Monday, June 18, 2018

The Permian Could Be A Disaster For Some Operators In The Short Term -- June 18, 2018

On June, 2018, this "headline" at the blog:
Reading Between The Lines, The Permian Could Be A Disaster For Some Operators In The Short Term (One To Two Years) Including Apache 
Now, over at Permian discount could rise to $20 per barrel.

I'm not sure it was even that bad for the Bakken during the early days when takeaway capacity was lacking.

From the article:
That only magnifies the recent conclusion that some analysts have come to, which is that the Permian is now made up of “Haves” and “Have Nots.” That is, shale companies that have lined up pipeline capacity under contract should emerge from this period unscathed, while those shale companies, often smaller ones, that have failed to secure pipeline space are suffering from the discounts. Goldman has Buy ratings for Occidental Petroleum, Pioneer Natural Resources and WPX Energy because of either secure pipeline contracts or because production is hedged at fixed prices for the next year.
Goldman Sachs analysts recently met with Permian producers, and came to the conclusion that drilling activity has not slowed all that much. Even for a handful of drillers without secure pipeline space, the fact that oil prices have moved up significantly over the past year means that they still think they will spend within their cash flow, even after taking into account the discounts. Obviously, the shale industry is not monolithic, and some drillers are leaving open the option to cutback, but Goldman said one of its key takeaways was that the pace of drilling is continuing at a high rate.
No companies are mentioned by name in this article, unless I missed something.

Austin Chalk

"Analysts" are suggesting frackers will move to the Austin Chalk next. The Austin Chalk is tracked here, Louisiana and Texas.

Three Words I Love To See In One Sentence Regarding The Bakken: Massively Increasing Production -- June 18, 2018

Readers may remember this post regarding Continental Resources from just five days ago, June 13, 2018: "all of CLR's optimized completions now exceed 1.1 million bbls EUR type curves." I don't know if folks realize how incredible that data point is.

Apparently someone does. From a contributor over at SeekingAlpha:
  • Continental Resources is massively increasing its production
  • higher production is accompanied by lower costs which results in accelerating profitability
  • the company's stock price is massively outperforming its peers and a good place to be during an oil bull market
Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, or relationship decisions based on anything you read here or think you may have read here.

So let's see what Leo Nelissen has to say.
The most recent investor update from Continental Resources provides an amazing overview for investors. The presentation is very unbiased given that almost everything was based on simple facts and numbers. However, the biggest variable is the oil price which is influencing many ratios/indicators.
Annual free cash flow is one of those indicators. Until 2015, free cash flow had been negative due to massive outspend and investments with oil prices close to $100 per barrel. In 2016, free cash flow started to bottom along with the oil price. Initially, this was mainly thanks to divestitures. However, over the next 6 months, it is expected that free cash flow will reach the $800-$900 million range supported by a higher oil price (based on $60 per barrel) and increased production of close to 300,000 barrels per day. 
And more:
Total production in the first quarter came in at more than 161,000 Boepd. This is a 48% production increase compared to the first quarter of 2017. On top of that, the company mentions a favorable tailwind from an increasing Bakken oil differential which has improved by 47% to $4.31 per barrel.
When it comes to profitability, the company mentions a rate of return of about 140% in the Bakken area. This can increase to 180% if oil goes above $70 again.

The Market, Energy, And Political Page -- The UK Blinks -- Steps Back From Ban On Petrol/Diesel Vehicles -- June 18, 2018

I think it can be argued that "the cost of renewable energy" is widening the economic gap between the US and the EU. See this post. From an earlier post:
Politically and economically, the EU, link here:
Now this:

The link to the Financial Times story is here. The most remarkable thing about this story -- the "ban" wasn't even going into effect until 2040, but major policy decisions were going to be made now that would affect 2040 goals. Something tells me the Queen wasn't going to give up her multiple limousines.

Germany will be the next to re-consider. If not, Germany will no longer be economic engine driving the EU.

Active Rigs In North Dakota To 64 -- June 18, 2018

Active rigs:

Active Rigs64572878189

Six new permits:
  • Operator: Whiting
  • Field: Truax (Williams)
  • Comments: Whiting has permits for a 6-well Vance Federal pad in SWSW 9-154-97; see graphic;
The 6-well Vance Federal pad: based on name of the wells, I think two of the horizontals will run south and four of the horizontals will run north --

Missouri River Continues To Rise; Additional Water Will Be Released At Garrison Dam -- June 18, 2018

This is an update from an earlier post. From The Bixmarck Tribune:
The Missouri River will rise another foot and a half near Bismarck this week as the U.S. Army Corps of Engineers again steps up releases from the Garrison Dam, which is cresting 7.25 feet below 2011 flood levels.
Water released will go from 44,000 cubic feet per second to 52,000 cfs over the next three days, reaching the 52,000 cfs rate on Wednesday and continuing at this rate into early July. That is equal to 388,987 gallons per second. The increase is due to continued rapid snowpack melt and rainfall runoff.
Now for some fun.

We've done this before.

  • one cubic foot of water = 7.48 gallons
  • 50,000 cubic feet of water = 374,000 gallons
  • the USACOE will release 374,000 gallons of water every second starting in two days and going into early July -- let's say, maybe a month of an increased rate
  • but I digress
  • in one second: 374,000 gallons of water
  • one minute: 22 million gallons of water (enough water to frack two Bakken wells)
  • one hour: sixty times that much or enough water to frack 120 Bakken wells
  • one day: 24 x 120 Bakken wells = 2,880 Bakken wells
  • the oil industry will probably frack about 1,500 Bakken wells this year
I remember when folks worried whether there would be enough water in North Dakota to frack all those wells

Disclaimer: I often make simple arithmetic errors, and I often round numbers.

A Random Update To CLR's Weydahl Wells In Corral Creek -- June 18, 2018

A reader alerted me to a change in status of some CLR Weydahl and Brandvik wells in Corral Creek.

I posted the reader's note and my comment as an update at this post.

Smart Decision -- Hamm Pulls Out -- June 18, 2018

From SeekingAlpha:
  • Continental Resources says CEO and founder Harold Hamm has canceled a scheduled appearance at this week's OPEC meeting in Vienna, leaving only two U.S. shale executives set to speak at the event out of an original five
  • Hamm's withdrawal comes days after trade tensions between the U.S. and China intensified, with China imposing $50B in retaliatory tariffs on U.S. crude oil and other goods; CLR has been a key supplier of crude oil to China, shipping more than 1M barrels to the country since a U.S. crude export ban was lifted in 2015
  • Centennial Resource Development  CEO Mark Papa and ConocoPhillips CEO Ryan Lance earlier withdrew from the OPEC event; Pioneer Natural Resources  Executive Chairman Scott Sheffield and Hess CEO John Hess are still scheduled to attend

The Political Page, T+18 -- June 18, 2018

Developing countries and trade wars. Watch the entire video but as you watch it, be ready for 9:10 for something quite interesting.

Short Takes
Trade wars: this tells me all I need to know about the "trade war" between the US and China. For those who need to put the "trade war" into perspective, I suggest they read The Opium Wars by W. Travis Hanes, c. 2002. But I digress. Here's the graphic:


This is all I need to know about Comey, former FBI director, fired by the president for "insubordination." 

Now it is being reported that Comey is being investigated by the DOJ, again. Comey characterizes these investigations as "frivolous." Remember, Comey is not a politician. He is a lawyer and past director of the FBI. He should know that DOJ investigations are not "frivolous."

Feeling Good

Two lost decades: the Bush II and the Obama administrations.

Back on track.

Anti-Trumpers suffering profound cognitive dissonance. Unable to adjust.

Even Lindsey

The List

Fact checking media reports. The list.


A Note for the Granddaughters

LMK has now replaced RSVP.

Just saying.

If The Implosion Of Venezuela Does Not Matter, This Will Not Matter Either, But Posting For The Archives -- Libyan Export Terminal Is Terminal -- June 18, 2018

From Financial Times:
Libya’s National Oil Corporation said on Monday that storage facilities at the Ras Lanuf port terminal, a major export facility, have suffered “catastrophic damage” as a result of clashes.
NOC said two storage tanks have been “lost” with a reduction of storage capacity by 400,000 barrels of oil — almost half the capacity at the port.
It said there was a risk oil would leak from one of the destroyed tanks spreading blazes to three other tanks. NOC blamed the damage on an assault by a militia led by Ibrahim Jadhran, who controlled the oil port and other major facilities in the area known as the oil crescent until his forces were ousted in September 2016 by those of Khalifa Haftar, the military strongman who dominates eastern Libya.

Oil Company In The News -- June 18, 2018


June 20, 2018: Icahn is said to have won control of board at SandRidge. SandRidge shares are up over 2% today.

Original Post

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

From Reuters via Rigzone:
SandRidge Energy Inc said on Friday it had been approached by 17 potential bidders for a buyout, including billionaire Carl Icahn who is fighting for control of the oil and gas producer's board.
The activist investor, however, said in response he had no plans to make a bid soon, adding that any bid would depend on the approval of a majority of the unaffiliated shareholders.
Icahn has criticized SandRidge's leadership, forced the removal of its chief executive officer and got the embattled company to back out of its planned buyout of rival Bonanza Creek Energy Inc.
The investor, who said in April he was willing to buy the company, will now have to await a June 19 shareholder vote for directors as he seeks to revamp the board with his seven preferred nominees. Icahn holds a 13.6 percent stake in the company.
Much more at the link, including other links.

SandRidge is tracked here.

BYD - BAD Decision

A reader alerted me to this story.

Over at Forbes, "Electric Shock: Buffett-Backed BYD Plunges On Profit Warning."

Warren's comment? "It seemed like a great idea at the time."

Google BYD Los Angeles Albuquerque.

Boom! Staggering! -- Keeping Texas Great -- Making America Great Again -- June 18, 2018

This is simply staggering. Consider all the investments already made along the coast.

Now this.

From Reuters via Rigzone: Texas oil port will raise $300 million for work to handle US shale export boom --
Port officials are expected to consider $300 million in financing that would prepare the country's largest oil-export port - Corpus Christi, Texas - to handle a surge in U.S. shale production over the next five years.

International buyers would like more U.S. crude but are unable to get it because of infrastructure constraints along the U.S. Gulf Coast. 
Terminals originally designed for imports only recently have revamped operations to handle exports including accepting larger tankers preferred by China and other oil buyers.

The port is prepared to levy new user fees for the debt costs if the U.S. government does not reimburse it for spending the money to deepen and widen port facilities to accept larger ships.
The United States is now exporting more than 2 million barrels of oil a day, but the largest tankers currently only move in and out of a Louisiana offshore port because others are not deep enough. [And it's still headline news when one of those VLCC tankers moves in.]
Corpus Christi exports 800,000 barrels per day (bpd) of crude.
Corpus Christi sits on the U.S. Gulf Coast near two of the nation's largest oilfields, the Permian Basin and Eagle Ford shale, which together produce about 4.7 million bpd, nearly half of the total U.S. production.
The channel's existing 47-foot-depth restricts it from fully loading crude tankers that carry up to 1 million barrels. Smaller vessels must finish loading the tankers offshore.
The project will deepen the channel to 54 feet for larger tankers.
Oil export capacity from the Corpus Christi area is expected to rise to 3.3 million bpd by 2021 from 1.3 million bpd this year, keeping its rank as the top oil export port.
Much more at the link.

So, in round numbers, today: 1 million bopd exported from Corpus Christi; in three years, 4 million bopd (yes, I know 3.3 doesn't round to 4.0 but as I've said often about the shale revolution: I'm inappropriately exuberant).

That Was Crude Oil ... Now, LNG

Did North Dakota Just Set An All-Time BOEPD Production Record? -- April, 2018 Data

I'll let folks fact check me on this.

Disclaimer: I'm inappropriately exuberant about the Bakken. Take everything I say in this post with a grain of salt.

First, go back to the director's cut with the most recent data, April, 2018, data.

April, 2018, data suggests "we" came very, very close to setting a new all time crude oil production record in April, missing the record by 2,500 bopd or about 0.21%. That was missing the record by 2,500 bbls on total production of over 1.224 million bbls of crude oil. Per day.

However, if one adds in the natural gas production it is very, very clear North Dakota set a new all-time BOE production record of 1,598,948 boepd. Staggering.

Someone can fact check me on that, but for now, I will use that as the BOE all-time production record for North Dakota, going forward.

Some other observations:
  • 374,000 boepd natural gas production / 1,598,948 boe total production = 23%
  • 374,000 boepd natural gas production / 1,224,948 bopd production = 31%
  • new Bakken wells, first six months of production: about a 94% / 6% crude oil / natural gas split
  • as wells mature, crude oil declines but natural gas production may increase
Other observations:
  • reminder, for newbies: the greatest production from Bakken wells occurs in the first six months of production
  • in April, there were over 900 DUCs (wells drilled to depth but not completed/fracked)
  • had three more DUCs been brought on line in April: 90,000 bbls of oil over 30 days =  3,000 bopd would have been added to total production, setting an all-time record (preliminary data)
  • in addition, in April, there were over 1,500 wells on inactive status (many Bakken wells -- and some very good Bakken wells -- are taken off line when neighboring wells are being fracked; they can be off line anywhere from a few days to a few months)
  • back in 2014, there were in excess of 175 active rigs drilling in the Bakken; in April, 2018, less than 60 active rigs drilling in the Bakken -- wow, staggering
Bottom line: the April, 2018, data was much more surprising than a lot of folks realize.

Update On Pure Permian Play -- Energen -- Mike Filloon -- June 18, 2018

From SeekingAlpha:
Energen has been in the news lately with Icahn and Corvex mulling a bid to buy the company. The question seems to be why EGN? There are a number of reasons why the company is attractive. The shares seem undervalued at current valuations.
This seems linked to EGN's recent production improvements per location. EGN is a Permian pure play, and has continued to improve production results. The Permian has the most valued acreage, but widening differentials are providing value in some names. EGN's well design changes have amped up production per foot.
Its Gen 3 Delaware frac' design uses 1,800 to 2,400 lbs./ft. of proppant. It has also decreased frac' cluster spacing. These changes have provided a significant improvement, and could continue to do so. Delaware well results continue to improve, and we think it should still be the focus going forward. EGN production improvements have been significant, and we believe this will continue in 2018. We pulled production results from 2016 and 2017. Improvements as a whole have been much better than the average Permian operator. It's Delaware acreage is improving faster than Midland. Locations already produce approximately 40% more oil per foot. EGN also has 85% of its production on pipe. It has hedged for differential protection. Approximately 72% of production is hedged this year.
Compare Energen's frack design in the Permian with that of the Bakken: 1,800 to 2,400 lbs/foot of proppant:
  • 9,000-foot laterals
  • 10 million lbs
  • 50 stages
  • 10 million lbs / 9,000 feet = 1,100 lbs/foot (as much as less than half what they're using in the Permian)
  • 10 million lbs / 50 stages = 200,000 lbs of sand / stage in the Bakken
Also, look at this (previously posted), link here; EIA's monthly drilling productivity report --

So, the Permian producers are using much more proppant / foot to get much less crude oil / well.

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

Put Another Nail In The Coffin Of The Peak Oil Theory -- Bakken Setting New Reocrds -- June 16, 2018 -- Baseball Attendance Drops Due To Global Warming

From The Bismarck Tribune:
North Dakota oil production jumped 5.4 percent in April to more than 1.2 million barrels per day, coming in just shy of the state’s record.
Director of Mineral Resources Lynn Helms called it a big surprise to see production levels within 2,500 barrels of the all-time high of nearly 1.23 million barrels per day.
“We were not expecting that kind of a surge until late May, early June,” Helms said Friday while discussing the preliminary figures.
Natural gas production increased 7.4 percent in April, setting another record at more than 2.24 billion cubic feet per day.
Global Warming

The US Open on Long Island: miserable cold, rainy weather, June, 2018. No sign of global warming in NYC.

Also this: major league baseball is reporting a sharp drop in in attendance -- The WSJ. League-wide attendance of 27,328 per game is down almost 7% from this time a year ago.
With the regular season approaching the halfway point, it seems safe to say that this is baseball in 2018: lots of home runs, even more strikeouts—and, relatively speaking, not a lot of people in the stands to see them.
League-wide attendance entering Friday of 27,328 per game is down 6.6% from this date last year and 8.6% overall, according to Stats LLC. The sport hasn’t seen an attendance drop of more than 6.7% in a single season since 1995, when the average crowd fell nearly 20% following the player strike that canceled the 1994 World Series. MLB attendance has remained consistent throughout this decade, never changing more than 1.9% in either direction.
While unwelcome to MLB commissioner Rob Manfred, small decreases in attendance aren’t unusual or cause for alarm. Crowds sank 0.7% last year and 0.8% the year before that. But this season has been more than a minor dip, raising legitimate questions about what is happening.
And to what are they attributing the decline in attendance?  It's been too cold this year.

I can't make this stuff up.
The simplest answer, and the one Manfred would prefer, is the weather.
And undoubtedly, it has been a factor.
Rain and unseasonably cold temperatures plagued an unusual number of markets throughout April and May, causing 36 postponements already in 2018. There were 25 weather postponements total in 2016. Attendance always climbs in the summer, when schools are closed and the thermometer is friendlier, and Manfred said he thinks “weather’s a big part” of the drop so far.

NDIC Site Back Up -- June 18, 2018 -- WTI Recovers

Active rigs (link here):

Active Rigs62572878189

RBN Energy: Pioneer rides crest of the wave on Permian growth, ample transport to Gulf Coast. Archived.
Permian producers led the U.S. exploration and production (E&P) sector’s remarkable recovery from the financial crisis that was spurred by the oil price crash in late 2014.
Dramatically lower costs and higher well productivity led to strong margins even at $50/bbl oil and promised bountiful returns should oil prices move higher. It’s no surprise that investors flocked to the stocks of Permian-focused producers, driving equity valuations, as measured by enterprise value per barrel of oil equivalent (boe) of proved reserves, to multiples three or four times the industry average.
Recently, however, there have been growing investor concerns that logistical constraints on shipping crude oil and gas out of the region could restrict cash flows, investment budgets and output growth, and on Friday, Baker Hughes reported that the Permian’s rig count was down (albeit by only four, to 476). Since May 15, stock prices of smaller pure-play Permian producers Concho Resources, Diamondback Energy, Parsley Energy, RSP Permian, and Laredo Petroleum have fallen 10-15%.
One of the larger Permian producers has bucked the trend, though: Pioneer Natural Resources. Today, we explore the drivers of Pioneer’s current valuation and analyze the factors that could propel future growth.