A Reader Weighs In On Likely Impending Natural Gas Shortage(s) This Winter -- October 29, 2018

My "comments were restricted" the past few days because I was getting too much spam. A regular reader who understands the natural gas sector way better than I do took advantage of "restricted comments" by sending a lengthy note instead. This might be more than most want to read, but for those following natural gas this winter, this is well worth your time.

For now, I will just copy and paste what the reader wrote. Hopefully you will find it as fascinating as I did. Hopefully the reader does not mind that I took this route. If the reader wants it removed, just let me know.

From a reader:

Thursday last week you posted a link to an RBN Energy article titled Gas Storage Inventories Are Near Historic Lows. What If This Winter Turns Frigid?”  .. there was a graph in that article i found interesting and pulled out to annotate and use for my own blogs...i had intended to give you the 30 second version in a comment, but since i'm emailing you, i'll just include the whole thing (red markings mine):




According to most tellings, the natural gas injection season traditionally ends with the first weekend of November, after which natural gas inventories typically begin to fall, as increasing amounts of natural gas are pulled from storage for heating as temperatures fall heading into winter…in fact, however, we find that the recent history of natural gas storage (xls) shows that there have actually been increases in natural gas supplies during the first full week of November in 4 out of the last 8 years, so we have to consider that might be possible again this year…either way, we can only expect a few more weeks of increases before natural gas supplies peak before winter and start downhill…to assess where we now stand as compared to other years when prewinter supplies were low, we’re going to include a graph from RBN energy that shows US natural gas storage history for a few of those key years as compared to last year and the five year history..





 

The above graph comes from the RBN Energy analytical post titled “Colder Weather – Gas Storage Inventories Are Near Historic Lows. What If This Winter Turns Frigid?” and as published it shows the natural gas storage history for 2005 in billions of cubic feet in yellow, for 2014 in orange, for 2017 in green, and natural gas storage for 2018 year to date in blue.




It also shows as blue dots what is presumably the EIA forecast for what appears to be the last 4 weeks of the injection season, which would include a forecast for this week’s report that we just covered, since the cited RBN post was published on October 24, the day before this weeks natural gas storage report was released.





Also shown in a grey shaded area above is the 5 year range of natural gas in storage for any given date during the year, and then the average amount of natural gas in storage for any given date during those 5 years is shown by a grey dotted line.




Finally, as an addition to the original graph, in red I have penciled in the amount of natural gas storage for the last 11 weeks of 2013, reasons for which i’ll explain shortly…




So to begin with the obvious, this year’s natural gas storage levels in blue have been well below 2017’s gas in storage in green and the 5 year average in grey dots; over recent weeks it has also been below the 5 year range, and below the amount of gas stored during 2014, which was prior to this year the lowest level in over a decade.




But as you can also see, this year’s natural gas in storage has tracked pretty close to the level of 2005 (yellow), the lowest in 13 years ...




So with that, we’ll look at the actual amounts of gas in storage from the historical natural gas storage archive files (xls)...




As we mentioned earlier, our natural gas supplies had risen to 3,095 billion cubic feet by October 19th of this year; that would compare with the 3,139 billion cubic feet of natural gas that were in storage on October 21st of 2005, so we are pretty close to that level…




First point: However, after rising to 3,229 billion cubic feet on November 4th, 2005, the EIA’s presumable end of season comparison, natural gas supplies went on to peak at 3,282 billion cubic feet on November 11th, 2005, a 57 billion cubic feet increase during the 2nd week of November, which is one of the largest if not the largest increase that late in the year…so while we may match 2005 storage levels on November 2nd of this year, it seems highly unlikely that we’d match 2005’s November 11th high after that…




Now, the last thing I want to note on that graph is the 2014 natural gas storage levels…that’s the winter we were hit with repeated outbreaks of “the polar vortex”, and as a result our natural gas supplies fell to a low of 824 billion cubic feet by March 28th of that year, the lowest in the modern records, and stayed at 5 year lows throughout the summer until December of that year…so to compare supplies going into this coming winter to that of 2014, we’d have to go back to the fall of 2013, which is why i penciled in those dots and red line on this graph…




... on October 18th, 2013, US natural gas supplies were at 3,741 billion cubic feet, and they rose to a high of 3,834 billion cubic feet three weeks later on November 8th….which leads us to our ....




