Monday, May 11, 2015

So, What's This All About? -- May 11, 2015

Reuters via Rigzone is reporting:
A jointly operated onshore oilfield between Saudi Arabia and Kuwait will shut for two weeks of maintenance, a Kuwaiti industry source said on Monday, a move apparently aimed at giving the Gulf OPEC allies more time to solve a long-standing dispute.
The scheduled closure of the Wafra onshore oilfield, operated by a Saudi Arabian division of U.S. oil major Chevron, will start on Monday night or Tuesday, the source told Reuters. The source declined to be named because of the commercial sensitivity of the matter.
"It is planned maintenance starting from tonight or tomorrow," the source said, adding that production from the onshore fields in the Neutral Zone between Saudi Arabia and Kuwait was about 190,000 barrels per day.
Last month, Saudi Chevron told its partner, Kuwait Gulf Oil Company, that it planned to shut down Wafra after failing to resolve various disputes with Kuwait, mainly related to the right to operate, according to industry sources. The Kuwaiti source dismissed the idea that the disputes with Chevron were the reason for the shutdown.
We have a shooting war in the Mideast; we have four of six monarchs boycotting President Obama's summit on the Mideast; and, now, we have a "scheduled" shutdown of an oil field in the Mideast for two weeks. 

American Eagle Energy Files For Bankruptcy -- May 11, 2015

This is an old story; I can't remember if I posted it earlier. Business Insider is reporting:
The latest fallout from the oil crash is here: American Eagle Energy has filed for Chapter 11 bankruptcy protection.
In March, the company missed its first interest payment of nearly $10 million to bondholders, and entered a 30-day grace period. American Eagle hired financial advisers to negotiate with bondholders.
And according to the Wall Street Journal's Patrick Fitzgerald, the company filed for bankruptcy protection in a Denver court, listing assets of $221.9 million and debts of $215.2 million.
And from today's Yahoo!In-Play:
American Eagle Energy confirms it will begin voluntary Chapter 11 proceedings: Co will continue to operate the business as debtors-in-possession  under the jurisdiction of the Bankruptcy Court. 
American Eagle has filed a series of motions with the Bankruptcy Court requesting authority to continue normal operations, including requesting Bankruptcy Court authority to continue paying employee wages and salaries and providing employee benefits without interruption.
Co stated: "We believe the Chapter 11 process will provide flexibility for American Eagle to  pursue viable options for asset sales or other alternatives with the goal of  maximizing the value of the enterprise  for our stakeholders."
This is not the first company to file for protection in the Bakken; at least two others, I think, one for sure, have filed, and that was during the "boom." Life goes on.

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

Operators Experimenting On Ways To Cut Costs; Increase Production -- May 11, 2015

From my early days blogging about the "Bakken" I spoke about the Bakken as representing three distinct "things." First, the obvious, the nuts and bolts of drilling for oil. Second, the Bakken represented the relationship among oil companies, the state regulators, mineral owners, surface owners, etc, simply to get the job done with the best possible outcome. Third, the Bakken was a laboratory in which operators studied ways to get better results. 

Today The New York Times has an absolutely fascinating article on the third "Bakken" -- the Bakken as laboratory, the link sent by a reader, thank you.

We've all known in a general sense that operators were testing various methods to cut costs, but it's incredibly interesting to see some actual data points as examples. The article begins:
These are lean days in the South Texas oil patch, with once-bustling roads and hotels now empty as the price of oil has plunged and rig after rig sits idle.
Still, production has barely declined, a testament to the rapid gains that oil producers are making in coaxing ever more oil from older wells and the few new wells they are still drilling — and doing both while investing far less money.
For example: 
The Norwegian oil giant Statoil, for instance, is experimenting here in the Eagle Ford shale field with a host of new drilling tools and techniques.
It is trying out different grades of sand to blast along with water and chemicals to better loosen the hard rock deep underground and increase a well’s production, and varying the depths of wells to squeeze out even more oil. It is using new well chokes that technicians can operate remotely from a computer or even a smartphone to quickly adjust flows to maximize production without overtaxing pipelines.
Even as the company cut the number of rigs it runs here from three to two since last year, it has managed to lift production by one-third, a feat that would have been unimaginable a few years ago.
This is interesting:
It has cut the average cost of drilling from $4.5 million to $3.5 million a well, in part by reducing the time it takes to drill from an average of 21 days to 17 through better planning and laying off slower crews.
Laying off slower crews. Hmmm.
 
