Friday, June 5, 2015

Activity Outlook In US Shale Following OPEC Meeting -- June 5, 2015

Reuters via Rigzone is reporting:
The U.S. drilling-rig count, which recorded its 26th straight weekly decline this week, is close to bottoming out ahead of a recovery in the second half of the year, mainly in the Permian and Eagle Ford shale plays in Texas, analysts said.
Oil prices are expected to hold roughly at current levels over the next three to six months after OPEC agreed on Friday to stick by its policy of unconstrained output for another six months, but did not raise its output ceiling.
That implied stability is expected to encourage drilling, especially in cost-efficient U.S. shale basins.
"Most additions (this year) will be focused on the Permian, the No. 1 play right now ... No. 2 is going be the Eagle Ford," said Gabriele Sorbara, an analyst at Topeka Capital Markets.
The Bakken:
Analysts said that if oil prices drop to the low $50s, costlier shale plays such as the Bakken in North Dakota and the Niobrara, straddling Wyoming and Colorado, could experience a further drop in activity.
Hawaii's Experience With ObamaCare

The Huffington Post is reporting:
Hawaii's health insurance exchange announced on Friday that it will be shutting down, and its nearly 40,000 enrollees will be transitioned to the federal Obamacare marketplace,
The private, nonprofit Hawaii Health Connector, which has been embattled from its inception, has not generated “sufficient revenues to sustain operations,” according to the office of Hawaii Gov. David Ige.
The state invested $130 million in the Connector, but the exchange has been plagued by low enrollment numbers and technological issues, making it noncompliant with the federal requirements outlined in the Affordable Care Act. 
According to Hawaii Health Connector CEO Jeff Kissel, Hawaii's health exchange will become a state-run exchange that uses, which is similar to the setup in Nevada, New Mexico and Oregon.
I know that Oregon's state-run site failed also; I don't know the history of Nevada's or New Mexico's state run systems, but Oregon, Nevada, New Mexico, and Hawaii all have something in common. 

Minnesota Approves Certificate Of Need For The Enbridge Sandpiper; Just The Beginning Of A Lengthy Process -- June 5, 2015

KARE11 is reporting:
In a 5-0 vote, the Minnesota Public Utilities Commission approved plans for the Sandpiper pipeline project Friday.
The proposed project was said to increase the amount of oil flowing across Minnesota by 225,000 barrels a day, from North Dakota to Superior, WI.
The final route of the 612-mile pipeline has not been approved and will likely not be finalized until 2016.
The lead group opposing the Sandpiper says the group is not "anti-pipeline." Apparently just NIMBY. Or haven't gotten the "respect" they feel they deserve. I assume it's more of the latter.

StarTribune also has the story.
Minnesota regulators approved a certificate of need Friday for the proposed Sandpiper pipeline from North Dakota's Bakken oil fields to Superior, Wisconsin, but will hold separate proceedings on exactly which path it should take across northern Minnesota.
While the Public Utilities Commission agreed 5-0 that the $2.6 billion, 610-mile pipeline is necessary and in the public interest, commissioners didn't foreclose the possibility of rerouting it away from environmentally sensitive lakes, streams and wetlands.
Enbridge Energy will still have to go through a lengthy review of its proposed route and a proposed alternative for part of the route that avoids some lakes and wetlands.
It looks like this could go on for decades, but at least one hurdle is behind us.

I track various pipelines of interest here. The timeline of the Sandpiper so far:
Initial application was not approved by FERC in March, 2013; Enbridge says project remains on schedule.  Update, October 29, 2013: The Bismarck Tribune reports that the Minnesota PUC will take a year to listen to local farmers who oppose the pipeline. Update: June 25, 2014: North Dakota PSC approves the pipeline. Update: June 5, 2015: Minnesota approves certificate of need for the pipeline; lengthy review for route still envisioned. 

