Monday, April 4, 2016

No New Permits; Three More DUCs Likely To Be Reported Tuesday -- April 4, 2016

Active rigs:

Active Rigs3094192186207

Wells coming off confidential list Tuesday:
  • 31171, SI/NC, WPX Peterson 6-5-4 HC, Van Hook, no production data,
  • 31540, SI/NC, Hess, CA-Russell SMith-155-96-2425H-2, Capa, no production data,
  • 31702, SI/NC, Statoil, Shorty 4-9F 7H, Stony Creek, no production data,
No new oil or gas permits today.

Six (6) producing wells completed: 
  • 30196, 231, XTO, Evelyn 31X-3H, Lindahl, t3/16; cum --
  • 30420, 135, XTO, Evelyn 31X-3DXA, Lindahl, t2/16; cum --
  • 30752, 1,266, XTO, Amundson 44X-22CXD, Siverston, t2/16; cum --
  • 30917, 464, XTO, Smouse 31X-29DXA, West Capa, t2/16; cum --
  • 31728, 464, SM Energy, Bissonnette 14B-31HN, Frazier, t3/16; cum --
  • 31729, 474, SM Energy, Bissonnette 14B-31HS, Skabo, t3/16; cum --
 Still DUCs for all practical purposes.

MIke Filloon's Update On The Bakken: Halcon -- April 4, 2016

I will proofread this later; this has not been proofread. There will be typographical and factual errors. The original article is linked farther down.

Mike Filloon has provided another incredible update of the Bakken (see below the break down below).

These are some of the thoughts I had while reading through his very, very long analysis.

1. The improvement in Bakken well production is quite incredible. But this makes the data even more incredible: Mike's data does not provide data for current improvements because the newest well logged is two years old.

2. When the North Dakota Bakken was first being drilled in 2007 (the Montana Bakken mini-boom began seven years earlier, in 2000), folks talked about primary recovery in the 1 - 3% of the original oil in place (OOIP). It didn't take long to suggest the primary recovery rate would be 5 - 8%; and since then the primary recovery rate is predicted to be significantly higher. Regardless of forecasts, we have a very credible source telling us that based on data two years old, the current primary recovery rate in the Bakken is 5%.

3. Mike Filloon reiterates what I've said since the beginning: the NDIC makes the oil and gas industry in North Dakota, compared to other states, about as transparent as can be reasonably expected.

4. Natural fracking may explain the "halo effect" often seen in fracking.

5. Refracks are becoming a factor in current US production; I've not seen many examples yet in the Bakken but they are hard to find, easy to miss. But wow! Every well drilled before 2014 can probably be considered for a re-frack, or completely re-drilling (EOG once said it was more economical to simply re-drill, starting from scratch, than re-frack through an existing well. Filloon mentions this without attributing the comments to EOG.

6. Trying to establish accurate initial production over the first 120 days is almost impossible under the  current situation. Mike Filloon mentions that when he talks about the challenge of modeling these wells.

7. "Improvements in decline rates have been substantial." Mike finds a group of Three Forks wells that remarkably do not show the typical Bakken decline. "The interesting aspect of [these wells] is the steadiness and lack of decline. Locations continued to be added so when old wells decreased production, this was filled in with new producers.

8. Again, some of the wells that Filloon uses to demonstrate a point were drilled back in 2011 and 2012; the most recent in this particular group of wells were drilled in November, 2013; and, July, 2014. Efficiencies continued to improved in 2015 and 2016.

9. Well design has changed significantly since 2011 (numbers rounded below; linked article has exact numbers)

Well 18905 18446 21653 25399 26797
Date (mon/yr) 3/11 9/12 9/12 11/13 8/14
Lateral (feet) 9,447 8,915 8,878 9,663 9,638
Fluids (bbls, in 1,000s) 47 81 71 55 110
Proppant (million lbs) 1.08  2.6    2.5 5.0 4.8
Stages 25 25 24 31 32
Max Treat Pressure (PSI, 1,000s)   9.9 9.0 9.0 9.6 10.0
Max Treat Rate (bbls/min) 32.0 37.0 38.0 46.8 71.0

10."Halcon has tightened stages and while increasing proppant and fluids. The last well is a slickwater design, which has proved very productive for multiple operators in the area.

11. "Halcon estimates Middle Bakken crude oil production has improved by 125K bbls in 780 days. Cost reductions have brought its AFE to $6.8 million. In 4Q14, it was $11 million."

12. In general, the Three Forks underperforms the middle Bakken by 10% to 20%. "This is a little strange because it is deeper. Increased depth usually means increased well pressures. The middle Bakken continues to outperform in most areas.

13. Filloon noted that one well had a large production jump over its peers completed earlier. This was seen in a large number of wells during this time frame as operators started tightening stages and using more proppant. "This was was a 31 stage frack and used almost 5 million pounds of proppant.' Compare that with current frack designs by other operators.

12. Filloon talks about "sharing of resource" where wells are drilled closer together.

13. Part of his conclusion from these wells:
Tighter stages and increased volumes of proppant and fluids have provided more production per foot. This continues as we once thought only 1% to 2% of crude was recoverable. Current estimates are closer to 5%, but some believe that number could climb much higher. Halcon's current acreage provides insight into production increases. Over the first 5 months, newer wells outpace by 40% to 50% with respect to total production of crude. In approximately 2 years that percentage decreases to closer to 20%. Although some may believe this is not positive, the oil companies may have a differing opinion. These operators are motivated to increase revenues up front and minimize payback times.
The Article

Over at SeekingAlpha:

  • well design improvements continue to increase production
  • well results in Halcon's Antelope and Four Bears fields show an initial improvement of +40% and 18% crude increase at two years
  • general data does not adequately show production improvements per well as it does not account for well shut ins and lateral feet
  • current estimates have shale recoverable resource at approximately 5% but this number could increase significantly in the coming years.
  • this data does not provide for current improvements as the newest well logged is two years old
The article begins:
There is a reoccurring theme in US unconventional oil. Arguments refer to better well production. This debate is heated, as investors accuse operators of fraud and others support new increased EUR claims. Improved production has affected world supply/demand. This has added to the current glut and put OPEC to task as it tries to crush its new competition. Levered ETFs and ETNs are never a good way to invest in the market long term. This is especially true for commodities. One could lose a significant sum in a very short period of time. These are never recommended for those without significant experience in trading oil markets. Not only is the average investor included in this debate, but big names on Wall Street are also included in the disagreement on improving well design. Most in the oil industry believe this trend of better results will continue, but there are dissenters.
In states like North Dakota, data is fairly transparent for those interested in going through the NDIC site. Many states are not as good. Texas is a good example as it combines several locations in production data which makes it difficult to see the resource garnered per well. There are several important variables to unconventional well production. The first is caused by the induced fracs. This is the frac'ing process at work, and are the fractures created by the completions crew. When the shale is frac'ed, oil and gas production begins. This production can increase if the induced or created fracs, communicate with natural fracturing within the formation. So basically, the fractures created by the operator come into contact with natural cracks or opening in the rock. Natural fracturing is interesting, as these can connect the wellbore to a very large area. It can also connect the new well to old ones. This resource is shared. The induced fractures produce the bulk of resource in new wells and generally a higher decline rate. The decline rate is how quickly production decreases in well life. After a period of years, which differs greatly from one play to the next, this decline rate stabilizes. Matrix production begins and decline rates decrease to 4% to 8%. This slow decline rate continues for decades. This occurs until the well is shut in.
Refrac's are becoming a factor in current US production. This means that an operator can redo or recomplete the well. New frac's are created to initiate new production. Since the well is already drilled, costs are lower. Through seismic, an operator can look at the formation around the well and see what areas were not fractured initially and create frac's in those areas. If a well was not done properly, it can focus efforts on those areas to start induced fracture production and increase the total volumes of resource. Since matrix production is very low in comparison, and operator is motivated to re-frac. Re-frac's are generally not as productive as doing a new well. Some operators believe this while others do not. This is why we don't see it done to a greater extent. We may see it more in the future, but for now new wells generally outperform. The key is bringing as much of the source rock (shale, etc.) into contact with the well bore. Wells currently obtain only a small percentage of oil from source rock. This percentage continues to increase as operators get more comfortable with the geology. The issue is cracking the rock as thoroughly as possible. As completions crews do a better job, increased volumes of fluids and proppant are used per foot. Bigger wells and bigger resource are what we are seeing.
This continues and given the small percentages of resource pulled today, there is still a significant way to go. The only obstacles are cost and oil price. As time goes by and oil prices recover, we would guess things will get interesting.

Keep On Pumping -- April 4, 2016

From Reuters:
As oil prices nosedived by two-thirds since 2014, a belief took hold in global energy markets that for prices to recover, many U.S. shale producers would first have to falter to allow markets to rebalance.
With U.S. oil prices now trading below $40 a barrel, the corporate casualties are already mounting. More than 50 North American oil and gas producers have entered bankruptcy since early 2015, according to a Reuters review of regulatory filings and other data.
While those firms account for only about 1 percent of U.S. output, based on the analysis, that count is expected to rise.
Consultant Deloitte says a third of shale producers face bankruptcy risks this year. But a Reuters analysis has found that bankruptcies are so far having little effect on U.S. oil production, and a tendency among distressed drillers to keep their oil wells gushing belies the notion that deepening financial distress will prompt a sudden output decline or oil price rebound.
For example:
Texas-based Magnum Hunter Resources, the second-largest producer among publicly-traded companies that have filed for bankruptcy. It filed for creditor protection last December, but even as the debt-laden driller scrambled to avoid that outcome, its oil and gas production rose by nearly a third between mid-2014 and late 2015.
Once in Chapter 11, its CEO Gary Evans said the bankruptcy, which injected new funds to ensure it would stay operational, could help to "position Magnum Hunter as a market leader."

Monday, April 4, 2016 -- Taxes Dues In Two Weeks; We Start The Week With 29 Active Rigs In North Dakota; Great Article On St James Hub, Louisiana -- Important Hub For ND Crude

When are taxes due this year?
Procrastinators, listen up.
You get three extra days to gather your paperwork and file your federal tax return in 2016. The tax deadline is April 18.
You can thank Washington, DC, for the gift. Washington will celebrate Emancipation Day on April 15.
Active rigs:

Active Rigs2994192186207

RBN Energy: The St. James Crude Hub Continues to Develop.
The St. James, LA, crude trading hub provides feedstock to 2.6 MMb/d of regional refining capacity as well as refineries in the Midwest.
St. James is also an important distribution hub for crude from North Dakota, South Texas, the Gulf of Mexico and onshore Louisiana as well as imports arriving at the Louisiana Offshore Oil Port (LOOP).
Crude storage and midstream infrastructure at St. James has been expanding in recent years as the trading hub handles larger volumes of domestic production. Today we begin a new series looking at infrastructure and crude pricing at St. James.
St. James is located on the Mississippi River 60 miles upriver from New Orleans and about 60 miles Northwest of the Clovelly, LA, landing point for crude imported through LOOP. The offshore LOOP terminal is the only deep water port on the Gulf Coast capable of unloading million barrel plus cargoes from very large crude carriers (VLCCs) and ultra large crude carriers (ULCCs – up to 3 MMBbl).
We have recently looked at the potential for LOOP to develop export capabilities.  At the link the map in Figure #1 shows the central position that St. James occupies in the Eastern Gulf Coast crude oil refining and distribution system.
We will get to the inbound and outbound pipeline systems and refinery connections in a minute. Being on the Mississippi River means that St. James can also accommodate barge or tanker (up to Aframax size – about 750 MBbl) receipts or loadings and receive crude delivered from the Midwest via inland waterways.
In the past 5 years midstream companies have built out rail unloading facilities at St. James that receive domestic crude – particularly from North Dakota.
The Louisiana hub has also been used as a transit point to ship surplus supplies of U.S. ultra light crude (condensate) from the Eagle Ford basin in South Texas to Canada via the Capline pipeline for use as a diluent in heavy Western Canadian oil sands. More recently St. James has been a receipt point for condensate delivered by barge down the Ohio River and Mississippi from the Marcellus and Utica.

The North Dakota I Remember -- Sort Of -- April 4, 2016

From The Dickinson Press:
WATFORD CITY, N.D. – There’s no such thing as sleeping in for Watford City teenager Rebecca Campbell.
The 17-year-old high school senior operates her own bakery, running the business while juggling classes and after-school activities.
The business, B-Bonks Bakery, grew out of a lemonade stand Campbell ran last summer on Watford City’s Main Street.
She told customers she dreamt about someday putting the profits toward her own bakery. Their enthusiasm for the idea led Campbell to pursue a permanent business last fall.
There are so many story lines in this story, can't even begin:
Campbell was homeschooled and didn’t have many credits left to take this year to graduate in May. She also takes an online course through Williston State College.
After school and on Saturdays, Campbell participates in track, speech tournaments and rehearsals for an upcoming school musical.
“It really isn’t that hard to juggle all of this,” Campbell said. “It’s what I love to do, so it’s a lot easier than you think.”
Campbell credits her parents with supporting her dream, including loaning her money for the bakery. The family moved from Ann Arbor, MI, for better work opportunities in Watford City, in the heart of the Bakken Oil Patch.
Much, much more at the link.

This Is "Exactly Right" -- And I'm One Of Them -- Nothing About The Bakken -- April 4, 2016

From today's WSJ:
The New Yorker has a cult following,” says Samir Husni, director of the Magazine Innovation Center at the University of Mississippi. “The readers don’t care about price. They have an addiction to seeing it on their coffee table, week in and week out.”
Speaking of cults, from Market Street today:
Apple Inc. was added to Credit Suisse's US Focus List on Monday, as the stock is now considered one of the bank's "top investment ideas."
The brokerage raised its price target on the stock to $150 from $140, which implies 36.4% upside to Friday's closing price. Shares of Apple ticked up 0.6% to $110.70 in premarket trade.
Credit Suisse analyst Kulbinder Garcha said an in-depth look into Apple's service offerings showed that investors may be underestimating and underappreciating the annuity business's growth potential. It estimates gross profit related to services has grown to around $14.5 billion from $3.2 billion in 2010, and sees that doubling to nearly $34 billion by 2020, with services accounting for 29% of total profit.
The gains are seen as coming from strong App Store growth, as well as the scale of Apple Pay, Apple Music and iCloud.
Apple Pay: think Visa.

Apple Music: think Facebook.

iCloud: think Google.

Note: this is not an investment site. Do not make any investment, financial, travel, or relationship decisions based on what you read here or think you may have read here. 

And They Will Still Vote For The Democrats In November
It's a Blue State -- That's What Blue States Do

McClatchyDC is reporting: foreign trade is killing blue collar jobs in Wisconsin -- the rest best moves west.

Some data points:
  • Wisconsin has lost more than 68,000 manufacturing jobs since the mid-1990s and the first of several controversial trade pacts with Mexico, China, and others took hold
  • additionally, the US Dept of Labor has certified about 76,000 Wisconsin workers in various fields have lost their jobs due to either imports or the work they do being shipped overseas
  • Joerns Healthcare, a medical furniture manufacturer closed its doors in Stevens Point, WI, in 2012, after years of gradually outsourcing work to China
  • Caterpiller has laid off 600 of its 800-plus workers over the past two years because of a business slowdown
  • Wisconsin's heavy manufacturing sector, once one of the country's strongest has been hit hard: GM GE, Chrylser, Joy Global Surface Minig, Manitowoc Cranes have all cut jobs
  • Kohler (plumbing supply -- the one with the glitzy ads in fashion magazines), Trek Bicycles (so, that's where my bike was made), have offshored jobs to India, China, and Taiwan
  • Oscar Mayer meat processing in the state capital will lose1,000 jo bs over the next two years at the 10-year -old iconic plant located there
  • just east of that plant, Tyson Foods will cease operations at its pepperoni processing plant, cutting 400 jobs
ObamaCare was not mentioned in the article, nor was an update on the minimum wage issue.

National Oilwell Varco Signals "Massive" Layoffs In Norway -- WSJ -- April 4, 2016

Background: Norway has bigger problems than $40 oil.

The Wall Street Journal is reporting that National Oilwell Varco Signals Further Mass Layoffs in Norway; the Oil Industry subcontractor blames reduced investment and equipment sales:
OSLO— National Oilwell Varco said Monday that it would continue slashing jobs in Norway, after laying off 2,400 workers—half of its local staff—last year, as sinking oil-sector investment continues to hammer major industry subcontractors.

The company blamed its continued downsizing on deteriorating market conditions, with reduced investment and weak equipment sales. Over the past year, National Oilwell Varco has shed 1,800 permanent jobs and 600 contractors in Norway amid weaker activity in the North Sea.
The company said about 500 offshore rigs and drillships are active globally, and about 300 units are retired so far, with more retirements expected, and no rapid rebound expected.

Moving Day: The Saga Continues -- Nothing About The Bakken -- April 4, 2016


April 4, 2016: when our daughter (Sophia's mother) saw this, she said this was "despicable." Sophia thought it was loads of fun.
Original Post
As part of the "moving-out process," my wife takes cleaning of the old apartment very, very seriously. The most unpleasant job is cleaning the oven. After thirty-plus years in the military with me and many years as a teenager with her dad in the US Army she has cleaned many, many ovens.

This time, though, Sophia volunteered. We got her special safety goggles before "sending her in."

A Reader Asks About Freezing Temperatures And Severance Taxes When Comparing Well Costs In North Dakota And Texas -- Apriil 4, 2016


April 7, 2016: an individual asked about the soil temperature in North Dakota during the winter. Don provides a link that tracks soil temperature on an hourly basis
Original Post
The other day EIA posted a story about relative costs of wells in various unconventional plays across the US.

In response, a reader asked:
How do severance taxes compare and how many feet does frost go in the ground dead winter when comparing attractiveness of Texas & ND to oil companies?
With regard to severance taxes, it's a bit more complicated than simply provided "one number" for each of the states (for a number of reasons). Here are some links:
With regard to the second question, how deep is the ground frozen in North Dakota in the "dead of winter"? According to this site:
One interesting aspect of winter that affects both plants and animals is one we cannot see: freezing of the soil. Frost depth and the timing of freezing depend upon the soil type, aspect, soil moisture, vegetation, snow depth, and of course, air temperature. In our area, one study indicates that the soil begins to freeze in early November and reaches the maximum depth by April.
This depth varied by year from 24 to at least 70 inches below the surface. The coldest soil temperature of 25 degrees F. occurred at the 2” depth. Another 4-year study near Fargo showed similar results, although the average date of soil freezing was November 26th, with an average of frost depth of 54” on April 1st. The average maximum freezing depth for North Dakota is 50”, with a maximum depth of 84”
Maximum freeze-depth then appears to be less than seven feet; oil wells are drilled vertically about 9,000 feet in North Dakota. Multiple sources suggest the temperature at depth is upwards of 300 degrees centigrade (572 degrees Fahrenheit). We've talked about this before: it's incredible engineering to develop pipe and instruments that can withstand temperature extremes from 60 degrees below zero (at surface) to more than 600 degrees at depth.