Good, Bad, Indifferent -- WTI Moving Higher More Quickly That I Expected -- May 16, 2018

Updates

May 19, 2018: in the commentary below (in the original post), I mention that hedging is a two-edged sword: From Marcket Watch:

U.S. shale oil producers don’t benefit quite as much as you might expect from high crude prices, thanks to pipeline bottlenecks and price hedging.

“Many of these shale companies are spending more than they are making, or close to it,” said Matt Badiali, senior research analyst at Banyan Hill.

“These companies aren’t exposed to the higher prices because many of them hedged their oil production at $50 per barrel,” he said—well below the $62.88 he pegged as the average in the first quarter of this year.

WPX Energy Inc. for example, reported an adjusted net loss of $30 million for the first quarter, driven by $69 million of net losses associated with its hedges.

Original Post

Active rigs:

$71.54↑↑	5/16/2018	05/16/2017	05/16/2016	05/16/2015	05/16/2014
Active Rigs	59	50	28	83	190

Three new permits:

• Operators: Nine Point Energy (2); Abraxas
• Fields: Elk (McKenzie): North Fork (McKenzie)
• Comments:

Three permits renewed:

• Statoil (2): two Raymond permits in McKenzie County
• Resource Energy Can-Am: one Grays State permit in Divide County

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

So, What's Going On?

For newbies, WTI is surging and great drilling weather is returning to the Bakken.

So, why are the number of rigs dropping back into the high 50s? Why? There as many DUCs as ever -- wells are being drilled to depth, but not being completed? Why? WTI is surging faster than I expected? What's going on?  There should be more takeaway capacity than necessary and North Dakota has relaxed penalties on flaring. There seems to be a lot of activity in the Bakken but not a lot of production and yet the price of oil is moving higher faster.

These are my thoughts.

First:

• most operators have a strategic plan, and a tactical plan; CAPEX and and annual drilling programs planned well in advance and don't change them "overnight"

Second:

• most operators have contracts with buyers (pipeline companies and refiners) for a set amount of oil on a particular date (or dates)
• once those contracts have been met, operators have "room" to decide how much extra oil they want to bring to market
• some operators plan on bringing a certain amount of oil to market for the year and once they reach that threshold can elect to hold back more production especially if they see the price of oil moving higher in the near future

Third:

• hedging is a two-edged sword; operators can protect themselves with collars; one can lose money (on paper) with collars
• some Bakken operators are hedged; some are not: I would think hedging could have significant impact on operations/production when the price of oil is moving quickly in one direction or the other

Fourth:

• there could be operational reasons in the Bakken for the number of rigs dropping and the number of DUCs and inactive wells remaining pretty much unchanged: this winter has been longer than usual, and spring "road restrictions" may have lasted longer into spring

These are some ideas. I suppose there are many other reasons, and roughnecks in the field also have some pretty good insight as to what it going on. But it has to be surprising to some folks that WTI is now solidly above $70 and yet the Bakken (measured by the number of active rigs and the number of DUCs and inactive wells) seems to be "holding back.

But, with WTI surging to  $70 one still wonders why certain metrics seem to be holding back int he Bakken. Not worried. Just idle rambling.