Monday, February 8, 2016

Update On Bakken CBR -- February 8, 2016

Active rigs:

Active Rigs41137192185203

RBN Energy: update on Bakken CBR -- archived:
Crude prices are hovering around $30/Bbl making crude–by-rail (CBR) transport an expensive option for hard pressed producers looking to conserve cash – especially where pipeline alternatives are available. The crude price differentials that once justified shipping inland crude to coastal destinations by rail have all but disappeared. In November, 2015 pipeline shipments exceeded rail out of North Dakota for the first time since 2011 and by 2017 available pipeline capacity out of the region should exceed producer’s needs. In the circumstances, rail shipments would appear to be living on borrowed time but as we describe today - some North Dakota rail shipments are continuing in spite of the poor economics.
In Part 1 of this series we noted that CBR volumes are falling across the U.S. and Canada. The decline is mostly in response to narrower spreads between U.S. domestic crude benchmark West Texas Intermediate (WTI) and international equivalent Brent. The lower the spread between these two the lower the incentive to move crude from inland basins to coastal refineries by rail because the latter is a more expensive transport option compared to pipelines. When WTI was discounted to Brent by upwards of $25/Bbl in 2011 and 2012 because of congestion caused by a lack of pipelines it made sense to use rail to get stranded crude to market. We described the resulting increase in U.S. CBR shipments from 33 Mb/d in January 2010 to a peak of 928 Mb/d in October 2014 (according to the Energy Information Administration - EIA).
As new pipelines have been built out to provide less expensive options to get stranded crude to market so the WTI discount has narrowed. After crude oil prices collapsed into the mid-$30s and Congress repealed regulations limiting U.S. crude exports in December 2015, WTI began to trade at a slight premium to Brent that averaged $0.26/Bbl in January 2016. In response to the narrowing spreads - CBR volumes fell during 2015 but not as fast as you might expect – dropping only 20% between January and November 2015 (latest EIA data) even though the economics often made no sense. The slow decline in CBR traffic is because committed shippers and refiners continued to use rail infrastructure that they invested in and because some routes still do not have pipeline access.
This time we kick-off a region-by-region CBR round up in North Dakota – where it all began back in 2010.

What We Will Be Talking About Friday, Later This Week -- February 8, 2016

Tesla. Elon Musk. Margin calls.

The New Williston High School

See this link for several artist renditions of the new Williston High School. Updates also at this site. The JE Dunn announcement of a new Williston office is here. IMS Masonry here.

Video of progress to date. The video was taken from the northeast corner of the complex, if I have my directions correct. The gravel road I'm standing on heads towards Montana so that would be off to the west. You can't see it but off in the far distance in the Missouri River, if that makes sense. Turn the volume to mute unless you enjoy the sound of North Dakota wind.

The "New" Williston High School, February, 2016

The huge "blue-wrapped" wing, I suppose, is the gymnasium or field house.

The New Bridge Across The Missouri River Southwest of Williston

Progress continues on the four-lane divided bridge, US Highway 85, crossing the Missouri River, southwest of Williston. On this trip I've noticed very little activity; I assume it is due to the river being frozen over. Turn the volume to mute unless you enjoy the sound of North Dakota wind.
US Highway 85 Bridge Over The Missouri River Southwest of Williston

CLR's 14-Well Atlanta Pad Southwest of Williston

I've always wanted to see this pad but have never been able to get close enough. With dry weather the roads are good; new roads are now accessible; and finally, there are NO trucks on the road making it all possible. Turn the volume to mute unless you enjoy the sound of North Dakota

US Highway 85 Bridge Over The Missouri River Southwest of Williston 
CLR's 14-Well Atlanta Pad Near The Bridge
The Horizontal Legs Of These Wells Run Under The River

New Post-Boom Low For Active Rigs: 41; Four More DUCs In The Bakken -- February 8, 2016

Active rigs:

Active Rigs41136192185202

Wells coming off the confidential list Tuesday:
30430, SI/NC, Statoil, East Fork, no production data,
31046, SI/NC, XTO, Grinnell, no production data,
31094, SI/NC, XTO, Siverston, no production data,
31424, SI/NC, Hess, Antelope, no production data,
Three (3) new perrmits:
  • Operator: EOG
  • Field: Squaw Creek (McKenzie)
  • Comments:
Three (3) producing wells completed:
  • 20468, 2,976, BR, Lovaas 7-1UTFH, Blue Buttes, t1/16 cum --
  • 28433, 0 (no typo) -- see below, Zavanna, Tomahawk 10-3 4TFH, East Fork, t10/15; cum 70K 12/15;
  • 29383, 1,975, MRO, Wilhelm 24-21TFH, Bailey, t1/16; cum --
A recent producer abandoned:
  • 31507, A/dry, CLR, Charlotte 7-22H, Banks,

28433, 0 (no typo) -- see above, Zavanna, Tomahawk 10-3 4TFH, East Fork:

PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare

Chipotle To Delay Opening Today To Thank Its Employees -- February 8, 2016

Chipotle has closed all its stores today. From the Christian Science Monitor:
Don’t worry, it’s not permanent.
Chipotle is set to close all of its nearly 2,000 North American restaurants for several hours on Monday, Feb. 8, after reports of successive outbreaks of food poisoning.
“We are hosting a national team meeting to thank our employees for their hard work through this difficult time, discuss some of the food safety changes we are implementing, and answer questions from employees,” Chris Arnold, a Chipotle spokesman, said in an email to The New York Times.
The restaurants will open 3 p.m. on Feb. 8 instead of its usual lunchtime start at 10 or 11 a.m. In the meeting, Chipotle employees will focus on how to improve food safety.
It’s been a bad six months for Chipotle, which built its brand on fresh and locally grown ingredients. Since July, there have been more than a handful of bacterial contaminations, resulting in about 500 people reporting illness after eating its food in the latter half of 2015.
I could be wrong, but I believe more people have been affected by Chipotle than any ground water contamination caused by fracking. 

In fact, to the best of my knowledge, fracking has not been confirmed to result in any ground water contamination, and no illnesses have been associated with ground water contamination due to fracking. 

Hey, what about fracking risks in New York state? It's easy to find out. Just google tritium on the blog.

Monday's News -- February 8, 2016; Ford To Double Capacity In Mexico -- The 800-Pound Gorilla: ObamaCare; "Massive" Wind Farm Proposed For North Dakota By OOS Company

One can vote on Super Bowl ads here.

The Mideast just keeps getting messier. Turkey's hostility to one of America's most effective allies -- the Kurds -- simply undermines the effort to take out ISIS.

This Indian should have been buying lottery tickets.

Speaking of India, the country's telecom regulator bans Facebook's free basic service. Regulator says everyone needs to pay for internet; can't be given away for free.

Speaking of India, again, the country has surpassed China for bragging rights as the "growth company." India's economy expanded 7.3% last quarter. The country uses a lot of coal. A lot.

Wow, that took awhile: Volkswagen's "quality" - control chief resigns. I guess someone is using the phrase "quality control" loosely.

The Mideast migrants keep flowing into Europe. The Greek government want to build migrant camps on the islands; Greek people say "ouchí."

I disagree completely. The Super Bowl review at TWSJ:
Truth: outside of that Denver defense, it wasn’t an especially well-played game. A lot of it was snoozy. There were punts. And some more punts. And a few more punts (15 in total, tied for second-most in Super Bowl history) There were turnovers consequential and turnovers inconsequential. A Carolina field-goal attempt that thud-DONNKKKED off the upright. There were moments it felt like less like a Super Bowl and more like a Dolphins-Browns game. A Dolphins-Browns preseason game.

From a couple of days ago: Ford to more than double Mexico production capacity in 2018. Auto maker will build new plant in Mexico, expand existing factory. Better Mexico, than China.
Ford Motor Co. will build a new assembly plant in Mexico and sharply increase factory output from that country, representing the latest shift of investment abroad by a Detroit auto maker following the signing of a costly new labor deal.
The No. 2 light-vehicle seller in the U.S. plans to add 500,000 units of annual Mexican capacity starting in 2018, more than double what it built in 2015, according to people briefed on the plan. The plan mirrors General Motors Co. ’s $5 billion investment to double Mexican capacity by 2018.
Ford will build a new assembly complex in San Luis Potosí, and expand an existing factory near Mexico City. The moves will make room for several models, including a yet-to-be-disclosed hybrid vehicle that is described as a Toyota “Prius fighter,” and will allow Ford to focus its U.S. factories on higher-profit trucks and sport-utility vehicles.
Ford last year built 433,000 vehicles in Mexico, or 14% of its North American production.
Costs for the project likely will exceed $1 billion, people familiar with the details said, with factory construction beginning later this year. It follows a $2.5 billion investment Ford announced last spring to build an engine and a transmission plant in Mexico.
Why the interest in Mexico? Gee, I wonder.
Detroit auto makers have long built cars and trucks in Mexico, but the country is looking more attractive following a new labor deal struck in November with the United Auto Workers that raises wages for U.S. factory workers.
Labor rates in Mexico are roughly one-fifth of those earned by unionized workers in the U.S., a gap that is only expected to widen as UAW wages approach nearly $30 an hour in coming years, representing as much as a $10 increase for some newer hires.
But again, the article does not mention the other much, much bigger expense: ObamaCare.

It looks like this is the business plan: low-margin cars to be built overseas; high-margin SUVs and trucks to be built in existing US factories. 

Energy is inexpensive in the US; will get a bit more expensive as cost of intermittent energy impacts rates. But energy will become less expensive in Mexico with all that natural gas the US is shipping to Mexico. Lower labor costs, lower energy costs.

Speaking of rising costs of electricity due to the cost of intermittent energy: in a state which has some of the lowest utility rates in the nation, there is an opportunity to raise rates. According to the Bowman County Pioneer, a "massive" wind farm is proposed for the county, data points:
  • again, an out-of-state developer who can't get wind energy projects in his own backyard
  • a Virginia energy company: Apex Clean Energy, Charlottesville, VA
  • from south of Rhame to US Highway 85
  • "the farm would effectively cover the entire county" -- one resident
  • "at least" 100 turbines
  •  25,000 to 30,000 acres
  • 200 to 300 MW annually
  • by comparison: the MDU wind farm in the same area: 13 turbines
As usual, some numbers rounded, and arithmetic errors are common. 

The cost was not in the article, unless I missed it, which is possible. At $1.5 million / MW, it would be a 300 x $1.5 million project -- a half-billion dollar project.

Bowman County: 1,167 square miles x 640 acres = 750,000 acres.

30,000 acres = 50 sections; generally 36 sections in most townships in North Dakota.

Well, it would give me something to look at when I drive up from Texas back to the Bakken.

Man-Camp Focus: Time To Move On

Restaurant and real estate sectors are the ones to watch.

Huge competition among Menards, Home of Economy, Wal-Mart.

Everything else will take care of itself.

The man-camp story is a good-news story -- except for the man-camp operators. Don't feel bad for the man camps. They advertised themselves as "temporary." Oil companies say they need the man-camps because their workers are mobile, back and forth from the south to North Dakota. The roughnecks are flexible, smart, adaptable. They're as good as US Marines and US Army finding places to stay when deployed. Instead of man-camps, they will move into town. Man-cap operators might be smart to invest in really, really cheap motels and apartment complexes, as those owners look to exit. From The StarTribune:
North Dakota’s unemployment rate is still an enviable 2.7 percent, and the jobless rate is even lower here in Williams County — 2.2 percent, up a percentage point from a year ago.
Camps like the Bear Paw Lodge or Black Gold reflected the allure and growing pains of an oil rush that overwhelmed the housing supply and infrastructure to the point that people camped in parking lots and homes rented for big-city prices — $3,000 a month or more. Many camps had their own security and strict rules against alcohol and drugs, as well as maids, fitness centers, high-thread-count sheets and 24-hour meal service.
But now, about 50 miles from here, Capital Lodge in Tioga, built for 2,000 workers, is a fenced-off ghost town. About 130 miles away in Dickinson, a 600-bed camp had dwindled to 30 guests when its owners shut it down for the winter. In Williston, where the population soared from 12,000 to more than 40,000 at the height of the drilling frenzy, local leaders ordered the remaining man camps to close by the summer.
In the half-empty cafeteria of one camp operated by Target Logistics just north of Williston, electrical workers and pipe specialists one recent morning were starting and ending their 12-hour shifts over a breakfast of eggs, sausage and coffee as thick and black as crude oil. They talked about how many drilling rigs were operating (46 across the state, compared with 190 two years ago), their falling overtime pay and friends who had gone elsewhere for work.
The New York Times has pretty much the same story, "built up by oil boom, North Dakota now has an emptier feeling." Again, the writers/editors are fascinated by "man-camps."
The “man camps” sprang up from the prairie, rows of trailers and modular steel boxes that housed thousands of workers chasing their fortunes in North Dakota’s oil fields. But these days, the man camps are missing something: men.
Roughly eight years ago, at the peak of the last recession, oil drilling began to transform these remote corners of the plains into an economic beacon, attracting billions of dollars in new investments and thousands of workers in search of good-paying jobs and an escape from America’s economic pain. But now, as oil prices have skidded to $30 a barrel, new drilling has dried up here, and the flood of wealth and workers is ebbing.

Monday, February 9, 2016 -- A Great Game, Yesterday

Active rigs:

Active Rigs42136192185202

RBN Energy: storage capacity at Cushing (archived).
The Mid-Continent trading and storage hub at Cushing, OK is the nation’s largest commercial crude tank farm – with an estimated 73 MMBbl of working storage capacity according to the Energy Information Administration (EIA). The latest weekly EIA Petroleum Supply report (January 29, 2016) indicated inventory levels at Cushing just over 64 million barrels – 24 thousand barrels below the all-time high set two weeks previously. That is only 88% of working capacity by some calculations that indicate there is still room in the tanks for more crude. Yet market sources report that some storage operators are turning away incoming barrels. Today we examine what may be happening.
We have previously discussed inventory levels at Cushing in the context of the big run up in crude stocks during 2011 and 2012 to a then record of 52 MMBbl in January 2013.
Those soaring stocks resulted from a build-up of “stranded” crude in the Midwest from surging shale production, mostly from North Dakota, that was surplus to regional refinery needs and could not reach Gulf Coast refineries due to a lack of pipeline capacity south from Cushing. That stockpile ran down during 2013 and 2014 as new pipeline capacity opened up to the Gulf Coast – bottoming out at 18 MMBbl in July 2014 (according to EIA).  In October 2014 Cushing inventories started climbing again - this time in response to an oversupplied market with falling crude prices creating a “contango” incentive to store crude.
In a contango market, prices for future delivery are higher than for delivery today – providing a financial incentive to store crude and sell it for a higher price later.
A U.S. refining frenzy in response to high margins last summer brought crude stocks down between April and October 2015 but they have recovered since to hit an all time high on January 15, 2016 at 64.2 MMBbl. The record crude inventory levels are not just at Cushing. The EIA reported that total U.S. crude commercial inventories surpassed 500 MMBbl for the first time ever on January 29, 2016, with over half that number stored in the Gulf Coast region (253 MMBbl).
These crude inventory levels are high enough that questions are being raised about how much more the tanks can hold. This is particularly the case at Cushing – where by one calculation – crude inventory is at 88% of working capacity – just 9 MMBbl below capacity.  What follows is our interpretation of how full the tanks at Cushing could be.
I didn't see all the Super Bowl ads, but I saw most of them. T-Mobile and Steve Harvey might have been the #1, certainly in the top five:

T-Mobile - Steve Harvey

And, now for something a little different:

Le Petit Chef