Wow, Wow, Wow -- Great Article On WTI-Brent Spread -- If You're Following The Bakken, This Is A Must Read -- November 7, 2017

This graph is an eye-opener:

And why is that important?

That's how important the DAPL was to the economy of North Dakota. I think I mentioned this on the blog once before: for many, many years I made donations to Native Americans in South Dakota but during the DAPL protest I sent them a note telling them I would no longer donate, and that they should quit sending me solicitations. Haven't heard from them since, and haven't donated since. Actions have consequences.

But I digress. The graphs are from an article at Bloomberg, "why WTI pries aren't going anywhere."

From the article:

While I emphasized the differences in speculative money flows to the Nymex West Texas Intermediate, or WTI, and Brent crude oil contracts, I didn't give the role of logistics the prominence it deserved. So here goes.

To recap, the spread between WTI and Brent crude prices began widening in late July and has recently blown out to about $6 or $7 a barrel.

Hurricane Harvey's disruptive impact in late August helped push that spread beyond $5. But it had been opening ahead of that and hasn't shown signs of closing since.
Besides Brent's international benchmark, Nymex WTI is suddenly trading at wide discounts to other benchmarks within the U.S., too.

Those premiums of roughly $5 to $6 for Louisiana Light Sweet and WTI delivered in Houston are big flags that something is up with the way oil is flowing within the U.S.
The Nymex WTI contract is settled physically at the pipeline and storage hub in Cushing, Oklahoma, which is hundreds of miles inland from the refining and export facilities along the Gulf Coast. The other  barrels, closer to the coast -- and, therefore, global markets -- are priced more in-line with Brent. Their premiums versus Nymex WTI jumped at the end of August as Hurricane Harvey's disruption kept barrels bottled up in Cushing.

But their continued strength and that other line on the chart above -- for barrels priced in North Dakota -- hint at other, more structural issues.

John Coleman, a senior analyst at Wood Mackenzie, points to the start-up of the Dakota Access pipeline in June. Dakota Access takes barrels from the Bakken down to Patoka, Illinois -- where they compete with barrels coming from Cushing. Better access to Midwestern refiners, as well as pipelines heading south from Patoka to ports on the Gulf Coast, helped close the Bakken discount to WTI and encouraged a bit more production in North Dakota.

Much, much more at the link. 

Oasis Reports 3Q17 Earnings; Update On The Largest Natural Gas Processing Plant Complex In North Dakota -- November 7, 2017

Oasis website.

Slides for the company's earning's call (a pdf will download). 

After earnings reported, after hours trading, OAS up 50 cents, or 5%.

From the company's press release:

• completed and placed on production 24 gross (15.1 net) operated wells in the Williston Basin in the third quarter of 2017
• produced 66.1 thousand barrels of oil equivalent per day in the third quarter of 2017, representing an increase of 7% over the second quarter of 2017, primarily driven by completion activity. Production during the third quarter of 2017 increased 36% over the third quarter of 2016
• produced over 69 MBoepd in October 2017 and expect to produce between 69 MBoepd and 72 MBoepd in the fourth quarter of 2017. Oasis continues to expect to hit an exit rate of 72 MBoepd, delivering 16% growth above the 2016 exit rate
• oil differentials have improved to $1.82 off of NYMEX West Texas Intermediate crude oil index price in the third quarter of 2017, and Oasis expects differentials in the fourth quarter to range from $1.25 to $2.00 off of WTI
• delivered adjusted EBITDA of $179.6 million for the third quarter of 2017. For definitions of adjusted EBITDA and reconciliations of adjusted EBITDA to net income and net cash provided by operating activities, see "Non-GAAP Financial Measures" below
• commenced operations of its second Oasis Well Services ("OWS") frac crew during the third quarter of 2017
• Oasis Midstream Partners LP sold 8,625,000 common units, representing limited partner interests in an initial public offering for net proceeds of $137.2 million, of which $131.6 million was distributed to Oasis
• announced investment in and assignment of second Wild Basin Gas Plant (Gas Plant II) with a total capacity of 200 million standard cubic feet per day to service gas production from its highly economic inventory
• xxpects full year 2017 adjusted CapEx to total $620.0 million, in line with prior guidance. See "Capital Expenditures" below for adjustments. Including net proceeds distributed to Oasis from the OMP IPO and adjustments for the Gas Plant II assignment, Oasis generated positive free cash flow of $39.0 million for the nine months ended September 30, 2017

Gas Plant II:

Update Oil and gas production from Oasis' Wild Basin wells continues to exceed expectations, primarily due to higher frac intensity in the core areas of the Williston Basin. The initial gas to oil ratio ("GOR") is generally higher in the core of the Williston Basin, including parts of McKenzie County, compared to the entire basin. The combined effect of these factors has resulted in record gas production levels in the Williston Basin and particularly in McKenzie County where much of the drilling since 2015 has occurred, which now produces approximately half of the gas production in North Dakota. Due to the increased production of gas in the Williston Basin, there is a need for incremental processing capacity in the basin.

Gas production in Wild Basin has already surpassed original design expectations for OMP's 80 MMscfpd gas plant, which is held by OMP's wholly-owned development company ("DevCo"), Bighorn DevCo LLC ("Bighorn DevCo"), and recently has averaged gross gas production in Wild Basin of approximately 100 MMscfpd. Oasis initially evaluated options to process the incremental gas that is being produced in and around Wild Basin and subsequently began the front end engineering and design process for a second gas plant and began ordering long lead time items. Oasis recently made the decision to proceed with the construction of Gas Plant II, and on November 6, 2017, Oasis agreed to assign the project to OMP. In exchange for the assignment of Gas Plant II into Bighorn DevCo, OMP agreed to reimburse Oasis for 100% of the capital spent-to-date and will fund 100% of the remaining project capital. OMP funded the reimbursement under its revolving credit facility and will have full rights to all cash flows generated from both gas plants held by Bighorn DevCo. For the nine months ended September 30, 2017, Oasis invested $57.0 million in Gas Plant II, and on November 6,2017, assigned $66.7 million of asset value to OMP, which included capital spent in October 2017. OMP expects to invest approximately $140.0 million for the entire Gas Plant II project and anticipates operations will begin in late 2018.

For my purposes, I will call this the Oasis "Wild Basin Gas Plant Complex" which apparently will have "Gas Plant I" (80) and "Gas Plant II" (185).

Note this post back on July 10, 2017: Oasis wants to be the biggest in the state -- natural gas processing plant. At that post:

From The Bismarck Tribune via The Charlotte Observer:

A company has proposed an expansion for a natural gas processing plant in the most prolific part of the Bakken oil patch in northwestern North Dakota.

The Bismarck Tribune (http://bit.ly/2tFJeuB ) reports that Oasis Midstream wants to expand the Wild Basin Gas Plant in McKenzie County to make it the largest natural gas processing complex in the state.

The plant currently processes about 80 million cubic feet of natural gas per day. The expansion would add a new complex next to the existing plant, which would allow the plant to process an additional 265 million cubic feet per day.

According to documents filed with the North Dakota Public Service Commission, construction is expected to cost around $140 million.

CLR Reports 3Q17 Earnings

From the company's press release:

General

• net income of $10.6 million, or $0.03 per diluted share, in line with consensus 
• capital spending in line with $1.95 billion budget 
• oil production up 12% over 2Q 2017; 58% of third quarter production was oil

Guidance Improved 

• 2017 exit rate raised to 280,000 to 290,000 barrels of oil equivalent (Boe) per day, up 33% to 38% over 4Q 2016
• annual production raised to 238,000 to 242,000 Boe per day, up 10% to 12% over 2016
• annual oil differential improved to ($5.25) to ($5.75) per barrel of oil (Bo), a 22% to 28% improvement over 2016
• 4Q 2017 oil differential expected to be ($4.25) to ($4.75) per bbl of oil

Average 24-Hour Initial Production (IP) Highlights

• Bakken: 57 gross operated wells average 1,752 Boe (80% oil) per well
• STACK Meramec oil window: 22,032 Boe (75% oil) from 10-well Compton density unit
• STACK Meramec condensate window: 6,715 Boe (28% oil) from Lorene 1-8-5XH; Oklahoma horizontal well record
• SCOOP Woodford condensate window: 41,701 Boe (11% oil) from 10-well pattern Sympson density unit; Oklahoma unit record

Other data points

• adjusted net income for 3Q17 was $32.16 million, or $0.09 per diluted share
• net cash provided by operating activities for 3Q17 was $431.4 million 

Earnings call/transcript to be posted later.

The market, CLR shares:

• before announcement, CLR closed at $43.59, down 35 cents for the day
• after the announcement, in after hours trading, up 94 ents to $44.00

Twelve DUCs Reported As Completed; Six New Permits -- November 7, 2017

Active rigs:

$56.98→	11/7/2017	11/07/2016	11/07/2015	11/07/2014	11/07/2013
Active Rigs	54	38	64	193	181

Six new permits:

• Operators: Crescent Point Energy (5); Bruin E&P Operating
• Fields: Lone Tree Lake (Williams); St Anthony (Dunn)
• Comments: a quick look at NDIC's "well search" reveals that this is the first 2017 permit for Bruin E&P; it looks like they had two permits issued in 2014; and, three or four in 2013; many older permits before 2013

Bruin E&P Partners (from "Bakken Operators")

• big news, July 11, 2017: Bruin to buy all of Halcon's operated assets in the Williston Basin
• 104,000 net acres for $1.4 billion; about $13,500/acre
• first mentioned at the blog; January 23, 2017

Twelve producing wells (DUCs) reported as completed:

• 28785, 943, CLR, Bratlien 5-26H, Sadler, t10/17; cum --
• 28786, 1,375, CLR, Bratlien 4-26H1, Sadler, t10/17; cum --
• 28787, 980, CLR, Bratlien 3-26H, Sadler, t10/17; cum --
• 31676, 2,028, CLR, Rath Federal 11-22H, Sanish, t10/17; cum 5K over 6 days;
• 31677, 405, CLR, Rath Federal 12-22H2, Sanish, t10/17; cum 4K over 5 days;
• 31678, 1,424, CLR, Rath Federal 13-22H, Sanish, t10/17; cum 3K over 7 days;
• 32280, 702, XTO, FBIR Blackmedicine 24X-21C, Heart Butte, t10/17; cum 4K over 4 days;
• 32282, 872, XTO, FBIR Blackmedicine 24X-21CXD, Heart Butte, t10/17; cum 19K over 15 days;
• 32283, 222, XTO, FBIR Blackmedicine 24X-21E, Heart Butte, t9/17; cum 4K over 22 days;
• 32472, 529, XTO, FBIR Blackmedicine 24X-21D, Heart Butte, t9/17; cum --;
• 32707, 296, XTO, FBIR Blackmedicine 24X-21EXH, Heart Butte, t9/17; cum 13K over 22 days;
• 33740, 58 (no typo), Lime Rock Resources, High Ridge 8-5-1H-160-90, Dimond, t10/17; cum --

Note: the Rath Federal wells are tracked here.
 

API Reports A Very Modest Drawdown In Weekly Crude Oil Inventories; Awaiting EIA Data That Will Be Released Tomorrow -- November 7, 2017

We'll see the EIA data tomorrow but API is reporting the following regarding weekly crude oil inventories:

• forecast: a drawdown of 2.7 million bbls
• actual (API data): a drawdown of 1.562 million bbls

I really can't say much because API and EIA data is often quite different, but if the drawdown is in the 1.5 to 2.5 million bbl range, all one can is that it is in the right direction but won't make much change in the number of weeks it takes to get us back to "balanced."

If the drawdown is less than forecast, that will be the bigger story regardless of the actual amount if the drawdown is less than 3 million bbls when the EIA reports tomorrow.

Update: EIA data has been released and is posted here. 

The Energy And Market Page, Part 3, T+290 -- November 7, 2017

Bakken announcement: as previously "forecast," WPX reports a huge well:

• 32600, 2,306, WPX, Ruby Parshall 31-30HZ, Antelope, 41 stages; 6.1 million lbs, t9/17; cum 42K 9/17;

Monthly Production Data:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
SANISH	9-2017	27	41626	41499	29127	51450	28117	1874

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The markets: the Dow eked out another record setting day -- it was negative all day and then just barely went green near the close; closed up 5 points to settle at 23,553. NYSE with 167 new highs, including: Boeing (will this one ever quit going up?); Concho Resources (a favorite of Mike Filloon's); COP (whoo-hoo); Deere (again); KB Homes; McDonald's; Pembina Pipeline (in the news today); SRE (whoo-hoo).

• new lows: 63
• others of note: 
• CVX: flat at $117; 52-week high is $120; pays almost 4%
• RDS-B: a bit of profit taking, down a bit of 1% today; at $46.67; 52-week high, $67.40; pays a whopping 5.71%;
• UNP: flat; at $117; 52-week high, $119.71; pays 2%

Railroads: increased demand for coal, sand help BNSF boost earnings.

• revenue: $5.31 billion
• net earnings: $1.04 billion
• up 4.7% and 2.2% respectively compared to one year ago
•  pace of growth slower than first two quarters of 2017
• the resurgence of coal boosted revenue for the rail company

Re-Posting EIA's Forecast For Crude Oil Prices In 2018

EIA has just released its monthly short-term energy outlook. The outlook on crude oil is worth re-posting:

• Brent crude oil prices averaged almost $58 per barrel in October, the highest monthly average since June 2015, as global oil stock have fallen by an estimated 400,000 barrels per day over the past six months. 
• EIA expects Brent prices to average $56 per barrel next year.
• Despite lower production in of the Gulf of Mexico during October, mainly attributed to Hurricane Nate, total U.S. crude oil production averaged 9.3 million barrels per day for the month. Our forecast continues to expect overall U.S. production to average 9.9 million barrels per day for all of 2018.

So, again, in case you missed it: Brent recently went to $58, getting everyone excited about a bull market in oil. But EIA forecasts Brent prices to average $56 in 2018. Correct me of I'm wrong, but $56 is two dollars less than $58. Other things to consider:

• unless the Brent - WTI spread flips, WTI will be trading in the range of $50 - $52 based on EIA's forecast for Brent -- $50 to $52
• OPEC forecasts US shale production to soar
• Saudi needs a minimum of $70-oil to balance its budget; $58 is a long, long way from $70

It's a fool's errand to forecast oil prices but assuming there is no geopolitical event in the Mideast that might upset the apple cart, I cannot argue with either the EIA or OPEC. 

US consumers should look forward to stable gasoline prices, and Saudi Arabia remains in deep doo-doo. 

From a Bloomberg article today, "OPEC fights back," dated November 7, 2017, one almost has to laugh. These were the two concluding paragraphs:

While prices are a bit better now, the coming years don’t look so great. OPEC is probably going to need to sustain its cuts for another year. Even if the cuts finish in late 2018, it’s looking at zero growth in demand for its crude until 2025 as shale takes all the new market share. 

OPEC’s World Oil Outlook 2017, published today, gives further encouragement. OPEC expects shale oil production to peak after 2025 and decline from about 2030. OPEC will then be required to increase its own output from about 33 million barrels a day in 2025 to 41.4 million in 2040, according to the report.

 

The Energy And Market Page, Part 2, T+290 -- November 7, 2017

EIA's short-term energy outlook released:

Oil Markets:

• Brent crude oil prices averaged almost $58 per barrel in October, the highest monthly average since June 2015, as global oil stock have fallen by an estimated 400,000 barrels per day over the past six months. 
• EIA expects Brent prices to average $56 per barrel next year.
• Despite lower production in of the Gulf of Mexico during October, mainly attributed to Hurricane Nate, total U.S. crude oil production averaged 9.3 million barrels per day for the month. Our forecast continues to expect overall U.S. production to average 9.9 million barrels per day for all of 2018.

Gasoline/Refined Products:

• U.S. regular gasoline retail prices averaged $2.51 per gallon in October.
• That price was down 14 cents per gallon compared with September, and we expect prices to continue trending down in a typical seasonal pattern through the end of 2017.
• Consumers could expect to see retail regular gasoline prices average $2.45 per gallon in 2018, just above the expected average retail price per gallon of $2.40 for all of 2017.

Natural Gas:

• We foresee a likely rebound in average household residential consumption of natural gas this winter, as we expect temperatures to be closer to average and therefore colder than last year.
• Following last year’s very warm winter, consumption could climb by 8% this winter.

Electricity:

• The share of utility-scale electricity generation for natural gas and coal continues to be evenly split at about 31% for each fuel source in 2017. 
• For natural gas, that’s down three percentage points from 2016, resulting largely from a combination of higher prices coupled with increased coal and renewables generation.

Coal:

• EIA revised its projections for coal exports up this month. We now expect to see U.S. coal exports to climb by about 37% from 2016 to 2017, as coal production continues to grow.

Renewables:

• The data indicate that conventional hydroelectricity in the United States will increase by roughly 13% in 2017 compared to 2016 because of heavy snow in the West last winter. At this time, we project hydroelectric generation will return in 2018 to levels closer to those seen in 2016.

*************************************

Cold front: Unfortunately I don't have the full graph, but it's enough for me. It appears the blue (cold) covers a much, much wider area than the red (warm). Don tells me it was 2 degrees below zero in Hettinger, ND, overnight.

This comes via Twitter:

SRE: on a day the market is down, SRE is up over a percent, hitting a new 52-week high. I assume it is because of these forecasts for a colder winter. SRE pays 2.77% even at this high share price. As late as December, 2013, SRE paid a quarterly dividend of 63 cents; it now pays a dividend of 82.3 cents per share and likely to raise that dividend in March, 2018.

Disclaimer: standard disclaimer in effect.

The Energy And Market Page -- T+290 -- November 7, 2017

Production records in the Bakken. The other day this DUC was reported as completed:

• 30550, 4,516, MRO, Brush 24-8H, Bailey, 45 stages, 8.8 million lbs; t9/17; cum 59K in 26 days;  

Monthly Production Data:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	9-2017	26	58582	57628	0	62725	23	56224
BAKKEN	8-2017	1	662	620	0	167	0	95

For newbies: is this a new first-month production record?. At 26 days, 58,582 bbls extrapolates to 69,848 bbls over 31 days; or 67,595 bbls over 30 days. It ranks up there, but it is not a record. See the tag "RecordIP" to see other posts on this subject.

 *****************************************

Tesla: It's hard to believe that "no one" is discussing this despite the rumors that Tesla's "production hell" is due to battery issues (plus other issues):

Buried in the news today (November 6, 2017) -- Tesla's head of battery engineering exits. Wow, wow, wow.  Not aware that it was mentioned on CNBC -- didn't hear it mentioned on "Fast Money" or "Mad Money."

"Tesla watch" here. 

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

KMI: Motley Fool discusses pipelines.

ETP: Motley Foot discusses pipelines and mentions the Bakken Pipeline System. 

Bakken Pipeline System (from "Pipelines"):

Two legs (link here):

• Dakota Access Pipeline (DAPL)
• Energy Transfer Crude Oil Pipeline

Disclaimer: I generally do not correct old posts (except for typographical errors). I often make factual and typographical errors. The older a post is, the more likely things have changed. To the best of my ability, when discussing the Bakken, I try very hard not to make factual errors. Except for my exuberant and irrational enthusiasm for the Bakken I don't have any real agenda with regard to the Bakken, but that does not mean I don't have strong opinions about the Bakken. I guess I do have one agenda: to "prove" the Bakken skeptics wrong. (I'm talking production, not investment.)

