Friday, December 18, 2015

Week 50: December 13, 2015 -- December 19, 2015


December 20, 2015: the biggest under-reported story this past week has to do with record imports of crude oil and record storage of crude oil in the US, and that record crude oil is still well below maximum capacity. 

Original Post
There were several big stories this week, all of which were anti-climactic. First, the Fed raised "rates" for the first time in seven (7) years -- or as the press says, "for the first time in almost a decade." The Fed raised "rates" a quarter of a percent. And the sun came up in the east the next morning.

The other big news story: President Obama, for some inexplicable reason, repealed the ban on US crude oil exports. Oh, that's right: that was part of a $1.1 trillion spending bill with "goodies" for everyone. President Obama personally thanked the GOP leadership for expediting the bill, which some are calling the Pelosi-Reid Spending Bill For 2016.

The stock market finished the week in free fall, and WTI was around $34 on the television crawler. By the way, I don't think this is being reported strongly enough: the degree to which a county like Saudi Arabia is dumping equities to raise cash.

ISIS (or as President Obama says, ISIL) declared war on Saudi Arabia.

EOG reports one of the best (maybe THE best) Bakken well: 250K in less than 5 months; more on that well here
Halcon reports a well that produced 10,000 bbls over four days
Random update of QEP State wells with interesting observations

DUCs -- Rigzone analysis 

Bakken economy
West Fargo and Williston to receive largest chunk of state's educational grants 
The Williston Wire with several big stories 

If Accurate, That Was Fast -- December 18, 2015

From "Breaking News": President Obama signs $1.1 trillion budget bill bankrolling federal government in 2016 - @AP

If accurate: US repeals ban on exporting crude oil. So now we see. [The reason I wondered about the accuracy, the House passed this bill yesterday or the day before; which means the Senate passed it yesterday or today; and on his way to Hawaii, President Obama signed it. I think this is the fastest any bill has sailed through Congress/White House -- and it's a huge $1.1 trillion that was apparently written by four Congressmen / staffers and lots of lobbyists.

Also from "Breaking News":  Islamic State declares war against Saudi Arabia after formation of 34-state coalition to fight the terror group - @ynetnews

Two (2) New Permits -- December 18, 2015

Active rigs:

Active Rigs64183188186201

Two (2) new permits --
  • Operator: Slawson
  • Field: Big Bend (Mountrail)
  • Comments:
Five (5) producing wells completed:
  • 30883, 442, XTO, Sorenson 31X-28C, Siverston, t11/15; cum --
  • 31078, 1,905, HRC, Fort Berthold 147-94-2B-11-8H, McGreogry Buttes, t12/15; cum --
  • 31228, 1,068, Triangle, Sanders 150-100-9-10-4H, Sandrocks, t12/15; cum --
  • 31229, 966, Triangle, Sanders 150-100-9-10-3H, Sandrocks, t12/15; cum --
  • 31245, 825, XTO, Sorenson 31X-28D, Siverston, t11/15; cum -- 
Temporarily abandoned:
  • 19139, PetroHarvester, Erickson et Al 1A, Bottineau County
  • 29297, Cornerstone, Jepsen B-18-6190, Burke County,

State To Give West Fargo, Williston Largest Chunk Of Educational Grants -- Fast Growing Schools -- December 18, 2015

From The Williston Wire:
The state of North Dakota is giving out $5.4 million in grants to fast-growing school districts.
West Fargo will receive the largest amount: $1.15 million.
Williston received the next largest grant of $957,360, while Bismarck was awarded $479,560.
Williston has 307 new students this fall, an increase of 9.1 percent, while Bismarck grew by 357 students, or 3 percent.
Not a lot of difference between $1.15 million and 0.957 million. About $200,000. 

West Fargo is very, very interesting. This city really is growing. Outside the state, and even within the state, I doubt many folks are aware of this. I knew it was growing but I did not know it was growing this fast.

Nation's Oil Rig Count Jumps 17 -- Largest Jump Since July, 2015

Oil & Gas Journal is reporting:
The overall drilling rig count sat unchanged at 707 during the week ended December 18, 2015. But a 17-unit jump in oil-directed rigs—which was offset by a 17-unit drop in gas-directed rigs—marking their biggest weekly increase since July.
Oil-directed rigs now total 541, still 995 fewer year-over-year. Down 21 units a week ago, they hit their lowest point since April 30, 2010. Gas-directed rigs now total 168.
The overall count remains at its lowest level since September 17, 1999, and is down 1,166 year-over-year.
Land-based units were unchanged at 684, ending their 16-week slide. They’re now down 1,121 year-over-year. Rigs engaged in horizontal drilling gained 5 to 559, still down 797 year-over-year. Directional drilling rigs edged down a unit to 63.
Offshore rigs edged up a unit to 21, representing the 1 and only unit in Alabama waters to come online. Rigs drilling in inland waters halved to 1.
I'm Beginning To Think Jeb Was Right On This One

Marco Rubio did not vote on the biggest bill of the year, the one he said he would do whatever he could to stop it. 

From The Hill:
The Florida Republican has missed more than half of the Senate's votes since October.
Getting the bill through the House was the biggest challenge; it will easily move through the Senate and President Obama will sign it quickly and with fanfare. 

Update On The Arctic -- December 18, 2015

Oil & Gas Journal is reporting:
Royal Dutch Shell has terminated its contract for the Noble Discoverer drillship.
Alongside Transocean  Polar Pioneer semisubmersible rig, Discoverer was part of Shell’s Chukchi Sea exploration drilling program that folded in September, 2015.
The drillship is now in transit to Singapore where it will be stacked. Shell will pay Noble for the remaining term at 90% of the operating dayrate.
The Noble Sam Croft and Noble Tom Madden rigs remain under contract into July 2017 and November 2017, respectively, with Freeport-McMoRan Oil & Gas, which recently reported plans to reduce its number of rigs operating in the Gulf of Mexico.
Noble says it’s in discussions with Freeport-McMoRan on possible restructuring of the contracts.
Another One Bites The Dust, Spongebob Channels Queen

Greenpeace opens another bottle of champagne.

Progress In The Arctic
Wood Mackenzie

From Rigzone, December 18, 2015.
The Arctic continental shelf is one of the least explored geological basins and has the potential for significant hydrocarbon discoveries.
Total estimated resources are comparable with those of the prolific West Siberian basin.
Interest from both International and National Oil Companies had grown over the past few years – bolstered by support from several Arctic governments. This has slowed recently as a result of a far lower oil price. However, it is not price alone which means progress will continue to stall in this region. Difficulties arising from insufficient geological knowledge, lack of infrastructure, harsh climatic conditions, the need for investment in new E&P technologies, and environmental concerns will all be factors.
The highest profile action in the Arctic recently has been Shell's decision not to progress its plans in the US' Chukchi Sea. Regulatory uncertainty and hurdles were major reasons behind its decision. 
  • Norway's West Barents Sea Basin holds 45% of all Norway's offshore undiscovered resources
  • around 6 billion boe
  • Norway: leading region for Arctic exploration; favorable climatic conditions
  • 150 wells since exploration began in 1970
  • a quarter of those wells in last three years
  • 2011: several discoveries added 1 billion boe
  • mostly Statoil, but also LUKOIL, Rosneft, Wintershall, E.ON, Lundin Petroleum
  • companies must create a joint venture with one of the approved companies (Rosneft, Gazprom, GazpromNeft
  • Rosneft/XOM drilled the Universitetskaya well in 2040; short ice-free season precluded driling to depth; predominantly gas; 4 billion boe 
  • pretty much no activity
  • USGS estimates Arctic coastal shelf contains 30% of undiscovered oil resources in the region, or about 27 bioe
  • high-profile Shell project canceled in 2015
  • US to cancel 2016/2017 lease sales due to likely lack of adequate interest
  • explored unevenly
  • 26 discovered fields in the Beaufort-Mackenzie basin; at current prices, uneconomic
  • discovered fields from the Franklinian-Sverdrup Basis also uneconomic
  • their offshore basins remain some of the most underexplored Arctic regions 
  • Southwest Greenland Basin, estimate: 2.3 billion boe
  • despite exploration all the way back to the 1970s, not a single discovery has been made
  • no sign of recover in the near-term
  • Statoil relinquished three exploration licenses in January, 2015, despite having an exploration term of 16 years and the government's proposal to postpone work commitments deadline by two years
Ice conditions and climate
  • most exploration where areas are completely (Norway continental shelf) or mostly (eastern part of the Barents sea) ice-free on a seasonal basis
  • Prirazlomnoye project stands out: its stationary platform is capable of withstanding millions of tonnes of ice, as successfully demonstrated last winter: hefty price: $2 bilioin on the the platform alone 
  • year-round sea logistics requires an icebreaker fleet, which adds to operating costs; presently only Russia has a suitable fleet
  • US has two functioning icebreakers, but only one in the Arctic
  • Norway announced construction of its first non-military icebreaker for research to be completed by 2016
  • neither Greenland nor Canada have icebreakers; nothing estimated to commence until 2020
  • therefore, full-scale, year-round exploration and production in the Arctic is only possible on Norway's continental shelf and the western part of Russia's shelf 

Korean Company To Build Largest Monoethylene Glycol Plant In US; Two Plants; $3 Billion -- December 18, 2015

Oil & Gas Journal is reporting:
Axiall Corp., Atlanta, and South Korea’s Lotte Chemical Corp, Seoul, have reached a final investment decision to proceed with plans to build a 1 million tonne/year ethane-based cracker and associated monoethylene glycol (MEG) plant in Lake Charles, LA.
LACC LLC, a subsidiary of Axiall and Lotte Chemical USA Corp.’s 50–50 joint venture Eagle US 2 LLC, will invest $1.9 billion to build the steam cracker adjacent to Axiall’s Lake Charles chlor-alkali manufacturing plants to take advantage of existing infrastructure, competitive US shale feedstock resources, and ethylene distribution infrastructure, according to a series of releases from the JV and Louisiana Economic Development.
Adjacent to the new steam cracker, Lotte separately will invest an additional $1.1 billion to build and operate the US’ largest MEG plant, from which 600,000 tpy of MEG will be exported to customers in Europe and Asia.
With site preparation already under way and full construction due to begin during second-quarter 2016, the grassroots cracker and MEG plant are scheduled for startup in early 2019.
And not even a footnote in US mainstream media and perhaps not even in the WSJ.

From another source this headline regarding the above story: Axiall Corp. and Lotte Chemical Plan Two $3 Billion Chemical Plants In Lake Charles, Louisiana. The headline is a bit misleading: the two plants together result in a $3 billion investment.
Combined, the projects will create 215 new direct jobs, with the ethane cracker producing 135 new direct and the monoethylene glycol, or MEG, facility producing 80 new direct jobs.

Lotte will be the sole owner of the MEG plant, with construction on that site and the ethane cracker expected to begin in 2016. Upon completion of the MEG plant, Lotte plans to export more than 600 kilotons per year to customers abroad. The ethane cracker is expected to open in early 2019, with an annual capacity of 1 million tons. Axiall plans to acquire 50 percent of that plant’s output for making vinyl chloride monomer and other products.
I think the 350 new direct jobs is more jobs than the Obama administration's multi-trillion-dollar stimulus program created.

Monoethylene glycol (MEG) is an important raw material for industrial applications. A primary use of MEG is in the manufacture of polyester (PET) resins, films and fibers. In addition, MEG is important in the production of antifreezes, coolants, aircraft anti-icer and deicers and solvents.

A minor note to: Europe does not produce any fossil fuels of its own, so it doesn't produce any MEG from indigenous sources. Not only is the US becoming the leader in fossil fuel production but will be (or already is) the leader in refined products.

The North Dakota-to-Texas/Louisiana corridor is the energy and agricultural engine of the US.

Thoughts On Repeal Of US Ban On Crude Oil Exports -- December 18, 2015


December 19, 2015: from Yahoo!Finance --
Nothing will change any time soon now that Congress has repealed a 40-year ban on oil exports, allowing U.S. producers to sell crude overseas. But the surprising change in policy—once strongly opposed by President Obama and fellow Democrats—could become rather significant when (or if) oil prices rise again.
The near-zero impact on consumers is one big reason Obama signed the law, which energy companies such as Exxon Mobil and Continental Resources have sought for years. Gasoline prices are low, and the repeal of the export ban is unlikely to change that. More oil will be flowing into global markets when Iran, which has been subject to sanctions, begins exporting oil again as the sanctions lift. Those low prices for raw crude are the main thing keeping the price of gasoline and other finished energy products low.
If oil rises above $50, however, the picture could change. And the higher prices go, the stronger the incentive will be for U.S. producers to crank up drilling and send the crude overseas. “With higher prices, U.S. producers would produce more again,” says analyst Mark Broadbent of research firm Wook Mackenzie. “In a stronger price environment I’d expect to see more exports and producers eager to ramp up prices.”
That sounds like it might be bad news for consumers, and an oversimplified read of cause and effect in the energy markets might make it seem that way. In reality, however, energy prices in the United States will be set by the global price of oil, which is set by worldwide supply and demand. If U.S. producers export more, it will be unlikely to change gas prices by much, even if prices are high.
That might sound counterintuitive, since it seems like the best way to keep prices low at home is to keep as much of the raw material as possible inside U.S. borders. Here’s the catch: Most of the U.S. oil is of the “light, sweet” variety, whereas most U.S. refineries are configured for heavier crude that comes from places like Canada, Saudi Arabia and Venezuela. Prior to the shale-oil boom—a phenomenon of the last 10 years—heavier crude was the main product available, so the companies that turned it into gasoline made the long-term decision to gear their equipment toward the product they had.
A few refineries have reconfigured their equipment to handle the lighter crude pulled from U.S. ground, but that’s expensive and risky, given that oil prices are so volatile to start with. And the construction of new refineries is fraught with costly regulatory headaches. So the majority of refiners still need the type of oil that comes from outside U.S. borders. The irony is obvious: The bounty of crude produced by the shale revolution has limited use as a domestic product.
Everything I've read elsewhere (from credible sources) and from RBN Energy suggests the above is accurate. The comments again, are most entertaining, and reveals that a lot of folks are not paying attention. 

Original Post
From Rigzone with regard to the lifting of the ban on US crude oil exports -- again, remember, the bill has not been finalized, and it has not been put on the president's desk:
Not everyone is optimistic, however. At the University of Houston, energy fellow Ed Hirs, said the import-export math simply doesn’t work.

“If the U.S. is able to start exporting a million barrels of oil a day, that means we’re going to have to start importing another million barrels a day,” he told Rigzone. “The producers in the Bakken still don’t understand that they don’t sell their oil below what OPEC can sell it for, and they’ve been pushed out of the refineries in Philadelphia because they won’t compete on price.”
Of course that doesn't make sense at all, "If the U.S. is able to start exporting a million barrels of oil a day, that means we’re going to have to start importing another million barrels a day." Two reasons that is illogical: one, the US doesn't need more light oil; it needs heavy oil. Exporting light oil won't have any effect on importing heavy oil. Second, unfettered, the Bakken can easily ramp up to 1.5 million bopd, and if the price was right, the Bakken could ramp up to 2 million bopd -- and that's just the Bakken. Texas (Permian and Eagle Ford) could do even more. Hirs obviously has much more knowledge and experience with this, so I'm wrong, but I would like to know why I'm wrong.

The article continues:
Hirs isn’t the only one not quite ready to pop open the champagne.

Analysts at Raymond James (RayJa) said in a note to investors Decemeber 16, 2015, that assuming the framework remains intact, the obvious winners would be U.S. Lower 48 oil producers who would benefit from a narrower WTI discount to Brent and U.S. solar developers, who would avoid the looming tax credit fall-off at the end of 2016.

“On the other hand, domestic refiners – which have long lobbied against lifting the export ban – would find a narrower WTI-Brent spread unhelpful, though there is the possibility of a new refining subsidy being added to the package, thus cushioning the effect on margins. On a side note, we cannot help remarking on the peculiar timing of this (relatively sudden) deal in the making: Congress is doing this on the cusp of 2016, a year when U.S. net oil imports are set to expand for the first time in a decade,” RayJa wrote.
These are interesting tea leaves:
  • Jack Kemp has noted that US oil imports have already begun to surge (without explanation);
  • Hirs above suggests the US will require an increase in imports; and,
  • RayJa says US net oil imports are set to expand for first time in a decade.
I don't think most Americans are aware of that. I have only recently become aware of that, and the explanations are not forthcoming.

The article continues:
What producers are counting on is the crude exports would provide some uplift to WTI oil prices relative to Brent.

“It allows us to pull that release valve to let that bathtub empty a little bit in the United States. That’ll help to lift the WTI price and all the crudes that are bench-marked off of that, and so that will help all parts equal in the U.S., but it’s not going to put us back into the same commercial health that we had back when we were at $80 a barrel,” Medlock said.
“If the ban is lifted tomorrow and you could actually move the crude to coast and get it away from Cushing, you would see that pressure in Cushing subside and the price of WTI should creep up toward the price of Brent. In WTI terms, that gives you a buck. It gives you back more in the lighter, sweeter crudes because those are discounted even more heavily. So you might see $2, $3 come back to the wellhead for those guys, and in a business where everyone is scraping for margin, that’s incredible. So it’s going to help the industry, but it’s not going to result in a revitalization of the industry.”
My thoughts if President Obama signs off on exporting US crude oil:
  • short-term (one to five years) -- won't affect the actual price of oil much. However, it has a huge geopolitical effect.
  • long-term (> five years): will dampen volatility and will continue to have a huge geopolitical effect. 
Failed: OPEC's mission is "to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry." It looks like that mission is becoming another US responsibility, by default.

These are the tectonic changes taking place and might take place with regard to the oil industry, not in any particular order:
  • Iran is back in the game
  • Libya changes its name to the ISIS Republic of North Africa (IRNA)
  • Russia has a toehold in Syria and could become a major Mideast energy thorn in Saudi's backside
  • Canada remains the canary in the coal mine, whether it can survive $40 oil much longer
  • Based on comments by Trudeau in last 48 hours, Canada might get its act together with regard to pipelines to west coast
  • Venezuela could get its act together; I wonder if Venezuela might not be #1 competitor (vs Canada) for US source for heavy oil; remember: biggest beneficiary of the killed Keystone XL was Venezuela
  • Mexico looks like it is getting its act together
  • for first time in a long time, oil is a true commodity; no more cartels; Saudi Arabia sets no quotas; completely market driven; US (if President Obama signs) will export oil which ends the other cartel
  • oil no longer a geo-political weapon -- at least not globally; perhaps regionally (EU, Ukraine, Crimean)
  • the big unknown: is the Mideast / Turkey becoming more stable or more unstable? We have some adult leadership in the Mideast now but not sure how long he plans to stay or what his real intentions are
  • the other big unknown: exactly how much deferral/cancellation of big CAPEX projects from 2014 - 2017 are really going to affect global supply of oil; I used to think not at that much; looking at historical data, I'm not so sure; much of this depends on China's growth
Some say at current prices only 1/6th of the Bakken is economical. Let's go with that.
  • OOIP: 500 billion bbls
  • rate of recovery: 20%
  • recovery: 100 billion bbls across the Bakken
  • 1/6th of 100 billion bbls: 16 billion bbls
  • North Dakota currently produces 1 million bopd x 365 days = 365 million bbls, rounding to 500 million bbls/year -- with 60 rigs and lots of real and artificial restrictions on production 
  • 1/6th of the Bakken: basically, the quadrangle formed by Williston-Tioga-Parshall-Watford City (and SM Energy up in Divide County, as an outlier)

US crude oil imports from Venezuela:

Salt Water Disposal Wells And Earthquakes -- December 18, 2015

This seems to be a fair and balanced look at salt water disposal wells and earthquakes, over at Rigzone. The article is all very good so it does not work to provide small snippets. The article has been archived.

Just this small bit:
Studies released this year have highlighted the likely link between oil and gas wastewater injection and earthquakes. In April 2015, Southern Methodist University released a study reporting that a string of earthquakes near Azle, Texas were likely caused by high volumes of wastewater injection combined with saltwater extraction from natural gas wells. And a study published in the June 2015 issue of Science Magazine found that high-rate injection wells in the U.S. Midcontinent, or wells injected with more than 300,000 barrels of wastewater a month, are much more likely to be associated with earthquakes than lower-rate wells.

Although only a very small fraction of injection and extraction activities at hundreds of thousands of energy development sites in the United States have induced seismicity at levels that are noticeable to the public, seismic events caused by or likely related to energy development have been measured and felt in Alabama, Arkansas, California, Colorado, Illinois, Louisiana, Mississippi, Nebraska, Nevada, New Mexico, Ohio, Oklahoma and Texas, according to a 2013 National Academies Press (NAM) report.

US Exports Contingent Upon WTI-Brent Spread -- December 18, 2015

Active rigs:

Active Rigs64183188186201

RBN Energy: the series continues -- updating Corpus Christi, Texas, part 4 -- December 18, 2015.
We don’t expect to see a flurry of U.S. crude shipments overseas following the expected lifting of the decades old U.S. ban on exports by Congress this week. That’s because the price spread between U.S. crude benchmark West Texas Intermediate (WTI) and international equivalent Brent is currently trading at less than $2/Bbl – providing no economic incentive to cover the freight cost of shipping U.S. crude abroad.
However, longer term the end of the export ban expands the market options for U.S. crude producers. In that context, well-developed pipeline connections between South Texas Eagle Ford oil and condensate production and the Port of Corpus Christi bode well for future export opportunities.
This is the fourth episode in our series on crude and condensate infrastructure to and within Corpus. Episode 1 provided a brief refresher course on what lease condensate is (an ultra-light form of crude oil with an API degrees gravity level of 45 or 50 or more) and discussed why condensate, with its lighter range of hydrocarbons, is generally less desirable to Gulf Coast refineries configured to process heavier crudes. The series opener also described the rapid rise of crude and condensate output in the Eagle Ford and the Permian, and noted that production from the two plays remains high despite the 2014 oil price collapse.
In Episode 2 we took a high-level look at how crude and condensate moves from the Eagle Ford and the Permian to Corpus (and from the Permian to Houston and Cushing, OK), then began a detailed review of pipelines to Corpus with a discussion of Plains All American’s (PAA) Cactus Pipeline from the Permian’s Delaware Basin to Gardendale, as well as PAA and Enterprise Products Partners’ Eagle Ford Joint Venture Pipeline from Gardendale to refineries in Three Rivers and Corpus Christi and to other markets via marine docks.
Our most recent entry, Episode 3, considered several pipelines that run from Gardendale to (or at least towards) Corpus, including Kinder Morgan and Magellan Midstream Partners’ Double Eagle Pipeline, NuStar Energy’s South Texas Crude Oil Pipeline System, and the Harvest Pipeline System co-owned by Hilcorp Energy and others. Today, we describe remaining pipelines to Corpus, and then discuss existing and planned refineries and splitters there.
Class-action suits? Supreme Court says "sayonara.'