Second point: With our recent October 19th supplies at 3,095 billion cubic feet, that means that if our natural gas usage this winter is similar to that of 2014, our natural gas supplies would fall to just 178 billion cubic feet by the end of the heating season…that would certainly imply widespread natural gas shortages, and answer the question that the RBN post didn’t, i.e., What If This Winter Turns Frigid?

Comments Are Turned Back On -- October 29, 2018

I've turned "comments" back on. Assuming I checked the correct boxes and saved the changes.

Periodically I have to turn off the "comments" because I'm getting too much spam. I apologize for the inconvenience.

Back To Denbury And That News Earlier Today -- October 29, 2018 -- It Appears DNR Just Swapped 196,000 Acres In The Bakken For 84,000 Acres In Eagle Ford?

Over at "Bakken operators," recent entries regarding Denbury, prior to today's announcement:

• July 20, 2016: Denbury sells the remaining non-core Bakken assets for $58 million; buyer not identified; amount of acreage not identified;
• October 2, 2013: corporate update; their production in North Dakota is their biggest 
• September 20, 2012: XOM to buy all DNR acreage in the Williston Basin Bakken (North Dakota and Montana); $1.6 billion deal; 196,000 Bakken acres; but DNR gets XOM acreage in Wyoming and Texas; see XOM below;
• August, 2012, corporate presentation (dynamic link)
• ~ 200,000 acres (August, 2012, corporate presentation); according to "anonymous," DNR has 66,000 acres in Ward County, too far east for the Bakken; whether they still have the acres or not is unknown; but off the books, and the rig there will not be kept (will let contract expire)
• Back to 266,000 net acres (Enercom Conference, August 16, 2011); note -- previously planned to add 7th rig by January, 2012; now by end of 2011 (not much difference, but moved up) -- nope, now down to 4 rigs  (1Q12 conference call); back to six (6) rigs through 2012; see below, 4Q11 -- 4 rigs ("wrote off" 66,000 acres in the Almond prospect)
• 266,000 net acres (April, 2011; IPAA conference presentation)
• 275,000 net acres in the Bakken (January, 2011; agrees with corporate presentation)
• Cherry Prospect: Siverston field, 
• Fields, SW of the river: Camp, Cherry, Lone Butte, Bear Creek, Charlson, and Murphy Creek
• Field: NE Foothills in Burke (+/- value)
• Field: Almond in Ward County (76,000 acres; almost no proven value yet) Update: 4Q11 -- removed from inventory; no value; removed the one rig that was there
• Analyst's number: 300,000 net acres (December 31, 2010)

Note: DNR had around 275,000 net acres in the Bakken at one time; in 2012, it was announced that XOM would buy all DNR acreage in the Bakken (operator would be XTO).

So, DNR very likely sold 275,000 net acres of Bakken for around $5,000/acre (a "WAG" as they say), or $1.4 billion and now a few years later spend about that much money to buy 84,000 net acres in the Eagle Ford. [My bad: I see now that the deal was spelled out  -- XOM would buy 196,000 Bakken acres from DNR fro $1.6 billion.]

Today's news: buys Penn Virginia assets in Eagle Ford for $1.7 billion; 84,060 net acres.