US Shale Crude Oil Production Will SOAR Over The Next Four Years; Production Will Grow Considerably Faster Than Expected -- OPEC -- November 7, 2017

You may want to re-read this post first, in which the author(s) argue that shale oil will not be able to keep up, suggesting that "peak oil" and "re-balancing" are right around the corner.

Now, we have a Bloomberg article with this headline: OPEC now says US shale will grow even faster than they previously thought.

Before we look at this article, we may want to look at the slides posted in the last couple of days, coming from the Bakken:

• Whiting
• CLR
• Oasis

Now, to the Bloomberg article (a thank you to Don for alerting me to the article):

• OPEC raises forecast for shale oil output in annual report
• shale producers show "resilience and ability to bounce back"

Look at the adverbs:

OPEC said shale oil production will grow considerably faster than expected over the next four years.

More data points:

• US shale operators too advantage of OPEC's cuts which triggered a crude-price recovery
• North American shale output will soar to 7.5 million bopd in 2021 -- OPEC
• that's 56% higher than it forecast a year ago

Much more at the link, but I think that's enough for now.

This is how OPEC sees the future of global shale:

For The Archives -- Re-Balancing And Peak Oil Right Around The Corner -- November 7, 2017

Four articles for the archives:

• "The perfect storm," October 25, 2017. Over at SeekingAlpha.
• Brent hits $64 -- this is just the start of the bull market, November 6, 2017. Over at SeekingAlpha.
• from BloombergBusinessweek: the fracking boom hits a mid-life crisis, November 1, 2017. 
• OPEC fights back, Bloomberg, November 7, 2017.

Two graphs from the SeekingAlpha articles:

 Quiz, open-book: at the first linked article above, what oil basin did the contributor fail to mention?

From the linked BloombergBusinessweek article:
“There’s a complacency that shale is going to continue to produce at the kind of volumes that we had in the past,” says Jim Brilliant, a portfolio manager for Century Management Investment Advisors in Austin, whose investments include shares in energy-related companies. Output has recently failed to meet expectations. As of June, the U.S. Energy Information Administration expected an average of about 9.3 million barrels a day, more than 220,000 barrels a day higher than companies reported.
Two comments:

• see this post (at that post, click on the link to the Whiting, Oasis, and CLR slides); and,
• 220,000 / 9.3 million = 2.3% -- I would say that's a rather good forecast (remember, pollsters as late as the week before the election, had Hillary Clinton 15 points ahead of Trump, and winning the election 

From the Bloomberg article, "OPEC fights back," dated November 7, 2017, one almost has to laugh. These were the two concluding paragraphs:

While prices are a bit better now, the coming years don’t look so great. OPEC is probably going to need to sustain its cuts for another year. Even if the cuts finish in late 2018, it’s looking at zero growth in demand for its crude until 2025 as shale takes all the new market share. 

OPEC’s World Oil Outlook 2017, published today, gives further encouragement. OPEC expects shale oil production to peak after 2025 and decline from about 2030. OPEC will then be required to increase its own output from about 33 million barrels a day in 2025 to 41.4 million in 2040, according to the report.

Tuesday, November 7, 2017

Active rigs:

$57.25→	11/7/2017	11/07/2016	11/07/2015	11/07/2014	11/07/2013
Active Rigs	52	38	64	193	181

RBN Energy: natural gas production from crude-focused basins growing again.

Lower-48 natural gas production has climbed more than 4.0 Bcf/d in the past 10 months. While Marcellus/Utica activity continues to drive the bulk of the recent increases in total volumes, crude-focused basins, like the Permian and SCOOP/STACK plays, also are picking up steam as a new generation of oil rigs is deployed to the fields and vying for market share. In other words, production growth is no longer a one-man — uh, one-basin — show. Today, we look at what’s happening with gas production outside the Northeast.

Lots of stuff to blog, but I think I'm going to wait after I drive the granddaughters to school.