Wednesday, November 8, 2017

Meanderings After Wednesday Evening Bible Study -- Nothing About The Bakken -- November 8, 2017

Wow, I almost missed this. Posting this on the anniversary of Donald Trump's election -- just barely got it in under the wire, 11:07 p.m. on the East Coast.

Every time I look at this video, I see the real Bushes. People who are are "upset" by the president's tweets, a) aren't paying attention; and, b) have blinders on. Eyes wide shut.

Crossing The Rubicon

I don't think I'm going very far out on a limb to say that Donald Trump will not be re-elected. For investors, this means we have a three-year window of opportunity to get our portfolios in order. Likewise, publicly traded corporations have the same three-year, maybe four-year window to get their projects moving along. The next president will definitely be neither a friend of business nor a friend of the middle class.
The Literary Page

This book is almost a decade old but it has stood the test of time. If you have a literary "scholar" on your Christmas gift list, consider, A New Literary History of America, edited by Greil Marcus and Werner Sollors, c. 2009. The WSJ review is here.

The Travel Page

My favorite video.

What We're Going To Be Talking About This Weekend -- One Very, Very Cold Winter -- November 8, 2017

Multiple sources suggest a very, very cold autumn this year, and I assume a cold winter to follow.

See this post.

I am posting this for the archives. This paragraph was particularly interesting:
There are reasons to believe that the prospects for “high-latitude blocking” events this winter are pretty good as discussed extensively in the “2017-2018 Winter Outlook” with regard to three important factors: low solar activity, an increase in the autumnal snowpack across Siberia, and the Arctic Oscillation (AO) index.  
“High-latitude blocking” in the wintertime involves higher-than-normal pressure in places like Greenland, Iceland and northeastern Canada and it is important to monitor around here as it often results in sustained cold air outbreaks for the central and eastern US.
The latest runs of the GFS and European computer forecast models feature abnormally high pressure in these particular areas later this month and the predicted tanking of the AO index supports this idea for "high-latitude blocking" (i.e., negative AO). 
So much could be written but I would be preaching to the choir.

Speaking of choirs, not quite, but, for a real classic, skip ahead to 2:00 minutes at this video:

Andy Kaufman

North Dakota State Wants A "Stay" On The Mineral Rights Case -- November 8, 2017

From the Williston Herald: the state wants a "stay" in the mineral rights case. For those interested, you may want to save the article; it is likely to disappear over time. I will archive it. If the link is broken and you want to know what the article is all about, let me know.

Location Of EOG's Mont Well Pad -- West-Northwest Of Williston -- November 8, 2017

More on this later.

EOG has permits for four more wells on this pad. Based on their nomenclature, they will run north to south.

Two graphics:

The existing well:
  • 19409, 761, EOG, Mont 3-3403H, Painted Woods, t6/11; cum 215K 9/17; location: Lot1 34-155-102, 270 FNL 1320 FWL
The new permits:
  • #34263 - EOG RESOURCES, INC., MONT 12-3404H, LOT1 34-155N-102W, WILLIAMS CO., 280' FNL AND 1173' FWL, DEVELOPMENT, PAINTED WOODS, 20663', 9-5/8 INCH , 2292' GROUND, API #33-105-04624
  • #34264 - EOG RESOURCES, INC., MONT 13-3403H, LOT1 34-155N-102W, WILLIAMS CO., 280' FNL AND 1273' FWL, DEVELOPMENT, PAINTED WOODS, 20652', 9-5/8 INCH , 2291' GROUND, API #33-105-04625
  • #34265 - EOG RESOURCES, INC., MONT 14-3403H, LOT2 34-155N-102W, WILLIAMS CO., 280' FNL AND 1373' FWL, DEVELOPMENT, PAINTED WOODS, 20462', 9-5/8 INCH , 2291' GROUND, API #33-105-04626
  • #34266 - EOG RESOURCES, INC., MONT 102-3403H, LOT2 34-155N-102W, WILLIAMS CO., 280' FNL AND 1423' FWL, DEVELOPMENT, PAINTED WOODS, 20512', 9-5/8 INCH , 2291' GROUND, API #33-105-04627
  • I normally don't think of EOG being this far west of Williston. This is great news for mineral owners out in that area
  • good operators keep looking for new locations -- and even though EOG already has one well out here, it is obvious they are interested in more than just the Parshall oil field in the Bakken
  • I've always assumed operators number their "plans" chronologically, starting with #1 and moving up from there; I don't think they number them randomly; note the chronological numbers in the four new permits: #12, #13, and #14. That suggests to me that EOG has plans for at least 14 middle Bakken Mont wells -- not that they will all be drilled, but they have file folders for at least fourteen Mont middle Bakken wells; jumping to #102 suggests a different target horizon, most likely the upper Three Forks; for me this means at least two Three Forks wells (I assume many, many more)

Why US Refiners Like Shipping Gasoline To Mexico -- RINS -- November 8, 2017

Folks wonder why the price of gasoline will melt up when there remains a huge glut of oil in the US. There are many, many reasons. One reason: state taxes. Californians know all about that as new gasoline and diesel taxes go into effect in that state today.

But here's another reason: RINS.

See this article over at Bloomberg, which I posted in an earlier post but for a different reason. But this part of the story was too important to be lost buried in another post, so here it is, as a stand-alone.

US refiners will preferably ship their product to Mexico where they will command better margins because Mexico does not have costly biofuels regulations. Shipping product to Mexico will sop up some of that excess, in turn pushing prices here in the US slightly higher (and, of course, if Mexico can't take it all, Europe certainly will):
The chance to skip out on compliance with costly U.S. biofuels regulations by exporting fuel is a huge incentive for overseas sales. Under the Renewable Fuel Standard, refiners aren’t required to buy blending credits called RINs for barrels that are exported. Mexico has potential to demand 600,000 barrels a day of gasoline imports as its own refineries limp.
America’s southern neighbor has continued to be its best customer as its own fuel factories suffer from inefficiencies and breakdowns -- in September Mexico’s crude processing fell to the lowest since December 1990, or about 33 percent of its total national operating capacity.
I don't have a dog in this fight:
  • I don't invest in refineries, as a general rule (only exception: I own shares in some publicly-traded integrated companies)
  • the price of gasoline is off-set by the few miles I actually drive any more, and it's getting less every year (I do replace the tires on my bicycle more often these days, however
From A Reader

Some time ago, I mentioned to a reader that a family member suggested to me the high price of gasoline in California is due to some sort of "collusion" on the part of Big Oil.

The reader responded with two long notes regarding the gasoline taxes and the price of gasoline in California. I hate "not using" a great note from a reader but I did not know where to use those two notes until now. I'm too tired to do much more than post them as I got them with minimal editing, but it helps me put things in perspective:

The first note from the reader:
Here are current California state fuel taxes (they're going to go up soon)

38.13 cents per gallon of gas

40.01 cents per gallon of diesel


Gasoline subject to 2.25% sales tax. Diesel subject to 9.25% sales tax.

plus the federal government charges 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel

........................ So, the government skims the first 58 cents per gallon of gas or the first 71 cents per gallon of diesel sold in the state of California. I don't know how the "tax on tax" is computed, so those numbers are not warranted correct, but I know it's quite a nice annuity.

......................... The government take is nearly pure profit. They hire a few inspectors and quite a few more accountants, but they have very little overhead. The oil companies have a huge capital expense in exploration and production, not to mention transportation, etc., and their profit per gallon is somewhere around 7 cents per gallon. (Can't find that reference, but it's a number I saw a while back and I was just floored that the risk takers were making only what I considered one tenth as much profit as the government was.)
The second note:
This is an excerpt from an article which ran in Forbes back in 2011. I imagine there are more current figures, but I doubt that the teeter-totter has become more balanced. I'm sure I saw the 7 cents figure within the last couple months, because I would have not remembered it for 6 years. The government figure quoted is an average, and of course, California is at the top of the curve for taxes.


Industry profit margins are cyclical too. But on average, between 2006 and 2010, the largest oil companies averaged a profit margin of around 6.5%. This pales in comparison to profit margins in just about every other industry. The pharmaceutical industry, for example, routinely averages a profit margin of about 16%. The soft drink market is even more lucrative.

At the gas tank, integrated oil companies make about 7 cents per gallon. Meanwhile, the government extracts more than 48 cents, on average, per gallon. That’s right: Uncle Sam takes nearly seven times more out of drivers’ wallets via taxation than “Big Oil.”

For working Americans higher gas prices do indeed mean higher costs of daily living. But strong oil industry earnings (and profits beat losses in just about anyone’s book) also lead to very real economic benefits for these exact same families.

Compared with a small fraction of oil stocks (about 1.5%) owned by corporate management, the vast majority of such investments are held by average Americans, primarily via retirement accounts. Independent research shows that 14% of industry shares are in IRAs and a full 30% held in mutual funds.

Another 27% of oil stocks are in public pension funds. And in these accounts, oil shares more than pull their weight. While oil stocks made up less than 4% of major pensions in four key states between 2005 and 2008, they accounted for 8.6% of returns.