CLR Earnings -- 3Q18 -- CLR Has Added Two Additional Rigs In The Bakken

Prior to today, over at "Bakken operators" these were most recent entries for CLR (2017 - 2018):

• 2Q18 presentation: step change in well performance across the Bakken
• May, 2018, presentation: 796,000 net acres in the Bakken; 161K boepd, up 48% over 1Q17; 1,100 mboe EUR type curves ($7.9 million) vs 980 mboe EUR type curves in 2017; see SeekingAlpha article;
• March, 2018: 1.1 million-bbl EUR type curves; 
• August, 2017: 806,000 net acres in the Bakken; 1.1 million boe EURs 

Now, let's look at 3Q18 earnings, sources:

• press release
• AP snapshot 
• Reuters

Data points:

• income
• net income: $314 million; $0.84 per diluted share
• adjusted net income: $337 million; 40.90 per diluted share
• results topped Wall Street expectations: Zacks -- 81 cents/share 
• revenue
• revenue: $1.28 billion
• results topped expectations: $1.21 billion
• production
• production, average 3Q18: 296,900 boepd (beats 3Q18 guidance and consensus)
• production, average 3Q18: 164,605 bopd (up 5% sequentially; and up 17% yoy)
• percentage oil: 164,605/296,900 = 55%
• Bakken production
• 167,643 boepd; up 23% yoy; compare with 161K boepd back in May, 2018; 
• 7K x 365 days = 2,555K (2.5 million bbls) x $50 = $127 million and my hunch it didn't cost an extra penny to grow that production -- at least not many extra pennies; the wells are just getting that much better; and costs are coming down;
• expects strong finish for CY2018 with "70 of our forecasted 2018 Bakken wells scheduled to be completed by year end"
• shares are up 28% in last 12 months; trading at around $50
• production records hit
• added two rigs in the Bakken, bringing its current total to eight
• production is expected to average 1.3 million bbls in November, 2018 -- EIA
• oil production remains unhedged
• some rivals, including EOG and Pioneer Natural Resources have warned investors that hedging may affect profits

News Other Than 3Q18 CLR Earnings -- October 29, 2018

Natural gas: holding steady at $3.20.

US market: another "ugly" day on Wall Street

Louis Rukeyser: where are you when we need you?

Iran sanctions: Iraq expects exemption. Which, of course, makes no sense. Trump calls out Germany for buying natural gas from Russia, and then Iraq expects exemption for helping Iran? The swamp.

Peak oil? Not!. Equinor (Statoil) strikes more oil at giant Johan Castberg field.

• earlier: confirmed 12 - 25 million recoverable bbls of oil
• estimates: 450 - 650 million bbls of oil equivalent
• initial development plan: $6 billion 
• hope to make the project profitable at $35/bbl
• originally, was penciled out to be profitable at $80/bbl

CLR Reports 3Q18 Earnings; Active Rigs At 67; Nine New Permits; CLR Hitting Brooklyn Hard -- October 29, 2018

CLR releases 3Q18 earnings: link here; some new records set; snapshot here; this is the one everyone has been waiting for; will discuss it later. Next up: WLL, OAS, EOG, NOG. 

Active rigs:

$67.04↓	10/29/2018	10/29/2017	10/29/2016	10/29/2015	10/29/2014
Active Rigs	67	53	34	69	190

Nine new permits:

• Operators: Abraxas; CLR
• Fields: North Fork (McKenzie); Brooklyn (Williams)
• Comments: Abraxas has permits for a 5-well Jore pad in lot 2, section 2-149-97; and, CLR has yet another set of four permits in Brooklyn oil field; this is for a 4-well pad in 26-155-98;

Brooklyn:

I need to update this field, but for newbies, CLR is drilling the heck out of this field. I am absolutely convinced that CLR has an entire division dedicated full time to this non-descript field north of Williston. I would not consider it one of the best spots in the Bakken but it is certainly in the neighborhood. More importantly, I think, is what CLR must be learning from pad drilling and fracking in tight plays. But maybe I'm wrong; maybe Brooklyn is a better field than I realize and CLR is simply lucky. LOL. Not likely. The Brooklyn oil field as it looks today.

