This Is Not An Investment Site. Do Not Make Any Financial Or Investment Decisions Based On Anything You Read Here Or Think You May Have Read Here -- June 23, 2015

Over at SeekingAlpha: Oasis - A high-intensity story.

So far, initial production results show an increase of 22%-45% versus its previous designs across Oasis' acreage, which has translated into a 10%-30% EUR (estimated ultimate recovery) rate increase depending on the location. Roughly 60% of Oasis' wells will be completed with one of its high-intensity completion designs this year, making it the new standard going forward.

As an added bonus, Oasis Petroleum's high-intensity well costs are trending lower faster than expected. Currently, its average high-intensity well costs $9 million to drill and complete, half a million less than its original guidance called for. Looking ahead, there is room for further cost reductions.

Many, many story lines. Maybe some other day.

I normally would not archive this one, but it will be an important article to have a couple of years from now to see how / if Oasis weathers the slump.

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At Least It's Hard To Catch

The Los Angeles Times is reporting:

Two new Ebola cases have been identified in Sierra Leone's capital in recent days, frustrating hopes that the deadly virus may have been defeated there.

The announcement by the country’s National Ebola Response Center followed a resurgence of cases in the northeast of the country, where President Ernest Bai Koroma this month ordered troops to enforce quarantines and a nighttime curfew in the districts of Kambia and Port Loko.

I was surprised to see the story. There's an embargo on news stories on the current Ebola outbreak.

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Yesterday, A 15-Year High; Today, An 18-Year High

Everybody's Happy With Greece

CNBC is reporting:

Japanese stocks clinched an 18-year high amid a higher open in the region early Wednesday, as optimism around Greece's debt talks continues to buoy sentiment.

But all this coverage on Greece causes us to lose site of the rising risks in Italy and France -- Financial Times. 

According to John Maynard Keynes “the expected never happens; it is the unexpected always”.

Obsessed with the problems of Greece and the European periphery, financial markets are ignoring the rising risks of the core, especially Italy and France.

Italy and France face mounting problems of high debt, slow growth, unemployment, poor public finances, lack of competitiveness and an inability to undertake necessary adjustments. Reductions in energy prices combined with low borrowing costs and a weaker euro, engineered by the European Central Bank, cannot hide deep-seated and unresolved problems forever.

Italian total real economy debt (government, household and business) is about 259 per cent of gross domestic product, up 55 per cent since 2007. France’s equivalent debt is about 280 per cent of GDP, up 66 per cent since 2007. This ignores unfunded pension and healthcare obligations as well as contingent commitments to eurozone bailouts.
Italy is running a budget deficit of 2.9 per cent. Government debt is around €2.1tn, or 132 per cent of GDP. French public debt is just above €2tn, or 95 per cent of GDP. The current budget deficit is 4.2 per cent of GDP. France’s budget has not been balanced in any single year since 1974.

Italy’s economy has shrunk about 10 per cent since 2007, as the country endured a triple-dip recession. Italy’s unemployment is more than 12 per cent, with youth unemployment about 44 per cent. French GDP growth is anaemic, with unemployment above 10 per cent and youth unemployment of more than 25 per cent.

And, as a reader reminds me, Spain and Portugal are not in much better shape.

Getting Ahead Of Our Headlights, Part II -- June 23, 2015

For newbies, this is an incredibly important post, that takes us back to the early days of the Bakken. It gets us back into the discussion of primary, secondary, and tertiary recovery. The following all has to do with primary recovery.

In the beginning, the general consensus was the the amount of oil recoverable through primary production was estimated to be 3%, perhaps less. Some estimated as much as 5%. However, when I started running the numbers, and looking at the press releases, I was convinced that 8% recoverable through primary production was more likely than 3%, and there were reports back as early as 2012 suggesting rates of recovery could be much, much higher.

Even a one percent increase in recovery through primary production means as much as an extra 5 billion bbls (500 billion bbls original oil in place [OOIP] x 0.01 = 5 billion bbls.

3% through primary recovery: 15 billion bbls

6%: 30 billion bbls

9%: 45 billion bbls (and I think that's the current conservative general consensus)

But could it be more?