Eggs Being Rationed In Texas; GE May Move Corporate Headquarters Out Of Connecticut Due To High Taxes -- June 5, 2015

HEB is "our" grocery store chain in Texas. The Washington Post is reporting:
In recent days, an ominous sign has appeared throughout Texas. 
"Eggs [are] not for commercial sale," read warnings, printed on traditional 8 1/2-by-11-inch pieces of white paper and posted at H-E-B grocery stores across Texas. "The purchase of eggs is limited to 3 cartons of eggs per customer."
H-E-B, which operates some 350 supermarkets, is one of the largest chains not only in the state, but in the whole country. And it has begun, as the casual but foreboding notices warn, to ration its eggs.
"The United States is facing a temporary disruption in the supply of eggs due to the Avian Flu," a statement released on Thursday said. "H-E-B is committed to ensuring Texas families and households have access to eggs. The signs placed on our shelves last week are to deter commercial users from buying eggs in bulk."
Voting With Their Feet

Back on February 9, 2015, we talked about the high taxes on individuals in Connecticut. It looks like Connecticut is at it again, raising taxes so high on corporations, that GE is exploring plans to move their corporate headquarters out of state.

Sioux Falls, SD, is inviting.

North Dakota Maintains Housing Record Begun In 2010

The AP is reporting:
North Dakota built new housing at a faster clip than any other state from 2010 through last summer, as people flooded the state in search of work in the booming oil patch.
The U.S. Census Bureau’s latest annual estimate shows North Dakota’s housing growth rate far outpaced any other state’s in the year leading up to last July 1, continuing a longer trend dating back to the last 10-year Census in 2010.

The state’s 3 percent growth in housing units from mid-2013 through mid-2014 was well ahead of Utah’s 1.4 percent, which ranked second, according to the new report. From 2010 through mid-2014, North Dakota’s housing units grew by 10.4 percent, far exceeding second-place Texas’ 4.5 percent.
Among U.S. counties with at least 5,000 housing units, Williams County in the heart of the North Dakota oil patch had the fastest growth rate from mid-2013 through mid-2014, at 11.6 percent.

Six (6) New Permits -- North Dakoa, June 5, 2015

Active rigs:

Active Rigs82194191213171

Six (6) new permits --
  • Operators: Hess (4), CLR (2)
  • Fields: Beaver Lodge (Williams), Catwalk (Williams)
  • Comments: the Hess permits are for a 4-well pad
One permit canceled: Oasis Kuykenall permit in McKenzie County.

Idle Chatter -- June 5, 2015

Reuters at Rigzone has a nice article on Saudi and pricing. Note the 7th paragraph:
Some analysts warn that the recent price crash - which has reignited demand and slammed the brakes on much global investment - may be sowing the seeds of another supply squeeze as early as next year.
The second (internet) page of the article gets even more interesting. Folks much smarter than I have talked about this for at least a year, the implications of the following data points:
Saudi Arabia launched a $35 billion five-year exploration and production investment plan in 2012 meant to sustain its current capacity. While the number of U.S. oil rigs has fallen by more than half since last year due to low prices, those drilling in the Middle East have risen to near the highest in records going back to 1975, according to Baker Hughes data. More than 400 rigs are operating in the region, a more than 10 percent rise from 2013, with just over half of those in Saudi Arabia.
Note: the $35 billion five-year program announced in 2012 was meant to sustain its current capacity. 

So, with a $35 billion five-year exploration and production program which began in 2012, almost four years ago, and with a 10% rise in active rigs year-over-year, what has it gotten Saudi Arabia?

It looks like that $35 billion program is working: sustaining current production

It's a bit hard to read: the Saudi Arabia "line" moves up slightly, very slightly, 2008 through 2014. But note that the bar graph is boe (both crude oil and natural gas). Also, remember, Saudi Arabia's domestic crude oil requirements have also increased significantly since 2008. Saudi Arabia is now engaged in what will be a long and lengthy civil war (or war on terrorism, if you prefer). So, a $35 billion five-year exploration / production program AND with more than 400 rigs active in the region, hasn't resulted in a production line like the US "blue" line.

