Friday, October 28, 2016

Making Money On $25 Oil -- October 28, 2016


November 26, 2016: it is being reported that the breakeven point in the Bakken is now well below $25/bbl.
Original Post
When Saudi announced it was going to open its spigot, Whiting was the only oil company that I am aware of that said it could make money on $25 oil. So, how did that work out?

From today's Motley Fool and Whiting's 3Q16 earnings report:
Whiting was able to deliver that strong production while only spending $85 million on capital expenditures (capex) during the third quarter, which was flat with the prior quarter. That's an important number because the company's cash flow during the quarter was $151 million as a result of its high-end production, lower operating costs, and improving oil prices. After subtracting capex, Whiting still had $66 million in cash flow to spare, which is a rare feat in the oil industry these days, especially in the Bakken.
Because of the Bakken's high costs and steep production decline rates, producers have struggled to maintain their output during the downturn, which has certainly been the case for Whiting up to this point. The capital-intensive nature of the play meant that generating any excess cash flow would be tough to do. That said, it has not been impossible.
"Steep decline rates" has become a Bakken meme.

Cleveland Takes 2 -1 Lead In Series; Whiting: Takeover Candidate (Again?); Amazon's Brick-And-Mortar Bookstores -- October 28, 2016

World Series: three possibilities right now, bottom of the 9th:
  • Indians win third game, 1 - 0
  • Chicago ties it 1 - 1, taking it to extra innings
  • Chicago wins, 2 - 0
Down to their final out. "Last" batter is 2 for 30 in post-season. Wow, redeemed himself. Gets to first on an error. Steal to third. All the batter at the plate needs is a single. Down to the final strike. Strike out. Cleveland wins, 1 - 0. Heart breaker.

Back To The Bakken

Could Whiting Re-Emerge As A Takeover Candidate? -- Forbes
Led by 69-year-old CEO Jim Volker, the company has one of the biggest acreage positions and is one of the largest oil producers in the Bakken/Three Forks area within North Dakota’s and Montana’s Williston Basin, where it owns 444,000 net acres in the core oil zones with around 5,500 potential gross drilling locations,
Gheit points out. It also has 129,000 net acres in the oil window of Colorado’s DJ Basin with more than 6,200 potential gross drilling locations, where it is rapidly growing its production in the Niobrara and Codell zones. Whiting believes it can expand production by double-digits at $55 per barrel oil, Gheit says.
Whiting’s shares are already on a bit of an upswing, with its stock increasing by 8% at one point on Thursday to $8.94 per share after releasing third-quarter results. While the company’s loss widened to 47 cents per share vs. analyst consensus of 41 cents, Gheit said the company’s financial flexibility has improved on debt reduction through asset sales and equity exchanges and its operating results “significantly improved.”
For newbies: 444,000 net acres / 1280 acres = 350 drilling units. In the core, they will eventually drill at least 24 wells/1280-acre drilling units. 24 x 350 = 8,400 potential gross drilling locations. And 24 may be less than what we will eventually see.

Plus, they are now adding 2580-acre overlapping drilling units.

From The Motley Fool: three impressive numbers from Whiting's 3Q16 earnings report.
  • production for 3Q16 at high end of guidance;
  • free cash flow of $66 million -- any free cash flow is a rarity in the oil industry these days; especially the Bakken (remember, Whiting was the only company in the Bakken who said it could make money on $25 oil); and, 
  • Whiting has increased its production guidance to 47 million boe full year
Amazon Brick-And-Mortar Stores


October 30, 2016: I am still overwhelmed by Amazon. I think most folks consider Amazon a company that sells books over the internet. It does. But, its web services is its most profitable business. Web Services is not online retail. This past quarter that division saw its biggest operating profit margin, even after the company reported a whopping 55% jump to $3.2 billion in quarterly revenue

Amazon has three core competencies:
  • online retail
  • Amazone web services (AWS)
  • Prime service
The article notes that
Amazon stepped up its investment this quarter in areas like warehouse build-outs, international expansion, and Prime video content. It's also spending more on shipping and hardware development, all areas of growth that could one day become the fourth largest business for Amazon (alongside online retail, AWS, and Prime service).
Original Post
In case you don't have time or the interest to read this post, at least take a look at this: brick-and-mortar Amazon stores

As we come to another end-of-the-week, I think the story that stands out most is the "hysteria" over Amazon missing "estimates" for their 3Q16.  It suggests to me that folks are not paying attention. Two things: Jeff Bezos has never seemed all that interested in profits. In that regard, he was a lot like Steve Jobs.

Second, he puts "all" his cash flow back into his company. 
From an earlier post, the numbers were incredible:
  • Amazon reported earnings that were up more than 200% from the same period last year.
  • Net income was $252 million. That's a "positive" (in the green) income. Not a loss. Not a billion-dollar loss. Not a two-billion-dollar loss. 
  • Revenue from Amazon Web Services soared (their word, not mine) 55%, the biggest year-on-year leap in sales, as prices came down and AWS rolled out new features. 
  • Operating margin at AWS increased to almost 32%.
But it gets better.
  • Amazon forecasts as much as a 27% increase in holiday sales this year, compared to last year, which I assume was a record then. 
  • Amazon expects operating income as high as $1.3 billion in 4Q16 compared with $1.1 billion in 4Q15. 
And it still gets better: Amazon's operating cash flow increased almost 50% for the 12 months ended September, and free cash increased to almost $10 billion. 

Now why did Amazon have such a bad quarter in which earnings were up 200% and its web services soared 55% and so on? Because it was spending record amounts on building the company to exceed customers' expectations:
  • Amazon opened 18 fulfilment centers during this quarter, the biggest growth in its network since 2012;
  • and, a whole bunch of other stuff; but,
  • you get the point. 
Earnings were up more than 200% in a quarter in which he added 18 fulfilment centers.

And then look at this for those who had forgotten: brick-and-mortar Amazon stores.

NFL Ratings

On October 6, 2016, I wrote: Folks come to NFL games to be entertained, not to be reminded of Kaepernick. Today, CBS Boston posts poll showing that national anthem protests leading cause for NFL ratings drop.

Along With Hunter S Thompson, One Of My Favorite Personalities

Over at The Spectator: ‘The woman is a disaster!’: Camille Paglia on Hillary Clinton.
Talking to Camille Paglia is like approaching a machine gun: madness to stick your head up and ask a question, unless you want your brain blown apart by the answer, but a visceral delight to watch as she obliterates every subject in sight. Most of the time she does this for kicks. It’s only on turning to Hillary Clinton that she perpetrates an actual murder: of Clinton II’s most cherished claim, that her becoming 45th president of the United States would represent a feminist triumph.
‘In order to run for president of the United States, you have to spend two or three years of your life out on the road constantly asking for money and most women find that life too harsh, too draining,’ Paglia argues. ‘That is why we haven’t had a woman president in the United States — not because we haven’t been ready for one, for heaven’s sakes, for a very long time…’
Hillary hasn’t suffered — Paglia continues — because she is a woman. She has shamelessly exploited the fact: ‘It’s an outrage how she’s played the gender card. She is a woman without accomplishment. “I sponsored or co-sponsored 400 bills.” Oh really? These were bills to rename bridges and so forth. And the things she has accomplished have been like the destabilisation of North Africa, causing refugees to flood into Italy… The woman is a disaster!’
A breath of fresh air. 

Bakken 2.0: Ten (10) New Permits; Twelve (12) Permits Renewed; No DUCs Reported As Completed -- October 28, 2016

Active rigs:

Active Rigs3469191180186

Ten (10) new permits:
  • Operators: CLR (4), Hess (3), HRC (2), North Range Resources
  • Fields: Rattlesnake Point (Dunn); Banks (McKenzie); McGregory Buttes (Dunn), Grassy Butte (McKenzie)
  • Comments: generally speaking, when seeing multiple permits by same operator, it is pad drilling
Twelve (12) permits renewed:
  • EOG (10): ten Hawkeye permits, all on same pad, Hawkeye permits, section 25-152-95 (see below)
  • Petro-Sentinel (2): one Miller permit and one Coyote Creek permit, both in Bowman County
I don't recall if I've seen Petro-Sentinel before. The company has three permits in North Dakota. The first well, a wildcat, was drilled: dry.  The two renewed permits today are in an established oil field: Coyote Creek, Bowman County.

No DUCs were reported as completed.

The EOG Hawkeye wells have been mentioned many times on the blog. They are tracked here. Ten EOG Hawkeye permits renewed today:


Bakken 2.0: Oil Poised For Strong Comeback -- Lynn Helms, NDIC -- October 28, 2016

From the Williston Herald:
The comeback of oil may have been slower than desired or expected, but the numbers building up behind the scenes show it is building for a comeback that may be stronger than some might wish, the state’s top regulator of oil and gas said Wednesday.
“OPEC doesn’t want oil at $25 and they don’t want it at $75,” Lynn Helms, director of North Dakota’s Department of Mineral Resources, said. “That $50 is no miraculous number, it’s where most of the shale plays aren’t going to play.”
I've said the same thing for quite some time now: the sweet for the US when it comes to oil - $46 - $52.  
The reasons he is so confident include the fact that half of the project well numbers are either already in the queue or in the process of being permitted for drilling and completion, as well as moves he is aware of, to keep industry moving in the Bakken.
He has prepared three price scenarios to help agencies in their planning efforts. These include a price shock scenario, with oil prices suddenly going back to $75 and $80 ranges, as well as a more likely medium scenario, where it sits at $45 a barrel through much of 2017, hits $55 in 2018 and hits $65 in 2019. That one has rig counts at 30, 50 and 70 respectively. 

Wow, CVX; Williston -- Headline Story In Oil & Gas Journal; Soybeans Surging -- October 26, 2016

Wow, CVX:
  • CVX: story here; 3Q16 earnings of $1.3 billion, down from $2 billion in 3Q15; surprises with a dividend hike; stronger than expected earnings; 68 cents vs 37 to 40 cents; wow;  
I remember over the years being told that CVX was the weakest among COP, XOM, and CVX. COP posts a $1 billion loss in 3Q16; XOM under SEC investigation; and CVX surprises with earnings and an increase in the dividend, which of course sent share price up.

Williston: Headline Story in Oil & Gas Journal
From Oil & Gas Journal today on US rig counts: Williston’s biggest jump in 2 years.
US land-based rigs gained 5 units this week to 533, with rigs engaged in horizontal drilling also rising 5 units, reaching 450, up 136 since May 27.
Directional drilling rigs rose 3 units to 54. North Dakota and its Williston basin led the major oil- and gas-producing regions with a 5-unit jump to 35, representing their biggest increase since Aug. 8. 2014.

Soybean exports power US economy to best performance in two years. -- Reuters.

In 2014 - 2015, North Dakota moved up to 9th place: 202 million bushels in 2014; 190 million bushels in 2015.

In 2012 - 2013, North Dakota ranked 10th on the list for soybeans; 163 million bushels in 2012; 139 million bushels in 2013.

In 2004, North Dakota ranked 10th on the list for soybeans, based on cash receipts.  

Random Graphic Update On The Parshall Oil Field As We Transition From Bakken 1.0 To Bakken 2.0 -- October 28, 2016

I wanted to capture EOG activity in the Bakken as we transition from Bakken 1.0 to Bakken 2.0.

Over the next few years, I am curious to see:
  • if EOG moves to longer laterals;
  • where they will concentrate their drilling; and,
  • changes in well density.
The Parshall oil field can be easily divided into four unequal quarters going from the north to the south.

This is what the entire Parshall encompasses, the area outlined in green. The inset shows this area in the state of North Dakota, just east of Watford City:

In the graphics below, I have zoomed in to get a better idea of the length of the laterals (in general) and the general well density in each of the uneven quarters. To ensure I captured the entire Parshall oil field, there will be overlap at the boundaries. In addition, there is non-Parshall acreage to the east and west in each graphic.

This is the northernmost quarter:

This is the southern quarter north of the reservation (the reservation is shaded brown in all these graphics; the blue, of course, is Lake Sakakawea/Missouri River):

This is the northern quarter of the reservation:

This is the southernmost quarter of the entire Parshall:

Hess Plans To Increase Bakken Production In 2017 -- Argus Media -- October 28, 2016

Hess to increase Bakken production in 2017. Data points
  • plans will not be detailed until January; preliminary remarks in 3Q16 earnings call
  • Hess''s core in the Bakken competitive with Permian and Eagle Ford
  • Hess ND production in 3Q16: 107,000 boepd (113,000 a year earlier)
  • CWC: lowered to $4.7 million in the Bakken; down 11% yoy; 50-stage completion (previously, 35-stage completions); for a long lateral, $4.7 million is quite incredible; needs to be followed
  • average EUR: 900,000 boe in 3Q16; should reach 1 million boe in 4Q16
  • 4Q16 Bakken production: should reach 105,000 boepd
  • Utica: 30,000 boepd
  • IS Gulf of Mexico: 61,000 boepd
  • 3Q16 CAPEX: $435 million (global)
  • full-year 2016 CAPEX: $2 billion (global) -- down $100 million from recent projection and half of  of 2015 spending
  • loss in 3Q16 widened to $339 million compared to $279 million a year earlier

The Race Underground: Boston, New York, and the Incredible Rivalry That Built America's First Subway 
Doug Most,
c. 2014
DDS: 388.42 MOS

It may be best to read the Epilogue, the Acknowledgments, and the Author's Notes first before reading the book itself. I started to read the book but it did not catch my attention. I had no feeling for where the author was taking me or how he was going to get me there.

These will be the only notes I place on the MillionDollarWay. Any updates will be followed at another site

After reading the Epilogue, Acknowledgments, and Author's Notes, I had my bearings, and felt comfortable to begin reading the book.

Some quick takeaways: the London subway initially failed because they used steam engines underground, which made no sense. It was the relationship between the electric sector (think Edison) and the tunneling engineers that made the difference, and the success of the Boston and the NYC subways.

Some quick facts:
  • Boston won the race: 6:00 a.m. September 1, 1897, the subway opened to its first passengers
  • NYC: in the evening, 7:00 p.m., October 27, 1904, seven years later, NYC opens its first subway to passengers
  • within two days in Boston, the "novelty was over"
  • no neighborhood was more excited about the subway than Harlem
  • a rallying cry for a NYC subway was "fifteen minutes to Harlem"; that helped keep the dream alive
  • the blizzard of 1888 was perhaps the turning point in getting the NYC project going
  • Abram Hewitt's vision for the NYC, used the blizzard of 1888 to spur the project; came up with the idea for the city pay for and own the subway system but hire a private business to build and run it; Hewitt died a year before the subway opened
  • if one man deserves more credit than he's received for the birth of the subway, it's Frank J. Sprague, died 1934; he saw the greatest flaw (steam engines) in London's Underground which had opened 30 years before Boston/NYC decided to replicate it -- the delay was because steam did not work; Sprague, an employee of Edison's, figured it out; Sprague and Edison in huge public battle over share of glory; Edison won, Sprague lost
  • Fred Pearson, the Tufts prodigy, died aboard the Lusitania; Pearson owed much of his engineering legacy to the Whitney brothers
  • while living in Boston area for four years and traveling to Provincetown, Cape Cod, numerous times, I was never aware of the importance of the Cape Cod Canal, not built until 1913; "short-cut" from NYC to Boston; without it, ships had to sail clear around Cape Cod 
  • William Barclay Parsons: key engineer for both the NYC subway and the Cape Cod Canal
  • Parsons had a small firm; it became a behemoth which thrives to this day: Parsons Brinckerhoff -- also responsible for the infamous Big Dig in Boston
  • Parsons Brinckerhoff now responsible for the Second Avenue subway now under construction in NYC; the most complex, one of the most expensive public projects the city has ever undertaken; two 22-foot-wide tunnels, 80 feet below the surface; tunneling through solid rock [Update: Second Avenue Subway now open, January 1, 2017.]
  • number of pages devoted to the Boston subway pale in comparison to the number of pages written on the NYC subway
  • Boston's subway was America's first, but it has been largely ignored by historians and authors
  • the Whitney brothers have also been treated unequally

Is The Shale Honeymoon Over For PADD 1 (East Coast) Refineries? -- RBN Energy; Global Offshore Production -- As Percent Overall, Lowest On Record; PEMEX Posts Loss Of $6 Billion In 3Q16 -- October 29, 2016

GDP: despite some concern about the "validity" of the number --
The US economy grew at an annualized rate of 2.9% in the third quarter of 2016, the fastest rate since the third quarter of 2014
President Obama is the first president in modern history to never have one full year in which GDP growth reached 35. Won't happen this year either.

Back to the Bakken

Active rigs:

Active Rigs3469191180186

RBN Energy: is the shale honeymoon over for PADD1 (East Coast) refineries?

Global offshore oil production: the share of offshore production from shallow water in 2015 was 64%, the lowest on record.
Global offshore oil production (including lease condensate and hydrocarbon gas liquids) from deepwater projects reached 9.3 million barrels per day (b/d) in 2015.
Deepwater production, or production in water of depths greater than 125 meters, has increased 25% from nearly 7 million b/d a decade ago.
Shallow water has been relatively less expensive and less technically challenging for operators to explore and drill, but changing economics and the exhaustion of some shallow offshore resources has helped to push producers to deepwater or, in some areas, ultra deepwater (at depths of 1,500 meters or more) resources.
The share of offshore production from shallow water in 2015 was 64%, the lowest on record. --- EIA
Suicide: US Army rules that the July 31, 2016, death of a 2-star general at Alabama military base was a suicide.

Russian Northern Fleet continues eastward towards Syria; almost due north of the eastern Moroccan border.

Those cash payments from the US to Iran to get US hostages back (a ransom payment by any other name)? US Attorney General has "plead the Fifth" on testifying to Congress. And that will be the end of that; Congress will move on.

The Market

COP reported a $1 billion loss 3Q16. That's chickenfeed. Mexican state-run oil company Pemex posted a loss of over $6 billion in 3Q16. 

GE - BHI: early, early discussions; talking about partnering; perhaps a spin-off from parts of each.

Mid-afternoon trading: Dow 30 down 45 points; WTI around $49. NYSE:
  • new highs -- 45: BHI (a big whoop -- but it won't last); MDU (wow);
  • new lows -- 58; not a good sign when the number of issues hitting new lows exceed those hitting new highs
Open: up 35 points: WTI trading below $50;


Valiant Ambition: George Washington, Benedict Arnold, and the Fate of the American Revolution
Nathaniel Philbrick
c. 2016
DDS: 973.4 PHI
A Nation of Traitors

Philadelphia -- Arnold's betrayal was a personal affront.

As a warrior at Valcour Island and Saratoga, Benedict Arnold had been an inspiration.

But it was as a traitor that he succeeded in galvanizing a nation. His treason awakened them to the realization that the War of Independence was theirs to lose. 

Irony: the thirteen colonies were a nation of traitors.

Americans now realized it was not King George III that was their worst enemy, but rather some of their own among them.

Peggy was exiled from Philadelphia to NYC.

Benedict Arnold himself was now in the British Army; in a bloodbath comparable to the massacres at Paoli and Old Tappen, Arnold would -- it might be said -- avenge the death of Major Andre.
Geo Washington devised a plan to kidnap/capture Arnold, but the plan fell through when coincidentally Arnold's group was mobilized for an operation in Virginia. Arnold, not knowing he was almost kidnapped, was on his way south toward what had become the major theater of the war. 

Geo Washington nominated General Nathanael Greene to be in command. Green's career had almost been over when he lost Fort Washington four years earlier. A year later, he saved his army with a brilliant retreat at Brandywine, preventing the botched battle from becoming the catastrophe it might otherwise have been.  At Valley Forge, he agreed to the thankless job of quartermaster. He felt unappreciated; ready to resign. Washington never liked him as he like Lafayette. Now Greene had the opportunity of a lifetime.

After Charleston and Cameden, the colonists were just one defeat away from disaster. 

The book ends: Greene had overseen the trail of John Andre and was then serving as Arnold's replacement as commander at West Point. On the morning of October 21, 1780, after writing a letter of farewell to Caty, Nathanael Greene began the long journey south.

From US History, the timeline of the following year, 1781:
  • Jan. 1: Mutiny of unpaid Pennsylvania soldiers 
  • Jan. 17: Patriot Morgan overwhelmingly defeats British Col. Tarleton at Cowpens, SC 
  • Feb. 1: The Battle of Cowan's Ford, Huntersville, NC 
  • March 2: Articles of Confederation adopted 
  • March 15: British win costly victory at Guilford Courthouse, NC 
  • April 25: Greene defeated at Hobkirk's Hill, SC 
  • May 15: British Major Andrew Maxwell cedes Fort Granby, SC to patriot Lieutenant Colonel Henry Lee 
  • June 6: Americans recapture Augusta, GA June 18: British hold off Americans at Ninety Six, SC 
  • July 6: "Mad" Anthony Wayne repulsed at Green Springs Farm, VA 
  • Sept. 8: Greene defeated at Eutaw Springs, SC 
  • Sept. 15: French fleet drives British naval force from Chesapeake Bay Oct. 19: Cornwallis surrounded on land and sea by Americans and French and surrenders at Yorktown, VA
But it was still a full year before the British were finally driven out of the south. December 14, 1782 -- the British leave Charleson, SC.

And it was still another nine months before the Treaty of Paris was signed, September 3, 1873.

It was another four years, almost to the day, September 17, 1787, when the US Constitution was finally signed. It was adopted the next year, June 21, 1788, when New Hampshire ratified it.

It was back on April 19, 1775, thirteen years ealier, that the colonists had fired the shot heard 'round the world, and much had led up to that, years before that date.

Takeaways for me:
  • for the first time I really "know" Benedict Arnold's story 
  • for the first I have a really good feel for how the American Revolution played out
  • I have a much better understanding of the geography around NYC and West Point
  • I understand why "a Nathaniel Philbrick" would be interested in writing this story
  • I understand, for the first time, how important the French were to the American cause
  • I have a much better feeling about Geo Washington's personality
  • I understand why Benedict Arnold as a traitor was incredibly important to the outcome
  • Arianna (our oldest granddaughter who loves history, and knows the Alexander Hamilton play practically by heart) and I now have lots to talk about