Earlier posts of interest:

• Getting ahead of one's headlight, June 11, 2013
• Recovery rate in the Bakken, July 28, 2013
• EOG on the recovery rates in the Bakken, September 9, 2012
• USGS Survey, April 30, 2013
• Whiting: how about 20% recovery rate in the Bakken? March 6, 2013
• Bakken OOIP Estimates, July 18, 2014

From Mark Perry, Carpe Diem, via an "insider" in the Bakken, June 23, 2015:

One more fact that I’ll remind you of, just to blow your mind a little bit more. Six or eight years ago we were estimating a recovery factor of just 3.5% in the Bakken shale reservoirs from our horizontal wells. With additional work, micro-seismic study, well production history, big data analytics, etc., we’re now estimating that we’re recovering 15-18% of the oil in place.

We further estimate, with our current technology, that the technically recoverable oil in the Bakken is 65 to 90 billion barrels.

Let’s pick the midpoint at 78 billion barrels of recoverable oil and assume a recovery factor of 16.5%. That implies we have about 470 billion barrels in place, of which 78 billion barrels can be recovered.

Now let’s assume that over the next decade that the drilling and extraction technologies continue to improve and we are able to harvest another 5% of the oil in place — again, we now know exactly where it is and we know the exact profile of the geology/geophysics of the shale rock.

That’s another almost 24 billion barrels of crude oil (470 billion x .05), which would be equivalent to discovering another Prudhoe Bay size oil field in the Bakken area! All it takes is more experience and technology gain to get the oil we know is there.

The article also takes us back to OOIP. It's hard to say exactly what the "insider" was suggesting when he wrote:

 ... we’re now estimating that we’re recovering 15-18% of the oil in place.

We further estimate, with our current technology, that the technically recoverable oil in the Bakken is 65 to 90 billion barrels. 

I can only assume the "insider" was "equating" the two. So working backwards:

15 to 18% of what = 65 to 90 billion bbls

15% of what = 65 billion bbls OR 18% of what = 90 billion bbls.

"of what" = 65 / 0.15 --> 433 billion bbls of OOIP.

"of what" = 90/0.18 --> 500 billion bbls of OOIP.

At the time 500 billion bbls OOIP was first being bandied about (before 2013), only the middle Bakken and the upper Three Forks (which we now call the upper bench or the first bench of the Three Forks) were being targeted (and then, mostly the middle Bakken; very few wells were actually targeting the upper Three Forks prior to 2013).

These discussions help explain the price operators were willing to pay for mineral acres back in the early days and why the Bakken remains so exciting.

So, now, to collect the Mark Perry Carpe Diem three recent posts on the Bakken:

• Part I
• Part II
• "Part III"

Comparing the Bakken and the Permian.

• September 22, 2014
• USGS slide, May 2, 2013
• Mike Filloon on the Permian, February 13, 2013 
• Production per well, the Bakken vs the Permian, July 6, 2014
• Production per well, the Bakken vs the Permian, December 14, 2014
• The Bakken-Permian Pond, July 21, 2011

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A Personal First

I was the first one to review a new book on Amazon. My review here. The book here. I also just posted my review of Oliver Sacks' autobiography. The book here. Generally speaking, I find there are more than enough reviews, and more than enough words for each review, that my reviews can be short and sweet.

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Coming Into Work A Bit Later

I called my dad to wish him a Happy Father's Day and to ask him how his day was going.

He was in a great mood as usual.

I called him at the office. He mentioned that he was just getting in. I had called about 10:45 a.m. He says he was now coming in a bit later than usual. Instead of coming in at 9:30, he now comes in about 10:30 every morning.

He says there is not a lot for him to do, so he can come in a bit later. I guess he's sort of on auto-pilot at age 93 years. His biggest problem is making sure his broker understands his "orders." He remains excited about his portfolio, particularly Apple. He got in relatively early; I missed that one. He thought Apple was a grocer or supermarket of some sort years ago. He knows that the company is having some problems now with the music end, but doesn't know the particulars.

I didn't ask, but he probably won't buy the Apple Watch. 

One (1) New Permit -- North Dakota -- June 23, 2015; "New" Crude Oil Production Ceases In The Bakken

More bad news for California oil: tweeting now --

ExxonMobil halts drilling off Santa Barbara, Calif., after May spill crippled pipeline - @AP.

Active rigs:

	6/23/2015	06/23/2014	06/23/2013	06/23/2012	06/23/2011
Active Rigs	77	190	189	210	172

Wells coming off the confidential list Wednesday:

• 29486, SI/NC, Statoil, Charlie Sorenson 17-8 6H, Alger, no production data,
• 29769, SI/NC, Murex, Elmer Olaf 13-24H, Temple, no production data,
• 30062, SI/NC, Statoil, Banks State 16-21 8TFH, Banks, no production data,

One (1) new permit --

• Operator: Samson Resources
• Field: Blooming Prairie (Divide)
• Comment:

Four (4) producing wells completed:

• 28696, 1,104, Emerald Oil, Goodsen 7-32-29H, Moline, t5/15; cum --
• 28697, 886, Emerald Oil, Goodsen 6-32-29H, Moline, t5/15; cum --
• 28782, 1,488, BR, Hammerhead 31-26-2MBH, Sand Creek, t5/15; cum --
• 29436, 1,255, XTO, Sorenson 14X-33EXH, 4 sections, Siverston, t5/15; cum --

Random Update On Six HRC Wells In Marmon Oil Field North Of Williston -- June 23, 2015

A reader asked about updates regarding activity near these two wells:

Do you have any information on new activity near these existing wells?

• 25499, 707, HRC, Moline 157-100-20D-17-2H, running north, 35 stages, 4.1 million lbs, t2/14; cum 83K 4/15;
  26211, 1,188, HRC, Moline 157-100-20D-17-3H, running north, 35 stages, 4.14 million lbs, t2/14; cum 106K 4/15;

Those two wells are on a four-well pad, two running north, two running south, in Marmon oil field, located in far north (central) Williams County, north of Williston. The other two, running south,

• 25498, 1,551, HRC, State 157-100-29A-32-2H, 35 stages, 1.7 million lbs, t2/14; cum 112K 4/15; choked back
• 26210, 1,184, HRC, State 157-100-29A-32-3H, 35 stages, 4.0 million lbs, t2/14; cum 122K 4/15;

Running south in the same drilling unit as #26210:

• 20614, 411, HRC, White 157-100-17B-20-1H, 24 stages, 2.7 million lbs; t8/11; cum 108K 4/15;

Running north in the same drilling unit as #25499:

• 20063, 1,504, HRC, State 157-100-32C-29-1H, t4/13; cum 142K 4/15;

There appears to be minimal recent activity in the immediate area. 

This Is Not An Investment Site. Do Not Make Any Investment Or Financial Decisions Based On What You Read Here -- June 23, 2015

Updates 

June 24, 2015: I'm not the only one playing this game. Investopedia suggests Kinder Morgan might be a better option for WMB. If they're not careful, Warren Buffett will step in.

Original Post

This is interesting. (Back to the ETE-WMB or ETP-WMB deal.)

I'm not going back to find the story or find the link, but there was a quote suggesting that ETP CEO had hoped that energy prices would continue to fall once he had made the decision to buy WMB.

Think about that for a moment. He's been working on the deal for six months they say. Over the weekend, they pounced.

The swirling tea leaves suggest that someone thinks energy prices just got about as low as they were going to get.

Yesterday, oil was coming down a bit. There were stories that the slowdown in China was tapering. Crude oil dropped a bit in early morning trading and it certainly looked like short term, prices were coming down, and long term, prices would continue to fall, or at best, level out.

Surprise, surprise. Oil is up 1.5%, over $61 in a "stunning" reversal. Of course, this is all idle chatter; we're in a trading range.

What is not idle chatter is the fact that the Bakken-WTI spread, apparently, has narrowed.

Active rigs:

	6/23/2015	06/23/2014	06/23/2013	06/23/2012	06/23/2011
Active Rigs	77	190	189	210	172

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Meanwhile, ATT Is Hot

MarketWatch is reporting: ATT surges 3%, heavy volume; price target to $39 from $34. DirecTV acquisition coming along.

This Is Not An Investment Site. Do Not Make Any Investment Or Financial Decisions Based On Anything You Read Here -- June 23, 2015

This headline and the first few paragraphs of this article over at Seeking Alpha should give us pause to think.

All that talk about ETE buying WMB.

Some data points.

Market caps:

• ETP: $27 billion
• ETE: $35 billion
• WMB: $44 billion
• WPZ: $29 billion

Both WMB and ETP have $20 billion in debt, and neither has any cash (to speak of).

ETP has been working on the deal for six months.

WMB has hired an outside consulting firm to look at strategic options.

Here's one: WMB buys ETP.

This is not the first time this has happened in the history of free market capitalism in the United States.

The hunted buying the hunter. The prey buying the predator.

There was a very, very "famous" example of a small company about ready to be gobbled up by a larger company some years ago; the smaller company ended up buying the larger company, so it's not out of the realm of possibilities. In this case, ETP may be smaller (market cap) than WMB but they are pretty much both in the same ball park.

Another possibility: a merger of "equals." This is a way both boards / companies "save face," but behind the green door, the CEOs agree that in a year or two, one will become dominant, and the company will be known by one or the other. Chevron-Texaco (CVX) comes to mind. I've long forgotten the specifics, but I always considered it a merger (and the stock symbol suggests the same -- the stock symbol was changed to "reflect" both companies) but clearly analysts think of this company as Chevron. I grew up with Texaco and my heart "lies" with Texaco, but I have to agree: it's more Chevron than Texaco.

Exxon-Mobil? Same song, different verse. Does anyone call this merger ExxonMobil any more? I loved Pegasus, but I think Exxon grabbed the brass ring in this case.

COP.

Are there non-energy examples? I assume so, but will have to rely on readers to help me out. The only example I can think of, I suppose, is when SBC bought ATT, which, I think, was a series of deals before we have what we have today.

My hunch: a year from now, ETP/ETE and WMB/WPZ will look much differently as corporate entities than they do today. But one guy is going to be running both.

Tuesday, June 23, 2015

Don sent me this link the other day; I don't think I posted it at the time. I don't recall. Regardless, here it is. I was unaware that hydroelectric power was struggling. I don't pay much attention to hydroelectric power; it's a regional "thing." But this is a bit more interesting. I particularly like the pie graph at the SeekingAlpha article:

According to the EIA, power plants in the Columbia River Basin, which include the Grand Coulee Dam, the largest electricity producing facility of any kind in the U.S., generate an average of 29 GW per year of electricity.

If these were to all shut down, it would take 5.8 BCF/day of natural gas, nearly 10% of average summertime demand, to replace this loss of electricity production. This would also be nearly twice the daily volume of gas that was shut in by hurricanes Katrina, Rita, and Ike last decade leading to natural gas price spikes.

While the Pacific Northwest power plants are by no means all shut down, they are certainly struggling. A year of drought and below-average wintertime snowfall to replenish the snowpack that feeds the watershed during the summer has led to decreased water flow across the region. Figure 3 below shows observed rainfall across five major cities in the Columbia River Watershed from the June 20, 2014, to June 19, 2015, year-long period.

The pie graph is interesting. Some takeaways (numbers rounded):

• hydroelectric power is a regional story
• the current hydroelectric power struggle is a temporary problem
• coal still accounts for 40% of electricity in the US (I thought it was dead)
• natural gas, 30%
• nuclear, 20%
• non-hydro renewables (mostly wind, solar, I presume): 5% (solar rounds to 0%)

The tea leaves:

• electricity demand in the US will increase slightly going forward
• nuclear energy (in terms of GW) won't increase; as a percentage will drop
• solar and wind (in terms of GW) will barely move; as a percentage will drop
• both wind and solar falling out of favor as more details come in
• that leaves coal and natural gas

The market will sort this out.

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Boxcars

Hey, by the way, did you all catch that boxcar story in the WSJ the other day. Either it's a non-story or either I don't understand the rail / intermodal system. The article:

A shrinking supply of boxcars—once the ubiquitous symbols of U.S. railroads and a rolling bellwether for the economy—is causing a freight-hauling crunch for industries that continue to use them.