As the revenues of oil companies improve, so do their stock prices. In turn, teachers, firefighters, policemen and millions of other public servants see their retirement accounts expand. And as most states are struggling to keep their pension programs solvent, oil stocks can help ease that pressure and stave off fiscal woes.

And the economic ripple effects don’t stop there. Oil and natural gas companies support more than 9.2 million U.S. jobs and have invested nearly $2 trillion in domestic capital projects over the last decade. Higher earnings mean more cash to plow into new projects and jobs.

And remember: freely choosing consumers -- not government mandates – are driving industry margins and growth. Unfortunately the bloated political rhetoric generated by Capitol Hill raises the prospect of bad public policy. Some legislators have threatened to institute a brand new “windfall profit” tax in times of unusually high returns.

Such a move would saddle firms with new costs, which will get recouped with higher prices at the pump. Vulnerable American families would be squeezed. And firms would have less money to invest in new projects, leading to slower job growth and fewer employment opportunities.

Denunciations of America’s oil and natural gas industry ignore the fact that shifts in global supply and demand are behind increased prices of recent months. Resisting punitive politics will ensure that petroleum prices drop as political tensions ease and the dollar strengthens. Such market-based policy will also promote jobs, investment and income for America at a time when they are most needed.

-- Robert L. Bradley Jr. is the CEO and founder of the Institute for Energy Research.
Theme Song, The Adventures of Rin Tin Tin

It Never Seems To Quit -- Now It's The Refiners' Turn To Make American Great Again -- Huge Story And Why I Love To Blog -- November 8, 2017

Earlier today I posted this:

John Kemp May Be Unto Something Here -- Great Observation

Now, tonight, this story from Bloomberg: US flexes refining muscles to satisfy Mexico's fuel thirst.
Data points:
  • US refiners are setting up for the strongest end-of-year they've ever had ... and it's all thanks to Mexico 
  • refinery oil inputs are forecast to be almost 2% higher at year-end
  • Gulf Coast refiners seen favoring export over domestic sales
  • the graphic

For investors, this seems like an open-book test.

Poll -- November 8, 2017

Earlier today, while posting the story about Shell's new petrochemical plant being built near Pittsburgh, I got the feeling that there have been a whole lot more noteworthy stories about the US energy sector in the past few weeks than what I'm generally used to.

I don't want to write an essay on the issue but it just seems like the US is really "on a roll" when it comes to energy. I think what has impressed me more than anything is how quickly Houston was able to recover, at least at the macro-economic level. It says a lot about the dedication and the "can-do" spirit of American workers, and especially their families who, at the end of the day, are the ones who really provide the support for those workers to keep on  truckin' -- to use a phrase from the 60s (?).

Maybe my inappropriate exuberance for the Bakken has spilled over to the US energy sector in general so I thought I would at least ask the question if I was the only one who felt this way.

So, time for another poll: with regard to global energy, do you feel ...
  • much more optimistic than you did two years ago?
  • about the same as you did two years ago?
  • much more pessimistic than you did two years ago?
In the poll at the sidebar,  you can vote for any one of three answers, as well as writing in an opinion, if you want.

While considering this poll two more noteworthy energy stories crossed my "virtual desktop." I will post those stories later.

By the way, day-after-day the "stock market" seems to set a new high. Tonight, again, I see futures are green. Yes, futures mean squat but after four consecutive days of new highs, it's almost "scary" to see yet another even where futures are green. 

Wow, It Never Quits -- Making America Great Again -- First Of Its Kind Outside The Gulf Coast -- November 8, 2017

Wow, it never quits.

Back on January 19, 2017, it was reported that Potter, PA, has unanimously approved a conditional use permit for Royal Dutch Shell to move forward with construction of a multibillion-dollar petrochemical complex near Pittsburgh. Data points:
  • $6 billion project
  • will use low-cost ethane from shale gas producers in the Marcellus and Utica basins in PA, OH, and WV
  • to produce 1.6 million tonnes of polethylene per yer
  • company hopes to start construction sometime near the end of 2017
  • target in-service date early in the next decade
  • 6,000 construction workers; 600 permanent employees when project completed
  • this is "Shell's pioneering project" -- the first of its kind outside the Gulf Coast -- "could be the cornerstone for regional economic growth for decades to come
Today, the Oil & Gas Journal reports that the main construction phase has begun on this project. Data points:
  • Shell's Chemical Appalachia LLC's petrochemical complex in Potter Township, PA
  • early works program included
    • building bridges;
    • relocating a state highway;
    • improving existing interchanges;
    • repositioning a rail line (wow); and, 
    • preparing foundations for the complex
  • complex to include four processing units 
    • an ethane cracker; and,
    • three polyethylene units
  • the ethane cracker will be the largest part of the facility with more than 200 major components and 95 miles of pipe
  • the site will include a 250-Mw natural gas-fired power plant
  • much more at the link

