Wednesday, August 3, 2016

Frackers Surprising Themselves How They Keep Squeezing Out More Oil Per Rig -- August 3, 2016


August 5, 2016: from Bloomberg, "the next shale boom will be built on sand." It is reported in the original post below.

Original Post
Reuters/Rigzone link here.
Nimble U.S. shale oil producers continue to show an uncanny ability to squeeze more and more crude from new wells, allowing them to do more with less as they try to weather another dip in oil prices to $40 a barrel.
Comments from Noble Energy, Devon Energy and Occidental Petroleum on Wednesday were significant because only six months ago many analysts were fretting that shale producers had hit a wall after slashing costs and lifting well output by as much as 50 percent since the steepest price crash in a generation started in mid-2014.
Now, while acknowledging that most oilfield services costs cannot fall further, these companies say they are still seeing output gains from improved well designs and fracking techniques. The rising well output means they can produce more oil with each dollar spent. This could help them survive the latest slump in oil prices back to multi-year lows after a partial recovery brought crude back up to about $50 a barrel.
Initially, Noble expected to get 390,000 barrels of oil equivalent per day (boe/d) this year on spending of $1.5 billion. Now it expects to spend less and produce 415,000 boe/d.
Lately the company has experimented with fracking wells using 3,000 pounds of sand per foot, several orders of magnitude greater than frack jobs a decade ago.
Companies have also been fracking even more parts of rock around a wellbore, boosting output. At Occidental, Chief Executive Vicki Hollub said 2016 production would now be at the high end of its forecast for a 4 to 6 percent increase from 2015 levels of 652,000 boe/d - without raising budgeted spending of $3 billion.
9,000 feet horizontal x 3,000 pounds/foot = 27 000 000. 27 million lbs of sand. Hmmmm..... not seeing nearly that much in the Bakken. 

415,000 boepd x 365 = 151,475,000 boe over a calendar year. $1.5 billion / 151,475,000 boe = $9.90 / boe in production costs. Hmmmm....

Note: I often make simple arithmetic errors. Don't make any financial, investment, travel, relationship, or job decisions based on what you read here. If this information is important to you, go to the source. 

And then look at this from Bloomberg/Rigzone:
Amid the gloom and doom that’s set in all along America’s shale fields these past two years, there has been one small, but consistent, bright spot.
Sand, it turns out, is a much greater tool in hydraulic fracking than drillers had understood it to be.
Time and again, they’ve found that the more grit they pour into horizontal wells -- seemingly regardless of how extreme the amounts have become -- the more oil comes seeping out.
The message from drillers is "more, more, more sand," said Sean Meakim, an oil-services analyst at JPMorgan Chase & Co. "All of the numbers are going up and they’re going up dramatically."
On a per-well basis, sand use has doubled since 2011, climbing to nearly 8 million pounds.
It’s this growth that’s sent the stock prices of the country’s four publicly traded sand miners surging more than 90 percent this year. True, overall sand usage in the fracking industry is still way down from the 2014 peak -- more than three-quarters of America’s drilling rigs, after all, have been idled since oil prices collapsed -- but the per-well increases have analysts and investors betting that the sand industry will boom again as soon as fracking activity starts to pick up even a little bit.
I can't say for sure, but this well might have set the record for most sand used in fracking in the Bakken:
  • 22487, 67, EOG, Hawkeye 02-2501H, 69 stages, 27.6  million pounds, according to a reader, extended long lateral (3 sections long); t12/13; cum 623K 6/16; it's been off-line the last couple of months due to fracking / completions in neighboring wells; before that, it appears that EOG cut back on production from this well.
Generally, it appears operators are drilling long laterals (two sections, about 9,000 feet) and using between 1 million and 8 million lbs proppant. I am somewhat surprised by the relatively small amount of sand currently being used in the Bakken. There may be a couple of story lines there. 

Why Re-Balancing Is Taking Longer Than Expected -- John Kemp; Apple's App Store Setting Stunning Records - August 3, 2016

I can't recall if I posted this as a stand-alone post, a comment, or in an e-mail....oh, now I recall... it was in an e-mail to a reader:
I'm in the group that reads the tea leaves that suggest we are in a trading range of $40 to $50 for quite some time. I was impressed that the price held at $39 today. The real question is whether all the cutbacks in CAPEX will really mean that much in 2018. The consensus is that with all the cutbacks in exploration and development, we could see a relative shortage in a year or two. I'm not so sure. The technology just keeps getting better and better, and conservation in the western world may or may not be offsetting growth in China and India.
That was a response to a link to an article he sent me: why oil bears shouldn't count on US shale rebound.

Now, from a source I trust even more, John Kemp: why is the oil market taking so long to re-balance? Kemp has a very, very unusual perspective. He notes:
Oil-exporting countries accounted for more than one-third of the global increase in oil consumption outside the United States between 2004 and 2014, as rising oil revenues fuelled a boom in their domestic economies.
From that he concludes:
Once prices start rising significantly, however, the market is likely to tighten faster than many analysts expect because oil consumption in emerging markets is likely to accelerate again with the extra oil revenues.
In biology, that's called a "positive feedback loop." Just the opposite of a "death spiral."

It doesn't take a rocket scientist to connect this story with the story of the Middle East and North Africa importing more natural gas, posted within the last hour.

The Apple Page

From Macrumors:
Apple CEO Tim Cook today announced on Twitter that a new App Store record was set last month, with July seeing Apple's highest ever monthly billings for the App Store and the largest amount of money paid out to developers.
According to Cook, Apple has now paid out more than $50 billion to developers over the lifetime of the App Store, which first launched for the iPhone in 2008, a year after the iPhone was released to the public.
App Store revenue has been growing rapidly over the past several years, with Apple citing its success as the reason behind its steadily increasing services category.
During Apple's most recent earnings call, Cook also said that Apple saw its highest quarterly App Store revenue ever, with a 27 percent growth rate year over year.
Apple also set a new record for customers making purchases through the App Store, with the average amount spent per customer reaching the highest level the company has ever seen.
Cook expects that over the course of the next 12 months, revenue from Apple's services category (consisting of the App Store, iTunes Store, Apple Music, iCloud, and AppleCare) will "be the size of a Fortune 100 company."

The STACK Gets Even More Attention; STACK Now With 1.1 Million BOE EURs -- August 3, 2016

Oil & Gas Journal is reporting that Newfield continues to shift its focus from Texas to STACK.
Newfield Exploration Co., Houston, has agreed to divest all of its assets in Texas in separate deals with Protege LLC, Tulsa, and an undisclosed buyer for combined net aftertax proceeds of $390 million.
The two deals are expected to close in the third quarter. Protege is acquiring Newfield’s Eagle Ford shale assets, while the undisclosed buyer is acquiring Newfield’s conventional natural gas assets in South Texas.
Current net production from the combined assets is 12,700 boe/d, of which 35% is oil.
Newfield has increased its 2016 capital budget to $700-750 million, reflecting $40 million for two STACK pilots, and $50 million for additional drilling on existing assets and assets associated with the recently closed acquisition of STACK properties from Chesapeake Energy Corp.
The deal expanded Newfield’s STACK footprint to 265,000 net acres.
Newfield has lifted its average type curve in STACK by 15% to 1.1 million boe after drilling more than 100 wells to date.

Coals To Newcastle -- Part II -- The Saga Continues -- Energy? America's Century -- August 3, 2016

Just last week I posted a note, "Coals to Newcastle" about the US exporting LNG to the mideast. Now tonight, over at Twitter, the Oil & Gas Journal is reporting that the Mideast and North Africa (or as those in the know say, MENA) are investing more than $10 billion in LNG import terminals. This is really quite incredible:
Countries in the Middle East and North Africa account for a rapidly rising share of global LNG demand and will invest about $10.3 billion in the “medium term” to meet import needs.
The MENA share of LNG demand will rise to 6.5% by the end of next year from 1% in 2013.
LNG imports by MENA consumer countries totaled 10.5 billion cu m in 2015, of which 40% was from Qatar.
The countries, some of which have problems with creditworthiness, will be cautious about investment in permanent LNG import terminals and increasingly will charter floating storage and regasification units (FSRUs) “as a temporary and lower cost solution.”
Kuwait, the first Gulf Cooperation Council member to import LNG, is an exception. Now using an FSRU, it plans a permanent terminal at Mina Al-Ahmadi with capacity of 15 billion cu m/year, capable of being doubled.
In the United Arab Emirates, where LNG imports by Dubai meet peak gas demand during summer, plans for an import facility in Fujairah have been cancelled in favor of a chartered FSRU at Ruwais, Abu Dhabi.
That option has been called a “flexible solution” to meeting power shortfalls until four nuclear reactors are completed in the UAE in the early 2020s.
A "big story" entry: LNG exports

Wednesday Night Links, Stories, And Comments; Warren Buffett Apparently Nods In Support Of Hillary's Call To Raise Taxes On The Middle Class -- August 3, 2016

Golf. Nike to exit golf equipment business.

PGA. Speaking of golf. How bad was The Economist predicting the PGA winner? Five days before tournament, The Economist -- home of the birthplace of golf -- didn't even have the eventual winner on its radar scope. Jimmy Walker was not even among the top 10 favored to win by The Economist. However, in their defense, their pick -- Jason Day -- came in second -- and came close to winning it on the 18th hole of the last round.

The Dickinson, ND, water tower debacle. I don't even know where to pigeon-hole this article. The new Dickinson water tower is complete. A technological marvel. Would hold all the water Dickinson would need except for one thing: the pump isn't strong enough to get the water to the top. And even if it did, water pressure would be so great that it would blow out Dickinson's public water pipes. The tower was supposed to be 72 feet high. The engineering company responsible for the design built it to 150 feet or 78 feet too tall. This story I definitely could not make up. My hunch is they saw the "flooded Statue of Liberty" on the front cover of National Geographic and concerned about rising sea levels due to global warming, were going to make the water tower tall enough to prevent that from happening.

Tesla. The WSJ -- Tesla loses almost $300 million as deliveries fall short, expenses rise. The bigger story is not that it suffered a loss, but it was much wider than forecast. When this house of cards begins to fall, it will fall fast. Unless, of course, funding keeps the enterprise afloat.
A second-quarter loss of $293 million was 60% deeper compared with a year ago. Its operating loss equaled $1.06 a share, greater than the 52-cent loss analysts had been expecting.
Bakken Pipeline. Reported earlier at the blog, this Bakken story made the Google Finance headline: Enbridge, Marathon buy into Bakken Pipeline System. 
Enbridge Energy Partners LP and Marathon Petroleum Corp. this week announced the formation of a new joint venture with Energy Transfer Partners LP and Sunoco Logistics Partners LP to acquire an equity interest in the Bakken Pipeline System.
The Dakota Access Pipeline—which will carry about 470,000 barrels of Bakken crude per day from western North Dakota to a terminal in Illinois—and the Energy Transfer Crude Oil Pipeline (ETCOP)—which transports the oil from Illinois to the Texas Gulf Coast—are collectively known as the Bakken Pipeline System.
Marathon and Enbridge acquired a 49 percent equity interest in the holding company that owns 75 percent of the Bakken Pipeline System from an affiliate of Energy Transfer and Sunoco Logistics.
Under this arrangement, Enbridge and Marathon will indirectly hold 75 percent and 25 percent respectively of the joint venture's 49 percent interest in the Bakken Pipeline holding company. The purchase price of Enbridge’s 27.6 percent interest in the pipeline system is $1.5 billion. The transaction is expected to close in the third quarter of 2016.
Construction on the 1,168-mile-long, $3.78 billion Dakota Access Pipeline began in May and is expected to be ready for service by the end of 2016. ETCOP—an existing natural gas pipeline—is being converted by the Energy Transfer Crude Oil Co. to transport oil and is also expected to be in service by the end of the year.
Also this week, Energy Transfer, Sunoco Logistics and Phillips 66 announced the successful completion of project-level financing for the Dakota Access Pipeline and ETCOP projects. The $2.5 billion facility is anticipated to provide most of the remaining capital needed to complete the projects.
Freudian slip.

Raise Taxes on the Middle Class

Whiting Transfers Another 61 Wells To Foundation Energy Management -- August 3, 2016

Active rigs:

Active Rigs3474194179206

No wells coming off confidential list Wednesday.

One new permit:
  • Operator: Crescent Point Energy
  • Field: Ellisville (Williams)
  • Comments:
Two permits renewed:
  • Hess, a LK-Hay Draw permit in Dunn County
  • North Plains Energy II, LLC, a State permit in Divide County
Operator transfer: 61 wells in all (numbers may be wrong, but pretty close, regardless)
  • from Whiting to Foundation Energy Management
  • McKenzie County: 4
  • Divide County: 3
  • Billings County: 19
  • Golden Valley: the rest
  • most recent permit: #26582, a Red River well drilled in January, 2014, fairly good production for a Red River well, Camel Hump oil field, a directional well
  • oldest permit: #07094, a Red River well drilled in 1980; re-entered the Birdbear in 2009; minimal production from the Bakken, Bicentennial oil field, Golden Valley County

All Eyes On Tesla -- August 3, 2016


August 6, 2016: in the original post -- just two days earlier, I rhetorically asked/ noted -- "Waiting for the speech saying he will raise more cash." We didn't have to wait long. Yesterday, Friday, August 5, 2016, MuskMelon says Tesla will need a boatload of cash to keep operating.
Original Post
Revenue and earnings miss forecasts.
The electric car company reported revenue of $1.56 billion, falling short of analysts’ expectation for $1.63 billion. This came with a big net loss of $1.06 per share, which was much wider than the $0.60 loss expected.
Importantly, Tesla delivered 14,402 vehicles — 9,764 Model S and 4,638 Model X — during the quarter, which was about in line with expectations.
Tesla and MuskMelon facing tough questions.

The market was up slightly today.
  • Tesla: down about 0.6%
  • SolarCity: down about 0.5% but up a bit after hours. 
Waiting for the speech saying he will raise more cash.

Couldn't resist:

Texas Longhorn Fight Song

Approaching The 10 Million BOPD Threshhold -- Gasoline Demand -- August 3, 2016

EIA link -- at the link, scroll to the very bottom. 

From John Kemp / Twitter:

CLR Reports 2Q16 Results -- August 3, 2016

CLR press release:
  • Outstanding STACK Well Results Increase 2016 Production Guidance to 210,000 to 220,000 Boe per Day
  • Capital Budget Remains Unchanged  
  • Production Expense Outlook Reduced $0.50 per Barrel of Oil Equivalent (Boe)  
  • New STACK Completions Extend Oil Window West: Madeline 1-9-4XH Flows at 3,538 Boe per Day (71% Oil); Frankie Jo 1-25-24XH Flows at 2,627 Boe per Day (56% Oil)  
  • Enhanced Completions in SCOOP Woodford Oil Window Increase Estimated Ultimate Recovery (EUR) by ~30% to 1.3 Million Boe per Well (62% Oil) for 2-Mile Laterals
  • Company Agrees to Sell Non-Strategic SCOOP Leasehold for $281 Million, with Proceeds to Be Applied to Debt Reduction 
The company reported a net loss of $119.4 million, or $0.32 per diluted share, for the quarter ended June 30, 2016.  
The Company's net loss includes certain items typically excluded by the investment community in published estimates, the result of which is often referred to as "adjusted net loss." In second quarter 2016, these typically excluded items in aggregate represented $53.5 million, or $0.14 per diluted share, of Continental's reported net loss.
EBITDAX for second quarter 2016 was $528.1 million.
"Continental once again outperformed production guidance in the second quarter thanks to the exceptional quality and performance of our Bakken, SCOOP and STACK assets, as well as exceptional execution by our teams," commented Harold Hamm, Chairman and Chief Executive Officer. "We are also on track to reduce long-term debt with our agreement to sell a second non-strategic asset for $281 million."
Based on strong operating results in first half 2016, the Company now expects production for the year will be in a range of 210,000 and 220,000 Boe per day, an increase of 5,000 Boe per day from previous guidance. Continental expects to exit the year with production between 195,000 and 205,000 Boe per day, also reflecting a 5,000 Boe per day increase.
Continental also reduced 2016 guidance for production expense per Boe and cash general and administrative (G&A) expense per Boe. Production expense is now expected to be in a range of $3.75 to $4.25 per Boe for the year, down approximately 11% ($0.50 per Boe) from the previous range. Efficiencies contributing to the lower guidance include reducing produced water expense and increasing artificial lift efficiency in the Bakken and reducing compression, saltwater disposal and chemical costs in Oklahoma.  
Total G&A expense, including cash and non-cash G&A expense, is expected to be in a reduced range of $1.85 to $2.45 per Boe for 2016. Of this total, cash G&A expense is expected to be in a range of $1.20 to $1.60 per Boe for 2016, a reduction from the previous range of $1.25 to $1.75 per Boe. 
Finally, the Company improved its outlook for oil price differential, reflecting increased crude oil production in Oklahoma, where it has lower transportation costs, and reduced transportation costs from the Bakken. Average crude oil price differential for 2016 is expected to be in a range of $7.00 to $8.00 per barrel of oil (Bo), compared with the previous range of $7.00 to $9.00.

Marathon To Discontinue Funding The Enbridge Sandpiper Pipeline; WTI Under $40; Crude Oil Inventories Up 1.4 Million Bbls -- August 3, 2016

Breaking news: petroleum inventories rise by 1.4 million bbls. WTI is up, according to the Yahoo!Finance crawler, but is still below $40 -- sitting at $39.94.

EIA provides an update on CBR to the East Coast. Link here

Back To The Bakken

Active rigs:

Active Rigs3474194179206

RBN Energy: NG pricing.

Stake Sold In Bakken Pipeline Project
Marathon To Discontinue Funding For Sandpiper Project

$2 billion pipeline deal. Energy Transfer/Sunoco sell pipeline to MRO/Enbridge. Link here. 
Energy Transfer Partners (ETP) and Sunoco Logistics Partners (SXL) said late Tuesday that they agreed to sell 36.75% of their Bakken pipeline project in the Rockies to MarEn Bakken Co. LLC, a unit of Enbridge Energy Partners (EEP) and Marathon Petroleum (MPC) , for $2 billion in cash. ETP expects the sale to close in the third quarter, when it will receive $1.2 billion and SXL will get $800 million.
The Bakken pipeline entities already arranged a $2.5 billion financing facility to fund the remaining capital needed to complete the project, so ETP and SXL plan to use the proceeds to pay down debt and help fund their current growth projects. All the owners of the project will contribute whatever capital is needed to complete the project based on the size of their stakes.
A unit of MPC has committed to participate in a forthcoming Dakota Access/Energy Transfer Crude Oil Pipeline open season and make a long-term volume commitment on the Bakken project. A new open season is expected to be launched in the third quarter.
Bakken Holdings Co. LLC, a joint venture between ETP and SXL, owns a 75% interest in Dakota Access LLC and Energy Transfer Crude Oil Co. LLC, or ETCO, which are developing and will own and operate the project.
The project consists of 1,172 miles of new 30-inch diameter crude oil pipeline from North Dakota to Patoka, Ill., and more than 700 miles of pipeline converted to crude service from Patoka to Nederland, Texas.
MPC added that it and Enbridge agreed to cancel MPC's transportation services agreement related to the Sandpiper project and liquidate MPC's indirect ownership interest in North Dakota Pipeline Co. LLC. The move would cancel MPC's commitment to fund any more construction costs for that project, for which it's already contributed $301 million, resulting in an impairment review of the carrying value of the investment in the third quarter. 
Other News

Office Depot to close 300 stores. Link here. Office Depot to Close 300 More Stores, Add Dividend After Failed Deal With Staples. Office supply company plans to trim $250 million in costs by 2018, initiate quarterly dividend. I track the demise of the big box stores here.

Already old newsOil edges up to $42, but glut still weighs.

Hess To Put Up To 20 New Wells In A New 2560-Acre Spacing Unit In Truax Oil Field -- August 3, 2016

Case 25196:
  • Hess, Truax-Bakken, establish a 2560-acre unit
  • sections 5 / 8 / 17 / 20 - T154N - R98W 
  • Williams County
  • up to 20 wells
A reminder to newbies:
  • each well stands on its own; drillers not likely to drill a well if it doesn't anticipate minimum EUR
  • drillers say they do want to drill wells that interfere with neighboring wells (at least that's my impression)
The 2560-acre unit is noted in the graphic below, using green check marks to note the sections in this drilling unit:

SeekingAlpha Note On MDU 2Q16 Earnings -- August 3, 2016

From SeekingAlpha:
  • MDU Resources: Q2 EPS of $0.24 beats by $0.03. 
  • Revenue of $1.04B (+10.9% Y/Y) misses by $30M.
Press release and earlier post here
2Q16 earnings are tracked here

Toyota To Delay Debut Of New Prius In US
Will Release In "Winter" Instead Of "Autumn"

Story here.  The company also said it was already cutting production and will increase production based on demand.

I'm losing track of the various generations of the Prius and the various models, but one can find them here at wiki. Interestingly, if I'm reading this correctly, the plug-in version doesn't offer that much better electric range but I'm probably mis-reading something. It certainly is not competing with Tesla for all-electric range.

Random Note On The Latest North Dakota Lease Auction Sale, May, 2016

Link here. Apparently in May, 2016, the only auction was on-line.

The big takeaway for month of May, 2016: location, location, location. In one bid, two parcels went for $5,300/acre. In another bid, less than 12 miles away, one parcel went for $25 / acre:

Crude Oil Import Data For May, 2016, Has Been Posted -- August 3, 2016

Most recent data for Saudi crude oil imports into US have been posted. May, 2016, data now available.

Likewise, data for US crude oil imports from all sources for May, 2016, have also been posted. It looks like OPEC imports increased about 11% month-over-month, May-over-April, 2016. But look at the huge increase year-over-year, same month, for OPEC:
  • May, 2015: 96,867,000 bbls/month (96.9 million bbls / month = about 3 million bbls/day)
  • May, 2016: 112,899,000 bbls/month (112.9 million bbls/month = about 3.6 million bbls/day)
From all countries, the US imported:
  • May, 2015: 293,569,000 = about 9.5 million bbls/day
  • May, 2016: 315,660,000 = about 10 million bbls/day
By far, Iraq showed the largest percentage increase month-over month, going from around 10 million to 17 million bbls per month.

Is anyone curious about Canada, following the wildfires? Canada has bounced back nicely, increasing significantly month-over-month. Year-over-year (May, 2015, vs May, 2016)? Almost identical and both years about 10% greater than in 2014.