Week 26: June 26, 2016 -- July 2, 2016

Big stories of the week:
The ExxonMobil - Guyana story; and here 
The Panama Canal expansion
OPEC revenues continue to drop
US sets gasoline production record; US gasoline demand setting new records; 

Operations
July dockets posted
Water flooding, infill density, halo effect; and here, and here;
NP Resources back in the Bakken news
CLR to put in 28 wells in one drilling unit
The Bakken is in the manufacturing stage -- taxable sales and purchases for 1Q16
New NDIC update on the Bakken

Natural Gas
US natural gas production: the Bakken is a major contributor

Refinery
MDU sells Dickinson refinery to Tesoro Corp

Ethane
Update on Bakken ethane production  

US ethane exports to Asia, Latin America about to pop

Fracking
SWD management has decreased number of earthquakes in Oklahoma
Bakken fracking shows signs of life 

Miscellaneous
Update on oilfield expansion in Saudi Arabia
Prince Salman to focus on midstream, downstream; less on upstream
Saudi Arabia's crude oil inventories are dropping
BLM ready to okay 6,000 wells in Moab, Utah

Drop In Oklahoma Earthquakes -- SWD Well Management Cited As Reason -- July 1, 2016

In The Wall Street Journal today: Oklahoma Quakes Decline Amid Curbs on Energy Industry’s Disposal Wells. Drop attributed to restrictions on oil and gas companies’ pumping of wastewater from underground operations.

The number of earthquakes in Oklahoma has fallen 25% in 2016 compared with a year earlier, a decline attributed in part to actions by state regulators to police the oil and gas industry’s practice of pumping wastewater from its operations deep underground.

The Oklahoma Corporation Commission, which oversees the state’s oil and gas industry, earlier this year stepped up efforts to get companies to reduce the amount of wastewater they inject into hundreds of disposal wells, which have been blamed for a surge in earthquake activity in the state over the past decade.

More than 2,700 temblors of magnitude 2.5 or higher occurred in Oklahoma last year, up from 3 in 2005, according to data from the U.S. Geological Survey. So far this year, Oklahoma has had 1,098 quakes of that magnitude—strong enough to be felt by humans— down from about 1,400 over the same period in 2015.

It's a fine distinction, but an important distinction, it's not fracking per se that has been associated with earthquakes. It is the disposal of "salt water" that is associated with earthquakes. 

CLR With Eighteen (18) New Permits -- Friday, July 1, 2016

For those "into the weeds as deep as I am" with regard to the Bakken, see if you see what I saw in the graphic below: yup, #16510 (in the second graphic) -- the very well we were discussing earlier regarding the "halo effect": here and here. I may be seeing something here that does not exist, but I think there's a huge "clue" here with regard to the placement of these particular pads at this particular time. I'll discuss this in another post on another day.

By the way, the area in the graphics below is in the same area where CLR plans to place 28 wells in a 2560-acre drilling unit.

For now, the summary of the daily activity report and then the CLR permits.

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Active rigs:

	7/1/2016	07/01/2015	07/01/2014	07/01/2013	07/01/2012
Active Rigs	30	76	189	192	215

Eighteen (18) new permits:

• Operator: CLR
• Field: Jim Creek (Dunn), Corral Creek (Dunn)
• Comments: it looks like a 10-well pad (13-146-96 -- Oakdale and Ryden wells); and an 8-well pad (36-147-96 -- Weydahl and Brandvik wells); see graphic below

Hess renewed four (4) permits:

• four EN-Skabo Trust permits in Mountrail County

Lime Rock Resources abandoned one well:

• 24694, AB, Lime Rock Resources, Henry Kovash 2-6-7H-142-95;

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This appears to be the location of the new pads noted above (CLR's new 18 permits). In both cases the wells will run in a straight horizontal line, running east to west (or west to east). The horizontals will run north/south (or south/north). Although these two pads are in two different fields, they are geographically located very closely, in adjacent sections:

The Jim Creek pad:

The Corral Creek pad:

Note: not drawn to scale, and in general area only. I often make mistakes when doing these graphics. Do not make any investment or financial decisions based on what you see here If this is important to you, go to the source. I am posting these graphics only for my benefit to get a better understanding of the Bakken. 

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Pre-Fourth of July Grilling

Germany's "Cap And Trade" Program; Huge Stimulus For The Economy -- WSJ -- July 1, 2016

Germany estimates the cost for their "cap and trade" program at $86 billion over the next four years, as reported in The Wall Street Journal.

Germany will cap the birth rates of northern Europeans in their country prior to 2014 and will trade those births for those of the non-northern Europeans streaming into the country.  The northern European birth rate cap is entirely voluntary. But whether mandatory or voluntary, it is capped. In fact, I believe the birth rate for Germany was "negative" a few years ago.

Under "cap and trade" here in the US, wealthy investors in the oil and gas industry see their wealth being transferred to wealthy investors in the unreliable energy sector. The US cap and trade program does very little for economic stimulus, except for a few crony capitalists.

But, transferring $84 billion from all current Germans to the non-northern European immigrants streaming into Germany is a huge stimulus. Most of that money will go right back into the economy for food, rent, and mosques.

This isn't rocket science.

US Auto Sales; End Of 1H16; Expected To Set A Record -- July 1, 2016

From The New York Times:

U.S. auto sales may be slowing, but they're still expected to set a record in the first six months of this year.

Sales through June were expected to be up 2 percent over last year to 8.66 million.

That was partly due to a strong June, which saw sales rebound after a disappointing May. Sales were expected to rise 5.4 percent to more than 1.5 million.

Ford, Honda, Fiat Chrysler and Nissan all reported gains for the month. Sales were down at General Motors, Toyota and Volkswagen.

After six straight years of growth — and record sales of 17.5 million last year— U.S. sales are beginning to plateau. In the first six months of last year, for example, sales were up 4 percent, or double the pace of this year. But low gas prices, low interest rates, enticing new vehicles and strong consumer confidence should keep them at a very high level.

General Motors Co. said its sales dropped 2 percent to 255,210, due in part to ongoing cuts in sales to low-profit rental car companies. GM said its rental sales are down 37 percent so far this year. Cadillac sales were up 6 percent and Chevrolet sales were flat compared to last June, but Buick and GMC sales were down.

Ford Motor Co.'s sales rose 6 percent to 240,109. Sales of its F-Series pickup — the nation's best-selling vehicle — jumped 29 percent to nearly 71,000 vehicles, or more than one every minute. But car sales fell 12 percent thanks to Americans' growing preference for SUVs. Sales at Fords luxury Lincoln brand were up 6 percent.

Toyota Motor Corp.'s sales fell 6 percent to 198,257. The company said short supplies of Toyota SUVs were partly to blame, along with weak sales of cars like the hybrid Prius, which sales slump 27 percent. Sales of the company's luxury Lexus SUVs were up 11 percent.

Fiat Chrysler said its June sales rose 7 percent to 197,073. Jeep sales jumped 17 percent and Ram truck sales were up 14 percent. But car sales suffered. Chrysler brand sales fell 20 percent, while Fiat sales dropped 19 percent.

Honda Motor Co.'s sales rose 3 percent to 138,715 vehicles. The Honda brand saw increases in both car and truck sales, but sales at the company's luxury Acura brand dropped 27 percent.

Pickup truck sales; it looks like mid-size pickup trucks are the real winners so far this year. From 24/7 Wall Street:

• After a rather dismal month of May, pickup truck sales improved somewhat in June, and the leading full-size pickup opened up a wider lead on its competitors. After a disappointing May, Ford Motor Co. saw sales of its F-Series pickups rise to more than 70,000 again in June.
• Ford sold 70,937 F-Series full-size pickups the month of June, a whopping year-over-year increase of 28.6%. Compared with May 2016 sales of 67,412, that’s a gain of 5.2%.
• GM: Silverado pickups dropped 3.7% y-o-y. GMC's Sierra trucks dropped almost 8% y-o-y. GM's mid-size Colorado rose 38% y-o-y.
• Ram: a gain of 14% y-o-y. 
• Toyota: down 5% y-o-y. Titan sold only 896 units in June, vs 9,433 Tundras. The good news is that Toyota's mid-size Tacoma p/u, with almost 16,000 units sold, held its place as the leader in this space.
• Nissan's mid-size Frontier is up 84% y-o-y.

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A Note for the Granddaughters

Valiant Ambition: George Washington, Benedict Arnold, and the Fate of the American Revolution, Nathaniel Philbrick, c. 2016.

Natural Gas Demand Prospects, Global; For The Archives -- July 1, 2016

Wow, this is an interesting graph.

I have said many, many times that if I had only one metric with which to gauge the well-being of the American economy it would be "gasoline demand." Period. Dot. (Just as many folks suggest the best way to gauge inflation is to track the price of a McDonald's Big Mac.)

It is now clear, beyond a shadow of a doubt, the economics is settled, that the fuel of the future is natural gas (except for India and China, where coal will still be incredibly important for the former, and nuclear energy important for the latter).

I think that outside of China and India, one will be able to gauge the economic well-being of a region or continent or political bloc by following the growth in natural gas demand for that entity.

There are qualifiers and outliers.

For example, the Mideast growth in natural gas will be mostly due to Saudi Arabia's strategic goal to move from crude oil to natural gas to generate electricity for domestic consumption. I'm not sure I would equate growth in natural gas demand in the Mideast to economic well-being.

Europe, of course, is another outlier, but for different reasons. Europe wants to move from fossil fuel to unreliable energy (wind and solar). The tea leaves suggest that unreliable energy is nearing its "top" in the EU (for many reasons). Europe is also moving away from nuclear. One can argue that the fact there is absolutely "zero" natural gas growth in the out years for Europe has nothing do with economic growth. But something tells me that would be an inaccurate interpretation of the graphic. To me, it is absolutely glaring: when the rest of the world shows not only growth in natural gas demand, but significant growth in natural gas demand, and Europe bucks the trend ... not only does Europe not show significant growth in natural gas demand, it shows zero growth. Nada. Zilch. Null. None. That's fifteen years of no growth in natural gas, from 2020 to 2035.

Europe is truly an outlier. 

Idle Chatter On The "Halo Effect" In The Bakken -- July 1, 2016

Updates

Later, 2:10 p.m. Central Time: see first comment. Think about that observation and the future of water boarding flooding in the Bakken.
 

Original Post

 

The other day, I posted a note about the jump in production of a particular well as seen in this production profile (the fourth column is produced bbls of oil; the sixth column in water:

BAKKEN	1-2014	31	5992	5823	1523	5253	5253	0
BAKKEN	12-2013	31	4904	4615	1465	4412	3187	1225
BAKKEN	11-2013	30	9118	9226	2140	8027	6207	1820
BAKKEN	10-2013	31	6773	6764	3033	6002	5692	310
BAKKEN	9-2013	30	17708	17902	2128	16480	16480	0
BAKKEN	8-2013	26	18007	17547	3392	14073	12373	1700
BAKKEN	7-2013	1	0	186	0	0	0	0
BAKKEN	6-2013	27	658	600	17	425	378	47
BAKKEN	5-2013	31	990	1166	30	683	653	30
BAKKEN	4-2013	30	970	775	22	598	598	0

I think it is due to the halo effect of fracking; see the linked post above. I could be wrong. Something else may account for this jump.

But assuming it is due to the halo effect of fracking, I often wonder why analysts don't talk about this more often. I seldom see any mention of it.

I think the reason has to do with the fact that the jump in production is relatively short-lived. It appears that these wells revert to their earlier production profiles. That may be.

But look at from this angle. This well was down to producing less than a thousand bbls of oil per month (for whatever reason). Then, over a period of 26 days, it produced 18,000 bbls, and then the next month, produced another 18,000 bbls. At the previous rate of 1,000 bbls/month, this equates to 36 months of production over a short two-month period.

Not only that, but even though production dropped quickly after that second month, these were the amounts per month that this well was still producing (remember, the base line was less than 1,000 bbls / month), numbers rounded:

• Third month: 7,000 bbls
• Fourth month: 9,000 bbls
• Fifth month: 5,000 bbls
• Sixth month: 5,000 bbls
• Seventh month: 2,000 bbls
• Eighth month: 2,000 bbls 

And now, two years later, monthly production still exceeds the 1,000-bbl baseline prior to the production jump.

But look at this, same well. Look at the months highlighted in red bold, especially that nearly 5,000 bbls of production in August, 2015:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	5-2016	31	1215	1111	555	741	207	534
BAKKEN	4-2016	30	1429	1591	565	1023	412	611
BAKKEN	3-2016	31	2184	2255	699	1757	742	1015
BAKKEN	2-2016	29	2281	2278	722	1088	0	1088
BAKKEN	1-2016	31	3332	3179	918	2685	0	2685
BAKKEN	12-2015	26	2022	2031	580	1460	0	1460
BAKKEN	11-2015	19	928	1108	477	616	0	616
BAKKEN	10-2015	3	525	226	0	118	0	118
BAKKEN	9-2015	12	1980	2450	267	1644	0	1644
BAKKEN	8-2015	31	4727	4466	1345	3800	0	3800
BAKKEN	7-2015	9	1427	1102	965	1043	0	1043
BAKKEN	6-2015	5	98	434	22	196	148	48
BAKKEN	5-2015	31	884	867	213	1371	1108	263
BAKKEN	4-2015	30	930	911	287	722	220	502
BAKKEN	3-2015	31	1206	1168	378	1437	1055	382
BAKKEN	2-2015	15	515	694	152	649	469	180
BAKKEN	1-2015	31	1932	2037	355	1802	1802	0
BAKKEN	12-2014	31	1371	1120	133	1318	1318	0
BAKKEN	11-2014	30	987	897	225	1182	1164	18
BAKKEN	10-2014	31	1658	1790	200	1674	1641	33
BAKKEN	9-2014	30	1242	1762	143	1942	1942	0

Which brings me to another point.

A lot of folks talk about Bakken wells that are not economic. They say the production is too low. From the beginning, it always seemed strange to me that folks were concerned about these wells not being economic, but yet operators were not permanently abandoning these wells. Although it may not cost much, it is a cost to keep a non-economic well on the books. Non-economic wells never bothered me, and that was before the "halo effect" observations.

A lot of "non-economic" wells were part of the learning process. And, wow, did the Bakken operators ever learn a lot. Some learned faster than others.

In addition, a lot of "non-economic" wells held leases by production, allowing operators time to go back and drill new wells later.

But now, we have the "halo effect." It may or may not exist. It may or may not exist everywhere. It may not amount to anything. I don't know. But when I see a well produce 36 months' of production over the course of two short months in a well that might have otherwise been "non-economic" it makes one wonder.

Another point. This is occurring in a drilling unit where there are very few wells, maybe four, five or six. Think what might happen when 28 wells (or more) are put into this drilling unit.

Most of the stuff regarding EURs, etc, is based on new wells and production profiles of the first few months. One wonders if some folks might not be going back to these older wells and revising
EURs for older wells based on other factors.

Finally, one wonders: if the halo effect is real, what does that mean for "water flooding" in the Bakken. I do think there's a difference between water flooding shale (think gumbo) and water flooding sandstone/limestone/dolomite (think sandy beach).

But even if the "halo effect" amounts to nothing, at least in this case, the mineral owners must have been pleasantly surprised to see a jump in their royalties back in August and September 2013. All things being equal, their royalty check should have jumped by a factor of 20?

Friday, July 1, 2016 -- Business News

Updates

Later, 1:34 p.m. Central Time: for those who want to try their own forecasting of the GDP, see the comments below. Consider it your Common Core math lesson for the day. I lost it at "...whereas the GDP is quarterly ..."
 

Original Post

 

US construction falls almost 1 percent in May; this is the second straight, and follows the biggest drop in more than five years in April. This didn't affect the GDP forecast much:

The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.6 percent on July 1, down from 2.7 percent on June 29. The forecast for second-quarter real nonresidential structures investment growth increased from –7.3 percent to –4.2 percent after this morning's construction spending release from the U.S. Census Bureau. This was more than offset by declines in the forecasts of real residential investment growth from 1.7 percent to –3.7 percent and real state and local government expenditures growth from –0.4 percent to –1.1 percent after the same release.

On the other hand, manufacturing expanded at the fastest pace in more than a year. And some are saying "the Texas oil companies have turned the corner."

Rick Newman over at Yahoo!Finance says "Tesla never should have said its cars operate on autopilot." Well, that's 20-20 hindsight, I suppose.  I suppose one could say Williams never should have entered into a merger agreement with ETE. You just know ahead of time some things are not going to turn out well. Same with BHI and Halliburton. During this administration? LOL.

The market is marginally higher at noon, but there are 380 issues on the NYSE showing new 52-week highs, vs four (4), yes, four issues hitting new 52-week lows. Some of the issues hitting new highs: ATT (a big whoop); Black Hills (BHC -- in fact, after the Brexit vote, US utilities did very, very well as a sector); CenterPoint Energy (again); Duke Energy; MDU (a huge whoop); ONEOK (wow); SRE (another big whoop); TransCanada (the Keystone pipeline people); and, Verizon.

Peak Oil? What Peak Oil? Huge Discovery For Hess, Exxon; $70 Billion At Current Prices-- July 1, 2016

Updates

June 19, 2017: update on Liza. ExxonMobil going forward on this megaproject.

Later, 7:45 p.m. Central Time: this ExxonMobil - Guyana story is getting a lot of press. This may be quite a story:

ExxonMobil and its partner Hess Corp. have announced that the major discovery off the coast of Guyana, is a discovery that is much larger than previously expected.

The Liza field could turn out to be the largest oil discovery reported in two years and the companies say that it could cost $18 billion to develop.

Exxon describes it as a “world-class discovery with a recoverable resource of between 800 million and 1.4 billion oil-equivalent barrels.” That could amount to as much as half of the entire volume of oil discovered across the entire industry in 2015.

Original Post

Yesterday this post:

XOM, Guyana. An "elephant find"? ExxonMobil says the company plans to release the results of the Liza-2 well "by mid-year." According to an analyst, if the headlines prove accurate, Liza-1 and Liza-2 could confirm meaning reserves and production uplift for ExxonMobil and its partners well above the initial industry reserve estimates of 700 million bbls of oil.  Data points:

• Liza-1, Stabroek Block, 120 miles offshore Guyana 
• the seam is 295 feet thick
• oil-bearing sandstone
• 17,825 feet in almost 6,000 feet of water
• spud March 5, 2015
• Esso and Production Guyana (45%); Hess Guyana (30%), CNOOC Nexen Guyana (25%)

Note the initial industry reserve estimates: 700 million bbls of oil.

Now, yesterday, Bloomberg reports that the discovery may be twice as large as thought:

Exxon Mobil Corp.’s oil discovery off the coast of Guyana may hold as much as 1.4 billion barrels, twice the size of the previous estimate, making it worth as much as $69.5 billion based on current prices.

The Liza field 120 miles (193 kilometers) from the coast of Guyana is a “world-class discovery” that probably will yield the equivalent of 800 million to 1.4 billion barrels of crude.

Hess Corp., a partner in the field, will see a a 39 percent boost in current proved reserves at the upper end of the estimate.

The Liza discovery may not add to global oil supplies for years as deepwater finds can take half a decade or more to bring into production.

It’s an enormous discovery for Hess. At the high end of the estimate, the New York-based company’s stake equates to 420 million barrels, a 39 percent addition to proved reserves. 

Note: this is not an investment site. Do not make any investment, financial, travel, job, or relationship decisions based on what you read at this site or what you think you may have read at this post. I honestly do not know if I bought shares in Hess this past year. It seems I did based on activity in the Bakken and the ethane story, but I really don't recall. I do not have a history of investing in Hess, but I may have made an exception this past year. Because I don't plan to buy or sell any equities any time soon, I won't check. I have a rule (which I frequently break) to not check my on-line portfolios if I don't plan to do any buying or selling. 

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Peak Fossil Fuel? What Peak Fossil Fuel?

From the EIA today:

Three fossil fuels—petroleum, natural gas, and coal—have provided more than 80% of total U.S. energy consumption for more than 100 years. In 2015, fossil fuels made up 81.5% of total U.S. energy consumption, the lowest fossil fuel share in the past century.

In EIA's Annual Energy Outlook 2016 Reference case projections, which reflect current laws and policies, that percentage declines to 76.6% by 2040. Policy changes or technology breakthroughs that go beyond the trend improvements included in the Reference case could significantly change that projection. --- EIA

ExxonMobil Guyana Oil Find Could Be Huge; Natural Gas Futures Best In 16 Years; Great News For Cheniere; Active Rigs In ND Stable At 30 -- July 1, 2016

It never quits. Chile just gave Cheniere a big reason to build another LNG plant. Link here. 

ExxonMobil oil find in Guyana may be twice the size originally thought. Link here. 

Natural gas futures best in sixteen (16) years. Link here. 

OPEC production hits recent record with Nigeria production back on track. Link here.

ObamaCare enrollment drops off. Link here. 

"Clock Boy" returns to Texas. No link. Easily found. Apparently the Mideast not the utopia he expected. Dallas looks pretty good, apparently, for "clock boy." No update on whether he plans to meet with President Obama again.

Apparently MSNBC was caught off guard with regard to US attorney general meeting with person of interest. They didn't touch the initial report until conservative talk radio became too much to ignore. Now even Ms Lynch had to respond.

Less than 24 hours after that "hook-up," we learn that US attorney general will protect the person(s) of interest from "discovery." Today, less than 24 hours after that, we learn that US attorney general will accept whatever FBI recommends. Obviously a deal was reached. It's good she only has six more months in office; she has lost all credibility. She has about as much credibility as Ed Meese. Sad. But predictable. Actually it's good the 4th of July weekend is upon and this story will quickly be forgotten. [Update, July 2, 2016: others agree. Loretta Lynch's meeting with Bill Clinton will leave a permanent "taint."]

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Active rigs:

	7/1/2016	07/01/2015	07/01/2014	07/01/2013	07/01/2012
Active Rigs	30	76	189	192	215

 
RBN Energy: short interview with Rusty Braziel.