The Million Dollar Way (The Bakken Oil Blog): 08/01/18

Wednesday, August 1, 2018

Canada To Scale Back Carbon Tax Plans -- The WSJ -- August 1, 2018

Canada can't build/expand a pipeline (Keystone XL; Line 3; TransMountain; Energy East). Canada's prime minister has said that Canada will have trouble attracting foreign investment if it can't even complete pipelines.

Well, it turns out Canada has another problem: the carbon tax.

From The Wall Street Journal: Canada scales back carbon-tax plans. Changes reflect increasing concern among businesses about global competition and the ability to draw investment into Canada.

Canada’s Liberal government is scaling back elements of its planned carbon-tax regime to address worries from the business community about global competition.

The amendments to the carbon-tax regime were relayed to business representatives last week.

Under the changes, industrial companies would now have fewer of their emissions—20% versus the original 30%—subject to the levy. The carbon tax takes effect next year, and starts at 10 Canadian dollars (US$7.68) a metric ton and rises gradually to C$50 a ton in 2022.

In their presentation, Canadian officials told business representatives the change was spurred by concerns over competitiveness.

Industry associations have warned the new carbon-pricing regime would hinder investment plans and put Canadian firms at a disadvantage—especially given President Trump’s push to repeal energy and environmental regulations to bolster U.S. energy production, and deep reductions in U.S. corporate tax rates.

Those worries have escalated, industry officials warn, with U.S. tariffs on industrial goods. Companies may be looking to locate as much production in America to avoid the tariff threat, business leaders and economists warns.

Had Hillary been elected, the discussion would have been entirely different.

"... 20% versus the original 30$ ..." -- nibbling around the margins. Won't make a big of difference. Canadian business leaders asked for complete relief from the carbon tax. Anything less will still discourage foreign investment. The government went into the negotiations with no intent of listening to the business groups. They threw them a bone "cutting back to 20% vs 30%." Won't make a bit of difference. The US cut corporate tax from 35% to 21%. The Canadians are adding corporate taxes.

Price Is Not The Issue -- Steve Jobs Had That Figured Out Decades Ago -- August 1, 2018

Wow, isn't this interesting? Watching television commercials and reading social media discussions it was my impression that Samsung was giving an Apple a run for its money with regard to smart phones. Everything I read and have read recently suggested that Samsung users were very, very happy with their phones. Now this, from The WSJ -- I never expected this: diverging fortunes: high prices propel Apple, sink Samsung.

Wow. From the linked article:

iPhone has navigated slowing smartphone market with new features and exclusive operating system while Galaxy S9 has largely failed to impress consumers.

Apple Inc. and Samsung Electronics Co. entered the second decade of the smartphone era by betting on super-high prices for their flagship products.

One year in, that strategy has energized Apple but sapped Samsung’s sales.

The Silicon Valley company on Tuesday announced a third consecutive quarter of record iPhone revenue as strong demand for its $999 iPhone X helped lift the average iPhone selling price 20% to $724 for the three months ended in June.

Just a day earlier, Samsung announced its smartphone profits cratered, as fewer buyers were willing to shell out the nearly $1,000 that the South Korean company wanted for its flagship Galaxy S9 handset. On average its smartphones sold for about $220 in the most recent quarter.

Apple has navigated the slowing market by leaning on its premium brand, new features and exclusive operating system to command record prices—even with little unit growth.

But Samsung’s higher prices didn’t deliver, as flagship Galaxy S9 sales slipped and unimpressed consumers turned to less expensive devices from Android rivals.

Adding insult to injury, Apple appeared to gain market share from Samsung. During the second quarter, the iPhone’s share rose to 12.1% from 11.8% a year earlier and Samsung slipped to 20.9% from 22.9%.

Meanwhile, China’s Huawei Technologies Co. for the first time surpassed Apple as the world’s second-largest smartphone maker, with 15.8% of the second-quarter market.

Much, much more at the link.

Comment: the price "thing."

First, the telephone companies are subsidizing the phones.

Second, folks amortize these expensive phones over two years, paying monthly rates.

Third, the monthly payments are "hidden" in the overall monthly statements -- remember how the Baby Boom generation paid for "renting" that ATT desk / wall phone. Ridiculously expensive and then it was simply being rented.

Fourth, Apple phones last a lot longer than two years. Parents hand them down to their older children, and eventually their older children hand them down to younger sibs. It turns out these high-price phones are amortized over several years.

