The Sky Is Falling! The Sky Is Falling! -- September 23, 2015

Sometimes I just want to scream. This is the headline today: "It's a wake-up call for North Dakota! The Bakken Bust means North Dakota's tax revenues fell more than $40 million short of projections."

Oh ... my ... God ... actual oil tax revenues .... fell ..... more ... than .... $40 million .... short ... of ... projections.

Batten down the hatches! Close the borders! Shut down the schools! Raise property taxes! North Dakota is short $40 million from what was projected! OMG. The sky is falling, the sky is falling!

But wait! Wait, I say! Last year, one year ago, the same folks missed estimates in the other direction. By how much? You ask. $40 million? $50 million? $100 million. Not even close.

One year ago, seven years into the boom, this was posted:

North Dakota awash in oil royalties -- collecting way more than forecast.  The Dickinson Press is reporting:

North Dakota is poised to collect nearly $9.8 billion in oil tax revenue during the next two years and $2.2 billion more than previously forecast for 2013-15, according to a new outlook released Friday that had elected leaders calling for additional tax relief, greater funding for western counties and more accurate forecasts.

The preliminary forecast from the state Office of Management and Budget assumes that oil production will grow to 1.3 million barrels per day by the end of the current biennium on June 30, 2015, and to 1.4 million barrels per day by the end of the 2015-2017 budget cycle, OMB Director Pam Sharp said.

Gov. Jack Dalrymple noted that the revised projection for 2013-15 shows general fund revenues of $4.88 billion, or about $285 million more than the legislative forecast prepared in February 2013.

The general fund, which covers the general operations of state government, is projected to end the biennium with a balance of $614 million – eight times higher than the $80 million projected in the legislative forecast and $157 million more than an update Sharp presented to state lawmakers in March.

Okay, so back to the most recent project: estimates were off by $40 million. Exactly how much is that in terms of a percentage? 50%? 60% 80%.

Way, way off. 20%? 10%?

Still way off.

$42 million represents 3.9% of overall general fund tax revenues, or something like that.

I may have this all wrong, and I may be comparing apples and oranges and I may be confusing oil revenue and tax revenue and whatever else, but the point is this:

• when I saw $40 million, it got my attention
• when I saw it represented less than 5% of projections, I said, "you gotta be kidding"
• remember, projections are just that; hopefully the legislators didn't budget on "high-side" projections
• hopefully, the legislators budgeted on "low-side" projections 
• last year, the projection was to collect billions more than forecast
• it takes one thousand stacks of one-million stacks to reach a billion (if that makes sense); take away 42 of those stacks and one still has 958 stacks of million-dollar stacks 

So, again, I may have this all wrong and I may be comparing apples and oranges, etc, but when I saw 3.9% was what the $42 million was ...

Sometimes I just want to scream.

This was done quickly. There will be factual and typographical errors. I will post it as is,  and come back to it later.

But somehow I think Chicago, Volkswagen, and Greece have significantly greater problems than North Dakota despite coming up $42 million short. Maybe North Dakota can keep some of the public schools open.

Nine (9) New Permits -- North Dakota, September 23, 2015

Active rigs:

	9/23/2015	09/23/2014	09/23/2013	09/23/2012	09/23/2011
Active Rigs	69	193	187	185	195

Nine (9) new permits --

• Operators: MRO (5), Hess (4)
• Fields: Reunion Bay (Mountrail), Alkali Creek (Mountrail)
• Comments:

Wells coming off confidential list Thursday:

• 28291, 527, Whiting, Kostelecky 11-29PH, South Heart, t5/15; cum 27K 7/15;
• 30354, 836, Hess, BL-Kerbaugh-156-96-3427H-3, Beaver Lodge, t8/15; cum --
• 30759, drl, Sinclair, Nelson 25-26XH, Parshall, no production data,

Twelve (12) producing wells completed:

• 24566, 323, Sinclair, Diamond 11-12-1H, Lone Butte, t6/15; cum 3K 7/15;
• 29357, 1,013, QEP, Jones 2-15-23TFH, Grail, 4 sections, t9/15; cum --
• 29358, 722, QEP, Jones 2-15-22BH, Grail, 4 sections, t9/15 cum -- 
• 29359, 2,080, QEP, Jones 2-15-22BH, Grail, t8/15; cum -- 
• 29360, 2,520, QEP, Jones 1-15-22BH, Grail, t8/15; cum --
• 29756, 1,292, MRO, Packineau USA 21-3TFH, Reunion Bay, t8/15; cum --
• 29757, 1,324, MRO, Packineau USA 21-3H, Reunion Bay, t8/15; cum --
• 29758, 2,436, MRO, Stevenson 24-34TFH, Reunion Bay, t8/15; cum --
• 29759, 2,456, MRO, STeinhaus 24-34H, Reunion Bay, t8/15; cum --
• 29760, 2,267, MRO, Halvorson 34-34TFH, Reunion Bay, t8/15; cum --
• 30001, 847, XTO, Porcupine Federal 44X-2H, Bear Creek, t8/15; cum --
• 30191, 814, EOG, Shell 33-3125H, Parshall, ICO, t9/15; cum --

Random Notes On The "Overlooked Formation," The Piceance, Green River Basin, Colorado -- September 23, 2015

This is why I love to blog. Had I not started the blog to help me better understand the Bakken, I never would have heard of the Piceance. I can even spell it correctly without looking it up now. The Piceance, as well as the other formations and basins, is/are important -- they give me something to compare the Bakken to and help me better understand the oil and gas industry.

I am also amazed -- as somewhat wrote -- how much the Piceance is "overlooked." I assume that's because it's in Colorado which has a different regulatory culture and a different environmental stance than either Texas or North Dakota.

I vaguely recall writing about the record number of natural gas wells being put on one pad. A reader made reference to that and this was the best source I could come up with; the reader says there is a photo of this record-setting pad on the net somewhere. Here's one source with a diagram, as reported by Energy and Capital.

I wrote about the Octopus a few weeks ago. But I think you should know that the American oil and gas boom is about to undergo another tectonic shift that will firmly plant it as the number one source of energy in the world.

Before I go into that, let me tell you about a little town in northwestern Colorado called Parachute...

Parachute is tiny, only 1.2 square miles in size, but it's a giant in the oil and gas industry thanks to recent drilling achievements.

You see, Parachute sits on top of the Piceance Shale Formation. The Piceance is part of the lower Green River Basin. It's one of the richest oil and gas shale deposits on the planet, with an estimated 1.5 trillion barrels of in-place oil shale resource.
We've known about this oil resource for many years, just as the Bakken has been known about for decades.

But in April 2009, the U.S. Geological Survey updated its assessment of in-place oil shale resources in the Piceance Basin. This new assessment came in about 50% larger than the 1989 assessment of about one trillion barrels.

The Octopus is a 51-well Encana natural gas pad in the Piceance.

Recently, energy company Encana completed a mind-blowing 51 wells on one pad site to drill gas from an entire canyon in Parachute, Colorado.

Think about this... Encana's pad site is 4.6 acres in size above surface. However, using its multi-well pad drilling technology, it was able to access a full square mile of underground resource.

That's 640 acres underground from a 4.6-acre above-ground pad site.

A photo form the ground of the 51-well pad.

The Oil & Gas Journal said Encana "owned" the Piceance:

At its current pace, Encana has a 35-year inventory of drilling locations in the Williams Fork formation alone.

The company has built its Piceance net production to 440 MMcfd of gas in 2010 from 325 MMcfd in 2005, increasing flow every year except 2009, when pipeline capacity was insufficient to take all of its gas. Output grew at a compound rate of more than 30%/year from 2002 to 2008.

Using what the company calls a "gas factory" approach, Encana has drilled as many as 52 wells from a single pad in the Piceance basin.

"I am proud to say that in just a few short years, the Piceance gas factory has progressed from the conceptual stage to full implementation…. Since 2005, Encana has reduced its drilling cycle times by as much as 65% in some areas of the Piceance basin."

Encana is not alone. WPX is also drilling similar pads:

“You’ve heard us talk about drilling 18 to 22 wells per pad in the Piceance,” says Bryan Guderian, WPX’s senior vice president of operations.

“We’re stretching the envelope on that. We’re drilling a 36-well pad as we speak, a new record for WPX.”

The development is in an area called Flat Iron Mesa, which is located in the South Rulison field. The rig deployed here – a Nabors Super Sundowner – is a dual-fuel rig that runs partially on natural gas.

These double-digit well pads are drilling natural gas; it will be interesting to see the maximum number of wells they drill in one section of the Bakken. The NDIC dockets suggest it could be as many as 48 wells in one or two drilling units. I forget the exact number; I might look it up some time. I've blogged about; won't be hard to find.

****************************

Costs

As a rough rule-of-thumb, it appears that it costs about $1 million / mile for a highway in North Dakota; about $1 million / mile for a high voltage transmission line in Texas; and, about $1 million / mile for a crude oil pipeline in North Dakota.

A reader pointed out that a new busway in Connecticut about 9 miles long cost about $567 million, or about $65 million / mile ... again, for an asphalt/cement highway on which standard buses will run.

The California bullet train, about 800 miles when / if completed, is slated to cost about $70 billion, or about $90 million / mile.

The proposed Los Angeles-Las Vegas "bullet train" to be built by a Chinese company does not yet have a price tag. The google distance between the two cities is about 270 miles. Based on Connecticut's busway and Jerry Brown's bullet train, the LA-LV bullet train should come in at about $12 billion. I'm using $45 million / mile because a) it's being spearheaded by a "prudent" North Dakotan; b) it's a straight shot between LA and LV with no stops (or at least shouldn't be); c) it's being built by cheap Chinese labor (LOL, just joking); and, d) the number "12" has a nice ring to it.

John Kemp's Weekly Crude Oil, Gasoline Tweets -- September 23, 2015

John Kemp's weekly tweets on gasoline demand and oil inventories:

• Record propane stocks show first weekly drawdown since March, residual fuel oil stocks little changed; graphs are incredible; huge records being set
• US distillate stocks fell -2.1 million bbl as refineries cut crude processing at the end of the driving season 
• US gasoline stocks stand at 23.87 days of consumption, +1.57 days over 10-yr seasonal avg and +0.39 days over 2014 
• US gasoline stocks rose +1.4 million bbl and are +8.4 million bbl over 2014 level and +7.0 million bbl over 10yr avg.  
• US gasoline consumption averaged 9.2 million b/d over the last four weeks, +270,000 b/d over 2014 (comment: I lost my bet that US gasoline consumption would hit 10 million bopd over the Labor Day weekend)
• US refinery throughput edged down -310,000 b/d but at 16.2 million b/d is in line with 2014 and equal to 10-yr high
• US crude imports were unchanged from previous week and relatively subdued at 7.2 million b/d  
• US commercial crude stocks fell -1.9 million bbl last week and have been basically flat since the start of August -- but still way above above; will move the 10-year average

One has to look at the graphs to see how the energy picture has really changed in the past year. The amount of crude oil being produced in this country is not simply setting new records; production will move the needle on 10-year averages.

*******************************

What Were They Thinking?

For The Archives

The Wall Street Journal is reporting:

The research that prompted U.S. regulatory scrutiny of Volkswagen AG ’s diesel-car emissions levels started as a routine research request.

West Virginia University’s Center for Alternative Fuels Engines and Emissions, a self-funded arm inside the school’s engineering college, was just looking for work when it answered a request in 2013 for a proposal for a project to compare U.S. diesel car performance with European models.

The request had come from the International Council on Clean Transportation, a nonprofit, European research outfit.

Three faculty members and two graduate students worked on the study. They headed to Southern California, to be close to the state’s air-quality labs and because of the wide availability of car models there. They rented a BMW X5 sport-utility with a diesel engine from a car dealer there, and two Volkswagens—a Jetta and Passat—through a website that allows people to rent out their vehicles to strangers.

They took them out and drove them hundreds of miles—measuring pollutants along the way.

What they found was puzzling: The BMW’s emission results during the test drives matched or came in under what the vehicles produced in laboratory tests. But the VWs were emitting far more than they were supposed to.

The group contacted Volkswagen to inform the company about the results.
Eventually, the West Virginia researchers, in conjunction with the ICCT, presented the results in May 2014 to the Environmental Protection Agency and the California Air Resources Board.

On Friday, the EPA accused Volkswagen of deliberately flouting U.S. air-pollution rules by installing software on nearly 500,000 U.S.-sold cars. Volkswagen acknowledged this week diesel engines in some 11 million cars world-wide contained the software.

Pretty Cool - Saudi Strategy Working -- Getting Americans Hooked On Oil Again With Low Oil Prices -- Hoo-ah! -- September 23, 2015

Gasoline increase by state.

US gasoline sales, year-on-year percentage increase.

Reuters notes the increased gasoline demand:

Gasoline sales are rising at the fastest year-over-year rates for more than 14 years as demand surges.

Continued economic expansion, rising employment and cheaper fuel are putting a record volume of traffic on U.S. roads as well as encouraging motorists to upgrade to larger and more fuel hungry vehicles.

Motorists are also opting for larger vehicles. Car sales fell almost 3 percent in the first eight months of 2015 but sales of light trucks, which include sport utility vehicles.

Light trucks typically use nearly 40 percent more fuel for the same journey, according to U.S. government statistics, so the changed sales mix is boosting consumption.

Fuel sales in California, where gasoline prices have jumped sharply as a result of refinery problems, have lagged the rest of the nation. 

Gasoline sales in California for the first seven months rose by 4 percent, compared with a nationwide average of 4.4 percent. 

In North Dakota and Oklahoma, where state economies have been hit by the downturn in oil and gas drilling, fuel sales have actually fallen compared with 2014.

Say what you want: everything points to cheaper gasoline for the increased demand. Thank you Saudi.

******************************

People Buying Luxury Cars Don't Care About Price Of Gasoline

Seeking Alpha contributor expects "huge miss" by Tesla when results reported on/about October 2:

Almost all indications show weak Model S demand trends, with July-August being extremely weak in Tesla’s two biggest countries.

• demand for the beautiful Model X SUV is very strong, but production will be slow until at least December.
• as a result, I predict a huge miss in the second half of this year, with 43,000 cars in total delivered for the year, a staggering shortfall.
• Tesla could deflect some of the shortfall by showing and starting to take deposits for the Model 3 early, as in a month from now.
• the only thing that could upset that plan, would be GM doing the same with the Chevy Bolt even earlier - in the next 30 days. 

I'm not even convinced Tesla will report on/about October 2 as scheduled.

************************

My Feathers Not Ruffled

With atmospheric CO2 back below the critical threshold of 400 ppm (when the world comes to an end), this was bound to happen:

The Associated Press, which sets editorial guidelines followed by media outlets around the world, ruffled a few feathers on Tuesday when it announced it would no longer call those who reject climate change "deniers" or "skeptics."

 New guidance in its official AP Stylebook is to use "climate change doubters" or "those who reject mainstream climate science." The wire service explained on its blog that the change was made to appease both those who question climate change's existence and scientists who identify themselves as skeptical of actual unsupported scientific claims.

Didn't ruffle my feathers.  

****************************

Papal-Critical

The Washington Post is reporting:

In his visit to the United States beginning Tuesday, Pope Francis will meet not just President Obama and Congress but also those marginalized by our society: homeless people, immigrants, refugees and even the inmates of a jail. He’s expected to raise topics that many Americans will find challenging, such as his harsh critique of capitalism. His supporters say it’s all part of the role the pope has embraced as an advocate for the powerless, one that has earned him admiration from both Catholics and some outside the church.

How, then, to explain Pope Francis’s behavior in Cuba? The pope is spending four days in a country whose Communist dictatorship has remained unrelenting in its repression of free speech, political dissent and other human rights despite a warming of relations with the Vatican and the United States. Yet by the end of his third day, the pope had said or done absolutely nothing that might discomfit his official hosts.

Pope Francis met with 89-year-old Fidel Castro, who holds no office in Cuba, but not with any members of the dissident community — in or outside of prison. According to the Web site 14ymedio.com, two opposition activists were invited to greet the pope at Havana’s cathedral Sunday but were arrested on the way. Dozens of other dissidents were detained when they attempted to attend an open air Mass. They needn’t have bothered: The pope said nothing in his homily about their cause, or even political freedom more generally. Those hunting for a message had to settle for a cryptic declaration that “service is never ideological.”

One can only assume the Pope was not aware of any political prisoners in Cuba. Another blind spot. Or just papal-critical.

But people like his smile.

Wednesday, September 23, 2015

Active rigs:

	9/23/2015	09/23/2014	09/23/2013	09/23/2012	09/23/2011
Active Rigs	69	193	187	185	195

RBN Energy: new links in the propane supply chain.

Production growth, new processing infrastructure and increased use of rail are shifting traditional flow patterns in the propane industry. New production and processing is adjacent to historic centers of consumer demand in the Northeast and Mid-Continent – reducing seasonal risks of shortage. Rail distribution improves delivery flexibility. The supply chain has to be flexible enough to balance seasonal consumer demand with increased chemical processing and high export volumes.

Today we describe improved regional interconnectivity. This blog and others in the series are based on an analysis recently completed by RBN for the Propane Education and Research Council (PERC). PERC engaged RBN to assess market developments that could impact the prospects of disruptions similar to the one that occurred in the Perfect Storm winter of 2013-14, and to suggest actions that could alleviate the risk of such market turmoil.

The project was completed in August and with the permission of PERC, this blog series summarizes some of RBN’s analysis and conclusions. This is the sixth episode in the series. Episode 1 provided an overview and introduction to the analysis – beginning with the dramatic increase in propane production over the past 7 years. Total U.S. propane output has increased by nearly 70% from an average of 0.8 MMb/d in 2008 to 1.4 MMb/d during the 1st half of 2015. Most of that growth has been driven by production from gas processing plants that has more than doubled from 0.5 MMb/d in 2008 to 1.1 MMb/d in 2015. The overall growth in propane has outpaced domestic demand such that as much as 50% of the total is now exported to balance the market – even as inventories are at all time high levels. RBN’s analysis for PERC sought to understand changes to the propane market since the disruptive winter of 2013-14 as well as how susceptible today’s market is to similar events and what actions should be taken to reduce the risk of it happening again. Our approach to the analysis involved developing a monthly model of U.S. propane supply, demand, logistics and pricing at the PADD (Petroleum Administration District for Defense) level using historic propane market data.

In Episode 2 we outlined supply and demand scenarios for the model based on oil price Growth and Contraction as well as Normal and Severe weather patterns. Episode 3 took a closer look at propane production by PADD region – noting the dramatic growth in the Northeast as well as the Midwest. Episode 4 detailed regional historic and future projected propane demand by PADD and Episode 5 looked at the main domestic propane demand sectors and the projected influence of weather on future consumption.

This time we highlight how new infrastructure has improved interregional connectivity across the propane market.