Nine New Permits; EOG Cancels Twelve Permits; Four DUCs Completed -- November 8, 2017

Active rigs:

Active Rigs523864193182

Nine new permits:
  • Operators: EOG (4), MRO (3), CLR (2)
  • Fields: Painted Woods (Williams); Reunion Bay (Mountrail); North Tobacco Garden (McKenzie)
  • Comments: EOG has permits for a 4-well Mont pad in section 34-155-102; 
EOG canceled twelve (12) permits, all of them were West Clark permits, in McKenzie County.

Four producing wells (DUCs) were reported as completed:
  • 22071, 15 (no typo); WPX, State of ND, Van Hook, 19 stages; 2.9 million lbs, t7/17; cum 5K over 33 days;
  • 28465, 439, PetropHunt, USA 153-96-24D-13-6H, Keene, Three Forks, 48 stages; 5 million lbs, t10/17; cum --
  • 32281, 560, XTO, FBIR Blackmedicine 24X-21H, Heart Butte, Three Forks, 40 stages; 11.5 million lbs, t10/17; cum --
  • 32291, 1,146, XTO, FBIR Blackmedicine 24X-21F, Heart Butte, Three Forks, 40 stages; 7.4 million lbs, t8/17; cum 22K 9/17;

NOG's 3Q17 Earnings

From the company's press release:
  • daily production increased 11% sequentially to average 15,321 barrels of oil equivalent per day in the third quarter, for a total of 1,409,501 Boe
  • 3.6 net wells were added to production during the third quarter and wells in process ended the quarter at 18.0 net wells, the highest level since 2014
  • Northern now expects average daily production for 2017 to increase between 5% - 6% compared to 2016 and expects to add approximately 14.0 net wells to production for the year
  • Northern closed a new credit facility on November 1st that provides liquidity of approximately $235 million , comprised of $135 million of cash on hand and $100 million of delayed draw term loan availability
  • Northern's GAAP net loss for the third quarter of 2017 was $16.1 million . Adjusted net income for the quarter was $2.2 million . Adjusted EBITDA for the quarter was $35.7 million

The Market And Energy Page, T+291; COP For Investors -- November 8, 2017

COP: COP/CEO was just on CNBC. Had I  missed it, I would not have missed anything. This is as good as the interview for those interested in COP:
  • says committed to returns-focused strategy regardless of commodity price improvement
  • says plans to exceed original oil production forecast despite capital budget cut
  • says no water-borne oil exports from United States in third quarter
  • says 'quite possible' might see quarterly distribution from Australia Pacific LNG joint venture in fourth quarter
  • says does plan to start cutting stake in Cenovus Energy Inc after lock-up period ends in November
  • says currently producing more than 30,000 barrels/day of oil in Libya
  • says all gas from Australia Pacific LNG that's not sold domestically is under long-term contracts to customers in China and Japan
  • says some Australia Pacific LNG customers exercised right to not take up to 10 percent of contracted cargos, making some LNG available for spot sale in 2018 Source text 
Disclaimer: standard disclaimer applies.

Market: looks like all three indices could hit another record high today.
  • NYSE, new highs -- 110, including: Boeing; COP (whoo-hoo); DR Horton; Marathon Petroleum (MPC); McDonald's; Pembina Pipeline (again); Walmart
  • new lows: 79 

How The DAPL Affects One Bakken Producer -- November 8, 2017; Huge Refining Season In Store For US This Winter?

Take a look at these two posts again:
In its earnings call today (per Don, thank you), Oasis says DAPL has saved $2/bbl in transportation costs.

Production: Oasis says it is producing around 72,000 boepd.

Savings that drop directly to the bottom line due to the DAPL (some numbers rounded):
  • $2 / bbl * 72,000 boepd = $150,000 / day
  • 30 days * $150,000/day = $4.5 million / month = $50 million / year
Disclaimer: the usual disclaimer applies. Most relevant -- I often make simple arithmetic errors.

The two-year Native American delay in completion of this pipeline could have cost Oasis as much as $100 million. And that's just the tip of the iceberg -- how much that meaningless protest cost.

John Kemp May Be Unto Something Here -- Great Observation

US Crude Oil Inventories Increased -- Oh, Oh -- The Red Queen Has Not Fallen Off Her Treadmill -- November 8, 2017

US crude oil inventory: has been released. Oh-oh. The numbers: +2.2, -3.3, and +9.6. Oh-oh. WTI: $56.60 -- dropped about 60 cents after report released.

