... And We're Back -- January 29, 2016

Wind energy: not one redeeming feature. Except it exposes the true nature of Sierra Club, et al.

Highlights Of The February, 2016, NDIC Hearing Dockets

I track the dockets here.

The NDIC index for the agendas for the hearing dockets is here. 

For newbies: during the boom, there were usually two to three days of hearing, and the agenda for each day was as many as 20 pages long. The February, 2016, hearings: two days; 7 pages of agenda for each day, and many of them are continued cases. It is very, very quiet with regard to the dockets right now. However, with the transfer of wells among existing and new operators is probably taking a lot of NDIC human resources to complete. 

I remain impressed with all parties involved with the oil and gas industry in the great state of North Dakota.

Highlights

Wednesday, February 24, 2016: seven pages

• 24826, Whiting, Twin Buttes-Bakken, to establish a 5120-acre spacing unit, one or more wells; Dunn County
• 24833, Hess, Elm Tree-Bakken; establish an overlapping 2560-acre unit, 1 well; authorize 12 wells on a 1280-acre unit; McKenzie
• 24837, MRO, McGregory Buttes-Bakken, 21 wells on a 2560-acre unit, 14/15/22/23-147-94; establish a 2560-acre unit, 15/16/21/22 and a bit more, 1 well; Dunn
• 24856, MRO, Reunion Bay-Bakken, 9 wells on a 1280-acre unit; McKenzie, Mountrail counties
• 24857, MRO, Lost Bridge-Bakken, 18 wells on a 2560-acre unit, 1/12/13/24-148-96; Dunn County
• 24862, Gadeco, LLC, Epping-Bakken, 12 wells on an existing 1280-acre unit, 25/36-155-99; Williams County

Thursday, February 25, 2016: seven pages

• 24865, CLR, Elm Tree-Bakken, i) establish an overlapping 3840-acre unit, 4/5/8/9/16/17-153-94; 2 wells; ii) establish two overlapping 5120-acre units, 3/4/9/10/15/16/21/22-153-94, 3 wells; and, iii) establish an overlapping 5120-acre unit, 13/14/23/24/25/26/35/36-153-94, 4 wells; McKenzie, Mountrail 
• 24866, CLR, Elm Tree-Bakken, field rules putting wells closer to spacing unit lines, McKenzie
• 24881, CLR, Elm Tree-Bakken, 22 wells on an existing overlapping 2560-acre unit, 14/23/26/35-153-94, McKenzie

California Sends OPEC A Message -- John Kemp (Or Teslas Are Flying Off The Sales Lots) -- January 28, 2016

It's impossible to keep up. Overnight I suggested that the trend for increased driving by US drivers may have reversed in the last quarter of 2015.

Now today, there is this story and this graph from John Kemp.

The story is linked here: http://www.reuters.com/article/usa-gasoline-kemp-idAFL8N15C2TY.

This is the graph (which I will come back to later -- my wife has just invited me for sushi):

Compare the above graph with the "gasoline demand" graph at this link as well as many other similar "gasoline demand" graphs at posts beginning November 25, 2015.

Fast And Furious -- It Continues -- January 28, 2016; OPEC Irrelevant -- Financial Times

From "Fast and Furious" yesterday, I had suggested that Russia and Saudi Arabia need to agree on a one-million bopd cut for each of them.

I guess they read the blog and Saudi is willing to meet me halfway. LOL.

From Reuters: Russia says Saudis propose a 5% global oil cut. The top three are in the 10 million-bopd-oil club -- the US, Saudi Arabia, and Russia. A 5% cut results in 500,000 bopd for each. The US  has done its part. The US has easily cut production by 5% off its high.

The risk for Saudi Arabia is they will not be bold enough and that a cut of any kind will suggest they blinked first (capitulated?), but if the cut is not significant, it won't make a difference. For Saudi, they "lose face" and the price of oil stays low.

Russia and KSA need to move closer to a one-million-bopd cut and all of OPEC needs to agree, and agree to monitoring.

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OPEC Is Irrelevant

After posting the note above the asterisks, I came across this Financial Times article:

The shale revolution in the US has made a huge difference. The US is now arguably the world’s largest oil liquids producer in the world, if you take into account crude oil production and other supply like liquefied petroleum gases (LPGs), biofuels output and the incremental volumetric gains from having the largest refining system in the world.

On paper the US might produce 9.3m barrels a day against Russia’s 11.1m b/d and Saudi Arabia’s 10.3m b/d. Add everything that looks and smells and is used as oil and the US is the biggest of the lot, producing 14.8m b/d versus the kingdom’s 11.7m b/d, versus. Russia’s 11.5m b/d.

We are used to old thinking — a world of producers comprised of Opec plus critical non-Opec producers including especially Russia, Mexico, Norway, Oman and maybe a couple of others. The new order has rendered Opec irrelevant, an organisation crippled by disruptions and sanctions, with no will to work as one, able to be a negative force by bringing prices down, but incapable of finding a way to put a floor under prices.

More, and this puts in a nutshell almost everything I've been saying for years:

The new world is one of three giant producers whose combined liquids output is about 40 per cent of world markets. All three of them play a role and one of them — the US — cannot constitutionally play a role to constructively counteract market forces. Indeed it is the very embodiment of market forces.

The three giants of the oil market are about the same size. But size is only one element. Who makes decisions is another. In the Kingdom of Saudi Arabia there is one decision maker on who turns the valves on and off. In Russia it is a bit more complicated, but at the end of the day it’s a government that’s basically in charge.

The third and biggest of the giants, the US, has production based on competitive decisions of hundreds of independent producers, which now, unshackled, can sell oil at home or abroad.

That makes an enormous difference, especially when considering the nature of marginal production in the US, which comes from shale resources. These rocks are not only superabundant, but they can be exploited at a relatively low cost. Just compare an offshore well at $170m with a vertical shale well that costs under $5m, with a five-year payout for a successful deepwater well versus a mere five-month payout for a shale play. And multiply a single, individual shale well by hundreds of wells and hundreds of decisions and you get a new world order.

But the writer is unable to come up with a solution for the oil and gas industry, for Saudi Arabia, or for Russia. It appears the only "one" not looking for a solution is the US oil and gas industry. 

By the way, did the author make a typographical error or is the writer ignorant about the US tight oil industry -- see that in bold: a vertical shale well that costs under $5m. First of all these wells are horizontal; second, they are not shale (they are tight); and, in the Bakken it costs about $7 million to drill and complete a horizontal well. I will give the writer a pass on the last two, but as far as I know, there are "no" vertical shale wells. 

Vehicle Fuel Economy, 2007 - 2015

A big "thank you" to a reader for sending me this link. From the University of Michigan: the average sales-weighted fuel-economy rating (window sticker) of purchased new vehicles for October 2007 through December 2015 --

The average sales-weighted fuel economy was calculated from the monthly sales of individual models of light-duty vehicles (cars, SUVs, vans, and pickup trucks) and the combined city/highway fuel-economy ratings published in the EPA Fuel Economy Guide (i.e., window sticker ratings, not actual fuel consumption) for the respective models.

Vehicles purchased from October 2007 through September 2008 were assumed to be model year 2008. Analogous assumptions were made for vehicles purchased in each following model year.

The fuel-economy information was available for 99.7% of vehicles purchased.

The period selected by the U of M to highlight is noteworthy in that the data covers exactly the period in which the Bakken boom began in North Dakota (2007) and continues to the end of 2015, a full year in which gasoline prices plummeted.

First the graph and then the table.

Related posts:

New CAFE standards are a few years off:

Regular readers know that there will be a relative shortage of oil in 2017, possibly as early as 2016, as the majors shut down / delay / cancel "big cap" projects in 2014/2015 due to the slump in the price of oil.

Now, add that to the fact that auto and light truck manufacturers are out to put every American in a big pick-up truck. Those big pick-up trucks are gas guzzlers.

So, a perfect storm for some folks in 2017, maybe in 2016, certainly by 2018.

But it gets even better for oil and gas investors (see disclaimer): the CAFE standards that favor big pickup trucks (and possible bigger SUVs) do not change until 2022.

The NHTSA says it will look at the rise of big pickup trucks as part of a review of the CAFE rules that will apply to model years 2022 to 2025. That review doesn’t have to be finished until 2018, but the skirmishing has already begun.

But regardless of the new rules, they don't come into effect until model years 2022. That's seven years from now. Seven more years during which light truck manufacturers will try to get every American into a pickup truck. With an Apple dashboard.

From August 26, 2015:

To add a bit of fuel to this fire, remember that auto manufacturers are setting new records with sales of gas guzzling SUVs, cross-overs, and pick-ups. EV sales are essentially flat. New, potentially stricter CAFE standards are not up for review until 2018, and won't take effect until 2020, IIRC.

From February 22, 2015:

The average fuel economy of all new vehicles sold in the U.S. barely rose last year. The fleet average in 2014 was 24.1 miles per gallon, only one-tenth of a mile per gallon better than 2013. In 2013, the average rose half a mile per gallon. 

GM to cut production at small-car plant, June 12, 2015:

U.S. consumers continue to prefer SUVs and pickup trucks over sedans, particularly small ones, as gasoline prices remain low. The plant makes the Chevrolet Sonic and Buick Verano compact cars.

April 26, 2012:

• automobile executive focused on meeting new CAFE standards (54.4 mpg by 2025)

Random Update Of QEP's Tipi V Wells In Spotted Horn Oil Field -- January 28, 2016

Updates

January 12, 2019: production update has been provided for QEP's Tipi V wells. 

Original Post

Note: there is a lot of "stuff" going on in this section. There will be typographical and factual errors. If this information is important for you, go to the source. Initially I just wanted to see where the "new" six wells were going to be sited, and then I decided to update the existing wells. 

In yesterday's daily activity report, QEP was issued six new permits in a busy section in Spotted Horn oil field. This is what the section looks like:

The diagonal short lateral:

• 17251, 416, QEP, Levang 4-13H, t10/08; cum 174K 1/20; small jump in production;
  

The following wells come from a six-well pad sited in section 12 to the north:

• 21521, 1,521, QEP, Dailey 4-12/13H, t3/12; cum 436K 1/20;
• 30291, 2,463, QEP, Dailey 12-11LL, t7/15; cum 233K 1/20;
• 30290, 1,888, QEP, Dailey 12-13TH, t7/15; cum 170K 1/20;
• 30289, 2,197, QEP, Daily 7-12-13BH, t7/15; cum 241K 1/20;
• 30288, 2,067, QEP, Dailey 4-12-13T2H, t7/15; cum 123K 1/20;
• 30287, 951, QEP, Dailey 6-12-13BH, t7/15; cum 280K 1/20;

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	11-2015	10	4429	4412	2698	6517	4214	1886
BAKKEN	10-2015	29	20171	20376	12704	28640	9942	18698
BAKKEN	9-2015	30	30575	30367	23501	45538	21042	24425
BAKKEN	8-2015	31	29431	29143	20805	27078	19643	7435
BAKKEN	7-2015	18	1359	1335	970	672	408	263

The sixth well was a short lateral and does not extend into section 13.

• 29375: a "section line well" -- on a 4-well pad sited in section 11-150-95 to the northwest; 2,298, QEP, P. Levang 14-13-23-24LL, Grail, t5/15; cum 291K 1/20;

There is an error in the graphic above: the "previously permitted pad" is for five wells, not four wells (by the way, the permits for these five Tipi V wells were renewed by QEP on January 29, 2016):

• 30581, 1,992, QEP, Tipi V 2-24-25TH, Spotted Horn, t4/18; cum 209K 1/20;
• 30582, 2,649, QEP, Tipi V 3-24-25BH, Spotted Horn, t4/18; cum 314K 1/20;
• 30585, PNC, QEP, Tipi V 1-24-25T2H,
• 30584, 3,139 , QEP, Tipi V 2-24-25BH, Spotted Horn, t4/18; cum 308K 1/20;
• 30583, 1,502, QEP, Tipi V 1-24-25TH, Spotted Horn, t4/18; cum 190K 1/20;

The six permits in the daily activity report published yesterday are:

• 32492, PNC, QEP, Tipi V 2-13-12T2H,
• 32493, PNC, QEP, Tipi V 2-13-12BH,
• 32494, 722, QEP, Tipi V 1-13-12TH, Spotted Horn, t6/18; cum 177K 1/20;
• 32495, 2,599, QEP, Tipi V 1-13-12BH, Spotted Horn, t6/18; cum 268K 1/20;
• 32496, 1,755, QEP, Tipi V 1-13-12T2H, Spotted Horn, t6/18; cum 253K 1/20;
• 32497, 4,780, QEP, Tipi V 13-12-7-18LL, Spotted Horn, t6/18; cum 345K 1/20;

Oasis To Issue More Shares -- January 28, 2016

The standard disclaimer. This is not an investment site.

Oasis press release: Oasis has priced an underwritten public offering of 34,000,000 shares of common stock for total gross proceeds of approximately $160 million. Oasis intends to use the net proceeds of this offering for general corporate purposes and to fund a portion of its 2016 capital expenditures.  Oasis granted the underwriter a 30-day option to purchase up to 5,100,000 additional shares of common stock. The offering is expected to close on February 2, 2016.

Currently Oasis has about 140 million shares outstanding.

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The Roller Coaster Ride Continues

Jobless claims fall more than expected: fell 16,000 to 278,000; forecast: 281,000. Actually pretty close this time. Last week's number -- a huge "swing and a miss" up revised upward by another 1,000 which means last week's claims increased by a whopping 21,000. The four-week average last week was also revised upward but very, very slightly, from 285,000 to 285,250.

The four-week average: decreased to 283,000 from 285,250 the previous week.

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RBN Energy

RBN Energy: Can American’s Shale Success Be Duplicated?

Over the past six years surging U.S. hydrocarbon production from shale has exceeded domestic demand in many cases – leading to the development of export infrastructure. Large volumes of natural gas liquids (NGLs) such as propane are already being exported. Natural gas exports in the form of liquefied natural gas (LNG) are about to start and the recent end to federal restrictions offers the possibility to increase crude exports if they become competitive. A critical assumption behind all these export opportunities is that the U.S. continues to be the only country (except Canada to a lesser degree) to successfully “crack the code” in shale exploitation to produce commercially significant volumes competitively. This assumption would be turned on its head if competing countries like Mexico, China, Poland, Argentina and the U.K. are able to unlock their own shale potential.

Today we review RBN Energy’s first Drill Down report of 2016, which considers the many “below-ground” and “above-ground” factors that will determine whether and how quickly, shale development becomes a worldwide phenomenon.

Please be warned: The genesis for this blog and the associated Drill Down report is Chapter 18 of “The Domino Effect”, the newly published book by Rusty Braziel, and as such is intended to be a subliminal promotion for the book.   The report expands upon the question posed in the title of Chapter 18: “Does the U.S. Have a Monopoly on Shale?”

The book, The Domino Effect is also linked at the sidebar at the right.

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Earnings To Be Reported Today

• Baker Hughes, a whopping $2.35/share loss vs forecast 10-cent loss; obviously special factors weigh; shares rise;
• Carbo Ceramics, a loss of 25 cents/share vs a loss of 83 cents forecast; had recently suspended dividend;
• EPD, earnings of 35 cents vs forecast of 35 cents; in-line or beats by a penny;
• Ford Motor Co, huge beat; at 58 cents beat forecast of 51 cents; Ford profit triggers record $9,300 bonuses for UAW workers;
• Helmerich and Payne, crushes estimate; loss 5 cents vs Zacks consensus of 8 cents;
• Valero, huge beat; beats by 31 cents; comes in at $1.79 vs $1.45 forecast;
• Visa, forecast 68 cents, before market open;
• Amazon, shares plunge almost 15% after hours; earnings at $1.00 vs $1.58 forecast;
• Microsoft, shares up on earnings report of 78 cents earnings vs forecast 72 cents;

Surge In Gasoline Demand Last Summer Indicates Americans Are Driving More; DOT Says Record Was Likely Set In 2015; Data At End Of Year Suggests Trend Reversed -- January 28, 2016

With regard to the energy industry, I thought the information released yesterday was more confusing than usual. This particular story is an example of the confusion, but it''s in the Wall Street Journal so I'm sure I'm wrong and they are correct.

But here's the headline and the story: American drivers are back on the road in record-setting fashion.

An expanding economy and dramatically cheaper gas prices have lured Americans back onto the roads, where they’re racking up record mileage.

U.S. vehicle-miles traveled surged 4.3% in November 2015 compared with November 2014, the largest increase since 1999, according to the Transportation Department.

That put 2015 on pace to become the most heavily traveled year in history.

In the 12 months leading up to November, drivers covered 3.14 trillion miles, up 3.6% from the same period in 2014, the highest year-over-year increase since 1997, according to the department.

For decades, the number of miles driven reliably increased every year as a growing population and greater access to cars pushed more people on the roads. That changed in 2008, as the recession took hold. Overall vehicle-miles traveled dropped in 2008 and 2009 and struggled to rebound.

But a labor market that added roughly 221,000 jobs a month last year and gas prices that skirted the $2-per-gallon mark have all but ensured that 2015 will set a new high point.

And more at the link.

Now going through the story:

• the EIA data clearly shows that gasoline demand and diesel demand began dropping precipitously at the end of the driving season, year over year (2015 over 2014) -- I've posted the EIA charts and it's very, very obvious
• because gasoline is so inexpensive, automobile sales are doing very well, and gas-guzzling vehicles (SUVs and pick-up trucks) are doing particularly well -- again, the monthly figures are routinely reported on the blog
• with increased sales in gas guzzling vehicles and decreased gasoline demand and decreased diesel demand this past autumn, it's hard to buy into DOT telling us 2015 was on pace to become the most heavily traveled year in history
• the article noted the economy was expanding -- wow, that's seeing things through rose-colored glasses; if the economy is expanding, it's not by much, and certainly everyone agrees that the recovery has been one of the weakest ever
• adding 221,000 jobs/month was seen as a positive but in fact the jobs market appeared pretty lackluster; it was in the eyes of the beholder to determine whether 221,000 additional jobs/month was fair, good, or great

The article then ends with this paragraph which only adds to the confusion (personal doubt) about the DOT numbers:

The uptick in driving comes at a time when fewer young people are getting driver’s licenses even as the share of older people with a license is rising. While it’s possible those younger people could eventually start driving as they age, it could be that driving may be about to lose its allure among younger generations.

What that paragraph had to do with the rest of the story, I have no idea. 

I think the entire article is apocryphal. It seems obvious that with gasoline and diesel so inexpensive, Americans would be driving more, but gasoline demand year-over-year this past autumn certainly suggests the trend is reversing.

The huge surge in gas demand we had last summer is more than offsetting what we saw in the last two months of the year.  That supports the DOT's estimate that 2015 will set a US driving record. The surge was huge last summer; but it dropped off in a precipitous manner at the end of the summer driving season. Gasoline demand at the end of 2015 and gasoline demand in January 2016 remains lower than one year earlier which for me is a huge red flag with regard to the economy.

For The Archives -- Some Quick Headlines -- Crude Oil Pricing, Oil Industry M&A, Russian/Saudi Production Chatter -- January 28, 2016

For the archives, just the headlines and the links. I assume the links will break over time.

• From Reuters/Rigzone: oil investor Andrew Hall sees conditions ripe for a rebound in crude oil prices. Andrew Hall runs Astenbeck Commodities Fund. Disagrees with talk of oil going to $10/bbl; suggests a rebound instead.
• From Rigzone: oil companies holding on -- Deloitte says M&A deals down 53%.
• From Rigzone: oil prices rise on slightly positive data.

Wednesday morning, oil rose in intraday trading off some relatively positive data points from the Energy Information Agency (EIA) that included an unexpected draw to distillate stocks and a weekly increase in refined product demand. The Federal Reserve’s highly anticipated announcement Wednesday afternoon that kept rates unchanged, helped weaken the dollar, which contributed to the rise in oil prices. The front-month contract for Brent settled up 4.1 percent at $33.10/bbl and WTI’s front-month contract settled on the NYMEX at $32.30/bbl (up 2.7%). Oil markets were also encouraged by further speculation that a possible Russia-OPEC agreement to curb oil production could take place.

• From Forbes: coordinated Russian-Saudi oil output cut chatter sounds ridiculous -- but the author does not rule that out. 

ND Crude Oil Production: Bentek Prediction Vs NDIC Monthly Reports -- January 28, 2016

It can be a little confusing to "keep track" of what month of data we are talking about.

The NDIC Director's Cut that comes out every month reports the crude oil production of not the preceding month, but the month before that. The NDIC Director's Cut comes out on/about the 15th of every month, and provides crude oil production of not the preceding month but the month prior to that.

The January 15, 2016, Director's Cut provided crude oil production data for November, 2015. In that report, crude oil production in North Dakota actually increased a bit, month-over-month:

Daily oil production (bopd) as reported by the NDIC:

• November, 2015: 1,176,314 (preliminary)
• October, 2015: 1,171,119 (final, revised) 
• Delta:  5,195/ 1,171,119 = 0.44% increase month-over-month

Yesterday, Platts reported that "shale oil production in the Bakken, Eagle Ford was little changed in December, according to Platts Bentek."

Oil production from the Eagle Ford shale basin in Texas was relatively unchanged in December, increasing about 11,000 barrels per day (b/d), or less than 1%, versus the previous month, the latest analysis showed. This marks the first time since March 2015 that the Eagle Ford shale did not decline. Conversely, crude oil production in the North Dakota section of the Bakken shale formation of the Williston Basin dipped by less than 1% month over month in December, or about 9,000 b/d, continuing the trend of marginal decline that began in the summer.

The average oil production from the South Texas, Eagle Ford basin in December was 1.5 million barrels per day. On a year-over-year basis, that is down about 7%, or about 110,000 barrels per day, from December 2014, according to Sami Yahya, Platts Bentek energy analyst. The average crude oil production from the North Dakota section of the Bakken in November was 1.2 million b/d, about 6% lower than year ago levels.

My understanding is that Bentek's data is based on analysis of many data points.

This was the data from the NDIC Director's Cut:

• November, 2014: 1,188,258 bopd
• December, 2014: 1,227,483 bopd
• November 2015: 1,176,314 bopd (preliminary figures; final figures will be released in February, 2016)

From the linked Platt's article:

• November, 2014: 1,276,596:  (1,276,596 - 1,200,000)/1,276,596 = a 6% decline
• December, 2015: 1,176,314 bopd (NDIC preliminary data for November) - 9,000 bopd (Bentek data, decrease month over month) = 1,167,314 bopd for December, 2015, based on "mixing) NDIC data with Bentek data.

From the linked Platts report, "crude oil production in the North Dakota section of the Bakken shale formation of the Williston Basin dipped by less than 1% month over month in December, or about 9,000 b/d, continuing the trend of marginal decline that began in the summer."

1% of "what" = 9,000 bopd?  9,000 / 0.01 = 900,000 bopd.

Complicating things, of course, is that in the linked Platts article, the numbers are rounded.

We'll just have to wait to see what the NDIC Director's Cut reports on/about February 15, 2016, for the "offiical" ND crude oil production in December, 2015. Bentek says that it will dip "less than 1% month over month, or about 9,000 bopd."

Bottom line: mixing "official" NDIC data on actual production with "predicted" Bentek numbers is very, very confusing. For me, the Bentek numbers are helpful -- as "tea leaves" -- but it's the NDIC numbers that I trust.

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Pricing

On another note, the linked Platts article noted this:

The price of oil out of the Bakken formation at Williston, North Dakota, dropped 16% between January (2016) and December (2015), with an average price of $45.24/b, according to the Platts Bakken  assessment. But when compared to the same month a year ago, the Platts Bakken price is down 35%. The wellhead assessment has ranged between $30.04/b and $59.32/b in 2015.

The Platts Bakken, introduced April 22, 2014, is a daily assessment of price for oil closest to the wellhead prior to determination of transportation by rail or pipe. The assessment reflects a sulfur content of 0.2% or less and an American Petroleum Institute (API) gravity of 42 or less, similar to the nature of North Dakota Light Sweet crude.