Friday, July 22, 2016

Week 29: July 17, 2016 -- July 23, 2016

There was a lot of talk this past week that things have finally turned for the oil and gas industry. Having said that, all that talk earlier this year suggesting that we would see $60 oil by the end of the year seems to have been just that: talk. With Brexit and the failed Turkish coup (and eventually another failed nation-state), the US dollar strengthens, and that puts pressure on oil. WTI seems stuck at slightly below $45.

The big story this week may have been the announcement that ExxonMobil will acquire InterOil. The story is so far off anyone's radar scope it seems to have been completely missed by the mainstream media -- or maybe they were so tied up with the GOP national convention.

The other big story, of course, was Saudi Aramco's announcement it would build a $13.3 billion natural gas processing plant

Meanwhile, closer to home, Devon reports its record Meramec well in STACK, Oklahoma.

Gasoline is hitting 12-year lows.

32 active rigs in North Dakota
Seventeen permits renewed 

Natural gas
Three new natural gas processing plants should be coming on-lien shortly in North Dakota 

A 1.1 mile pipeline to cost $4.5 million in North Dakota

Bakken Economy
Lewis and Clark bridge southwest of Williston coming along

32 Active Rigs Going Into The Weekend -- July 22, 2016; With One Deal ExxonMobil Acquires Natural Gas Footprint Larger Than Qatar

See story below: think about this. Saudi Aramco budgets almost $14 billion for a single natural gas processing plant. Meanwhile, for slightly less than $3 billion (and a pittance against its market cap), ExxonMobil acquires natural gas assets that may be greater than all of Qatar.

Today's Daily Activity Report

Active rigs:

Active Rigs3268196207182

Seven new permits:
  • Operator: Statoil
  • Field: Avoca (Williams)
  • Comments:
Eight permits renewed:
  • Statoil (4): four Mark permits in Williams County
  • Thunderbird Resources (3): three Watson permits in McKenzie County
  • Crescent Point Energy: one Makowsky permit in Williams County
Samson Resources canceled a Trooper permit in Divide County.

Slawson resurved seven locations: Torpedo (6) and Rebel (1), all in section 30-152-91, Mountrail County.

ExxonMobil Acquires InterOil 

  • market cap: $390 billion
  • total cash: $5 billion
  • total debt: $43 billion
  • operating cash flow: $27 billion
  • independent oil and gas business
  • primary focus on Papua New Guinea
  • assets includes one of Asia's largest undeveloped gas fields, Elk-Antelope, in the gulf Province
  • 3.9 million acres (an area larger than Qatar)
  • main offices in Singapore and Port Moresby
  • formed in 1997; incorporated in Canada
  • market cap: $3 billion
  • this is the first significant transaction by ExxonMobil since the beginning of the current downturn
  • it is not the long hoped-for US onshore transaction, but it represents a solid example of ExxonMobil leveraging its considerable footprint and technical capability
  • while the deal is relatively small for ExxonMobil, Barron's views the asset as a high-quality addition
  • many analysts thought ExxonMobil would buy US onshore (Permian); this deal doesn't preclude this from happening, but it suggests that onshore transaction economics may remain problematic for large-scale moves by Majors
Exxon has its eye on InterOil’s Elk-Antelope gas fields which contain some 10.2 trillion cubic meters. This acquisition is in line with Exxon’s strategy to target gas fields with sufficient reserves to supply the UK for three years. Due to low downstream costs, specifically regarding labour and land development, Exxon has positioned itself to dominate Papua New Guinea’s nascent LNG sector: the country only began exporting natural gas in 2014. Moreover, Exxon already owns the country’s only LNG terminal; a $19 billion project.
Exxon et al. must tread carefully, lest they face the same pitfalls as the mining sector, and thus severely tarnish their reputations in Papua New Guinea. Tensions between locals and multinationals are always present even in the best of times, yet the people power movement sweeping the country is shaking up the corrupt business-as-usual system. It is very likely that O’Neill will lose the no-confidence vote, thus bringing in a new regime which will be beholden to the populace to improve living standards. This will have to be done by wrangling more favourable deals from investors.
The Market

S & P 500 hits a new record.

Job Watch

June unemployment stories are starting to trickle in. Bottom line: as the economy improves, more people looking for jobs, resulting in higher unemployment rates, even as more folks go back to work.

At least that's the story line.

Unemployment rates "ticked up noticeably" in six states in June. The national figure is 4.9%. The rate is higher in 14 states.

Increases: Colorado (up 0.4 to a very low 3.7%); Nevada and Oregon (each up 0.3%); California, Maine and South Dakota (each up 0.2%).  But South Dakota still had the nation's lowest unemployment rate of 2.7% -- incredible, no matter how you look at it.

Of course, no one believes these rates but they are what they are. I still argue that anything below 8% in the US is full employment.

It's the demographics of unemployment (and underemployment) that is challenging.

Reason #4,484 Why I Love To Blog -- July 22, 2016

Reason #4,484 why I love to blog. 

On car sales trends, I posted this on July 19, 2016, just three days ago, including the original in bold:
  • minivans are falling out of favor; gradually disappearing; folks who like minivans are probably transitioning to car-based SUVS
  • car-based SUVs are increasing in sales whereas minivans are decreasing; the number of truck-based SUVs seems to have plateaued over the past five or six years
  • pickups -- interestingly enough -- have actually been decreasing in sales in the past five years compared to the late 1990s / early 2000s
  • if the US "manufacturing economy," housing, general economy picks up, we might see an increase in the sales of pickups, but it certainly looks like the soccer moms are calling the shots -- having moved to car-based SUVs over the past ten years
Today, page B2 of the Wall Street Journal, this headline: VW Designs a Comeback With A Soccer-Mom SUV.

I can't make this stuff up. Three days ago I wrote that " it certainly looks like the soccer moms are calling the shots -- having moved to car-based SUVs over the past ten years." And then today, less than four days later, The WSJ has a story that absolutely validates that observation. The on-line edition has a slightly different headline. Wow! The story leads with this:
CHATTANOOGA, Tenn.— Volkswagen AG ’s plan to cede more control to its U.S. operation in the wake of its costly emissions scandal is getting a boost from an unlikely source: a spacious sport-utility vehicle that executives say is designed to appeal to American soccer moms.
Driving the B-SUV on public roads earlier this week, Mr. Woebcken said the car will compete head on with those established products and will have the added benefit of having been crafted by German engineers who focused on driving dynamics. “Soccer moms will love this car,” he said while cornering hard and fast through a roundabout near Volkswagen’s factory here on Monday.
Wow. Wow. Wow.

Likewise, there is still another story out there today that suggests "open-carry" in Cleveland actually "damped demonstrations" during the GOP national convention. 
Toni Rozsahegyi, a local organizer with the anti-war group Code Pink, said that intense media coverage about the possibility of violence may also have dampened turnout—especially news media reports that armed demonstrators would be expected in the city.
“One person says one thing crazy and you can scare 10,000 people away,” she said.
Except "open-carry" is not "one crazy thing." My post of July 18, 2016:
  • "open carry" will result in a better outcome than had "open carry" been temporarily banned
The Market

Early afternoon trading with NYSE reporting 158 issues hitting 52-week highs, including:
  • CenterPoint Energy
  • El Paso Electric
  • Exelon
There were five issues hitting 52-week lows. 

Permian Basin Natural Gas Update -- RBN Energy -- July 22, 2016

Active rigs:

Active Rigs3268196207182

RBN Energy: Permian gas output levels off, but processing capacity is rising. This is a very, very good article. The 21st century with be the century for North American energy.
Crude oil has always been the big draw for producers in the Permian –– and in the especially prolific Delaware Basin within the Permian –– but the wells there also produce large volumes of “wet” natural gas that needs to be gathered, processed and transported to market. A lot’s been written about the Permian’s still-strong oil production and the infrastructure developed to support it; we’ve also covered natural gas liquids (NGLs) in the play. Now it’s time to delve into the gas processing and gas pipeline capacity out of West Texas and southeastern New Mexico, including pipes into the increasingly important Mexican market. Today, we discuss recent developments on the gas side of the U.S.’s hottest (remaining) oil production area.
It’s been a tough 24 months in the U.S. oil patch, with falling crude oil prices, cutbacks in drilling and production, and –– more recently –– concern that the hoped-for recovery in crude prices may not be gaining traction. The situation’s been a lot less gloomy in the Permian, though, which is “still the one” where the production economics are more favorable than in other plays and where output levels for crude, associated natural gas and NGLs remain very close to the peaks they had reached a few months ago. The Permian region covers about 75,000 square miles of West Texas and southeastern New Mexico (slightly larger than North Dakota, and twice the size of New England!), and includes several sub-regions such as the Delaware, Central and Midland basins (see Figure 1), each with their own geologic and hydrocarbon-production characteristics.
Fracklog disappearing. Remember all those "gloom and doom" stories that fracking would never catch up -- too many oil field workers had left the industry and there would not be enough workers to frack all those DUCs? From Bloomberg: fracklog in the biggest US oil field may all but disappear. The article fails to mention the #1 reason why the fracklog is decreasing in the Bakken: operators are simply drilling fewer DUCs to begin with.

I missed that a few months ago when I couldn't figure out why DUCs were not increasing in the Bakken. On a daily basis, we see very few DUCs being completed, so it did not make sense to read in the monthly Director's Cut that DUCs were decreasing in number.

But then it made sense. Operators were simply drilling fewer wells, and with the few DUCs being completed, the overall number of DUCs decreased.

But the big takeaway story in this article: operators are managing their fracklog just fine despite analysts' worries about lack of oil field workers. I've talked about this before.

The second takeaway: those optimistic reports that the price of oil would move higher by the end of this year (2016) seem to be a bit premature.