Thinking Out Loud -- Just Wondering? -- May 1, 2021

One would have to be living under the Geico Rock to not realize the surge in cost of commodities, lumber being particularly bad, but then platinum was mentioned yesterday. In fact, I think one can argue that every commodity seems to be surging in price.

Except one. [Actually two, but I'm going to ignore natural gas for now.]

Yes, the price of WTI has crept from $55 to $65 but it's been relatively orderly and not particularly alarming when it comes to historical surges in the price of oil.

That came to mind again today during the Buffett & Munger show (Berkshire Hathaway's annual meeting). I think it was Charlie Munger who mentioned it first -- the sudden surge in the price of commodities in general.

[By the way, when asked about "ESG" and Buffett opening a huge position in Chevron, Buffett said two things:

• he made no excuses for Chevron; he was very, very happy with Chevron; and,
• in fact, he said he would be happy owning the entire company.]

But relative to what we're seeing in lumber and in platinum, WTI seems to be a bargain. Here in north Texas, gasoline has gone from $2.09 / gallon to $2.59 / gallon in just the past few weeks but we've seen those price changes often over the years. 

I mentioned the other day that pundits are suggesting the price of oil could rise significantly. Most notably, Goldman Sachs, $80 by the end of the year. Social media suggests GS was being too conservative; some see $80 by Labor Day. 

And, then, of course this, which I first saw in The WSJ and now it's being reported by CNN.

By the way, predicting a shortage of anything almost guarantees that it will happen: folks will stock up if they perceive a coming shortage. Word to the wise if there might be regional and/or spot shortages of gasoline this summer: never let your car tank go below half full. If you are really concerned, don't let it drop below three-quarters full.

So, that flashed across my mind now and during the Buffett & Munger show. 

I was going to post that regardless.

But look at this, just popped up on social media. 

Patrick De Haan: "Boom."

Patrick De Haan: "Breaking. According to GasBuddy data, Friday US gasoline demand surged 5.8% from the prior Friday, 'barely' missing a new post-Covid Friday record by 0.48%." 

The fly in the ointment: it looks like we're one step closer to moderating sanctions on Iran. 

Irony:

• removing sanctions on Iran; but,
• sanctioning the Bakken (by shutting down the DAPL).

Covid-19 Vaccine Hesitancy -- Gee, I Wonder Why? Blood Clots? Even Being Fully Vaccinated, Masks Still Required, And Then Boosters -- Why Bother? -- May 1, 2021

The trend continues. CDC link here.

Vaccine "hesitancy."

These are the "Saturday" reports.

Note:

• the large jump from March 6, 2021, to March, 13, 2021, from 2.9 million to an astounding 4.6 million.
• it dropped again the next couple of Saturdays, but then went back above 4 million
• the "Fauci/CDC JNJ pause" was announced Tuesday, April 13, 2021;
• that following Saturday, the number of vaccinations reported well below 4 million, down to 3.6 million;
• the next Saturday, April 24, it dropped again, to 3.3 million;
• today, the lowest number for a Saturday report in the last eight weeks;
• despite more than enough vaccine being delivered to facilities, and despite "opening up" vaccinations to all folks over 16 years of age, the number of vaccinations is dropping, comparing same day's data;

		Doses of vaccine distributed to health facilities	Change from day before	Vaccinations given	Change from day before
Saturday	May 1, 2021	312,508,205	3,734,050	243,463,471	3,303,794
Saturday	April 24, 2021	290,685,655	4,590,470	225,640,460	3,318,230
Saturday	April 17, 2021	264,499,715	5,996,900	205,871,913	3,589,620
Saturday	April 10, 2021	237,791,735	4,199,780	183,467,709	4,629,928
Saturday	April 3, 2021	207,866,645	3,147,310	161,688,422	4,081,959
Saturday	March 27, 2021	180,644,125	3,142,350	140,180,735	3,496,047
Saturday	March 20, 2021	156,734,555	2,535,320	121,441,497	3,127,679
Saturday	March 13, 2021	135,846,665	2,509,140	105,703,501	4,575,496
Saturday	March 6, 2021	116,355,405	2,222,290	87,912,323	2,904,229

The Man Who Bought 60,000 Oil And Gas Wells -- May 1, 2021

Updates

May 2, 2021: the reader continues with this:

Regarding the Bakken/Permian DSU differences ... both were/are one-square-mile 'squares' with the North Dakota regulators prudently expanding to two-square-mil (1,260 square acres) spacing units in the early years.

That single action - going from 640- to 1,280-acre DSUs  - was arguably one of the most crucial acts in boosting Bakken development.

The Permian still employs 640 square acre units - 'leases' being the common description - throughout the state ... as does Oklahoma, Louisiana, Colorado, and virtually every other state (excepting California) west of the Mississippi.

One interesting fact on this topic is the 'mineral rights' / Land Grants that the US government gave to prospective railroad builders in the late 1800s in efforts to encourage them to build new rail tracks. 

These legacy  mineral rights can be seen with the 'checkerboard' holdings in Texas and Colorado, especially, that company investor presentations usually show. [I believe I saw them at one time in presentations relating to North Dakota, also.]

Just as the little-recognized stripper industry plays a significant role in the oil/gas production world, the entire 'land/landmen' arena is almost completely overlooked, while being an extremely influential component of the industry.

May 2, 2021:  the reader who tipped me off to DGO, sent a follow-up:

That DGO outfit is certainly positioning itself as a premiere stripper, but that barely scratches the surface of what is taking place.

Eastern states, unlike the rest of the country, do not have pre-determined, geometric shaped drilling units. In fact, no DSUs exist at all. As a consequence, once a 640 acre holding is 'cobbled together' with willing mineral rights holders, an operator may get state approval to drill.

The shapes of these units (and the total size of contiguous acreage) is all over the place.

One consequence is that scattered, fragmented pads/holdings have little value to the Big Boys.

Enter DGO who was practically given over a dozen producing unconventional wells, engineering plans for maybe 30 more, and about half dozen developed pads which cost around $1 million each to prepare in Pennsylvania. 

The real value, it seems, with this company is that it offers a great outlet for the Big Boys to continue buying/merging without having to bother with the 'crumbs.' 

This is why EQT bought out CVX's Pennsylvania holdings for $735 million when CVX originally paid around $6-$8 billion for the stuff. EQT turned over the fragmented, unwanted producing pads/wells to DGO for peanuts. 

XTO - and others - are following CVX in leaving Appalachia.

Bottom line, consolidation continues apace. 

One consequence is the enormous benefit that some 'Little Guys' may receive. [Comment: again I am posting this to help understand how different plays, like Appalachia, are developed, compared to the Bakken. I assume the Permian is similar to the Bakken, but the Permian being a much older play, probably has some unique drilling unit issues.

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

Original Post

Brought to my attention by a reader. Quite a story. Link to BBC.

So in 2001, aged 32, Rusty bought an old gas well back in West Virginia for $250,000 (£200,000). He raised the money by remortgaging his home.

"It was a small old well, it had been in production for years, but it was like gold to me," he says. "I spent the next four years still also working in the bank, but any spare time I had I'd fly up to West Virginia to work alongside the one well tender that I had back then."

Fast-forward to today, and Rusty's company, DGO, now owns more than 60,000 gas and oil wells across West Virginia, Pennsylvania, Ohio, Kentucky, Virginia and Tennessee, a region called the Appalachia. Employing 925 people it has annual revenues of more than $500m. Some 90% of its operation is natural gas, with 10% oil.

The company's business model is a very specific one - it doesn't do any drilling to find new oil and gas reserves. Instead it buys up old oil and gas wells that bigger producers no longer want, because the initial large flow levels have fallen to low volumes.

He might feel right at home in North Dakota with the dreaded "Bakken decline."

One Well, One Millionaire, June 29, 2008 -- Posted May 1, 2021

The story:

• link at the JournalStar here. One well, June 29, 2008 -- the Bakken in North Dakota was a year old.
  

Oscar Stohler was raised in a sod house in western North Dakota and ranched there for nearly seven decades. He never gave much thought to what lay below the grass that fattened his cattle.

When oilmen wanted to drill there last year, Stohler, 83, doubted oil would be found two miles underground on his property. He even joked about it.

“I told them if they hit oil, I was going to buy a Cadillac convertible and put those big horns on the front and wear a 10-gallon hat,” Stohler recalled.

He still drives his old pickup and wears a mesh farm cap — but it’s by choice.

In less than a year, Stohler and his wife, Lorene, 82, have become millionaires from the production of one well on their land near Dunn Center, a mile or so from the sod home where Oscar grew up. A second well has begun producing on their property and another is being drilled — all aimed at the Bakken shale formation, a rich deposit that the U.S. Geological Survey calls the largest continuous oil accumulation it has ever assessed.

Obituary: December 5, 2013. Not one mention of his "oil." Not unexpected. Life is too short.

The graphics:

The Stohler wells:

• 16333, see below,
  
• 22341, 1,520, MRO, Lorene Stohler 11-3H, Bailey, t10/12; cum 376K 2/21;
  
• 22342, 1,142, MRO, Lorene Stohler 11-3TFH, Bailey, t9/12; cum 92K 2/21;
  
• 16459, 457, MRO, Oscar Stohler 41-4H, Bailey, t10/08; cum 602K 2/21;
  
• 16860, 348, MRO, Stohler 41-3H, Bailey, t2/08; cum 505K 2/21;
  

Other wells of interest:

• 37994, loc, MRO, Konstantin 11-3H, Bailey,
• 37995, loc, MRO, Fredericka 41-4TFH, Bailey,

The initial well:

• 16333, 235/AB, MRO, Stohler 21-3H, Bailey, t2/07; t--; cum 442K 2/18

Early production:

BAKKEN	10-2007	31	8473	8589	684	3290	3135	0
BAKKEN	9-2007	30	9038	8217	749	3910	3760	0
BAKKEN	8-2007	31	10575	11242	949	6137	5982	0
BAKKEN	7-2007	31	10291	9615	1069	6335	6182	0
BAKKEN	6-2007	26	9201	9628	658	5991	5863	0
BAKKEN	5-2007	31	13195	13319	1165	8576	8424	0
BAKKEN	4-2007	30	12681	12891	1069	7548	7398	0
BAKKEN	3-2007	31	15356	15090	1332	9376	9376	0
BAKKEN	2-2007	28	7912	7354	580	4546	4546	0
BAKKEN	1-2007	30	5680	5595	1291	3540	3540	0
BAKKEN	12-2006	11	1530	1295	655	253	253	0

Global Warming Continues To Hit North Dakota -- May 1, 2021

Carbon Capture And Storage -- May 1, 2021

In an earlier post I wrote:

Carbon capture projects, by country. Link here. Readers each get three guesses which country has the most carbon capture projects in the works, and the first two guesses, if wrong, don't count. Hint: the country is not China, Russia, Germany, Norway, Saudi Arabia, or Lichtenstein. 

I had not thought about that much until now. Think about that. Name the sector or the companies that have carbon capture and storage (CCS) as their core competencies. Now imagine nations throwing money at these companies to increase CCS. This is another huge revenue stream for the E&P companies.

The graphic at the above link:

A Reader Replies To An Earlier Post -- May 1, 2021

In response to an earlier post, this from a reader:

I have been closely tracking the quarterly releases [of the energy companies] these past weeks [generally 1Q21 earnings]. 

There is such a wealth of info revealed with the Conference Call transcripts (freely available through Seeking Alpha and others) that I tend to go over at least a half dozen Appalachian Basin companies each quarter. 

My 'shale' curiosity now primarily revolves around Appalachia as well as the industry's continuing technological advances.

Long story short, there is ongoing activity involving land consolidation, merging and acquisition (M&A), large outfits completely exiting the region, and on and on. 

What didn't hit me (duh) until this morning, was just how profoundly, how powerfully these actions are impacting these emerging companies in the global marketplace.

That is to say, in somewhat similar fashion to big pieces of a jigsaw puzzle continuously self-arranging to more better form a complete picture, these Appalachian Basin companies are buying holdings, selling off or swapping outliers, merging with peers, etc., while employing the ever-improving new technologies and processes that continuously arise.

These (energy companies) are NOT the same outfits of even five years ago.

These (energy companies) are incredibly lean, amazingly productive hydrocarbon-producing machines against which NO big, government owned entity can ever hope to successfully compete.

As just one example, two to three years ago, it would routinely cost over $1,000/lateral foot to drill and complete a horizontal well.

Now, most of these companies have these costs under $700 with some [trending toward] $600/foot.

This, obviously, greatly enhances the economics while continuing to expand the productive footprint in these formations.

Bottom line: the over-hyped 'break even' point for companies in this industry continues to drop.

Foreign entities dependent upon hydrocarbon revenues (looking at you, KSA) are increasingly imperiled. 

(Additional corollary to this, smaller countries dependent upon domestic oil/gas production/revenues are hurting as long term low global prices are stifling local exploration/development.

Countries all over from Bolivia, Pakistan, Philippines, even Australia are being impacted by the recognition that low cost hydrocarbons - especially gas - are available just by 'picking up the phone' and purchasing it.)

Future consequences will be paradigm shattering in many, many yet unforeseen ways.

I agree completely. Much could be written.

We saw the financial results of some of the larger oil companies this past week but look what we're going to see next week:

Saturday Morning Rambling -- May 1, 2021

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

Good morning. 

Rambling before I get started on the top stories for the week.

Exxon issues lockout notice: oh, before I get started, Exxon Mobil has begun "escorting" union workers off its Beaumont refinery property in anticipation of a workers' strike. Wow, that seemed to have come out of nowhere. Link here to Reuters. And, also this from Reuters.

The weekly post with the top stories for the week is the last thing I look forward to every Saturday. What a pain. I will get to it later.

Movies: I slept in this morning. I enjoyed watching Hitchcock's Rebecca on DVD last night. I had forgotten how good it was. While watching, I googled if Rebecca was Hitchcock's best movie. The answer is here: "one of  his best." 

Investing: last week was quite a week for investors. SeekingAlpha reminded me how good it really was. AAPL. AMD. BRK. Those three articles are "way over the top" and I'm not that bullish on any of them but I've linked them for the archives. 

But what caught my attention -- not mentioned in any of the linked articles -- the acquisitions that companies made last year. 

In the oil patch, look at these (previously posted), from 2020:

• CVX - Noble Energy.
• Devon - WPX.
• Conoco - Concho.
• Pioneer- Parsley. 
• FANG - QEP. 

So far this year:

• Enerplus buys non-core Hess acreage in the Bakken;
• Enerplus to acquire Bruin;
• Pioneer/Parsley adds DoublePoint Energy;
• CLR buys Samson's assets in the Powder River Basin;

I assume there were a lot more but those were the ones that caught my eye.

Bitcoin: a long-time reader with an interest in the oil sector has moved on to bitcoin. He wrote/asked me if I would post my thoughts on bitcoin. I don't know enough to comment, but I sure had fun reading about bitcoin again. So much more has been posted since I last "researched" bitcoin. What interests me most about bitcoin is the incredible amount of energy -- real energy: coal, natural gas, hydro-electricity -- required to "mine" bitcoin. From The Guardian. Bitcoin proponents have "counter-arguments" putting the bitcoin energy story into perspective.

Norway and EVs: I may re-post this SeekingAlpha article on Norway and EVs as a stand-alone post. I've never understood how anyone could use Norway as the "global model" for the future of EVs. Per capita, richest country in the western world (?); least expensive electricity in the western world (?); biggest government incentives of any western country (?) to own EVs. A fairly large country, but most of it is "empty." There are only a few cities of any size and commute-distances to work must truly be minimal.

*******************************************
For The Grandchildren

It's hard to believe but I have not been to a barbershop since February, 2020. The lockdown began sometime in March, 2020, in our area. The ban has been lifted now for a few weeks, but I still have no desire to visit the barber. For the past few weeks, my long hair has really been bothering me. I really could not take it any more.

I told Sophia, still six years old, she "just had to cut my hair." She had not cut it in a long time. 

She said, "fine, but I want $5, in real money." I agreed.

Normally we get set up with a mirror, etc., but this time we didn't have anything so I just gave her a pair of scissors and waited for her to call me, when it was my turn.

Her barber shop is/was on the balcony, a simple chair, a beach towel, and a pair of scissors. Nothing else. After she took care of her other make-believe customers, she called me. Again, I had no mirror. I just told her to cut my hair.

I think it looks pretty good for $5.

That's me this morning, listening to "The Best of George Harrison" and blogging.