Three permits renewed:

• EOG: three Wayzetta permits in Mountrail County

Five producing wells (DUCs) reported at completed:

• 33792, 234, CPEUSC Berner 9-19-18-157N-99W TFH, Lone Tree Lake, t9/1; cum -- ;
• 33796, 64, CPEUSC Berner 8-19-18-157N-99W TFH, Lone Tree Lake, t9/18; cum --;
• 33790, 385, CPEUSC Berner 5-19-18-157N-99W MBH, Lone Tree Lake, t9/18; cum --; 6K after 14 days;
• 33794, 374, CPEUSC Berner 4-19-18-157N-99W MBH, Lone Tree Lake, t9/18; cum --; 7K after 14 days;
• 33791, 213, CPEUSC Berner 9-19-18-157N-99W TFH, Lone Tree Lake, t9/18; cum --; 3K after 14 days;

The Market, Energy, And Political Page, T+ 76 -- October 28, 2018

TSLA: up 4% today.

Disclaimer: this is not an investment site.

November 4, 2018: Iranian sanctions go into effect.

October 30, 2018 (tomorrow): Apple, Inc., hardware announcements; NYC; 10:00 a.m. Eastern time.

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Reading Assignment For The Day

I could "take or leave" the article -- while reading it -- until I saw who wrote it: Simon Flowers, Chief Analyst and Chairman for Wood Mackenzie. Even so, it's a pretty typical Forbes article: great promise but at the end, a big letdown.

At Forbes: what next as Big Oil moves in on US tight oil?

Before I get to the article -- look at that headline -- what next as Big Oil moves in on US tight oil? This is a very, very timely question -- if any doubt, look at COP's earnings transcript.

Now, to the Forbes article.

He begins:

What does tight oil have in common with FAANG stocks? Answer: tight oil is arguably the upstream equivalent of these tech sector leaders. It’s the hot investment play in the oil and gas index, it’s outperformed What does tight oil have in common with FAANG stocks? Answer: tight oil is arguably the upstream equivalent of these tech sector leaders. It’s the hot investment play in the oil and gas index, it’s outperformed.

Note to self: memo to Art Berman and Jane Nielson.

Data points from the linked article:

• Big Oil needs exposure to that growth
• Big Oil is muscling in
• their move began with BP's $10.5 billion acquisition of BHP, July, 2018
• [COP, lucky with BP; XOM, lucky with XTO; odd "man" out? ChevronTexaco?]
• ExxonMobil, Chevron, Shell, and BP: have assembled tight oil assets that include the Permian
• Equinor with sizable Bakken exposure
• production climb, tight oil for Big Oil:
• 2018: 0.7 million bopd
• 2026: 2.2 million bopd (projected peak)
• 2026: tight oil will account for 10% of the majors' total production; one-fifth (20%) of liquids
• and look at this for all the doubters and critics: going forward, returns from tight oil will beat all but the very best conventional and deep-water alternatives
• [and, initial investment and long-term commitment in tight oil is a whole lot less than deep-sea)
• majors' inventory of yet-to-drill wells will generate an average IRR of 45% ($65 Brent); well above the 16% weighte average for pre-FID conventional projects
• what's next?
• the majors will want still more tight oil
• the industrialization of extraction means tight oil is increasingly a scale game
• 120 operators operating in the Permian Wolfcamp: there will be consolidation
• what about the have-nots?
• Total and Eni say "no" to tight oil
• it's hard for an outsider to justify buying into tight oil 
• XOM, CVX, BP, and RDS: had legacy US lower 48 positions
• Bottom line for investors:

Investment in tight oil isn’t exactly risk free. Tech stocks are demonstrating in the current sell off that hot sectors have their downs as well as ups. As the world’s marginal barrels, tight oil’s value and cash flow are very sensitive to oil price. The plays are far better understood now after several years of development, and production growth for the next few years looks reasonably assured.

Yet the clue is in the name, “tight” oil. The geology should not be underestimated, and the challenges of extracting at a commercial cost will mount as operators begin to move out beyond the sweet spots into tougher rocks. For the Permian, that likely comes after 2020. It could go either way.

And what he doesn't mention: over time, and it appears to be coming sooner than later, most of hte US is turning "against" fracking. North Dakota is holding in there; Oklahoma will probably hold on; and, of course, Texas will hold on, but after that, it's anyone's bet. Think Proposition 112 in Colorado and the NY Times article today on fracking on federal lands. The latter will last only as long as Trump is in office.

I think Russia and Saudi Arabia see that, and both are willing and able to wait.

Meanwhile, WTI continues to fall. Down another 55 cents today.

Good luck to all. I'm off the net for awhile.

My favorite song in 1964 (?). My favorite memory in middle school: my mom giving me a dime every so often to play the pinball machine at the Huddle (?) on Main Street and 6th Street East at lunchtime -- just across the street from Central (Junior High - Middle) School. This song, red licorice, and pinball. That's all I needed. And a dime.

Last Kiss, The Cavaliers
And, then, of course, my other favorite song of 1964: "Pretty Woman" by Roy Orbison.  And then all the early Beatle songs. My mother brought a 1964 Beatles album from England for me. How did she ever know?

Wow, I must have had a dozen other favorite songs in 1964. No Walkman. No iPod. No iPhone. No Apple Watch. How did we all survive?

Monday, October 29, 2018

Gasoline: in the local area (north Texas; DFW area; residential service stations), I see unleaded regular gasoline is going for $2.43 / gallon. It may be slightly less expensive down the street. I may see later this evening when I take Arianna to water polo. By the way, her team won both games in yesterday's "one-day tournament." They won decisively and Arianna scored two goals.

Energy merger: Right in my back yard. A Plano company -- just down the road from us -- will buy Houston upstream company for $1.7 billion.  Denbury Resources will acquire Penn Virginia Corp, an upstream company focused on the Eagle Ford shale. Denbury's presentation is available to review. It won't be there "forever." $1.7 billion / 84,060 net acres = $20,000 / Eagle Ford acre. 2Q18 Penn Virginia (PVAC) presentation at this link.To a reader I noted in a "not-ready-for-prime-time e-mail:

By the way, COP is also very, very bullish on the Eagle Ford according to their 3Q18 earnings call. When I see the valuation placed on the Permian and the valuation placed on the Eagle Ford, it suggests to me that the Bakken is well under-valued. But I am inappropriately exuberant about the Bakken.

Peak oil? Probably not:

• Vaca Muerta shale output projection revised -- upward! YPF SA will produce more oil and gas than originally planned over the next five years as shale output from the Vaca Muerta formation picks up 
• Total finds Congo pleasant surprise. Production has exceeded company's expectations. 
• Australian-based Talon Petroleum will enter the UK North Sea.

Sports:

• NASCAR: Joey Logano won Martinsville; will probably cost him the title. Martin Truex will see to that; probably one of the best / most exciting races I've seen (and I don't like short track) but it ended on a very, very sour note; had this been football, Logano would have been hit with an unsportsmanlike penalty
• NFL: LA Rams shock Green Bay; actually, the LA Rams shocked all of us
• World Series: incredible
• For the record books: it was said that for the first time ever, four major /professional sports venues were represented in one metropolitan area -- or something to that effect. Yesterday, in Los Angeles, home teams in four major sports franchises hosted visitors: hockey (LA Kings); basketball (Boston Lakers); football (LA Rams); and I forget the fourth. Soccer? I guess so. Los Angeles FC hosted Sporting KC. Oh, that's right. The fourth was the World Series. The LA Dodgers hosted the Boston Red Sox. So, in fact, five major sports franchises were playing home games in Los Angeles yesterday.

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Back to the Bakken

Wells coming off confidential list over the weekend, Monday:

Monday, October 29, 2018:

• 34509, SI/NC, MRO, McKinley USA 24-7TFH, Van Hook, no production data,
• 31260, NC, Oasis, Kjorstad 5300 34-22 5B, Willow Creek, a nice well -- listed as NC but it's been fracked and is producing very, very nicely; no IP or test date provided on scout ticket;
  t--; cum 92K 8/18;

Sunday, October 28, 2018:

• 34508, SI/NC, MRO, Dearborn USA 24-7TFH, Van Hook, no production data,

Saturday, October 27, 2018:

• 34799, 533, Hunt, Nichols 156-90-10-15H-4, Ross, t9/18; cum 13K after one month;
• 34507, SI/NC, MRO, Bursha USA 14-7H, Van Hook, no production data,
• 31261, NC, Oasis, Kjorstad 5300 34-22 6T, Willow Creek, a huge well --listed as NC but it's been fracked and is producing very, very nicely; no IP or test date provided on scout ticket; t--; cum 80K 8/18;

Active rigs:

$67.33→	10/29/2018	10/29/2017	10/29/2016	10/29/2015	10/29/2014
Active Rigs	67	53	34	69	190

RBN Energy: this may become an even bigger issue if Prop 112 / Colorado passes -- Niobrara crude production growth and takeaway pipelines.

Crude oil production in the Niobrara region in northeastern Colorado and eastern Wyoming has quadrupled since the start of the 2010s, and now tops 600 Mb/d. Fortunately for producers in the Niobrara’s Denver-Julesburg (D-J) Basin and Powder River Basin (PRB), midstream companies not only developed enough new pipeline takeaway capacity to transport all those incremental barrels, they overbuilt. As a result, the region — unlike the Permian and Western Canada — currently has no crude-oil pipeline constraints, something that makes the Niobrara even more attractive to producers.

But part of a pipeline system now moving crude out of the D-J is being repurposed to carry NGLs instead, and with D-J and PRB crude production still rising, you’ve got to wonder, is a takeaway shortfall on the horizon? Today, we continue our series on the Rockies’ premier hydrocarbon production area and the infrastructure needed to serve it, this time focusing on crude oil.

Previously we said that crude production in the D-J Basin and PRB took off during the Shale Era, soaring from less than 140 Mb/d in January 2010 to a peak of nearly 500 Mb/d in April 2015. With the 2014-15 oil price crash, though, drilling activity in the D-J Basin and PRB declined and Niobrara crude production sagged — much like it did just about everywhere else in the U.S. (except the Permian). By January 2017, the play’s oil output was down 19% from its apex, at just above 400 Mb/d. Since then, though, it’s been on a tear — up to 620 Mb/d as of October (a 54% gain since the beginning of last year.

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Moon River

Wow, I'm haunted by "Moon River." Have been for several days now; not sure how it started. Can't get it out of my mind.

I'm trying to figure it out. Like the narrator in Zen and the Art of Motorcycle Maintenance trying to re-discover/understand Phaedrus.

The song was originally performed by Audrey Hepburn in 1961. I would have been ten years old. I know I would not have seen the movie; I'm sure I never heard her version until later in life. Until early adulthood I only associated "Moon River" with Andy Williams, 1962 - 1963. I'm happy to see Audry's version has 14 million hits on YouTube; Andy Williams with 12 million hits. I've always considered "covers" karaoke. Rarely are "covers" better than the original. The same is true with this one.

We had a "hi-fi" stereo in our home on 17th Street in Williston. It was hidden in a nice wooden console. It would have been an expensive purchase for my parents. To the best of my memory, it was never played -- or very, very seldom played. I don't recall any albums, but I suppose there were some. The living room was pretty much off-limits to the family. We spent out family time in the family room, an addition to the original house. It was a beautiful room, and an incredibly functional room. Mom insisted on a sink in the corner just next to the entrance into the kitchen. With six children she needed extra sinks where they could wash their hands before coming to dinner. Has that ritual disappeared?

Back to the "hi-fi." Rarely I recall Mom would turn on its radio -- but maybe I'm just recalling something that never happened. I do vaguely recall a small radio in the kitchen.

I've never read Breakfast at Tiffaney's. I can't imagine reading it now, but ...