More:
But a majority of the major companies are managing to survive by increasingly using techniques traditionally more common to manufacturing plants than to oil fields to achieve economies of scale.
In some shale fields where companies typically drill up to eight wells on each production pad, companies are no longer drilling one well at a time. Using rigs that can move on tracks or legs, they are drilling and completing several wells at a time, slashing the time it takes to drill each well.
The result has already been a slower decline in domestic shale oil production than many experts had expected.
And the result?
The Energy Department still expects the average daily production for the year to be moderately higher than in 2014, rising from 8.7 million barrels a day to 9.2 million.
With regard to "laying off slower crews" I've heard from others in the Bakken that employers are now able to hire the best employees.

Much more at the link. By the way, the number of days to drill an Eagle Ford well was stated to be 17 days on average. Sounds about the same for the Bakken, although some are reaching total depth (TD) much sooner. 

Saudi Arabia has a bit of a different problem. The myth (or world view) is that is it "dirt cheap" to drill for oil in Saudi Arabia, that it costs them a couple of dollars per bbl to drill. I have no idea now true it is. But let's assume it's accurate. If that is true, Saudi's problem is not cost of drilling but but managing a national budget that "requires" $100-oil. It's one thing for Statoil to look for ways to cut costs in the Eagle Ford, it's something completely different to tell Saudi Princes that instead of $100 oil they will have to do with $60 oil.

Back to the article, break-even prices?
“You are more efficient because you are forced to be more innovative,” said Patrick Pouyann√©, chief executive of Total, the French oil and gas giant. Mr. Pouyann√© estimated that the break-even price for operating in 75 percent of the shale oil fields a year ago was $75 a barrel, but that is now down to roughly $60 because of innovation and lower service company costs. He predicted that the break-even cost could go as low as $50 before long.

Grapevine Lake (Texas) Up Seven (7) Feet In Past Week -- May 11, 2015

Grapevine, TX. has a huge lake on the north side. It is great for everything that makes lakes great: fishing, boating, 4th of July fireworks. No ice fishing.

The lake has been "down" quite a bit the past few years, but is now well above it's "normal." With all the rain this past week, the lake has risen seven (7) feet in one week.

******************************
More Accidents Than Bakken Oil CBR

Google "owns up" to eleven (11) accidents with self-driving (and apparently, self-crashing) cars. I read nothing more than the headline; I don't want to be disappointed by the inadequate reporting.

I guess this pretty much rules out unmanned commercial aircraft.

*******************************
Exactly As Predicted

Four game suspension. Will be appealed. Will end up as a two-game suspension. Brady. Deflategate. New England Confederates.

One Rig At A Time -- May 11, 2015

Active rigs:


5/11/201505/11/201405/11/201305/11/201205/11/2011
Active Rigs85192185209176

Four (4) new permits --
  • Operators: XTO
  • Fields: Sand Creek (McKenzie)
  • Comments:
Slawson canceled one permit, the Serpent Federal in Mountrail, #30613.

The roughnecks have been busy.  Twelve (12) producing wells were completed:
  • 27813, 3,713, Statoil, Maston 34-27 3TFH, Banks, t4/15; cum --
  • 27814, 3,838, Statoil, Maston 34-27 2H, Banks, t4/15; cum --
  • 27914, 436, Slawson, Stockyard Creek, Bootleg 6-14-15TFH, t4/14; cum --
  • 28134, 824, WPX, Edward Flies Away 7-8-9HY, Van Hook, t4/15; cum --
  • 28135, 503, WPX, Edward Flies Away 7-8-9HB, Van Hook, t4/15; cum --
  • 28136, 694, WPX, Edward Flies Away 7-8-9HZ, Van Hook, t4/15; cum --
  • 28777, 1,224, Slawson, Holst 2-33MLH, Big Bend, one section, t4/15; cum --
  • 29885, 327, Whiting, Oddie 44-7-2H, Sanish, t4/15; cum --
  • 29913, 2,650, Whiting, RJ Moen 41-26HU, Timber Creek, 4 sections, t4/15; cum --
  • 29914, 2,030, Whiting, Curtis Moen 41-26-3H, Timber Creek, t4/15; cum --
  • 30321, 1,267, Whiting, Sondrol 11-3-3H, Bully, t5/15; cum --
  • 30631, 1,470, Whiting, Sondrol 11-3HU, Bully, 4 sections;  t4/15; cum --
Triangle reported a dry hole, #30218, Eckert Foundation 152-102-22-15-2PA, McKenzie