CNBC is reporting that -- surprise, surprise, surprise --
  • US crude oil inventories surprisingly increased by 2.2 million bbls; now at 457.1 million bbls
  • US gasoline inventories dropped 3.3 million bbls; and,
  • US produced a record 9.6 million bopd -- the Red Queen has not fallen off her treadmill
From the report (linked above), in addition to numbers above:
  • refinery inputs up almost 300,000 bopd, but still operating below 90% capacity (89.6%)
  • gasoline production actually decreased last week; averaging 10.2 million bbls/day
  • distillate fuel increased last week; averaging 5.2 million bbls/day
  • crude oil imports averaging slightly more than last year
Comments: tea leaves suggest US production will continue to increase (seasonally adjusted) --
  • US operators are targeting $27-oil as their breakeven point
  • with Brent oil at $64 and narrowing WTI-Brent spread, operators are hedging their oil (probably putting their floor at $56 - transportation costs)
  • no indication that crude oil demand will decrease over the short term
  • OPEC extends cuts; has been losing market share in Asia
  • even CLR has announced first shipment of Bakken oil to Pacific
  • US infrastructure in place
Re-balancing: due to the "surprising increase of a 2.2 million-bbl increase in US crude oil inventories, the number of weeks to "re-balance" has increased from 38 weeks (previously) to 42 weeks (currently).

Weeks to RB
Week 0
Apr 26, 2017

Week 1
May 3, 2017
Week 2
May 10, 2017
Week 3
May 17, 2017
Week 4
May 24, 2017
Week 5
May 31, 2017
Week 6
June 7, 2017
Week 7
June 14, 2017
Week 8
June 21, 2017
Week 9
June 28, 2017
Week 10
July 6, 2017
Week 11
July 12, 2017
Week 12
July 19, 2017
Week 13
July 26, 2017
Week 14
August 2, 2017
Week 15
August 9, 2017
Week 16
August 16, 2017
Week 17
August 23, 2017
Week 18
August 30, 2017
Week 19
September 7, 2017
Week 20
September 13, 2017
Week 21
September 20, 2017
Week 22
September 27, 2017
Week 23
October 4, 2017
Week 24
October 12, 2017
Week 25
October 18, 2017
Week 26
October 25, 2017
Week 27
November 1, 2017
Week 28
November 8, 2017

Three High-Intensity Fracked Wells Reported -- Wednesday, November 8, 2017

Released: US crude oil inventory; released at 9:30 a.m. Central Time. Uh-oh. The numbers: +2.2, -3.3, and +9.6. Oh-oh. WTI: $56.46. See this post, now that report has been released.

High-intensity frack wells reported today:
  • 33490, 839, Kraken Operating, Kari 30-19 4H, Squires, 50 stages, 15 million lbs, t9/17; cum 14K over 25 days; 
  • 33488, 845, Kraken Operating, Kari 30-19 2H, Squires, 50 stages, 15.4 million lbs, t9/17; cum 14K over 23 days; producing, 
  • 32599, 2,386, WPX, Ruby Parshall, Antelope, Sanish, Three Forks, 61 stages, 20 million lbs, t9/17; cum 22K over 21 days; 
The Ruby / Ruby Parshall wells are tracked here

Active rigs:

Active Rigs543864193182

RBN Energy: E&P leverage stable despite price volatility.
Earlier this year, we conducted an in-depth analysis of these same 43 E&Ps in our market study. We found that E&Ps displayed a new and welcome discipline in response to the oil price plunge in late 2014 through mid-2016. As a result, they emerged from the crisis in a remarkably solid financial position. As we explained in subsequent blogs, our universe of E&Ps generated $9 billion in profits in the first quarter of 2017 after more than $160 billion in losses in 2015-2016.
With prices recovering, they boosted their 2017 capital budgets by 40% after slashing spending by 70% over the previous two years. However, in early March 2017, oil prices started falling again and subsequently seesawed higher and lower until the price for benchmark West Texas Intermediate (WTI) finally hit its 2017 low of about $43/bbl in June. Profits and cash flows dipped in the second quarter, although the industry remained in the black. Despite the price volatility, producers decided to maintain their accelerated budgets. We thought it would be a good idea to revisit the balance sheets of the 43 E&Ps to see if any of these companies have been eroding their financial positions.
US crude futures trading soaring past Brent as shale drillers hedge future output. From Reuters. Huge story which will aggravate Saudi's goal to achieve $70 oil.

OPEC cuts / compliance, from Platts via Twitter: