Top Stories Of The Week -- Week 49 -- The Narrative -- December 7, 2019

Updates

Later: a reader provides better data regarding Bakken wells and cumulative production (see first comment):

• Total number of wells: 14,306 -- 100%
• 1.5 million bbls crude oil: 2 wells; 0.01%
• 1.0 million bbls crude oil: 8 wells; 0.1%
• 0.9 million bbls crude oil: 13 wells; 0.1%
• 0.8 million bbls crude oil: 29 wells; 0.2%
• 0.7 million bbls crude oil: 70; 0..5%
• 0.6 million bbls crude oil: 151; 1.1%
• 0.5 million bbls crude oil: 335; 2.3%
• 0.4 million bbls crude oil: 980; 6.9%
• 0.3 million bbls crude oil: 2,795; 19.5%
• 0.2 million bbls crude oil: 7,011; 49.0%
• 0.1 million bbls crude oil: 12,493: 87.3%
• less than 0.1 million bbls crude oil: 1,813; 12.7%

Note: This is based on shaleprofile.com data, as of the September, 2019, NDIC report. It is restricted to include only ND wells, only hz wells, only those from 2005 or later, and only those designated as Middle Bakken or Three Forks (i.e. Red River not included).

This will be a nice metric going forward.

Original Post

These are the things on my mind after having just completed the top stories of the week.

Here's a bit of irony. It may very well be that it will be Saudi Arabia that will "save" the US shale operators. Say what? It's a given that Saudi Arabia cannot survive on $60 Brent or $50 WTI. I'm not even convinced that Saudi Arabia will do well with Brent at anything below $80. Saudi Arabia will "do what it takes" to keep the price of oil "up." A cartel might be able to enforce production discipline unlike a free market. A free market can also result in production discipline but to do it, may be very, very painful. A lot of story lines, and a lot of irony.

On another note, without question this has been a most incredible week: we ended the week on one of the most incredibly uplifting stories ever for the US economy and it's hard to deny that President Trump played a role. Meanwhile, the US House is now preparing articles of impeachment. So, I guess there is some irony here, also. The economy is doing incredibly well (both on Main Street and Wall Street) and the president's Christmas present is impeachment.

The US is not at war; the US economy is doing quite well; unemployment is at a 50-year low; African-American unemployment is at record lows; labor force participation is at record highs; no wage inflation; in fact, the Fed is trying to get the inflation number up a bit, closer to 2%. The 10-year bond ended the week with a return of about 1.85%. Pundits at one time said the world as know it would come to an end if the "10-year went under 2%." Well, there you have it. The world as I know it did end: AAPL ended the week on a new all-time high.

Back to oil. Not more than two or three years ago I opined that $50- to $55-WTI was the sweet spot. Oil operators could make money while still keeping gasoline prices low for US consumers. But one sure gets the impression that operators are struggling on $55 oil. What changed? I still feel that operators really, really overpaid for the Permian. There will be a bow wave of pain lasting three to five  years for operators to get through that mistake; many will not survive. It appears that 2019 was the first year of pain. If several years is defined as three to five years, then look for 2022 for US oil companies to start looking really, really good again.

Like him or hate him, it's hard to think of many things that President Trump has said that hasn't been accurate. Most of what he has tweeted has proved to be true. The one thing that concerns me most -- and I'm flip-flopping on this: southern border "immigration." Some time ago I posted on the blog that I had no concerns about the southern border "immigration" issue. The US was capable of "absorbing" these new immigrants.

But things have changed.

By the way, DACA is now being "decided" by the US Supreme Court.

This is the nightmare: Mexico appears to be following the "Venezuela model." It certainly appears that AMLO is setting himself up for "president for life." When Mexico implodes, it won't be caravans of 1,000's of gate-crashers streaming across our southern border; it won't even be 10's of thousands. The flood will be measured in "El-Paso units" or perhaps "Beto units" or something similar. One "Beto unit" (or whatever the name becomes) will equate to 100,000 people streaming across the southern border; 500,000 people = 5 Beto units. Headline, Wall Street Journal, March 15, 2029, "three Beto caravans came through the El Paso area yesterday."

See southern border immigration in five charts. The population of Mexico is 130 million.

See the coming implosion of Mexico, at The Wall Street Journal. That story is behind a paywall, but I will post excerpts later at a separate post.

Back to the Bakken. Back in 2018 I opined that starting in 2019 we were going to start seeing a lot of Bakken wells pass the 500,000-bbl-cumulative threshold. Through August of this year I had not noted many examples, and I was perplexed. I thought I had gotten ahead of my headlights, but here it. We're now starting to see more and more half-million-bbl wells. Many of these are older wells; but many of them are relatively new. Several years ago Michael Filloon (and others) started talking about EURs of 1 million bbls and 1.2 million bbls. Not much talk since then, but we will see it in the quarterly reports and quarterly presentations. It appears that for the time-being (maybe forever?) we've seen EURs in the Bakken max out at 1 million bbls. Time will tell, but the wells coming off the confidential list this past year have been incredible. I've now added a new metric: production in the first full month. For example:

• 35611, 1,596, Hess, RS-Flickertail-156-91-1720H-4, Ross, t6/19; cum 81K 10/19; 23K month; 
• 35536, 675, Oasis, Om Erickson 5501 11-18 4B, Missouri Ridge, t6/19; cum 94K 10/19; 21K month;

In both those examples, the last data point is the largest production in any one of the first six months after the well is completed and tested. So, for #35536, the highest production in any of the first six months of this well after being completed/tested was 21,000 bbls.

Not common, but not rare, we are seeing many "45K-months" and enough "70K-months" to suggest that we've entered a new phase of the Bakken, at least as far as initial six-month production.