And, fifth, people routinely spend $3 - $5 for Starbucks on a daily basis, x 20 days = $60 to $100/month. They're willing to spend that kind of money for their phones. Especially if the cost is hidden in their monthly statements. [My total Sprint bill for two lines went from $85/month to $109/month when we replaced our 10-year-old Samsung flip phones for two brand new iPhone SEs. The difference was like going from the stone ages to the 21st century overnight; another $25 a month was not even noticed. People upgrading from the iPhone 8 to the iPhone X absorb the difference, hardly noticing it. Sort of like the proverbial frog sitting in water in a pot warming on the stove.

Twelve New Permits; WTI Continues To Slide -- August 1, 2018

Fast and Furious

US oil services companies: could get "shot in the arm." Mexico's new president says he will invest $9.4 billion into state's oil industry to increase supply. Link here. Let's see if "state-run" under new president can do better than "private-run" did under outgoing president.

US oil production:

US oil production not growing as fast as expected -- oilprice.com
EIA forecast for May, 2018: 10.749 million bopd

actual, May, 2018: 10.442 million bopd (13% increase from one year earlier)
one year ago, May, 2018: 9.218 million bopd

EIA estimates 10.900 million bopd for June but Bloomberg suggests the number could be lower based on May data
Comment: I think Bloomberg had an incredibly slow news day; five minutes of my life I will never get back

Gasoline demand: summer demand trails that of last year, see this link:

Distillate demand: even more striking, the lag in distillate demand this summer compared to last summer; see this link.

Back to the Bakken

Active rigs:

$67.79↓	8/1/2018	08/01/2017	08/01/2016	08/01/2015	08/01/2014
Active Rigs	63	60	34	74	193

Twelve new permits:

Operators: Crescent Point Energy 98); Oasis (4)
Fields: Winner (Williams County); Banks (McKenzie County)
Comments: Crescent Point Energy has permits for an 8-well Burgess/Sylven pad in SESW 11-158-100; Oasis has permits for 4-well Kellogg Federal permit in SESE 19-152-97;

And that was all.

Tesla: 2Q18 Earnings -- August 1, 2018

Updates

Later, 5:03 p.m. CDT: after writing the note below, shares popped to $325 -- occurred during a very strong earnings call -- Elon Musk says Tesla will show a profit every quarter going forward.

Original Post

AAPL: pops 5% after earnings release
TSLA: pops 5% after earnings release -- shorts will get squeezed; now at $315; could go to $325 once if shorts squeeze

Data points:

2.2 billion in cash -- more than expected
$739 million: cash burn for the quarter; not sure if this is cash burn from operations only or if it's total cash burn -- see this post; since 2010, there have been only three quarters (maybe four quarters) with a cash burn worse than this just reported; that's 34 total quarters; only 3 (maybe 4) have had worse cash burns; see definition of "free cash flow" below;
EPS loss: $3.06 vs forecast of $2.92
revenue: $4 billion vs forecast of $3.92 (is it just me, or is a "round number of exactly $4 billion in revenue" a bit curious? Why not $4.01 or $3.98? Maybe the source rounded the number; need to see SEC filings;
CAPEX guidance: maybe halving original plans; will cut back on more assembly lines; will make it up in existing assembly lines

See this site for definition of "free cash flow."

Tesla free cash flow at this link.

As noted above, I do not know if the negative cash flow of $739 million is from operations only or includes debt servicing. After 1Q18 earnings were reported, the graph had to be re-adjusted: Tesla had provided free cash flow results based on operations only; an alert reader noted that negative cash from interest payments was not included. See this post.

Too bad "Montana Skeptic" has quit tweeting (after harassment and doxxing from Elon Musk) -- we will have to wait and see exactly what "the truth" is.

CNBC: I caught some of the CNBC analysis. It was quite amazing how "lenient" the reporting was -- pretty much (again) giving Tesla "a pass." Quite the opposite when CNBC commented on Apple yesterday.

But it comes down to this:

next quarter, whether Tesla shows a profit -- Elon Musk says every quarter going forward will show a profit

Tesla deliveries for July, 2018, will be reported later this week.

Tesla bonds bounced back a little -- flirting with 90 cents on the dollar.

Please Be Seated Before Reading This Post -- August 1, 2018

I think only once before I've suggested that readers be seated before continuing to read. If so, this is the second time.
You may want to be seated before continuing.

A reader just sent me a note telling me his pay statement for June said this well produced 96,000 bbls of oil in one month.

So the following data from the NDIC is likely NOT to be a typo.

I think production from the wells is commingled -- could be wrong -- will sort that out later -- and there could be other explanations -- but it's my understanding, even if commingled, the production from individual wells is measured and reported separately. But again, more to follow.

The drilling report has been scanned in and is available for review. I will post a couple of highlights from that report later.

I believe all wells in the graphic above run north to south. Once they come off confidential, we will know for sure (although some file reports, as noted, are already available).

The reader provides more information. From the June pay statement (we don't know how many days each month the wells have been producing (these are runs, not production, but generally runs and production numbers are very, very close):

30541, 4H: 96,000 (probably a full month)
30542, 5H: 17,000 (probably a full month)
30543: 6H: 43,400 (not a full month)
30544: 7H: 16,000 (probably a full month)
30545, 8H: 32,900 (probably a full month)
30546, 9H: 1,700 (definitely not a full month)

1H (#20328), 2H (#22708), 3H (#22707) are shut in.

The wells to the west (10H, 11H, 12H, 13H, 15H, 16H) are all DUCs.

All horizontals run from the north to the south.

15H (#31775) and 16H (#31774) are on west section line with 4 section spacing.

Now, look at this. According to FracFocus, #30541 was fracked in one day (on 4/19/2018) -- that's what it says -- see screenshot below -- but my hunch is that's a typo. #30542 was fracked from 3/23/18 to 4/18/23, and same with #30543 (3/22/18 t0 4/18/23). I bet start date for #30541 was around March 22, also. FracFocus "doesn't" make mistakes, but in this case, probably.

From the file report for #30541, geologist's report, prepared for Halcon Resources and Bruin E&P Operating:

a deep well, TVD: 10,746 feet
middle Bakken well
primary pay zone was 15' to 25' under the top of the middle Bakken; which suggests the pay zone was about 40 to 50 feet thick
gases ranged between 1500 and 2200 units with the target zone in the lateral
the majority of the well bore was drilled within the target window with 77.6% (7,831 feet) drilled inside the target window and 22.4" (2,266 feet) outside

I will come back to this one and make some more comments but I'm still catching my breath.

The Market, Energy, And Political Page, T+62 -- August 1, 2018

TSLA: in addition to everything else today, watch TSLA bonds; slumping back toward $88. Anything less than $88? Katy, bar the door.

Lots Of Oil Still Sloshing Around -- WTI Off Almost 2% -- Now Under $68/Bbl Again -- I Assume Gasoline Prices Are Falling In Your Neighborhood -- LOL -- August 1, 2018

Pardon the interruption: all market indices are in the red, except one -- the NASDAQ, up 15 points. One ticker symbol: AAPL.

Link here.

US crude oil inventories: another build, this time -- 3.8 million bbls
US crude oil inventories: 409 million bbls (threshold - 400 million bbls) -- only 1% below the 5-eyar average, and that 5-year average includes the Saudi Arabia surge, 2015 - 2017, which greatly distorted things -- in other words -- still a lot of oil sloshing around
refineries operating at 96.1% capacity: trending up
gasoline production: 10.5 million bbls (threshold: 10 million bbls)
distillate fuel production: 5.2 milion bbls (threshold: 5 million bbls)
gasoline demand graphic will be posted later

Gasoline prices in our neighborhood continue to trend up. Something tells me refiners are doing very, very nicely.

More bad news for Saudi Arabia: Kuwait's oil production hits 18-month high. That's like almost a year and a half. Twopointfiveseven months measured in dog's lives.

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Trump Getting Ready To Drain The Swamp?

They say August is the most boring month for news. This August it could be different. He may go off the reservation. Again.

What to watch for: if the White House schedules a prime-time presidential address from the Oval Office.

Seminole Wind, John Anderson
Scott Adams will re-tweet this as an example of Trump's ability to persuade.

What's New In Burnaby? Apparently Mama Is Going To Jail -- August 1, 2018

From Times Colonist, judge sends Trans Mountain pipeline protesters to jail for first time.

That was one of the silver linings of the Standing Rock DAPL protest. Authorities in Canada and the US don't want things to get out of control again. Folks apparently did not learn that lesson the first time around in Baltimore (".. give them room to destroy...").

From the linked article:

Two protesters arrested at a Burnaby site of the Trans Mountain pipeline expansion project have received the first jail terms imposed for defying a court injunction ordering opponents to not disrupt construction work.

Laurie Embree, age 70, who was arrested on June 19, and Constance Lasheras, who was arrested on June 30, were each handed seven-day jail sentences after pleading guilty to criminal contempt of court in B.C. Supreme Court.

Read my lips.

Before the sentences on Tuesday, the 86 protesters who had either pleaded guilty or were found guilty following a trial had been sentenced to either fines or community work service.

The first protesters were arrested in March, after the injunction was imposed on March 15. But the large-scale civil disobedience continued, and Crown counsel warned they would seek a seven-day jail sentence for anyone arrested after May 28.

You Never Even Called Me By My Name, David Allan Coe

New Geico Rock Award Nominee -- August 1, 2018 -- Nothing About The Bakken

No Runs, No Hits, No Errors -- All Four Wells Coming Off Confidential List Go To DUC Status; WTI Continues To Slide -- August 1, 2018

AAPL: futures -- up almost 4% -- could open above $198/share. Up almost $8/share.

Comment: television producers need to schedule guests at least a couple days in advance, after preparing "agenda" several days in advance. In anticipation of Apple's 2Q18 earnings, apparently CNBC thought AAPL would disappoint. One of three talking heads to talk about results was a well-known Apple "bear." The wind was taken out of his sails with the earnings report, but he continued to insist Apple's consumer base was saturated with iPhones. He noted the two-year iPhone upgrade cycle, and suggested that with the 5% decline in sales every year of the current iPhone model, the two-year re-fresh wasn't working. He needs to get out more. He is looking at only the US iPhone customer base. The US iPhone consumer base is the past -- about ten years past; the future is China. The #1 iPhone sold in urban China was the most expensive iPhone, the iPhone X. Four things to note about Chinese when it comes to Apple iPhones:

Chinese iPhone sales grew 19% (can't recall if yoy or sequential; one would assume yoy)

the urban Chinese want luxury; want the best

the urban Chinese have the cash to pay "up" for luxury

the urban Chinese represents a huge, huge population

WTI: price continues to slide;

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Back to the Bakken

Wells coming off confidential list today --

34484, SI/NC, MRO, Yellowface USA 13-23H, Reunion Bay, FracFocus -- has not yet been fracked, no production data, (#19446)
34059, SI/NC, BR, Rinkurtis 8-1-5UTFH-ULW, North Fork, FracFocus -- has not yet been fracked, no production data,
33394, SI/NC, WPX, Hidatsa North 14-23C, Reunion Bay, FrackFocus -- has not yet been fracked, no production data,
33386, SI/NC, Crescent Point Energy, CPEUSC Paopao 4-35--26-158N-100W, Dublin, no production data,

Active rigs:

$67.86↓↓	8/1/2018	08/01/2017	08/01/2016	08/01/2015	08/01/2014
Active Rigs	63	60	34	74	193

RBN Energy: new investors seek to fill Venezuela's Caribbean void as IMO 2020 looms. Coincidentally, most recent US-Venezuelan import data released today.

The Caribbean is strategically located at the crossroads of international trade routes between the Northern and Southern hemispheres, as well as the Atlantic and Pacific oceans. It has traditionally attracted oil trading, blending, and refining activity to meet the needs of local and international markets.

Lately, the meltdown of Venezuelan national oil company Petróleos de Venezuela SA (PDVSA) — previously a dominant player in the region — has left refineries and storage terminals underutilized and starved of investment.

U.S. Gulf Coast refineries have partially filled the gap by increasing product exports to the region, but an opportunity now exists for private investment to fill the refining and storage void left by PDVSA, and also to meet new demand for low-sulfur bunker fuel arising from stricter International Maritime Organization shipping regulations, which will come into effect in January 2020. Today, we review the impact of the PDVSA meltdown and new investment projects being pursued.

Venezuela - US Crude Oil Imports -- May, 2018

Link here.

Monthly data, in 1000's bbls of crude oil.

May: a 31-day month -- 17,313/30 = 558,000 bopd

TMD.

Time for a video interlude.

I saw Bette Davis the other night on TCM. An incredibly awful movie but couldn't stop watching it. Great cast line-up. Almost enough to want to have the DVD in one's library. One thing I learned: in black-and-white, an early Shelley Winters channeled Lucille Ball. I know relatively little about either. 30-second elevator speech: they both made it big. The former made it big on the silver screen; the latter made it big on the little screen.

Bette Davis Eyes, Kim Carnes

Just Released: Saudi Arabie Foreign Exchange Reserves For June, 2018

Link here.

US crude oil imports from Saudi Arabia, 1,000's bbls/day -- so about 875,000 bopd (link here):

Big speakers. Loud.

So Far Away (From Me), Dire Straits

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Wednesday, August 1, 2018