Wells coming off confidential list Tuesday:
  • 28415, drl, MRO, Karmen USA 44-11TFH, Chimney Butte, no production data,
  • 29302, A, CLR Frisco 3-31H, Glass Bluff, no test date, sometime in 3/15; cum 2K 3/15;
  • 29820, 425, CLR Bendixon 1-10H, Green Lake, t2/15; cum 9K 3/15;

Shale Production To Decrease By 86K In June -- May 11, 2015

From the EIA:
  • Oil production from seven major U.S. shale plays is expected to fall by 86K bbl/day in June, according to the latest report from the Energy Information Administration.
  • Oil output at the Eagle Ford shale play in South Texas is forecast to see the biggest decline, down 47K bbl/day, while production at the Bakken shale play, centered in North Dakota, is expected to drop by 31K bbl/day, the report says.
  • "The data shows that production in the Bakken and Eagle Ford [plays] peaked in March at 1.33M bbl/day and 1.73M bbl/day, respectively," says WTRG Economics energy economist James Williams.

President Obama Approves Arctic Drilling -- Actually He Approves Shallow Sea Drilling -- May 11, 2015

There are so many ifs, ands, and buts, and conditions for any drilling to commence but it is what it is. CNBC is reporting:
The Obama administration gave conditional approval on Monday to allow Shell Gulf of Mexico, Inc. to start drilling for oil and gas in the Arctic Ocean this summer.
The approval is a major victory for Shell and the rest of the petroleum industry, which has sought for years to drill in the remote waters of the Beaufort and Chukchi seas, which are believed to hold vast reserves of oil and gas.
Activists trained on kayaks last week in Puget Sound in advance of a floating protest of Royal Dutch Shell in the Port of Seattle.
The Port of Seattle has agreed to a lease with Royal Dutch Shell that would allow the petrochemical giant to bring its Arctic Ocean drilling rigs to the city's waterfront.
This is how CNBC is reporting it. In fact, much of the story was not reported.
The Interior Department decision is a devastating blow to environmentalists, who have pressed the Obama administration to reject proposals for offshore Arctic drilling. Environmentalists say that a drilling accident in the icy and treacherous Arctic waters could have far more devastating consequences than the deadly Gulf of Mexico oil spill of 2010, when an oil rig explosion killed 11 men and sent millions of barrels of oil spewing into the water.The move came just four months after the Obama administration opened up a portion of the Atlantic coast to new offshore drilling, adding a new chapter to the president's environmental legacy. 
Environmentalists opposed to this are attaching boat trailers to their SUVs as we speak, to put kayaks on the boat trailers, and will join others to oppose this most recent action. 

Off The Net For Awhile... But This Last Great Story From The Land Of Fruits And Nuts ....

I think "everyone" has known this "forever," but it's quite a story nonetheless. CBS Local Sacramento is reporting:
Sacramento [Municipal Water Supply] sells water to a bottler, DS Services of America, at 99 cents for every 748 gallons—the same rate as other commercial and residential customers. That water is then bottled and sold at Walmart for 88 cents per gallon, meaning that $1 of water from Sacramento turns into $658.24 for Walmart and DS Services.
CBS Local Sacramento should check the price service stations charge for a single 12-ounce of water.

By the way, at our local Minyard's, around the corner from where we live, we can buy a shrink-wrapped package of 24 12-oz bottled water at $1.99. At Albertson's it's $2.88. Minyard's used to have a 3-package limit but I did not see that restriction last night. So, a 12-ounce bottle of water is less than a dime here in northern Texas. Or a $1.98 for a single bottle at a service station.

Are there 128 ounces in a gallon? 24 x 12 = 288 ounces, or 2.25 gallons for $2.00.

Wal-Mart's 88 cents/gallon = 2.25 gallons for $1.98. Pretty cheap.

In the big scheme of things, CBS Local is worried about the wrong thing: the bigger story is that Jerry Brown, who has mandated a 25% cut in water usage across the state, continues to water freeway foliage ... even during rainstorms -- as reported by CBS Local Los Angeles

Pretty Much The End Of Wind And Solar Without A Lot Of Government Mandates, Subsidies; Oil To Remain "Cheap" Through 2025

CNBC is reporting:
Oil prices will remain below the psychologically important $100-a-barrel mark until at least 2025, according to a draft report by the Organization of the Petroleum Exporting Countries (OPEC), seen by The Wall Street Journal
In its most optimistic scenario, OPEC, which represents 12 oil-producing countries, forecast that oil will sell for around $76 per barrel in 10 years' time, according to the report.
However, it warned that crude oil could cost as little as $40 per barrel in 2025.
"$100 is not in any of the scenarios," said a delegate at an OPEC presentation last week in Vienna, according to The Wall Street Journal.
Pretty much ends all that talk that solar and wind energy will make much headway. This is not to say that there won't be a lot of solar and wind initiatives, and that there won't be a lot of niches for wind and solar energy, but cheap crude oil is a blessing for consumers.

*******************************
Update

May 12, 2015:


Let's ask the question, google "how will low oil prices affect renewables".

Won't affect renewables, Citi -- March 31, 2015 (a "green" site); lots of words; few facts
Won't affect renewables at all, The Guardian -- November, November 10, 2014
“As far as solar and wind go, the [impact] from lower oil prices is zero in North America and Europe, where power prices do not have any link to oil,” said Pavel Molchanov, a senior research analyst at Raymond James Financia.
In some emerging markets for wind and solar, however, such as the Middle East and North Africa, and even in a few established markets such as Japan, diesel does still play a bigger role in power supply – but not big enough to matter much considering current renewable energy prices, according to Molchanov. [What?]
“In the Middle East, and to a lesser extent post-Fukushima Japan, there is some relevance,” he said. But even at prices below today’s forecasts, “solar can compete effectively with diesel-fired generation”. [So, we'll see.]
California-based SunPower, which is majority-owned by French oil giant Total SA, agrees. “The price of oil has almost nothing to do with future demand, even in [the Middle East],” according to Tom Werner, SunPower’s chief executive. 
Without question, perhaps the best article on the subject in a quick glance at the top stories returned by Google. This was written by a contributor to OilPrice. I agree with the writer: without government mandates, tax breaks or subsidies, renewables will have a "tough go of it" as natural gas gets cheaper.

How that linked article began:
Is a solar supply glut on hand? Not exactly, but oil’s multi-month slide has largely overshadowed the sector’s emergent capacity. Nowhere is that more apparent than in the state of California, where the world’s largest photovoltaic power station is now online. Still, renewables did not emerge unscathed from the aftermath of OPEC’s decision to stand firm on production. Formerly rosy outlooks now take on an air of uncertainty as renewables growth looks to avoid becoming a casualty of an era of cheap oil and gas.
That article's conclusion:
The IEA expects solar to be the top source of electricity by 2050, but in the more immediate future the agency foresees a slowdown in renewables growth amid mounting policy uncertainty. With the United States’ solar investment tax credit set to expire in 2016, states taking matters into their own hands, and the EU’s own unclear renewable policy future post-2020, investors will have trouble guaranteeing an equitable and predictable return.
But renewable energy needs tax breaks, subsidies, and/or government mandates to compete:
Prices on Henry Hub are expected to be down approximately 14 percent in 2015 and as a result the Energy Information Administration predicts natural gas consumption in the power sector will increase by three percent. Over the same period however, renewables are up nearly six percent. The prevailing notion that renewables are not cost competitive is increasingly old-fashioned. 
Since 2012, the average price of a completed commercial photovoltaic project fell 45 percent and continues to fall faster than expected. In the US, Deutsche Bank reports that solar will reach price parity with conventional electricity in 47 states by 2016. By 2020, utility-scale solar will be competitive with gas-fired power at a wide range of natural gas prices and in all key markets, including low-insolation regions. Wind power is already there. The total LCOE for onshore wind is cheaper than that of conventional coal as well as natural gas-fired plants with carbon capture and storage. The biggest threat to renewables growth is not the price of oil or gas, but instead policy and regulatory measures.
And that's where one can lie with statistics: natural gas consumption up 3 percent vs renewable energy up 6 percent over same period of time. The amount of solar energy consumed by Americans rounds to zero zero; a 6 percent increase is trivial. Really, really, trivial, and yet 6 percent is double the growth rate of natural gas at 3 percent. And the success of contingent energy is contingent upon government policy. Period. Dot.

For the archives. It will be interesting to take another look at this issue in 2020, where we will ALL have the benefit of 20-20 hindsight. I'll only be five years older.

But either way: no energy shortage for our granddaughters.  As more and more electricity is provided by natural gas, coal, and to some extent solar and wind, that will free up more oil for "muscle cars," SUVs, and really nice pick-up trucks.

China Surpasses The US In Net Oil Imports -- Again -- May 11, 2015

Financial Times posted this story yesterday, May 10, 2015: China oil imports surpass those of US.

In the original headline (in bold, above), the Financial Times said this was the first time it had ever happened. I did not get a screen shot unfortunately; now they've changed the headline, omitting that part about this being "a first."

Ah, good luck: FT can change their story, but can't change URLs. From google, this screen shot:


The first three paragraphs:
China overtook the US as the world’s biggest importer of crude oil in April, the culmination of a seismic shift in global energy flows over the past decade.
Chinese customs data showed crude oil purchases from overseas hit a new high of 7.4m barrels a day in April, equivalent to roughly one in every 13 barrels consumed globally and topping US imports of 7.2m b/d. The US routinely exports about 500,000 b/d.
While China’s imports are not expected to consistently surpass those of the US until the second half of this year, the move illustrates how the US shale revolution has cut the country’s reliance on oil from overseas — and how China’s demand has grown even as its economy slows.
From MarketWatch, May 10, 2015:
China has now surpassed the U.S. as the world’s largest importer of crude oil, according to a report Sunday by the Financial Times. Chinese customs statistics for April showed the nation imported 30.29 million metric tons of crude oil (roughly 222 million barrels), marking a 13% jump from March.
The total would be equivalent to 7.4 million barrels per day, accounting for about 1 in every 13 barrels consumed worldwide and overtaking the U.S., with imports of 7.2 million barrels a day, according to Financial Times calculations.
In fact, the latest data from the U.S. Energy Information Administration put U.S. imports even lower, at an average of 7.11 million and 7.15 million barrels of crude oil per day in February and January, respectively. The gain for Chinese imports contrasted with China’s exports of crude oil, which fell 41% during April to 440,000 metric tons.
But a google search revealed this story posted by the same newspaper, Financial Times, back on March 4, 2013: China becomes world's top oil importer. Here are the first three paragraphs --
China has overtaken the US as the world’s largest net importer of oil, in a generational shift that will shake up the geopolitics of natural resources.
US net oil imports dropped to 5.98m barrels a day in December, the lowest since February 1992, according to provisional figures from the US Energy Information Administration. In the same month, China’s net oil imports surged to 6.12m b/d, according to Chinese customs.
The US has been the world’s largest net importer of oil since the mid-1970s, shaping Washington’s foreign policy towards energy-rich countries such as Saudi Arabia, Iraq and Venezuela.
As China overtakes the US as the world’s leading net oil importer, Beijing is likely to face pressure to take a larger role in patrolling the world’s key shipping lanes. China has already taken a more assertive foreign oil policy in countries such as Sudan, Angola and Iraq, where state-owned Chinese companies have invested billions of dollars.
he shift between China and the US comes as the International Energy Agency, the western countries’ oil watchdog, forecast that emerging countries would for the first time consume more oil than industrialized nations . The Paris-based IEA forecast that non-OECD countries will consume 44.9m b/d next quarter, compared with 44.7m b/d for the OECD nations.
The US remains the world’s largest net oil importer on an annual basis, but the margin over China has narrowed significantly over the last five years. The country’s net foreign purchases of crude and refined products dropped to a 20-year low of 7.14m b/d in 2012, while Chinese net oil imports averaged 5.72m b/d.
Daily Finance was also reporting this as far back as 2013, that China would surpass the US as world's biggest importer:
China could soon overtake the U.S. as the biggest importer of oil in the world. The oil cartel OPEC says the shift could happen as early as next year.

The reason is that the shale oil boom here at home has dramatically increased domestic production, reducing the need to import as much oil as we have been for the past several decades.

The U.S. based Energy Information Administration says Chinese imports could top 6 million barrels a day this year, while U.S. imports fall below that level next year.
And this from the EIA on March 24,  2014:
In September 2013, China's net imports of petroleum and other liquids exceeded those of the United States on a monthly basis, making it the largest net importer of crude oil and other liquids in the world. The rise in China's net imports of petroleum and other liquids is driven by steady economic growth, with rapidly rising Chinese petroleum demand outpacing production growth. 
So, a number of story lines (with the caveat that I did this quickly and may have misread something):
  • it looks like the headline that China surpassed the US for the first time in imported oil was an error, and both the headline and the lede were changed
  • china has been close to surpassing the US in imported crude oil for quite some time now
  • there are different ways of calculating "imported oil" as suggest by the EIA link
  • this should end speculation that China is running out of storage space
  • a 13% jump in Chinese imports month-over-month is not trivial
  • add this data point to the fact that China is stimulating their economy through rate cuts (reported this weekend, today)

Monday -- May 11, 2015; Noble Energy Buys Rosetta Resources; 4 Of 6 Mideast Monarchs Are Boycotting President Obama's Mideast Summit

Updates

May 11, 2015: Obama's collapsing alliances. The Weekly Standard is reporting:
It was a long time ago and a galaxy far, far away: In July 2008, presidential candidate Barack Obama made big, bold news by travelling to Berlin to – as The New York Times triumphantly recorded – “restore the world’s faith in strong American leadership and idealism.” With 200,000 Berliners waving campaign-provided American flags, Obama called for renewing America’s alliances and undoing the cowboy unilateralism of George W. Bush and Obama’s 2008 opponent Sen. John McCain.
The events of recent months are an indication of how spectacularly Obama has failed to fulfill his 2008 promise. This week comes the news that Saudi Arabia’s newly installed King Salman and three of the other six Gulf monarchs are boycotting Obama’s Camp David summit – a meeting called by Obama to reassure the Arab states that the forthcoming nuclear deal with Iran was not a betrayal of their longstanding security relationship with the United States. Beyond their fears of Iran’s nukes, the Gulf states see the rise of an aspiring Persian hegemon – in Yemen, in Syria, in Iraq – taking advantage of, if not actively conspiring with, a retreating America.  In this case “no show” means “no confidence.”
Folks who still support President Obama simply are not paying attention.


Original Post
Big story for today: Mideast friends opting out. First it was King Salman and now it's the ruler of Bahrain -- both "snub" President Obama's Mideast summit meeting according to the WSJ White House says it's no big deal; opens the way for a round of golf.

Big story for tomorrow: I think Greece runs out of money tomorrow. In other news, that little boy in Belgium yelled "wolf" for the fifth day in a row. No one is listening any more. [Update, May 11, 2015: Greece made their payment, a day ahead of schedule.]

Delta aircraft "slides" off runway in NYC. I had missed that -- sent to me by a reader. Back in March, 2015. Delta owns refineries using Bakken crude oil, and that's the problem. Bakken oil refined products are really, really volatile and even causing problems for pilots with all that "oomoph." Uff da.

Active rigs:


5/11/201505/11/201405/11/201305/11/201205/11/2011
Active Rigs84192185209176

RBN Energy: swapping American light oil for Mexican heavy oil.
In April officials from Mexican national oil company PEMEX expressed confidence that their January 2015 application to the Department of Commerce, Bureau of Industry and Security (BIS) for a license to export U.S. crude under a swap arrangement will soon be approved. The swap would involve Mexico importing U.S. light crude and U.S. refiners buying an equivalent volume of Mexican heavy crude. The transaction would bypass decades old U.S. crude oil export restrictions and indicate a further loosening of the rules after moves to allow condensate exports last summer. In today’s blog “Have Another Swap of Mexican Crude - Will A New Route Open for U.S. Crude Exports?” Sandy Fielden examines the proposed exchange.
Back in 1998 the U.S. Strategic Petroleum Reserve exchanged 11 MMBbl of heavy Maya crude originally purchased from Mexico in the 1980’s for 8.5 MMBbl of lighter Olmeca and Isthmus crude (also purchased from Mexico) in order to meet SPR quality requirements. That crude swap with Mexico occurred at a time when more U.S. refineries were configured to process light crudes and the government wanted to replace SPR heavy crude inventories with lighter oil. Fast forward to 2015 and now the tables are turned. In January PEMEX revealed it has applied for a license to facilitate a crude swap with the U.S. This time around PEMEX wants to exchange 100 Mb/d of their heavy Maya crude with lighter crude now being produced in spades in U.S. shale basins.
The Mexican swap did not involve the SPR this time but rather the BIS. Recall from previous blogs on the topic that the BIS is the government agency in charge of controlling exports of regulated items  – including domestic crude oil. Under arcane 1970’s era rules designed to protect strategic resources, exports of U.S. crude are banned except to Canada or in specific circumstances from Alaska and California. There are a number of other exceptions to the crude export ban including – as it turned out last June – lease condensate that has been processed through a distillation tower. That last exception led to a surge in exports of processed condensate from the Gulf Coast since 2014.
Another exception in the legislation governing crude exports (the Energy Policy and Conservation Act - EPCA) is for crude exported as part of a swap for equivalent crude or refined products into the U.S. That is the exception PEMEX seeks to use to export U.S. crude. According to the EPCA such swaps must be in the national interest and the exporter has to show compelling economic or technical reasons why the exported crude cannot be marketed in the U.S.
We should note that the swap exception in the BIS regulations is a “License” rule – meaning that exporters need to apply to BIS for a non-transferable license for each crude swap. That means granting PEMEX a license for 100 Mb/d would be a one-off decision with every other would-be swap partner required to apply separately for approval. That doesn’t mean it would be difficult – the BIS routinely approves licensed exports to Canada – but it adds a layer of red tape compared to the processed condensate rulings last year that certify the product and process rather than individual transactions.
The bigger question is whether other swaps could follow if Mexico gets the go-ahead? The answer to that question cannot be known, but the list of obvious candidates is not long. Aside from Mexico – a friendly neighbor – other heavy crude producers needing light crude in exchange include Venezuela, Columbia and Ecuador. These three are known to be importing light crude for use as a diluent to blend with their heavy crude to allow it to flow in pipelines for export. But none of these (especially Venezuela) is particularly close to the U.S. politically.  How that might factor into swap decision making is unknown.  But it is clear that  any loosening of the crude export ban is a good precedent for hard hit U.S. producers.
********************************
M & A Begins?

Bloomberg is reporting:
Noble Energy Inc. agreed to acquire Rosetta Resources Inc. for $2.1 billion in stock, giving the natural gas and oil producer a position in two of the largest areas of shale production in Texas.
Noble will also assume Rosetta’s net debt of $1.8 billion, the Houston-based companies said in a statement on Monday. The per-share offer is valued at $26.62, a 38 percent premium to the target’s closing price on Friday. The Eagle Ford basin in Texas was the most productive U.S. oil field at the end of 2013, according to the latest Energy Department data.
***************************************
The Kennedys Go Skiing In Rapid City

I was just there -- in Rapid City, a few weeks ago; seemed like summer. Now this. More global warming in the form of snow.

Skyview is reporting: 17 inches of the white stuff in Deerfield, SD; almost 15 inches in Silver City, SD; and, almost 14 inches (two feet) of snow in Rapid City.