The Million Dollar Way (The Bakken Oil Blog): 06/15/19

Saturday, June 15, 2019

URL Change For North Dakota Quarterly Lease Sales? -- June 15, 2019

It looks like the URL may have changed for the North Dakota quarterly lease sales site. It appears the URL has added "www" to the beginning of the URL.

The next quarterly lease sale is August, 2019.

Obviously this will affect previous posts with the link. I've updated a few of the recent posts but won't update the older ones unless I happen to visit the sites for other reasons.

EnergyNet is the site one finds linked at the North Dakota state site.

At the sidebar at the right, I also link "1031 Exchange" information.

I have not checked to see if the URLs still "work" and/or if the information is current. I have no relationship with any of these sites.

Random Example Of A Mini-Re-Frack -- June 15, 2018

See this well:

22578, 3,906, Equinor, Gunderson 15-22 3H, 33-053-04036, Banks, t3/13; cum 355K 4/19; this well was re-fracked, 8/12/2018, 12 stages; 1.5 million lbs;

Lots of work to do in the Bakken: re-work wells on a regular basis; mini-re-fracks; major re-fracks; neighboring fracks.

A small re-frack -- only 1.5 million lbs, only 12 stages, and one gets production like this with newer neighboring wells re-fracked at same time:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	4-2019	19	8263	8286	18601	30472	25718	4754
BAKKEN	3-2019	28	17897	17860	33724	54934	54393	541
BAKKEN	2-2019	20	11776	11601	37345	33489	33059	430
BAKKEN	1-2019	0	0	61	0	0	0	0
BAKKEN	12-2018	21	6465	6546	18388	14959	14959	0
BAKKEN	11-2018	27	11755	12143	32096	25827	25227	600
BAKKEN	10-2018	12	4347	3827	18957	10327	10247	80
BAKKEN	9-2018	3	976	981	9365	2250	2226	24
BAKKEN	8-2018	0	0	0	0	0	0	0
BAKKEN	7-2018	0	0	0	0	0	0	0
BAKKEN	6-2018	0	0	0	0	0	0	0
BAKKEN	5-2018	0	0	0	0	0	0	0
BAKKEN	4-2018	0	0	0	0	0	0	0
BAKKEN	3-2018	0	0	0	0	0	0	0
BAKKEN	2-2018	1	49	312	48	255	255	0
BAKKEN	1-2018	31	2572	2571	844	8100	8032	37
BAKKEN	12-2017	31	2569	2685	2399	7758	7727

LNG Exports And Coal -- June 15, 2019

Nothing new here; just clearing off the desktop.

The asterisk (*) marks the year of the nuclear reactor disaster in Japan. I don't see a whole lot of difference in coal imports before and after the disaster. From google:

Japan depends on fossil fuels such as oil/coal/natural gas (LNG) imported from abroad. Before the earthquake, dependence was 81% on primary energy supply basis , but it is 89% in FY 2016 due to the generation by thermal power plants and the shutdown of nuclear power plants.

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LNG Export

In less than two years, US LNG exports have more than doubled.

Central England -- On Course For Its 17th Coldest June In 360 Years Of Records -- June 15, 2019

Link here.

I probably would not have posted this but for the fact that I have some very fond memories of north England.

From the linked article:

It’s been a truly miserable run-up to summer for folks in the UK so far, with official data revealing England is currently on for it’s 17th coldest June in records dating back to 1659.

The Central England Temperature (CET) record measures the monthly mean surface air temperatures for the Midlands region of England, and is the longest series of monthly temperature observations in existence.

It’s current mean reading for June 2019 (provisional to the 14th) is 12.6C (54.7F) — that’s 1C below the historically cool 1961-1990 average, the current standard period of reference for climatological data used by the WMO.

In recent years, only the June’s of 1991, 1977 and 1971 ran colder. Before that, you have to back to 1923, 1916, 1908, 1906, 1860, 1823, 1821, 1749, 1745, 1725, 1705, 1698 and 1689 to find cooler months of June.

This month’s cold temperatures and reduced sunlight hours will have already hampered the growth of many open-field crops, which in turn will pile further pressure on already surging commodity markets following the inclement-weather-related planting issues in Australia, America, Africa and China.

In addition, 2019’s frigid June comes on the back of an historically cool May.

Last month came in an 11.1C — or bang on average against the cold period of 1961-1990.

Much more at the link.

Bottom line, according to the article: The cold times are returning, as the sun enters it’s next Grand Solar Minimum cycle.

Meanwhile, from the National Weather Service (US government): solar cycle 25 will be below average, simlar to solar cycle 24.

Date of that link: April 5, 2019.

Scientists charged with predicting the Sun’s activity for the next 11-year solar cycle say that it’s likely to be weak, much like the current one. The current solar cycle, Cycle 24, is declining and predicted to reach solar minimum - the period when the Sun is least active - late in 2019 or 2020.

Solar Cycle 25 Prediction Panel experts said Solar Cycle 25 may have a slow start, but is anticipated to peak with solar maximum occurring between 2023 and 2026, and a sunspot range of 95 to 130. This is well below the average number of sunspots, which typically ranges from 140 to 220 sunspots per solar cycle.

The panel has high confidence that the coming cycle should break the trend of weakening solar activity seen over the past four cycles.

This could give us a reprieve of sorts. Occasional-Cortex says we have less than twelve years to act; Beto, another global warming expert, says was have less then ten years.

Beating A Dead Horse -- June 15, 2019

Updates

Later, 9:09 p.m. Central Time: a reader provides an excellent reply to the original post -- I'll bring it up here for each browsing/search capability:

Rigs matter eventually. Even if they have gotten better. Even if there is some DUC to work off.

I calculate we need about 40 rigs to maintain production.

DUCs are fine, but they are inventory. If you use them up, it's like draining your savings account. If can float you for a while. But eventually, you need to be bringing in as much income as you spend. So, when you look at long term sustainability, I would just ignore DUCs.

Looking at EIA Drilling Productivity Report for Bakken, I calculate about 40 rigs needed to maintain production near current (1.4 MM bopd) level.

The way to do the calculation is explained by EIA and is pretty simple:

Rigs*(new oil/rig) + base decline = 0

Looking at the EIA charts:

https://www.eia.gov/petroleum/drilling/pdf/bakken.pdf

First panel (upper right) shows the new oil/rig is ~1400 bopd/month/rig. Next two panels directly below show the base decline is running about 67,000 bopd/month.

Doing the high school algebra and solving for rigs as the unknown:

rigs = 67,000/1400 = 47.8 rigs

Note, however, that when you lose rigs, you tend to pull the LESS capable rigs first (mechanically, crew experience, and more importantly rigs running in the less desirable areas like Divide, etc.). So there is always an effect of rigs getting more efficient as the numbers get lower.

It's like a class's average height getting larger, when you eliminate the shorter third of the students. You didn't actually make any students taller. But the average got higher because of cutting in a non-random manner.

So given all that, it would be something less than 48. I'm saying 40 as a guess, but it might be slightly higher or lower. Don't shoot me if it ends up being 45 or 35.

There is also another effect that takes place during downturns or plateaus. That is that the decline rate gets gentler as the percentage of new wells drops. (This happens during downturns or flat-turns, since less completions are done per month.) This has no immediate effect the first month of a big downturn, but over a year or two it can be substantial...it can lead to "less Red Queen" which means less rigs are needed just to fight shale decline. [The Rystad presentations on the video show this very nicely for the Permian...it's base decline went down from 2014 to 2016.] This also occurred in the Haynesville where 30 rigs were holding production flat (down from 200 at the peak, during growth).

Other effects that can happen over time include technology improvement (practice, efficiency, completion improvement, knowing where better land is), but they also fight depletion of the best rocks (look at EOG using up the Parshall). In any case, I think both of these effects are more long term and tend to offset each other.

Net/net: sure, dropping a rig or two is no big deal. But if we get into the 40s, we will be hurting for growth and in the 30s probably shrink.

Original Post

When rig counts drop in North Dakota later this year, that will be a headline story for some. But rig counts are irrelevant.

From Lynn Helms on the April, 2019, Director's Cut, see video here:

Natural gas capture:

new all-time record
oil production stayed flat; even so, natural gas production went up almost 1%
even more interesting, natural gas capture increased -- not so much as a percentage change as a raw number change
due more to large temperature swings in North Dakota than any other factor --this is fairly unique -- not something seen in the rest of the world -- the wide seasonal changes that affect natural gas gathering seen in North Dakota (-40 degrees in the winter to +100 degrees in the summer)
summer infrastructure season has not yet begun; that is not the reason for increase natural gas gathering

Producing wells:

all-time high in number of producing wells; reduced the DUCs a little bit and reduce the inactive well count even more
inactive wells being put back on stream
permitting: pretty much steady

Price of oil:

price of oil in June: problematic; for March, April, and May, above forecast
state revenue forecast: results above forecasts in March, April, and, May by as much as $8/bbl
June: revenue only 15 cents/bbl above forecasts

Operators:

Helms visited a dozen operators in Denver last month
among the top 25 operators in North Dakota, half are located in Denver
Helms spent about an hour with each one
operators are very concerned about WTI price and over-supply
but, despite that concern, will stay with about the same number of rigs/frack crews through 2020:
rigs: 20% improvement in drilling efficiency in last year; one operator will reduce number of rigs from five to four

each rig: three wells per month (30 days/3 wells = 10 days from moving, rig set-up, drilling to depth, moving rig off site;

30% improvement in frack efficiency; that same operator will reduce frack crews from three to two

Rig counts -- beating a dead horse:

The weekly change in the number of rigs in North Dakota is a relatively meaningless metric. Wouldn't it be great to maintain production of 1 million bopd with one rig vs 218 rigs? Wouldn't it be great to be able to put in pipeline more efficiently? More meaningful metrics:

monthly production
price of oil
takeaway capacity
number of DUCs
number of inactive wells

Open Water Sailing -- From The Aegean Sea -- The Granddaughters -- June 15, 2019

Crew:

Skipper: son-in-law, Josh.
First mate: granddaughter, Arianna, age 16
Videographer and medic: granddaughter, Olivia, age 13

Course:

eight days in/on the Aegean Sea
touring Greek islands; most unseen by tourists
only access via boat, and most of those, by sail

The photos above were received on June 15, and the note written that day.

Below is a note from June 9, 2019, that was in draft mode until now.

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Notes For The Granddaughters

Arianna, 16, and Olivia, 13, just telephoned -- "Facetime" -- from the Aegean Sea. They are on a sailboat sailing among the Greek islands for the next seven days or so, sleeping on the boat at night. Their dad is the skipper, Arianna is the first mate, and Olivia is the narrator-videographer. They are the only three on the sailboat -- doing it on their own. This is the first time they have sailed as a team. Arianna and Olivia have taken sailing lessons but this is their first voyage on their own (with their dad -- also his first open water sailing adventure).

This is probably one of the better sites to get an idea of what they are doing, and a photo of the type of sailboat they are probably on.

Week 24: June 9, 2019 -- June 15, 2019

#1 story not reported this week: the "Catherine Englebrecht IRS" story. Wikipedia has not yet noted the huge judgment against the IRS and for the "True the Vote" founder. Via google one needs to go through about five pages before finding this story at CanadaFreePress.

Note: done quickly; links may be broken or wrong; will correct them as I find them.

Director's Cut for April, 2019 data:

Top international non-energy story:

Two non-oil-carrying tankers near the Strait of Hormuz were attacked; one may be damaged beyond repair; and "no one" seems to care; the Iranians have pretty much convinced the world it was not them that attacked these two tankers; China doubles down on support for Iran; UN urges independent probe;

Top international energy story:

The price of oil fell after two non-oil-carrying tankers were attacked and severely damaged near the Strait of Hormuz
BP releases its 2019 global energy review: global energy grew by 2.9%, the fastest since any time since 2010 - 2011;

Top US non-energy story: