Monday, March 28, 2016

More Details On The REX Natural Gas Pipeline Reversal From Marcellus/Utica To The Midwest -- March 28, 2016


March 30, 2016: update -- breaking today -- Tallgrass will buy Sempra's stake in REX for $440 million:
  • Tallgrass Development agrees to acquire Sempra Energy's 25% membership interest in the Rockies Express Pipeline for $440M.
  • The 1,712-mile natural gas transmission pipeline extending from Wyoming and Colorado to Ohio is one of the largest natural gas pipelines in North America; Tallgrass already holds a 50% stake, a Phillips 66 subsidiary owns a 25% stake, while Sempra U.S. Gas & Power holds the remaining 25%.
  • SRE also says it will permanently release the remaining uncontracted capacity that it holds on the pipeline that it had been releasing on an interim basis, resulting in a $100M-$120M charge against Q2 earnings. 
Original Post
Back on March 18, 2016, RBN Energy provided an update on that huge pipeline moving natural gas from the east (Marcellus/Utica) to the midwest. Today RBN produced another update. For me to understand this massive pipeline here are the data points from today's update:
The US is in the midst of the "biggest infrastructure overhaul in many decades, designed to reverse traditional flow patterns out of the Northeast Region and allow Marcellus/Utica shale gas to target growing and new demand markets primarily in the Southeast US."

In addition to the REX, "there are several other pipelines looking to reverse flow out of the Northeast, but the REX is, by far, the most significant, not only volume-wise but also because it touches nearly every US region via interconnects with other major long-haul gas pipelines."
So far:
  • build-out and expansion of the Seneca Lateral, near Clarington, OH, has been completed
  • build-out of the East-to-West (E2W) expansion; has been completed
  • last August, E2W came on-line, bringing capacity to 1.2 Bcf/d in Zone 3 of REX (between its eastern terminus point in Clarington, OH, and Moultrie County, IL; this brought total westbound capacity in the zone to 1.8 Bcf/D for that stretch of REX
Today, RBN focused on the next phase of expansion: Zone 3 Capacity Enhancement project (REX Z3CE)

Details of REX Z3CE:
  • approval granted for adding 800 MMcf/d east-to-west capacity (Clarington, OH, west to Mexico, Missouri, just west of the Illinois state line)
  • RBN Energy says that Tallgrass has begun construction; project should be completed by 4Q16
  • the incremental 0.8 Bcf/d will bring the total westbound capacity to "a huge 2.6 Bcf/d"
  • firm contracts to ship natural gas from six (sic -- I count seven) shippers
    • Ascent Resources
    • Gulfport Energy
    • EQT Energy
    • Jay-Bee
    • Triad Hunter
    • EdgeMarc Energy
    • Vectren
There is more than enough natural gas "waiting" to get into this pipeline: the current recieipt point capacity is over 3.0 Bcf/d -- not only higher than the current mainline capacity of 1.8 Bcf/d but also well above capacity after current expansion is complete, i.e., 2.6 Bcf/d.
  • incredibly, even more receipt capacity is on the way
Other inputs yet to come:
  • Equitrans' Ohio Valley Connector project (Isaly interconnect): will start at 850 MMcf/d, 4Q16
  • Dominion, 275 MMcf/d, also by 4Q16
  • Energy Transfer's Rover project: 400 MMcf/d sometime in 2017
And to think Hillary Clinton plans to ban fracking. 

Crude Oil Futures -- March 28, 2016


March 29, 2016: for those trying to understand a bit better crude oil futures, a reader provides this information, plus a helpful link (see first comment):
Here's a site that carries price quotes for all the WTI futures contracts out to 2024: 
Drillers use such contracts to lock in the price they'll get next year for oil that they're targetting today. Refineries can likewise guarantee the price they'll pay. Bfor the most part, the futures market functions as a casino for traders in New York and London to bet on the price of oil.
These multiple prices are why it's hard to get a good reading on the Brent/WTI spread, when the price for one that's being quoted is for a different than the other.
Original Post
Okay, I know nothing about futures, but I'm trying to learn.

All day, at the Yahoo!Finance website (dynamic link) the price of oil was shown to be down slightly, less than a percent, in the $39 range. Now this evening, the same site shows crude oil to be slightly above $42.

Over at Bloomberg (also a dynamic link) the price at 8:30 p.m. Central Time shows WTI in the same $39 range as reported all day.

So what gives?

I think this is the story. All day over at the Yahoo!Finance site and at the Bloomberg site this evening, "they" are reporting CL1.COM.

On the other hand this evening, Yahoo!Finance is now reporting CLV16.NYM

"CL1" is the futures price for the contract expiring the soonest, which I assume is sometime soon.

On the other hand CLV16 if for crude oil contracts expiring in October, 2016.

For background, this link:

So, for those folks, like me, who saw $39 all day, don't all of a sudden get excited and think oil has surged $3/bbl in the last few hours.

In case the link above is broken, from the link:
The listing convention is that the ticker for a contract starts with CL, then has a letter that specifies the month, and then a number that specifies the year.  The letters for the months are:
January (F), February (G), March (H), April (J), May (K), June (M), July (N), August (Q), September (U), October (V), November (X) and December (Z). So, for example, the contract for February 2013 delivery is CLG3.
Information services usually create a composite price that aggregates the historical prices of different futures contracts.  CL1 represents the price of the 1st future (that closest to expiration at any given point in time) subject to certain rules on when they change to the next contract.  CL2 represents the 2nd future at any given time, that is the one following the CL1 future, and so on.
According to RBN Energy:
Physical WTI for prompt delivery (next month) has to be scheduled by the pipeline before the 26th of the month prior to delivery. To reflect this, CME/NYMEX futures contracts expire 3 business days before the 26th of the month prior to delivery allowing those taking futures contracts into delivery 3 days to schedule pipeline shipment to Cushing. 
Since the "26th of March" has already passed, perhaps CL1 now refers to three business days before the 26th of April, or, April 23, 2016. I don't know. All I know is that the $39 price seen earlier today and at Bloomberg tonight reflects a futures price near term, whereas the $42 price seen this evening at Yahoo!Finance is the futures contract expiring October, 2016.

At least that's how I read it.

And if in October, 2016, we are still at $42/bbl, there is no way that Saudi is going to see $60 oil for the calendar year 2016.

Today's Crude Oil Futures

Reuters is reporting:
Oil futures edged lower for a second straight session on Monday in thin trade as European markets observed the Easter holiday and as hedge funds and other big speculators were still hesitant to wager on a two-month long price rebound amid hefty crude inventories.
Sentiment in Brent and U.S. crude's West Texas Intermediate (WTI) futures remained soft with investment banks, such as Barclays and Macquarie, warning that market fundamentals were weak enough to pull prices back to $30 a barrel levels.
"There's just been too much U.S. crude builds lately for the market to ignore," said Tariq Zahir, who is betting WTI for delivery in the near-term will weaken further versus long-term contracts, expanding the market's so-called contango structure. Brent settled down 17 cents at $40.27 a barrel. Reuters data showed trading in the London-based benchmark at just over 73,000 lots versus the 200,000 typical on a regular session.
New York-based WTI finished down 7 cents at $39.39. Both benchmarks are up about 50 percent from 12-year lows hit in mid-February. Despite that advance, weekly data from the U.S. Commodity Futures Trading Commission suggested money managers, including hedge funds, were hesitant to wager all the way on a WTI rally although a few were betting on another price collapse.

Domestic Life, John Conlee

Talk Of A Huge XOM Deal Starting To Make The Rounds -- March 28, 2016

Reuters is reporting:
Exxon Mobil is in talks to buy a stake of around 15 percent in Italian oil major Eni's giant Area 4 gas field in Mozambique, two sources familiar with the matter said.
Exxon is seen as a front-runner to buy into Eni's gas development and this would be the U.S. firm's first big acquisition since the oil price collapse.
Area 4, in which Eni holds a 50 percent operating stake, is located in Mozambique's Rovuma Basin, where gas in place amounts to some 85 trillion cubic feet -- one of the richest gas discoveries of recent times.
There is a question how much XOM plans to buy, anywhere from 15% to all of it:
Two sources said Exxon was in talks to buy a stake of that size (15%), one of whom said Eni was also negotiating with other firms.  
A banking source familiar with the matter said Exxon was interested in buying Eni's whole 50 percent stake, while a fourth source said Exxon was looking at unspecified stakes in all Eni holdings up for sale, also including assets in Egypt and elsewhere in Africa.
It will be interesting to see what XOM pays for whatever the buy.
The huge productive capacity of Eni's Mozambique acreage attracted peak valuations two years ago, when Eni sold 20 percent to China's CNPC for $4.2 billion, amid strong competition for reserves. 
Natural Gas Global Reserves

Regular readers know I can't keep natural gas reserves straight, so to help me put the Mozambique Rovuma Basin in perspective, from an earlier post:
Disclaimer: I often make simple arithmetic errors. Numbers rounded. Natural gas reserves according to BP/wiki, 2013 - 2014 (US estimate as of December 2013). Top five countries:
  • Russia: 6,000 trillion cubic feet
  • Iran: 1,000 trillion cubic feet
  • Qatar: 900 trillion cubic feet
  • Turkmenistan: 600 trillion cubic feet
  • US: 350 trillion cubic feet
  • #11: Australia: 152 trillion cubic feet (as of January, 2014). (See this post.) 
  • Pakistan: 10,000 trillion cubic feet (highly unlikely, something tells me we are mixing apples and oranges, reserves vs technically recoverable
Now, let's go back and re-run the numbers that were posted earlier:
  • that recent huge Mediterranean natural gas find: 30 trillion cubic feet
  • Barnett, revised USGS figures: 53 trillion cubic feet
  • Utica, newly revised figures: 782 trillion cubic feet
  • Marcellus, EIA revised estimates: 65 trillion cubic feet, "proved" reserves
  • Bakken/Three Forks, USGS estimate: 7 trillion cubic feet
  • Qatar: 800 trillion cubic feet, wiki, conversion
  • Mozambique, from the story above: 85 trillion cubic feet
Spinning Out Of Control

Disclaimer: this is not an investment site. Do not make any investment, financial, travel, or relationship decisions based on anything you read here or think you may have read here. I simply find the Tesla story fascinating.

Investopedia is reporting that in the past few weeks, just prior to debut of the new Tesla Model 3:
  • the departure of two key individuals
  • filing an incorrect 10-K with the SEC
  • admitted the 10-K mistake via an 8-K filing
The story:
The revolving door at Tesla Motors, Inc. spun again last week after another key executive abruptly departed just when the electric car company is gearing up to unveil its Model 3 vehicle. Analysts' reactions are mixed about the impact of the recent executive departure, which comes a week after Tesla lost its VP of Communications. 
In the most recent departure, Tesla announced that Michael Zanoni, Executive VP of Finance and Worldwide Controller, had left the company to go back to, Inc., where he worked until 2014. Prior to Amazon, Zanoni also worked at The Boeing Company.
Investopedia speculates that Zanoni's departure was due to a mistake in its recent 10-K filing:
But we (Investopedia) can only speculate whether the company's mistake in its recent 10-K filing with the Securities and Exchange Commission was a catalyst.
Earlier this month, Tesla admitted the mistake via an 8-K filing.

Twenty-One (21) Permits Renewed -- March 28, 2016; Possible Halo Effect On Neighboring Fracked Wells In Beaver Lodge

Active rigs:

Active Rigs3197194186206

Wells coming off the confidential list Tuesday:
  • 31477, SI/NC, Hess, BL-Davidson-156-96-3526H-8, Beaver Lodge, no production data; see below
No new permits.

Twenty-one (21) permits renewed:
  • Lime Rock Resources (13), all in Dunn County
    • Schneider (5) 
    • Veverka (2)
    • Stroh, Kenneth or Raphael (2)
    • State (2)
    • Kary (2)
  • Oasis (5), five Domalakes permits, all in Burke County
  • CLR (3), three Micahlucas permits, all in Dunn County
No producing wells completed.

Halo Effect On Fracking Neighboring Wells


July 13, 2016: the neighboring wells have been fracked. See effects on two much older, neighboring wells. 

Original Post

Something to follow up on, a year or two from now:
The BL-Davidson wells six on a 6-well pad in Beaver Lodge oil field; they are all DUCs right now. It will be interesting to come back to look at other horizontals in the area (particularly #16804 and maybe #16803). The six DUCs will go south, paralleling those two wells. Most interesting is that the new BL-Davidson wells are sited at the toe-end of the existing horizontals, something we've talked about before. But don't hold your breath; it could be up to two years before we know anything.
In the graphic below, the index well is #16804, which runs south-to-north.

Quarterly Lease Sales Results -- February, 2016

Lease sales here (state site). I track them here.

Selected results from February 2, 2016, lease sales.

Billings County:
  • mostly $1 to $5/acre; a few acres as high as $31
Bottineau County:
  • $1 to $6
Bowman County:
  • $1 to $4
Burke County:
  • mostly in the $50/acre or lower, Paladin Resources did page $135/acre for one 40-acre bloc
Divide County:
  • several blocs went for $110 to $130/acre; some blocks for $210/acre; one 80-acre bloc for $350/acre
Golden Valley:
  • unremarkable
  • three blocks, $2 and $4
  • four blocs for $2,100/acre (blocs ranged from 84 acres to 152 acres); look to be under the water
  • unremarkable
  • unremarkable
  • most remarkable county of the few sales
  • one 20-acre bloc and one 80-acre bloc each went for $5,300/acre (Paladin Resources)

Update On DUCs From 1Q15 -- March 28, 2016

The Saudis opened the spigot in the last quarter of 2014.

We started seeing DUCs shortly after that.

I last updated the wells released from the confidential list in 1Q15 back on February 29, 2016. Of the approximately three dozen DUCs at that time, four of them were fracked.

I went through the list again today. One more DUC was fracked:
  • 28431, 293, Zavanna, Tomahawk 10-3 2TFH, t11/15; cum 10K 1/16;
Of the earlier 1Q15 DUCs fracked they were mostly (all?) Zavanna wells.

4Q14 DUCs

Reviewing the list of wells that came off the confidential list 4Q14 (the quarter that the Saudis opened the spigots) there are still about three (3) DUCs from 4Q14.

The following wells were DUCs but have been fracked since last reviewed:
  • 28099, 174, Hess, EN-Dobrovolny A-155-94-2413H-7, Manitou, t1/16; cum --
  • 26676, 630, Zavanna, Nelson 3-10 3TFH, Long Creek, t12/15; cum 29K after 48 days
  • 26677, 695, Zavanna, Nelson 3-10 2TFH, Long Creek, t12/15; cum 34K after 47 days
  • 27980, 462, Hess, BLSU E-406, Beaver Lodge, a Silurian well drilling unit, 9,760 acres; t5/15; cum 2K after about 40 days over 4 months; a vertical hole targeting H2S in the Interlake Formation (Silurian); a 180-foot core was also taken from the lower Stonewall Formation to the Red River Formation; 1-stage stimulation; 15% acid; no proppant; stimulated 6/20/2014; so it was drilled back in April, 2014; stimulated shortly thereafter, but not producing until a year later; spud April 12, 2014; drilling rig, May 26, 2014; cease drilling, June 16, 2014; TD, 13,000 feet; vertical; stratigraphic map of ND here; the pool is the Silurian pool; the bore went through the Interlake, the Stonewall, the Gunton member and the Stoughton member of the Stony Mtn formation, and landed in the Red River Formation which are in the Ordovician (below the Silurian) according to the stratigraphic map link. The target was the Interlake formation at 11,557 feet but core was taken all the way down to the Red River. This well will produce a fair amount of natural gas, I assume. If I recall, it was during this period that the Hess natural gas processing plant in Tioga was not at full capacity; maybe that was one reason why it was a year from spud to production. Just a thought.

New Restaurant Off To Fast Start In Williston, North Dakota -- March 28, 2016

Already rated #6 among best burger bars in / near Williston -- over at Yelp. Great location: up at the north end of The Million Dollar Way!

From The Williston Herald:
Quinn's Bar and Burgers is bringing back the old-school cool vibe with an exciting vintage transportation theme.
Outed by by the Facebook group 'New Williston Connections', their soft opening approximately two weeks ago saw scores of curious customers through. The owner and staff even reported a woman impersonating a Williston Herald food columnist, as though one existed.
"All of a sudden, the visitors were outside," said General Manager Donna Carig. "We just got slammed." Quinn's has yet to set a date for a grand opening, but they are functioning normally with regular business hours.
Many of the early customers also found out Quinn's is not a restaurant and anyone under 21 years of age is not allowed. It's a bar, and zoned as a bar, which serves food like hamburgers. But Quinn's is doing something a little different. Its menu doesn't consist of the usual frozen pizzas and deep-fried food. They serve large hamburgers made from locally produced Kota Meats.
By combining restaurant quality food with a bar atmosphere they have found that a diverse age group frequents Quinn's. "We do have a mixed crowd," Carig said. "We've got the Millennials, Generation X, and the middle-aged crowd."
When we were stationed in Turkey, one of the things I enjoyed was the restaurants staying open as long as folks were still coming in, and so it is with Quinn's:
Quinn's currently sports a custom cocktail list and is open from 11  a.m. to 11  p.m. on weeknights. On the weekend Quinn's stays open until midnight but, "The longer people stay, the longer we stay open," Esperum said.

March 28, 2016

Active rigs:

Active Rigs3297194186206

RBN Energy: update on REX.

NDIC April dockets are posted. There is one case. The case will be heard on four successive days in each of four cities in North Dakota: Williston, Dickinson, Minot, and Bismarck. The case, number 24957, is on a motion of the Commission to consider adopting new rules and amendments to the "General Rules and Regulations for the Conservation of Crude Oil and Natural Gas" codified as Article 43-02 North Dakota Administrative Code.

Wal-Mart, 1; Puerto Rico, 0

Court rules Puerto Rico tax on Walmart illegal
...the island's treasury secretary must immediately stop levying, collecting and enforcing the tax. He noted that Puerto Rico legislators had increased the tax by 325 percent in May 2015 during what he called a brisk approval process so they could capture revenues from Walmart. The 6.5 percent tax would have applied to every piece of inventory Walmart received from its stores even if it wasn't able to sell it, Fuste said.

He noted that if the tax were to remain in effect, it would generate more than $40 million in "unconstitutional an insolvent government without any hope that the victimized taxpayers will be reimbursed in the foreseeable future. That is the very definition of an inadequate remedy," he wrote, adding that $10 million of that revenue would have been from Walmart alone.
The mistake Puerto Rico made was being too greedy. Walmart probably would have ignored a 0.65 percent take on inventory. LOL. Not.