Texas Passed The Law, Oklahoma About Ready To Pass The Law On State Fracking -- May 20, 2015

Reuters is reporting: Texas passed the law, and Oklahoma about ready to pass a law, favored by the oil industry with regard to fracking.

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California Desalination

For the archives. 

I Hope They Have A Plan B If Minnesota Says "No" -- May 20, 2015

Bakken.com is reporting:

Enbridge may soon double the amount of oil it exports from North Dakota once the Sandpiper Pipeline comes online.

Preliminary construction of the 600-mile pipeline will begin in North Dakota this summer with more than 3,000 people working on the project. The current timeline for completion projects the line will begin moving 225-thousand barrels of oil per day in 2017.

The new pipeline will expand upon Enbridge’s current Bakken pipeline network and will create a new route, carrying more than double the company’s current transportation capacity. As reported by KX News, Enbridge North Dakota Director of Operations Bob Steede said, “The sandpiper pipeline starts in the Tioga, North Dakota, area, roughly follows … our existing pipeline network, comes to Clearbrook, Minnesota, and then works its way to Superior, Wisconsin.”

I hope Enbridge has a Plan B when Minnesota says "no."

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Dominoes

A key Syrian city falls soon after ISIS takes Ramadi. Fox News is reporting:

Islamic State militants reportedly captured the ancient Syrian town of Palmyra Wednesday as Syrian officials evacuated citizens and scrambled to keep priceless antiquities from falling into terrorist hands.

The Syrian Observatory for human rights told The Associated Press that government forces collapsed in the face of ISIS attacks and withdrew from the town late Wednesday.

The Wall Street Journal reported that before fleeing, the National Defense Forces evacuated civilians as militants took control of residential areas and established themselves in the city’s nearby ruins.

It was not immediately clear how close to Palmyra’s famed archeological site ISIS forces had come, but Syrian activists said that Syrian soldiers were seen fleeing the area.

Another archaeological treasure to be destroyed. Thank you Mr Obama for not taking out the JV team. What a legacy.

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Bill Murray On David Letterman, Next To Last Show, May 19, 2015

GDP Now -- May 20, 2015

The Federal Reserve Board of Atlanta:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2015 was 0.7 percent on May 19, unchanged from May 13.

The nowcast for second-quarter real business fixed investment growth fell from −0.6 percent to −2.3 percent following last Friday's industrial production release from the Federal Reserve.

The nowcast for second-quarter real residential investment growth increased from 1.3 percent to 3.6 percent following this morning's housing starts release from the U.S. Census Bureau.

CNBC asks why "we" can't shake off the Great Recession despite a gazillion dollars in stimulus? Blame it on globalization, not the Obama administration, the most anti-business administration in my lifetime:

In the first quarter, the GDP growth rate fell to +0.2 percent annualized, from an average of +2.4 percent during 2014. Trade data that emerged subsequently indicates that the first quarter growth rate will be revised downward into negative territory and that the second quarter will prove disappointing as well.

But Wall Street is doing just fine. Both the Dow and the NASDAQ are flirting with new highs. 

Main Street, not so well. CNBC is also reporting that "you are about to be paying highest gas prices of the year." No Keystone XL and many other pipelines sandbagged by Luddites. By the way, this is not an investment site, but if the cost of your raw material (crude oil) is getting cheaper and cheaper, and the price consumers are willing to pay for your finished product (gasoline and diesel) it only seems that your profit margin should be surging. Just saying. Warren Buffett, it was reported earlier today, recently bought a truckload of PSX. Just saying.

[I posted that earlier; then took the granddaughters to soccer and water polo. I came back and found this EIA "energy cookie" that I had not seen earlier, sort of says what I just said above:

Gasoline crack spreads in the United States, especially on the U.S. East Coast, have reached several-year highs in recent months. Crack spreads, which reflect the difference between wholesale product prices and crude oil prices, are a good indicator of refiner profitability. --- EIA

Crack spreads can be found here. 

Another Post-Boom Low -- 80 Active Rigs; Eleven (11) New Permits; Slawson Proposing A 11-Well Pad In Big Bend Oil Field; 6/6 Bakken Wells To DRL/NC/SI Status -- May 20, 2015

Active rigs:

	5/20/2015	05/20/2014	05/20/2013	05/20/2012	05/20/2011
Active Rigs	80	188	189	209	178

Wells coming off the confidential list Thursday:

• 28464, drl/NC, Petro-Hunt, USA 153-96-24C-13-5H, Keene, no production data,
• 28710, SI/IA, BR, Harley 11-2MBH-R, Blue Buttes, no production data,
• 29060, drl/NC, XTO, Amundson 34X-22C, Siverston, no production data,
• 29248, drl/NC, Zavanna, Sigurd 5-8 1 TFH, Crazy Man Creek, no production data,
• 29349, drl/NC, Hess, SC-Ellingsberg-LW-154-98-3229H-1, Truax, no production data,
• 29912, SI/NC, EOG, Burke 40-1609H, Stanley, no production data,

Eleven (11) new permits --

• Operators: Slawson -- all eleven permits issued today
• Field: Big Bend (Mountrail)
• Comments: all in SESE 30-152-91 (see graphic below)

Two (2) producing wells completed:
29474, 1,088, CLR, Candee 5-91H, Chimney Butte, 4 sections, t5/15; cum --
29475, 941, CLR,Candee 6-9H, Chimney Butte, 4 sections, t5/15; cum --

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The Slawson permits from above.

Some of the "information" in the graphic below is just my hunch based on names of the proposed wells, etc.

This information is for my use only. Use it any way you want, but don't quote me on it, or attribute it to me. It may be completely incorrect. It's possible one well will run in a different direction or will have different spacing than the other ten. The information is still confidential. If this information is important to you, go to the source. Do not make any financial, investment, or travel plans based on the graphic above.

• 18924, 1,361, Slawson, Vixen Federal 1-1930H, Van Hook, 36 stages; 3.4 million lbs, t2/11; cum 393K 3/15; taken off-line in February, 2015; 

"They" say #18924 is a Van Hook well; it looks like a Big Bend well; I must be reading something incorrectly. More on this later, perhaps.

Nooners; Polar Ice Not Receding As Once Thought -- NASA -- May 20, 2015

The "original" drop dead date was April 9, 2015.

Then it was April 24, 2015.

Then April 30, 2015. 

Then sometime in May.

Then, BloombergBusiness reported that the drop dead date now extends to June 30, 2015.

The Greeks reiterate: they will default by "the end of June, 2015, if not "given" more funds. Now it's Reuters carrying the story.

Meanwhle the S&P hit an intraday high; NASDAQ briefly tops closing high.

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Antarctic Sea Ice ... Expanding?

Forbes is reporting: polar ice not receding as once thought -- NASA --

Updated data from NASA satellite instruments reveal the Earth’s polar ice caps have not receded at all since the satellite instruments began measuring the ice caps in 1979. Since the end of 2012, moreover, total polar ice extent has largely remained above the post-1979 average. The updated data contradict one of the most frequently asserted global warming claims – that global warming is causing the polar ice caps to recede.

The timing of the 1979 NASA satellite instrument launch could not have been better for global warming alarmists. The late 1970s marked the end of a 30-year cooling trend. As a result, the polar ice caps were quite likely more extensive than they had been since at least the 1920s. Nevertheless, this abnormally extensive 1979 polar ice extent would appear to be the “normal” baseline when comparing post-1979 polar ice extent.

Updated NASA satellite data show the polar ice caps remained at approximately their 1979 extent until the middle of the last decade. Beginning in 2005, however, polar ice modestly receded for several years. By 2012, polar sea ice had receded by approximately 10 percent from 1979 measurements. (Total polar ice area – factoring in both sea and land ice – had receded by much less than 10 percent, but alarmists focused on the sea ice loss as “proof” of a global warming crisis.)

I may post this as a stand-alone later -- this is a pretty big deal. It won't be taught in the elementary, middle, or high schools in this country.

Neither Bill Guy, "the science guy," nor the Carl Sagan protege, Neil "deGrasse" Tyson will report this new NASA data.

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Also From Forbes: OXY

For investors looking for dividend-paying stocks, Forbes suggests investors look at OXY as one of ten opportunities:

Houston-based Occidental Petroleum is the largest oil and gas producer in the Permian Basin of western Texas. It also operates domestically in Colorado, Kansas, New Mexico, North Dakota and Oklahoma. Internationally it’s all over the world, including Bahrain, Bolivia, Colombia, Iraq, Libya, Oman, Qatar, the United Arab Emirates and Yemen. Earlier this month, it spun off its California assets as California Resources (CRC), and it still owns 71% of the company.

Occidental pays out a dividend of $0.75 per share every quarter, an amount that is up $0.03 from earlier this year. The $3.00 annual dividend is amply covered by $11.51 per share in cash from operations over the past 12 months.

Even though it has shifted to a pure exploration and production company instead of one that ran substantial refining and marketing operations, the discounts relative to history suggest value. As a ratio of enterprise value to trailing 12 months of EBITDA, Occidental trades 25% more cheaply than it has on average over the past five years.

I post this not as an investment story but as a reminder that OXY is the largest operator in the Permian, the largest shale play in the US. Whiting is probably the largest operator in the Bakken (could be CLR depending how one measures the data). Is EOG the largest in the Eagle Ford?

NuStar To Expand Propane Distribution Network; Jobs Story Worse Than Reports; Roombas -- May 20, 2015

I remember all the stories of seasonal shortages of propane in the Midwest when I first started blogging. Biz Journal is reporting that NuStar will soon expand its propane distribution network to two key states, Iowa and Kansas.

San Antonio-based NuStar announced on Tuesday that it is pursuing a strategic alliance with Minnesota-based agribusiness giant CHS Inc.

Under the deal, NuStar will develop an expanded pipeline and terminal network that will increase supply of propane to meet product demand in the Upper Midwest.

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Haven't We Been Talking About This ... Like, Forever?
"The unemployed are dropping like flies" -- CNBC

CNBC is reporting:

At a time when 8.5 million Americans still don't have jobs, some 40 percent have given up even looking.  

The revelation, contained in a new survey Wednesday showing how much work needs to be done yet in the U.S. labor market, comes as the labor force participation rate remains mired near 37-year lows.

Duration matters: The longer someone was out of work, the more likely it is that they've quit looking.

Of the total, 55 percent who were unemployed for more than two years fell into the category; 32 percent of those idle for 13 to 24 months and 34 percent out for seven to 12 months had quit as well. Just 21 percent out for three months or less had stopped looking.

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Roombas?

I did not know what a Roomba was until recently. I probably knew at one time, and then forgot. Our 10-month-old granddaughter was the "Roomba" up until very recently.

 Roombas are those robotic vacuum cleaners. Before my son-in-law got (his first) Roomba, Sophia was seen to lay down on the floor and literally "inhale" the cheerios, crumbs, and other sorted snacks that had fallen on the floor from earlier in the day. (The family needs a dog.) It was "that event" that stirred (spurred? This is Texas) our son-in-law into buying a Roomba, saying that "Sophia is not a Roomba."

He is so impressed with the Roomba, he bought a second one for upstairs.

Roomba.

Environmentalists Not All That Committed To Saving The Environment -- At Least In Oregon; If They Have To Pay Road Taxes, Forgeddaboutit -- May 20, 2015

We're starting to see just how loyal environmentalists are to saving the environment. Environmentalists say they will quit buying EVs if Oregon goes through with its plan to tax based on miles driven. MyWay is reporting:

Oregon is about to embark on a first-in-the-nation program that aims to charge car owners not for the fuel they use, but for the miles they drive.

The program is meant to help the state raise more revenue to pay for road and bridge projects at a time when money generated from gasoline taxes are declining across the country, in part, because of greater fuel efficiency and the increasing popularity of fuel-efficient, hybrid and electric cars.

Starting July 1, up to 5,000 volunteers in Oregon can sign up to drive with devices that collect data on how much they have driven and where. The volunteers will agree to pay 1.5 cents for each mile traveled on public roads within Oregon, instead of the tax now added when filling up at the pump.

Some electric and hybrid car owners, however, say the new tax would be unfair to them and would discourage purchasing of green vehicles.

Unfair to them? Exactly why?  The fuel-at-the-pump tax is for the privilege of driving on maintained roads.

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How Blogging Has Helped Me

Before I started blogging I had no idea how "big" 640 acres was. Nor did I care, I suppose.

But today, in this article on a home being sold by Robin Williams' estate:

The 63-year-old late actor listed the breathtaking Calif. home in April for $29.9 million just months before his passing.

The 640-acre property was named Villa Sorriso, or Villa of Smiles by the comedian in the early 2000s.

Because of blogging I know how "big" 640 acres is. I can "see" it. If were square it would be a mile wide by a mile long.

And Whiting would put twelve wells on it. LOL. 

Did The "Powers That Be" Shut Down "GDPNow"? -- May 20, 2015

Updates

May 20, 2015: the site is back up. Disregard everything in the original post. 
 

Original Post

One of my favorite sites, "GDPNow" seems to be down for some reason. It may just be a momentary glitch but when I checked at 7:00 a.m. this morning it was down and now two hours later it is still down.

It will be sad if the "powers that be" ordered this site to be taken down because it was ... just too good ... maybe they take it down on the days that the Fed meets or when Janet Yellen tells them to.

Developing ... as Drudge would say. A PDF of GDPNow forecast appears to be current.

This is the headline story today regarding the Fed suggesting that there may be more to the GDPNow story: "What if data the Fed is watching is not dependable." GPDNow does not do much massaging of the data as far as I can tell; the data comes in; they post it quickly and calculate "in-real-time" the expected GDP for the current quarter.

Screen shot when googled "was gdpnow taken down":

The hits certainly suggest that some folks in Washington (those who control and massage the financial news) may not appreciate this site. However, my hunch is Google could do the same thing without much difficulty (they did it with Google Flu easily providing more timely data on annual flu "predictions" than the CDC.

Richard Zeits On Oasis -- May 20, 2015; Wal-Mart; Target Getting Its Mojo Back

Seeking Alpha link here.

Scaling down drilling programs in order to achieve cash flow neutrality has been an important theme during the current earnings season in the E&P sector.

Oasis Petroleum reported significant progress in this direction and indicated that it should be able to balance its upstream spending and cash flow for the rest of the year. The company also guided that a $60 per barrel oil price would be sufficient for it to stay cash flow neutral in 2016.

The operating metrics highlighted by Oasis are mostly in line with the indications from other major operators in the Bakken. However, the concept of "cash flow neutrality" has many nuances that need to be carefully accounted for in order to avoid wrong conclusions.

Note: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have been reading here.

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How I see the Bakken today, based on permitting, monthly dockets, producing wells completed:

• Oasis is perhaps the most aggressive operator in the Bakken right now
• Whiting has never slowed down in the Bakken (relative to the other operators / relative to all that is happening)
• Newfield seems to be more active than one might expect
• Hess, quietly, keeps doing its thing
• EOG, quick to slow, is talking a good story of getting back in
• CLR, difficult to read; so much going on with that company
• Slawson pops up every once in awhile
• Liberty Resources was recently recognized for its "manufacturing strategy" in the Bakken
• we're not hearing much from any of the others  (Statoil, XTO, BR)

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Wal-Mart: Idle Chatter

Regular readers are aware of the recent chatter regarding Wal-Mart and Dollar General. I don't want to step on any toes here. I am not an apologist for Wal-Mart. Okay, maybe I am. Whatever. But I have seldom had a bad experience in Wal-Mart. (Yes, I put my rose-colored glasses on whenever I go into Wal-Mart.)

This past year.

Fishing.

One day when I took the younger granddaughter to her soccer game, I noticed there was a stocked pond in the same area. I immediately drove to Wal-Mart, and in less than fifteen minutes had two Shakespeare rods and reels, tackle, and bait, and the older granddaughter was fishing within 30 minutes. She caught her first fish ever, and had caught it before her sister had even finished practicing soccer. The soccer players ran over to see the fish when practice was over; it was the hit of the day.  I don't recall the exact price, but I believe the cost for one rod and reel was about $24. Bait? Hot dogs. Yes, from Wal-Mart. One for the fish; seven for us when we got home.

Grilling.

Our daughter / son-in-law recently moved into a house after living in a small apartment the past two years. Low on their list was a grill. High on my list: a grill. About two weeks ago I went to Wal-Mart, found the large Weber grill, normally priced at $149 (see Amazon), marked at $88. I was having difficulty finding one still in the box; the manager of that part of the store saw me looking around, found the boxed Weber, and specifically told the cashier several times to charge me $88 for the Weber grill "regardless" of what shows up on the bar code/register. Obviously $149 was going to show up, but she charged me $88.

Kitchen.

After moving into their new home, and during grilling, I noted my daughter did not have (m)any steak knives. I went to Target -- it's one mile closer. Target only sells one brand of steak knives -- high end, and not my style, anyway. On top of that, Target had run out of their limited supply of steak knives. I drove the extra mile to Wal-Mart, surprised (not really) to find Wal-Mart had more steak knives and a much bigger selection. I could buy a set of four for $1.79 -- yes, a set of four for $1.79, or a $24 (again, $24) set for 8 Cephalon knives -- a really nice set. I bought the Cephalon.

DVDs.

Always the best prices on DVDs. Huge selection. Bought a few during Christmas.  I would not have bought any DVDs at Wal-Mart but we were there buying inexpensive board games for Toys for Tots and other charities. Again, the selection is broadest and least expensive (compare to Barnes and Noble).

Wal-Mart is not my first choice for shopping. For anything. But when I'm in a hurry and need it "now," I don't think I've ever been disappointed at Wal-Mart.

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Target

Speaking of Target, which we weren't, Reuters is reporting:

Target Corp on Wednesday reported a larger-than-expected increase in first-quarter profit as revenues got a boost from online sales and a program to narrow its product focus.

Target, the fourth-largest U.S. retailer, also said it repurchased $562 million worth of its shares in the quarter, resuming buybacks for the first time in nearly two years.

Adjusted earnings, excluding restructuring costs and other items, came to $1.10 per share in the three months ended May 2, against a profit of 92 cents in the same period a year earlier.

There's a difference between consumers' expectations and investors' expectations. The post above regarding Wal-Mart was from the perspective of a single consumer.

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Differing Views

There is a nice article over at Investopedia comparing Costco, Target, and Wal-Mart from an investor's point of view:

In April, Target’s overall comps improved 4.5% year over year. Wal-Mart was slightly more impressive, delivering a 5.0% improvement (4.0% without fuel). Costco’s comps improved 2%, but it would have been a 7% gain without negative impacts related to gas prices and foreign exchange, but these factors do matter.

If This Is Wednesday, It Must Be The Bakken - May 20, 2015

There are a lot of stories today; I don't whether to put them altogether in one post or split them up. I will probably put a lot of them together.

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Watford City's $83 Million Event Center

The Dickinson Press is reporting:

Watford City breaks ground today on an $83 million event center, marking three years of work and planning backed by a public vote to increase the city’s sales tax after the Stenehjem family donated the land on which to build.

The Watford City Event Center — adjacent to the new high school project in the Fox Hills Subdivision — will house arenas for hockey, turf and hard-floor sports, a 1,000-capacity convention center, a 3,000-seat auditorium, plus a lap pool and swim-play facility.

It will connect directly to the new high school for athletic practice, competitions and some physical education classes and will be an off-campus venue for the University of Mary.

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California Gasoline

This may be my favorite story for the day. Regular readers know all this but it explains a lot about the price of California for newbies. Bloomberg explains why gasoline in California is almost a dollar more per gallon than in the rest of the country. Californians are once again approaching $5-gasoline. Yes, I know it's closer to $4.35 than $5.00 but ... So here's the story why gasoline is so expensive in California:

There’s plenty of blame to spread around. An Exxon Mobil Corp. refinery explosion near Los Angeles in February and a fire at a plant in Washington state reduced supply at the same time two other California sites make repairs.

Refiners sent five cargoes in one week to Mexico. Since there are no pipelines to bring in gasoline from elsewhere in the U.S., tankers are delivering fuel from Asia and Europe.

Add the strictest clean-air policies in the nation and you get the most expensive gas in the country.

Exxon hasn’t said when its Torrance refinery will be back to normal. Repairs will continue through June.

Less than 10 miles up the road from Torrance, Chevron Corp. shut units at the El Segundo refinery this month for repairs and Phillips 66 is doing work at its Los Angeles plant.

In Tacoma, Washington, a complex owned by the TrailStone Group remains shut after a May 6 fire.

It doesn’t help that the West Coast is cut off from pipeline supplies in other parts of the U.S. Kinder Morgan Inc. runs a network of lines that send fuel out of the state to Arizona and Nevada, but it doesn’t bring supplies in. So the only way refiners can deliver fuel to California is by tanker.

So few refineries produce gasoline that can be used in California’s cars that tankers come from thousands of miles away in Asia and Europe to deliver the specialized fuel.

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Is  Baghdad Next To Fall?

Fox News is reporting:

A full-blown humanitarian crisis has developed from ISIS takeover of Ramadi, as an estimated 25,000 Iraqi refugees are now making their way east toward Baghdad, seeking food and shelter wherever they can and facing the prospect of being blocked from the capital city amid fears their ranks could include militants.

The United Nations and other aid agencies were handing out food, water and medical supplies along the 60-mile route between the cities, but the situation was worsening amid dwindling supplies and reports the Iraqi army was blocking the refugees from reaching the safety of Baghdad.

The flight was a repeat of a wave of refugees who poured out of Ramadi in April, when fighting between ISIS and the Iraqi army flared up. Many had returned, only to be again driven out of the city, some 60 miles west of Baghdad.

Now, the crisis could be coming to a bloody head, as the black-clad jihadist army is moving east just behind the refugees, who are now stuck on the bank of the Euphrates River, unable to cross to safety. And those left behind in Ramadi, where ISIS was reportedly going door-to-door to root out government sympathizers, were braced for more fighting as Shia militias were summoned by Baghdad to help mount a counter-offensive to retake the city, once home to 750,000.

Even the decision to launch a counter-offensive to recapture the largely Sunni capital of Anbar province was fraught with peril. The Iraqi Army’s humiliating defeat there has left Baghdad with little choice but to make a deal with the devil – the battle-hardened and Iranian-backed Shia militias that offer the best chance of retaking the key city, say experts.

 It was noted that the ISIS forces staged a huge military parade to celebrate their victory. This was a target-rich environment for the A-10 or the F-16 or the Apache helicopter. Did President Obama direct the military to take out these ISIS forces? Nope. Speaks volumes about his war strategy. 

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 The New York Times Report On The Fall Of Ramadi -- It Began With George W. Bush

NYT Headline: Iraq's Sunni Strategy Collapses in Ramadi Rout

The New York Times reports:

The collapse of Anbar has also set in sharp relief the continuing tragedy of Iraq’s Sunnis, beginning with the American invasion in 2003, which almost instantly upended the old social order of Sunni prominence. With the majority Shiites thrust into power, the Sunnis were sidelined, many banished from public life for good because of their ties to Saddam Hussein’s Baath Party.

Some of those Sunnis joined the insurgency, and many fight today for the Islamic State. Other Sunnis boycotted elections. A great number even deny the demographic fact that they are a minority in Iraq.

Most, though, wanted to get on with their lives and find a place within the new order.

Now, with the rise of the Islamic State, that has become nearly impossible. The Sunni militants of the Islamic State have declared war on those they consider apostates — Shiites, Christians, Yazidis — but it is Iraq’s Sunni Arabs who have arguably suffered the most.

Might We See The Number Of Active Rigs Drop Below 80 This Week? -- May 20, 2015

Active rigs:

	5/20/2015	05/20/2014	05/20/2013	05/20/2012	05/20/2011
Active Rigs	81	188	189	209	178

RBN Energy: E & P CAPEX being slashed to the bone.

The E&Ps have cut Capex to the bone, but as a group they expect oil and gas production in 2015 to increase versus last year.  That’s true from an overall perspective, and it is an important indicator of upcoming production trends.  But the real revelations come when you dig into the details.  In the oily sector, small and mid-size companies are making deeper cuts but are faring much better than the big boys.  On the gassy side, E&Ps in Appalachia are knocking it out of the park, while more diversified gassy players are having a much harder time of it.   Today we begin a blog series to drill deeper into the company numbers to see why and how these differences happen.

We first looked into this issue back in January 2015 using an analysis of capex and production guidance provided by our friends at U.S Capital Advisors.  This time we’ve crunched through the numbers based on data compiled from company’s SEC reporting and issued press releases.  Our analysis indicates a 37% decline in exploration and development spending in 2015 for a group of 31 exploration and production companies.  These very same companies are expecting to increase oil and gas production by 8% this year. The oil and liquids rich gas producers will see the brunt of the spending declines as the crude oil price decline has slashed cash flows, but the very profitable dry gas Appalachian producers will be moving full speed ahead despite low natural gas prices. This initial blog will provide an overview of our analysis, the next edition will review oil weighted E&Ps and the final posting will look at gas weighted companies.

The recycle ratio is a measure of profitability. It looks at field level profitability (netback) in context with the capital cost spent to bring the reserves to production (finding and development cost). The recycle ratio is calculated by dividing the netback (revenue-lifting costs) by finding and development costs. A recycle ratio of 200% is generally considered to be the threshold for value creation. Below that threshold value is not being enhanced.  Figure 3 at the link highlights the profitability variances among the four different peer groups. We charted the recycle ratio along with the average realized oil and gas price for each peer group. The Appalachian Gas Weighted E&Ps crushed the other three groups due to a rock bottom cost structure. The Small/Mid-Size Oil/Liquids Weighted E&Ps and the Large Oil/Liquids Weighted E&Ps posted satisfactory results, but this was with oil prices in excess of $90/bbl.  The Diversified US Gas Weighted E&Ps struggled the most with a misalignment between netbacks and cost structure.  The group had netbacks a little better than the dry gas producers, but with a cost structure similar to the oil weighted producers.  Going forward, the Appalachian Gas Weighted E&Ps will not suffer much from the slashing in oil and liquids prices which will further depress profitability for the three other peer groups. The Diversified US Gas Weighted E&Ps must make most drastic changes since they had the weakest profitability in an already robust oil/liquids price environment. The Small/Mid-Sized and Large Oil/Liquids Weighted peer groups will be pruning back their capital spending, focusing on their best projects to try to best survive this lower price environment. 

Manufacturing In The Bakken -- Liberty Resources -- May 20, 2015

Back on May 6, 2015, I posted a nice WSJ article and graphic on "manufacturing in the Bakken" by Liberty Resources. This morning a reader sent a link that describes what Liberty Resources is doing in a much more succinct manner:

The Wall Street Journal reported earlier this month from northwestern North Dakota, where Liberty Resources is constructing a groundbreaking new oil processing facility.

The $800 million “oil factory,” named Stomping Horse, aims to develop and unify 96 wells across nearly 10,000 acres while maintaining the ability to start and stop output depending on crude prices.

The development also includes pipelines to transport oil, natural gas, water and waste material. Liberty officials hope that the infrastructure spending will eliminate the need for trucks or far longer pipelines to transport those materials.

In addition, using natural gas to power facilities on-site should reduce energy costs, while the wells could operate with less personnel and reduce labor costs.
Liberty chief Chris Wright believes the project will eventually enable the company to "still make money at $50 a barrel."

In addition, see first comment below:

Liberty is also trying a new technology from Energy Recovery Inc (ERII), that pumps frack fluid in without pump exposure to the proppant. The pump lives are drastically increased with this technology, decreasing downtime and capital, while increasing reliabilty.

ERII also makes efficient pumping systems for desalination plants and will introduce a product to generate electricity when pipelines run downhill. Downhill runs of liquid pipeline will cause major issues if the height is too great (much like railroads are limited to certain grades).