The tea leaves suggest "we" are being set up for $200 oil.

What if the writers at Reuters are correct, suggesting a supply squeeze as early as next year? Is anything else going on next year? Oh, that's right. A presidential campaign with one side known for a desire to kill the US oil and gas industry and the other side often accused of thinking no farther (or deeper) than "drill, baby, drill."

We live in very interesting times.

The JV Team Advances

Tweeting now:  Islamic State seizes another town in Libya - @Reuters

Huge Background Story If Anyone Is Interested

From Seeking Alpha:
  • ConocoPhillips says it is quitting shale gas exploration in Poland after failing to reach production-level flows from its gas wells located in the northern part of the country.
  • COP was the last major oil company looking for shale gas in Poland, after Chevron's withdrawal at the start of this year; it says it invested ~$220M in Poland since 2009.
  • Poland imports ~60% of its gas from Russia and had hoped domestic shale gas production would allow it to break its dependence.
Hotter Than Ever; Atmospheric CO2 > 400 PPM
More Sea Ice Than Ever
So It Goes
NOAA says "anthropogenic global warming" is back on track, warmer than ever, and the Antarctic Sea ice sets a new record for the month of May. Even in the Arctic, more ice than in the cooler years of 2004 and 2006.

April, 2015, atmospheric CO2: 403.
Before He Approves The Keystone

I can imagine the president will declassify this report before he gets around to reviewing the Keystone XL North pipeline application. In case the link breaks, the linked article is from The [London] Telegraph about the secret report that Saudi Arabia financed "9/11." The pages in question were redacted by friends of the king (FOK).

This Is Not An Investment Site

The old adage, "sell in May, go away" seems to be back in play.

Hiring Surges. Really? Unemployment Rate Rises To 5.5% -- June 5, 2015

From The Wall Street Journal:

I'm hard-pressed to argue "surges" is the right word. If so, jobs have surged for the past several years.

Back to the Bakken

Belfield Crossing development update. KXNET is reporting:
Plans for a 48-acre development in Belfield, North Dakota, are moving along.
It's called Belfield Crossing - a multi-use development with hotels, restaurants, travel centers, convenience stores, and several retail outlets.
It will be located just north of Interstate 94 along Highway 85.
Managing Partner Mitch Beckstead of American Landmark Group has confirmed two hotels, a grocery store, and a convenience store so far.
Active rigs:

Active Rigs81194191213171

RBN Energy: Refiners and crack spreads.
Since the start of the shale oil boom in 2011 crack spread margins for Midwest refiners have averaged about $23/Bbl. Once written off refineries on the East Coast have averaged $16/Bbl this year so far (2015) and California refiners are currently enjoying average $24/Bbl crack spreads. Refinery utilization at the Gulf Coast has averaged close to 90% for the past 4 years and 92% in the Midwest. Today we review buoyant margins and operating levels at U.S. refineries.
In Episode 1 of this series we looked at the crude supply/demand balance for U.S. refiners since 2011 – the year the oil shale boom took off. Since then refiners have increased their crude oil throughput by over 1.5 MMb/d – with most of the resulting refined products output going to the export market.
Surging crude production from shale has changed the balance of crude processed in favor of domestic barrels over imports since 2011. That equation is complicated by a quality mismatch between shale crude and refinery configurations – an imbalance that has been exaggerated by the ban on most crude exports. Market inefficiencies – in the distribution system, the quality mismatch and export restrictions have largely kept U.S. crude prices below international levels – helping U.S. refiners dominate product export markets. An increase in permitted crude exports to Canada and processed condensate have helped alleviate some crude supply pressure but have not helped overall U.S. prices. Refiners in the U.S. have processed fewer crude imports and exported more refined products – both trends that increased the global crude surplus that lies behind current lower prices.
A large crude inventory built up in response to surplus supplies continues to exert downward pressure on prices. This time we take a deeper dive into regional data to look at refining margins as well as operating levels.
Our refining margin analysis substitutes “rule of thumb” 3-2-1 crack spreads for more detailed refinery yields. Recall that crack spreads are a way to boil down complex refinery operating processes to provide a basic measure of profitability using benchmark crude and product price ratios. We have frequently used the most common crack spread ratio – the 3-2-1 to represent the operation of a refinery outputting twice as much gasoline as diesel. In the past year we looked at crack spread performance at the Gulf Coast and in the Midwest and at how cracks have boomed recently as crude inventory levels increased this year.
EOG Over At Seeking Alpha