The number of boxcars in service in North America fell by 41% in the past decade to slightly less than 125,000 last year as 101,600 cars were scrapped and only about 13,800 replacement were added. That downsizing accelerated a decades-long shift by railroads to more specialized railcars and intermodal carriers that allow shipping containers to hop from trucks to trains.

While the transition has worked fine for many shippers, paper manufacturers, lumber producers and other companies that rely heavily on boxcars to protect and move heavy shipments say the fleet has declined so much that they’re struggling with a boxcar shortage.

Paper and building products maker Georgia-Pacific LLC. has had to periodically slow production at some paper mills, and idled one mill for a short time recently when it couldn’t obtain boxcars to move its paper. The paper industry accounted for half of the 1.25 million boxcar loads in North America last year. 

Repeat from the lede:

That downsizing accelerated a decades-long shift by railroads to more specialized railcars and intermodal carriers that allow shipping containers to hop from trucks to trains. 

The industry says they may have to revert to trucks. I'm probably missing something, but the simple solution is for those industries complaining about not enough boxcars to shift from boxcars to intermodal cargo.

Something tells me this is simply a lobbying effort by "someone" to extend the life expectancy of existing boxcars (regulated by the federal government).

Europe At A Tipping Point; Poland -- June 23, 2015

Over at "Big Stories," I have a page devoted to "Europe At A Tipping Point." Although there are political and economic updates at the link, the page is supposed to highlight Europe's energy future. Today, RBN Energy begins a great series on Europe's [probable] need for US natural gas.

European Energy became a big story on May 18, 2013, when the EU Council President predicted that  Europe might become the only continent in the world to depend on imported energy.

I can't recall if I posted this link, the demise of the nascent natural gas industry in Poland. This was perhaps the most recent article, May 21, 2013, and the most comprehensive -- from Bloomberg:

Poland’s shale gas boom is threatened even before it gets started after some wells failed and the government sought to increase taxes on profits.

Of 39 wells planned for 2013, just two were drilled by May, Environment Ministry data show. The government plans to require that explorers take a state-run company as a production partner. It has also proposed raising taxes to almost 80 percent of profit, according to Ernst & Young estimates. The measures, announced in October, haven’t become law.

“What’s been done here is what Poles call dividing up the bear hide before you’ve shot the bear,” said Tom Maj, who led the Polish operations of Talisman Energy Inc., the Canadian explorer that pulled out of Poland earlier this month. “This has been hugely damaging to the shale gas project as evidenced by the negligible number of wells of the past few months.”

Prospectors had come from the U.S. and Canada to drill what was billed as Europe’s richest shale-gas deposits. The dream for Prime Minister Donald Tusk’s government was to find domestic natural gas through an estimated $4.5 billion in exploration projects undertaken by explorers such as Chevron Corp. and Canada’s Nexen Inc. At stake is a strategic goal to cut dependency on imports from OAO Gazprom, the Russian supplier of about two-thirds of the fuel to Poland.

While many explorers including Chevron remain and say they expect their projects to run for years, the disappointment of some of the earliest entrants has caused at least three to pack their bags.

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Heloise Hints

I assume most readers (over age 55) are familiar with "Hints From Heloise." I was not a great fan, but I read her columns once in awhile.

I can think of two or three things that really made a difference in my life. The biggest one was how to keep track of automobile maintenance. We often had three or four automobiles, and not always in the same city (or same state for that matter). How to keep track of maintenance, insurance, registration?

Really, really simple. I placed a large yellow manilla envelope (8.5 x 11 inches) in between the front seats and kept registration, insurance, and copies of maintenance inside. On the outside of the envelope, on the front side, I kept track of mileage and maintenance with a black Sharpie; on the reverse, I kept track of warranties (new batteries, lifetime alignments, etc).

In addition to maintenance, the manila envelope is perfect when renewals come up. I just carry the entire package into DMV with me, knowing that I have everything (usually I renew by mail, but once in awhile I do it in person for various reasons).

When I get pulled over by the local police (twice in the last 45 years, warnings both times), I have everything the officer wants at my fingertips.

