story here in the US?

Instead of Herbalife, perhaps Ackerman should have taken on Prokon.

Now, for the third data point, another article, this time sent by another reader. From Crain's, can this wind power company ever make money? (You may have to go through google to get the full article.)

Peter Duprey's top priority when he became CEO of Broadwind Energy in 2010 was to ensure that the wind was at the Cicero-based manufacturer's back.

Instead, he's still fighting headwinds.

Six years after Broadwind began trading on the Nasdaq stock market, the company has yet to turn an annual profit and its stock has lost most of its value on Duprey's watch, slumping to $4.89 on April 2, down 80 percent since touching $24.30 in January 2011.

Broadwind is one of a clutch of manufacturers in the Chicago area, including Chicago-based S&C Electric, Winergy in Elgin and Vernon Hills-based ZF Services, that depend at least in part on the development and operations of wind farms.

Like the others, the company stands to gain if wind becomes a bigger part of the energy mix around the country—a recent U.S. Department of Energy report predicts that the U.S. could derive 20 percent of its power from wind by 2030, up from 4.5 percent in 2013.

Later in the article:

For manufacturers focused on wind energy, the need for a federal tax credit has “been less and less over time as technology has matured, but it's still a key component and it has a pretty noticeable effect on the construction pipeline when the credit goes away,” says Steve Piper, a Boulder, Colo.-based associate director at SNL Financial who focuses on energy and power markets. 

For wind, we are still talking about "federal tax credits."

But, for the oil and gas industry, we are talking about:

• extraction taxes
• production taxes
• untold billions in royalties for average citizens who won the lottery
• stifling regulation
• criminal proceedings if one migratory duck commits suicide in a waste pond
• corporate taxes
• income taxes on some of the highest paid blue-collar workers in the country
• double taxation (taxes on corporate profits, followed by taxes on dividends)

But for wind, it's all about "federal (and state) tax credits."

Disclaimer: 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.