I usually don't post these type of articles, but in this case, there are some interesting data points. Seeking Alpha has an update on EOG:
The Bakken and Three-Forks formations up in North Dakota, South Dakota and Montana house an enormous amount of oil. Continental Resources Inc sees the play holding 24 billion BOE of potentially recoverable resources. 20 billion barrels of that is potentially recoverable crude oil. In order to pump out as much of that as possible, EOG Resources is pushing onward with its aggressive downspacing pilot program. Downspacing is the process of reducing the distance between well laterals, the horizontal reach of a horizontal well, while [ideally] not having the wells interfere with each others production.
In the region it refers to as the Bakken Core, EOG has been able to shorten the distance between its laterals down to 700 feet.
To further maximize its resource potential, EOG has begun testing out 500 feet spacing.
The initial results from these wells are very promising. Its five-well pattern spacing test [Parshall 39-1608H, 58-1608H, 59-1608H, 147-1608H and 151-1608H] yielded an average initial production rate per well of 1,235 bo/d, 110 bpd of NGLs [natural gas liquids] and 0.5 MMcf/d of natural gas. EOG's three-well pattern [Parshall 42-2117H, 43-2117H and 67-2117H] that is also testing out 500-foot spacing produced similar results, with an average initial production rate per well of 1,345 bo/d, 110 bpd of NGLs and 0.5 MMcf/d of natural gas.
This blog was the first blog of its type to predict 500-foot spacing in the better Bakken, and that was posted years ago. 

Greek Tragedy's Fifth Act Extended Until The End Of The Month; We Got Ourselves A Convoy -- June 5, 2015

Do you remember these numbers and dates? Posted on May 17, 2015, just a couple of weeks ago:
  • June 5: 300 million
  • June 12: 300 million
  • June 16: 550 million
  • June 19: 300 million
  • June 19: 100 million 
So, the first payment was due, 300 million Euros today. So, the question is, did Greece make the payment. Nope, they negotiated to kick all of June's payments to the end of the month, June 30

Fracking Poses No "Widespread" Risk To Drinking Water -- EPA

The Dickinson Post is reporting the Reuters story.

Breaking News

OPEC maintains production.

More Breaking News

Sunrise this morning was 5:27 a.m. for New Yorkers.

Flooding In The Bakken
Seems Like a Late Spring

Link hereThe Missouri River near Williston is forecast to rise above flood stage by Friday evening and remain above flood stage into next week as mountain snow melt runoff and recent heavy rainfall across Montana coming off the Yellowstone River makes its way into North Dakota.

The NDIC has ordered some wells shut in due to risk of flooding.


For those who oppose pipelines, this is what it will get you. 

From The Los Angeles Times
Exxon Mobil officials are seeking permission to truck the oil through Santa Barbara County after a ruptured pipeline sent oil spilling into the Pacific Ocean and brought the company's oil transportation operations to a halt.
The company told Santa Barbara County officials Thursday that it wants to send a fleet of 5,000-gallon tanker trucks along U.S. 101 at a frequency of eight trucks per hour, 24 hours a day, every day.
5,000 gallons / 42 = 120 bbls (rounded) * 8 = 1,000 bbls / hour (rounded) = 20,000 bbls daily. The Enbridge Sandpiper will carry 225,000 bbls/day, or about 10x that amount, or about 80 trucks/hour using the same parameters.

Whatever. [I often make simple arithmetic errors. If this is important to you, go to the source.]

Convoy, CW McCall

The version I was more familiar with:

Convoy, CW McCall