It may be the smartest thing I ever did. When driving down the road, if I start thinking about what might be needed, I simply pull out the envelope and read the maintenance log on the outside. In addition, taking the automobile in for oil changes at difference places across the country, I always know what I need (and what I don't need).

When the envelope gets too thick for any more paperwork, it's time for a new car.

The second thing I'm pretty proud of is our recycle bin for art work. It started with our second granddaughter who is very, very clever. She makes all kinds of art projects out of plastic, cardboard, metal, glass that might otherwise be thrown away. We keep a huge bin of this stuff in the utility room.

Today, I see, our youngest granddaughter is finding hidden treasure in the bin.

[By the way, I generally have a rule: infants and toddlers NOT allowed in the kitchen, ever, not even if held. Too many accidents waiting to happen. But in a one-bedroom, 761-square-foot apartment, we occasionally make exceptions.]

Tuesday -- June 23, 2015

I got off to a late start this morning; family breakfast -- pajama day for the granddaughters.

It did not matter much. Yahoo!Mail in this area was down since about 4:00 a.m. this morning. I see it's back up.

RBN Energy: another huge story -- A Whole New World—Europe May Want U.S. LNG Too.

Asia for years has been seen as the primary market for U.S.- sourced liquefied natural gas (LNG), and that’s still true today as the first round of U.S. export facilities inch toward completion and operation. But an ongoing upheaval in the international LNG market—and the “destination flexibility” built into most U.S. LNG sales and purchase agreements--suggest that Europe may receive significant volumes of U.S. LNG as well. It’s also possible that U.S. exporters may become “swing suppliers” like LNG trading giant Qatargas, ready to direct LNG-laden vessels across either the Atlantic or the Pacific, depending on where the price is higher. Today, we continue our look at the fast-changing LNG market and what it means to U.S. natural gas producers and LNG exporters.

Asian LNG buyers, led by Japan and South Korea, accounted for 75% of all LNG imports in 2014--180 million metric tons per annum (MTPA), or the natural gas equivalent of 23 Bcf/d— and it’s expected that most of the growth in LNG demand over the next few years will come from China, India and other growing Asian economies. It’s natural, therefore, that when U.S. (and Canadian) gas producers and prospective LNG exporters think about overseas markets, they think about Asia. But the international LNG market (and the energy market in general) has been going through some major changes the past few years, and the old assumptions about how the LNG export business will play out may need some tinkering.

There’s no denying that Asia is—and will remain—the biggest fish in the LNG-demand pond. The 180 MTPA (or 23 Bcf/d) Asia imported last year was nearly six times greater than Europe brought in. As a whole, Europe imported 32 MTPA (4.1 Bcf/d), or 5 MTPA (650 MMcf/d) less than Korea (the world’s second-largest LNG importer, after Japan). There are certainly a lot of European LNG terminals with regasification facilities (see Figure 1), but European LNG imports meet only about 10% of gas demand. According to Eurogas, an industry group, gas consumption in the 28 member countries of the European Union (that’s almost everyone) totaled 14.4 Tcf last year, an average of just under 40 Bcf/d.

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Zeits -- Bakken

I have read this article but it's Richard Zeits over at Seeking Alpha: The Bakken is defying oil price gravity.

Bakken may avoid significant production decline this year, despite the sharp drop in the rig count.

Moreover, one can envision a scenario where Bakken production will actually grow this year, exit to exit.

A detailed review and analysis of the play’s operating statistics are provided. The note is an abbreviated and updated version of a “deep dive” discussion posted a month ago as part of the “Zeits OIL ANALYTICS” subscription.

Bakken data continues to disprove forecasts that have predicted a precipitous slide in the shale play's oil volumes, driven by the sharp drop in drilling activity and hyperbolic initial well declines.

Following a modest uptick in March, North Dakota Bakken volumes inched lower in April, to 1.109 million barrels per day, but still remain very close to the flattish production trendline that has prevailed since last September.

The Bakken's recent production trajectory may appear somewhat counter-intuitive - volumes were uncharacteristically stagnant in the second half of last year, but remained resilient so far in 2015.

For newbies, there are two Bakken commentators I follow closely: Richard Zeits and Michael Filloon. Both tagged.

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The Rocker

I got a few requests regarding the rocker. Here is a bit more information: