The Closer, T+25 -- February 25, 2017

College hockey: Williston Tetons seeded #1 in ACHA Division II West region, heading to national tournament.

Rigs: Chesapeake will increase 2017 CAPEX budget to raise rig count from 10 to 17. Saudi Arabia take note.

Operations: I continue to find it amazing how much production can jump by simply taking a Bakken well off-line for a few months. See #18219, BR, Everlades at this post: went from 3,000 bbls/month to 16,000 bbls/month by just taking the well off-line for about six (6) months. Even when this well was initially fracked, it never went over 13,777 bbls/month. Truly amazing. They need to take all Bakken wells off-line for a few months every so often.

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Generation Z

Rigzone has an article talking about "Generation Z."

I had forgotten the "definition" of "Generation Z" but vaguely recalled blogging about it:

Definitions:

• iGen, generation Z, centennials: 1998 -- 
• younger millennials (part of generation Y, children of baby boomers): 1992 - 1997
• older millennials (part of generation Y, children of baby boomers): 1983 - 1991
• generation X: 1965 - 1982 (no precise dates, late baby boomers)
• baby boomers: 1946 - 1964  

Definitions (from this site)

• iGen, generation Z, centennials: 1996 --
• millennials or generation Y: 1977 - 1995 (18-year span)
• generation X: 1965 - 1976 (11-year span)
• baby boomers: 1946 - 1964 (18-year span)
• traditionalists or silent generation: born 1945 and before 

In the linked Rigzone article, Generation Z was defined as born in 1998 or later. The challenge:

“This is the generation who grew up with an iPhone in their crib … who never knew the world without the Internet,” said Newhouse. “How are we going to ask these kids to go work for 28 days in a remote oilfield and not be connected for 24 hours a day? That’s a real challenge.”

The value proposition for this group of workers has to include technology, flexible working options and green energy, Newhouse said.

And the approach may need to change, too.

“My 13-year-old and my 11-year-old are both being recruited now by professional gaming groups, but my kids have never once seen a Shell or BP commercial on TV because they don’t watch TV. They watch YouTube,” said Murphy. “We have to change our strategy a little bit if we want to attract these young men and women into our industry.”

Comment: things are moving way too quickly.  We have three granddaughters, born in 2014, 2006, and 2003. The two that were born in 2003 and 2006 are very similar and meet the criteria of the iGen as noted above, but there is no question that the third granddaughter, born in 2014, is clearly already in the next generation, for now, I guess, it would be called the "post-iGen generation." All three granddaughters may have been born with an iPhone in their crib, but clearly the iPhone our 3-year-old uses is a "whole-different animal" than the iPhones the older granddaughters grew up with. For one thing, the older granddaughters did not have Siri telling them "goodnight."

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A Valentine's Card From The DAPL Protesters

Native American Respect For Their Sacred Land At Standing Rock

Published today, Valentine's Day, February 14, 2017
For more, see this post.

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The Market

Futures mean squat. The Dow has had an incredible run over the past few days. By all measures, one would have thought the market would have been down today, but it was up again. So, what are futures doing now? Up slightly, about 7 points (Dow Jones Industrials).

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

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Politics

After a day like today -- the "Flynn episode" -- this helps calm my nerves --

Wheels, The String-A-Longs

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Maine and Solar Energy

Net Metering

Talk about a lot of hot air.

First this headline: Governor seeking new utility regulator, slams solar rules.

Then this story: Maine PUC issues final ruling on net-metering compromise.

Based on the "intensity" of the argument, one would assume solar energy accounts for a lot of energy in Maine. Yup:  1%:

Yesterday’s ruling brings to an end a year-long conversation about how to modify net metering rules in Maine.

In January 2016, Central Maine Power Co. informed the commission that solar generation made up approximately 1.04% of its annual peak demand.

When I see "0.04%" tacked on to 1%, it tells me that someone is trying to obfuscate the issue. Give me a break: 1.04%.

"Approximately 1.04%." Wow, how much more exact can one get? 1.0358574%?

[Reminds me of " 99 ⁴⁴⁄₁₀₀% Pure" -- the slogan for Ivory soap.]

Worse, after 20 years of doing this (advocating, protesting, tax breaks, tax credits, hoaxes, etc), the state of Maine has finally broken through the 1% threshold.

To infinity and beyond. 

Twelve Permits Renewed; One New Permit -- February 14, 2017

Active rigs:

	2/14/2017	02/14/2016	02/14/2015	02/14/2014	02/14/2013
Active Rigs	36	41	137	185	182

No wells coming off confidential list Wednesday.

One new permit:

• Operator: WPX
• Field: Eagle Nest (McKenzie)
• Comments:

Twelve permits renewed:

• HRC (4): four Berg Trust Federal permits, McKenzie County
• Whiting (4): two Olson permits, one Periot permit, and, one Kaldahl permit, all in Williams County
• BTA (2): two Agate permits, Golden Valley County
• Petro-Hunt: one Overlee permit in Burke County
• Enduro Operating: one SND permit, Billings County

WPX canceled one permit: a Mandan permit in Mountrail County

Bakken 2.0: Oasis To Re-Frack Older Well When New Wells Fracked -- February 14, 2017

Note the following at this post:

• 20464, 1,202/IA, Oasis/Zenergy, Rolfson 29-32H, Siverston, 28 stages, 2 million lbs, t12/11; cum 183K 12/16; taken off-line 6/16; off-line through 12/16; from sundry form suggesting start date of September, 2016, for this: Oasis intends to refrack the Rolfson 29-32H well at the beginning of the infill stimulations (sic) operations for the Rolfson S wells in the 29 and 32 sections of 151N98W. If [preparatory tests are sufficient], the refrack design will consist of a bullheaded diversion sequence treatment in a crosslinked fluid system with 50 diversion sequences.

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Learning From Big Sister

Note: the small bruise on Sophia's upper lip is the result of a soccer injury one day earlier.

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The Literature Page

Shakespeare's King Lear, from the Riverside anthology, c. 1974.

• the subplot of Gloucester and his sons has no historical connection with the Lear story, and is borrowed from the story of the Paphlagonian King in Sidney's Arcadia
• Paphlagonia: north-central Turkey, along the Black Sea; one of many, many provinces at the time
• grafting the Gloucester episode on to British history augments the tragic thought in the greatest of his double plots
• from Riverside:

Shakespeare removes the anachronistic Christianity of the old play, converts its storm from a signal that divine justice is impending  into an image of evil chaos, allows Cordelia to be defeated and murdered, and will not allow Lear to enjoy the restored majesty offered him by Albany as he bends over the dead body of his daughter.

Gloucester's suffering, the wickedness of Edmund, the multiple role of Edgar, the brilliant commentary of the Fool, the sexual looseness of Goneril and Regan -- all this is new to the Lear story. Changes of such magnitude cannot be studied in isolation; one's view of Shakespeare's object in making them depends upon his view of the whole play. 

More On The RBN Energy Post Earlier Today -- February 14, 2017

Poll: in the January, 2017, NDIC Director's Cut, the number of DUCs in North Dakota was estimated to be 839. Will there be fewer or a greater number of DUCs reported in the February, 2017 (data for December, 2016), Director's Cut?

RBN Energy: What's with all the DUCs?

The latest Drilling Productivity Report from the EIA, released yesterday (February 13, 2017), shows that while the combined rig count in the seven major U.S. shale plays rose about 25% in the fourth quarter of 2016 versus the previous quarter, and the number of wells drilled was up 29%, well completions were up a paltry 1%, leading to an increase in the inventory of drilled-but-uncompleted wells (DUCs).

Completions accelerated a bit in January 2017, but DUCs still continued to rise. That certainly seems counterintuitive.  With crude oil prices stable in the low $50’s over the past few months you might think that producers would be pulling DUCs out of inventory, and in fact there have been statements to that effect in several producer investor calls. This is not just an exercise in energy fundamentals numerology. If the DUC inventory is increasing, then production will not be ramping up as fast as the growing rig count would imply.

But what if, as some early signs indicate, the historical relationships are out of whack and the DUC inventory isn’t growing but rather declining? In that case, forecast models could be understating the outlook for production growth, and the market could be in for a more rapid and steeper rebound in oil and gas production than many expect. In today’s blog, we delve into the DUC inventory data and its potential upside risk to production forecasts.

So, what's the status of DUCs now?

Understanding the DUC inventory trend is critical to forecasting production because it reflects the ability of producers to respond in relatively short order to market fundamentals such as price and demand without a single rig addition.

At any given time, there is always a substantial base inventory of DUCs in the market due to the normal delay between drilling and completion activities.

But increases or decreases in the DUC inventory can speed or slow the rate of production growth (or decline) in the short- or mid-term.  When crude oil prices crashed in 2014 through early 2016, we saw an increase in DUCs as producers continued to drill, but deferred completing wells due to economics, contractual commitments and other factors.  It was generally expected that as prices increased, many producers would start competing those previously drilled wells (i.e., taking DUCs out of inventory) to start generating cash from their drilling investment. 

But as shown in Figure 1, (according to EIA’s DUC inventory and Drilling Productivity Report data) that was not the case, particularly in the most prolific of plays – the Permian.

Since June 2016, more than 500 DUCs have been added to inventory, far out of proportion to the increase in the total Permian rig count. 

Figure 1; Source: EIA Drilling Productivity Report

Other data points:

• the growth in DUCs is accounted for almost entirely in the Permian
• of the 92 DUCs added last month, 84 were in the Permian

Challenge:

RBN Energy notes that official data is about two months old; the EIA has to "model" data based on historical relationships between rig counts to drilled and completed wells -- but those relationships are constantly in flux, says RBN Energy, "and even more so in the past few months as prices jumped and producer activity rapidly accelerated."

RBN noted an interesting phenomenon in late 2016: an increase in delineation wells away from the "sweet spots." This obviously was happening more in the Permian, and not so muchin the Bakken.

RBN suggests that:

• while the EIA is projecting an increase in the number of DUCs,
• in fact, perhaps producers are working off their inventory of DUCs

Pad drilling: and then something that regular readers will recognize -- the same thing is happening now in the Permian that was happening in the Bakken -- pad drilling necessarily results in an increased number of DUCs simply because operators will drill eight wells on a pad before fracking any of them.

Bottom line: US shale production is likely to see a significant jump in late 2017.

Perhaps OPEC realizes that also: the "cartel" has suggested that production cuts will have to be extended into 2H17. 

The Market And Energy Page, T+25 -- February 14, 2017

Late-Day Trading and Close

Market: will come close to another triple-digit gain in the Dow Jones. Closed up 92 points, to 20,504.

Apple shorts getting squeezed: story here. 

NYSE: 

• new highs, 197: Fiat Chrysler, Raytheon,
• new lows, 9.

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Mid-Day Trading

Market up an astounding 50 points (Dow Jones) after two consecutive record-setting days.

Apple continues to melt up.

General Motors is considering exiting Europe; could sell Opel division.

Noble to double CAPEX in 2017. 

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Market Opening

EVs: China's electric vehicle market hits the skids, in The Wall Street Journal.

Market opening: flat, but mid-morning, the Dow is down about 30 points.

WTI: up slightly; at $53.43.

US gasoline exports, from Downstream Today:

• US gasoline exports hit a record in November, 2016 (most recent month data is available)
• US gasoline to: Latin America, West Africa, and Asia
• unusual amounts of gasoline has been moved from PADD1 -- the east coast region; NY harbor
• but unusual cargo movements out of the US East Coast has not been limited to gasoline
• distillates to Europe
• distillate exports from the region are not unprecedented, but Europe's refineries rely on drivers in West Africa and the US East Coast to consume their gasoline
• overall, the US energy revolution appears to be a real threat to Europe. When the EU can least afford it, it seems 

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Future Astronaut?

What's WIth All The DUCs? T+25 -- February 14, 2017

Active rigs:

	2/14/2017	02/14/2016	02/14/2015	02/14/2014	02/14/2013
Active Rigs	36	41	137	185	182

RBN Energy: What's with all the DUCs?

The latest Drilling Productivity Report from the EIA, released yesterday (February 13, 2017), shows that while the combined rig count in the seven major U.S. shale plays rose about 25% in the fourth quarter of 2016 versus the previous quarter, and the number of wells drilled was up 29%, well completions were up a paltry 1%, leading to an increase in the inventory of drilled-but-uncompleted wells (DUCs).

Completions accelerated a bit in January 2017, but DUCs still continued to rise. That certainly seems counterintuitive.  With crude oil prices stable in the low $50’s over the past few months you might think that producers would be pulling DUCs out of inventory, and in fact there have been statements to that effect in several producer investor calls. This is not just an exercise in energy fundamentals numerology. If the DUC inventory is increasing, then production will not be ramping up as fast as the growing rig count would imply.

But what if, as some early signs indicate, the historical relationships are out of whack and the DUC inventory isn’t growing but rather declining? In that case, forecast models could be understating the outlook for production growth, and the market could be in for a more rapid and steeper rebound in oil and gas production than many expect. In today’s blog, we delve into the DUC inventory data and its potential upside risk to production forecasts.

Scott Adams: freedom of speech is now largely an illusion.

Operations: Oasis reports a nice Rolfson N well:

• 31606, 1,722, Oasis, Rolfson N 5198 11-17 2B, Siverston, 36 stages, 4 million lbs, t8/16; cum 145K 12/17;
• the Rolfson N wells are tracked here