Thursday, August 5, 2021

TMS And CLR --- August 5, 2021

I follow the Tuscaloosa Marine Shale here

The Austin Chalk-Louisiana is followed here but has not been updated in a long time. Something tells me it needs to be updated.

The Austin Chalk-Texas is followed here but has not been updated in a long time. But that's not important right now.

Vernon Parish is just west of what is known as the TMS, I am being told.

Link here.

TMS And CLR: The Discussion Continues -- August 5, 2021

Updates

Later, 9:53 p.m. CT: see this post

Original Post

In CLR's 2Q21 conference call, COO Jack Stark made an interesting remark: Continental's COO - Jack Stark - said in his introductory comments st the 2Q21 Conference Call the other day that 'exploratory opportunities' were underway that could greatly increase CLR's size. 

Could possibly be the forgotten Tuscaloosa Marine Shale. 
A tiny Australian company has drilled 6 wells there with moderate success. 
Could be interesting.

A reader suggested CLR could be thinking about the Tuscaloosa Marine Shale, which prompted a very, very long post.  

Continuing that conversation, that same reader replied.

From the reader:

Reading your TMS posts today have really fired up my imagination.
From memory, and a LOT of connecting the dots ...
TMS was determined by a local university geology department to have about 8 billion barrels recoversble oil.
 
One (of several) challenges with the TMS is the depth  ... 14,000 to 16,000+ foot depth, if I recall correctly.
 
Next biggest obstacle is the frequent 'caving in' of the wellbore as it was being drilled ... especially during the build/curve.  (Big, unexpected expenses there ).
 
Many 'unkowns' that can only be discovered through expensive, nerve-wracking trial and error include optimal landing depth, depth of curve initiation,  (and angle),  mud parameters, rate of drilling, identification of 'sweet spots', and several more.
Now, the 'good stuff' ...
Oil cut is 92% / 96% ... extraordinarily high.
 
(Bakken which is high, runs 85%/90%). -- in the early Bakken, I believe the cut ran as high as 94%;

Best part - in 2 aspects - is that the extreme depth has VERY high formation pressure which greatly 'pushes' the oil out of the rock and  into the wellbore.
 
Now, with recent advances in Gas Lift technologies (gas lift seems to be near universal in the Bakken now),  single point (relatively cheap) high pressure gas can be injected down to the curve which will zoom up to the surface bringing a ton of oil with it.

To rephrase  ... while the very deep TMS poses inherent challenges, those very same characteristics can be huge positives when considering
  • getting the oil out of the rock and into the wellbore 
  • having the deep gas injection prompt huge expansion/lift by which the liquids can (somewhat easily) travel 3 miles up to the surface.
As you say, I may be getting ahead of my headlights here, but I suspect the emerging technologies these past few years that have been developed in the Bakken (drilling, completions, geological assessments, artificial lift) may have produced a viable climate within which to further tackle the TMS.

As an aside, other formations such as the Rogersville, Paradox, et al may start to kindle interest for the adventurous.

Slawson With Three New Permits; One Permit Renewed -- August 5, 2021

Supply chain shortages: as folks know, there is a shortage of jet fuel as smaller regional airports due to a shortage of truck drivers. One wonders if there could be a beer shortage due to a shortage of trucker drivers servicing Sturgis. One wonders where these bars store all that beer. And all that money. And could Sturgis run out of gasoline for the very same trucker-shortage problem? This will be quite fascinating. 

Sturgis: motorcycle rally starts tomorrow, Friday, August 6, 2021. Why is the byline in this linked story from Sioux Falls, when the rally is outside Rapid City's back door? No reporters dare make the trip? Link here

  • early estimates of 500,000 have now grown to 700,000
  • I assume everyone going is vaccinated -- ROTFL

Enerplus: raises dividend by 15%. Link here.

Enerplus: up a bit during the day, but flat after-hours; 2Q21 earnings here;

  • closed at $5.82 prior to earnings release;
  • EPS: expected -- 34 cents; actual -- a loss of 23 cents per share; but adjusted, ERF reported 26 cents/share -- still missing forecasts;
  • revenue: expected --- $422.71 million; actual -- pending
  • cash flow from operating activities: $136.9 million; $90.6 million a year ago; 
  • Williston Basin: 72,390 boepd; 73% crude oil;
  • company record: drilled a two-mile lateral section in 48 hours (lateral spud to total depth)
  • total well costs now expected to average $5.7 million/well in 2021, a reduction of 25% compared to 2019, and well below the 2021 target of $6.1 million;

Louisiana Light: $68.69.

Germany: got rid of its nuclear plants to burn more coal; link here.

  • German gas generation falls 35%;
  • coal rebounds as margins diverge
  • the dirtiest coal, lignite, tops July mix
  • TTF front-month hits 2008-high above Eur40/mt
  • year-ahead clean spark spread negative first time since 2019
  • gas generation totaled 3.3 TWh in July, down 35% y/y as natural gas prices hit the highest levels on record
  • from the article:

Challenging conditions for German gas plants are priced to extend into 2022, as Platts year-ahead clean spark spread with CSS (50% efficiency) assessment turned negative on Aug. 4 for the first time since April 2019 as the TTF 2022 gas contract rose above Eur28/MWh.

According to S&P Global Platts Analytics' latest five-year forecast published Aug. 4, German gas-fired output will rise above the 2020 high from next year on the back of nuclear, lignite and coal closures, averaging around 9 GW throughout the forecast period.

All six German reactors are set to shut by the end of 2022, while Germany has auctioned over 8 GW of coal closure compensation since December 2020, bringing 2022 capacity well below 15 GW.

RWE is also set to shut another 2.5 GW of lignite unit, mainly linked to the Hambach mine, by the end of 2022.

Germany's leading candidate to replace Chancellor Angela Merkel after the Sept. 26 election, Armin Laschet (CDU), has rejected calls by the Greens and its sister party CSU to re-negotiate coal exit dates.

Laschet added, however, that higher carbon prices could lead to quicker-than-anticipated coal closures achievable by 2030 in Western Germany.

Short-term prospects for gas-fired generation, meanwhile, may have taken another hit in August delivery, as lower Russian gas flows through Yamal in Germany have given prices one less reason to fall, leaving Europe further exposed to global gas price strength.

After a consistent flow of 81 million cu m/d throughout summer, net imports at Yamal's Mallnow terminus have slipped to 49 million cu m/d. Both German and Polish transit networks have told Platts that this is due to market behavior, and no upstream issues have been reported on the Russian side.

*****************************
Back to the Bakken

Active rigs

$69.09
8/5/202108/05/202008/05/201908/05/201808/05/2017
Active Rigs23*11596458

*Active rigs from the daily activity report: shows 23; I didn't go through the list but I assume it's very similar to the one yesterday

Three new permits, #38456 - #38458, inclusive:

  • Operator: Slawson
  • Field: Big Bend (Mountrail)
  • Comments:
    • Slawson has permits for a Rainmaker Federal well, a Cougar Federal well, and a Machete Federal well, all in SESE 24-152-93, they will be sited:
      • Rainmaker Federal: 300 FSL and 400 FEL
      • Cougar Federal: 300 FSL and 350' FEL
      • Machete Federal: 300 FSL and 300 FEL

One permit renewed:

  • XTO: a Cindy Blikre well, #31747, in Williams County

CLR -- Transcript -- 2Q21

William Berry: CEO

  • company record-breaking $634 million free cash flow
  • reduced net debt by $284 million
  • quarter ended with $4.59 billion in debt
  • at this rate, 16 quarters to pay off debt
  • ytd: $1.34 billion in fcf
  • ytd: reduced net debt by $892 million
  • exceeded production guidance, 167,000 boepd day and 1 billion cf of natural gas per day (1 billion / 6001 = 167K boepd -- :We exceeded our production guidance for the quarter, delivering 167,000 BOE a day and just over -- barrels of oil a day and just over 1 billion cubic feet of gas per day."
  • oil: unhedged;
  • natural gas: about 50% hedged through end of the year; 2022: no gas hedges beyond 2022;

Jack Stark: president and COO: assuming $60 WTI and $3 NYMEX gas

  • 2Q21:
    • brought on 70 gross operated wells in the Bakken; 38 in Oklahoma
  • takeaway in the Bakken
    • with the DAPL expansion, 1.6 million bbls of pipeline and local refining takeaway capacity excluding rail
    • approximately 500,000 bopd more than the Bakken produced in May, 2021
  • eleven of the 2Q21 Bakken completions were in the Long Creek unit;
    • coming in below guidance of $6.1 million / well
    • goal: 56 wells in this unit
    • 30% by year-end 2021; 50% in 2022; and the remaining 20% in early 2023
  • buybacks vs variable dividends
    • investors seem to prefer buybacks over variable dividends
    • Harold Hamm: "Because."
  • not a lot of "free float" available for buy backs

I'll quit here; much more at the transcript, but most of it interests me now. The corporate slides are most interesting and can be found at the CLR website. 

See this post.

CLR And TMS? -- A Reader Suggests -- August 5, 2021

From a reader, previously posted:

Continental's COO - Jack Stark - said in his introductory comments st the 2Q21 Conference Call the other day that 'exploratory opportunities' were underway that could greatly increase CLR's size. 
Could possibly be the forgotten Tuscaloosa Marine Shale. 
A tiny Australian company has drilled 6 wells there with moderate success.

The reader was referencing this from CLR's 2Q21 conference call, part of the long statement by Jack Stark:

In the fourth quarter, 2021, we are projecting a December exit rate of approximately 165,000 barrels of oil per day. 
We currently have eight rigs drilling in the Bakken, two in the Powder and five in Oklahoma, and are considering adding up to one rig in the Bakken and two in Oklahoma by year end. 
In closing, I'll mention that our exploration teams at Continental continue to generate new opportunities within and outside of our core operating areas. 
Later this year, we plan to do some exploratory drilling to test a couple of these new opportunities. Details must remain confidential, but I can tell you that with success, each of these opportunities could add significantly to our deep inventory.

Parsing that paragraph:

  • my first hunch, based on the context, Stark was talking about "new opportunities" with the Bakken;
  • however, he says "exploratory drilling." There is really no "exploratory drilling in the Bakken as "exploratory drilling" is currently defined. One could argue much more "exploratory drilling needs to be done in the third and four benches of the Three Forks, but one could also argue, that with the extensive seismic data and geologic data and the few wells that have been drilled in those formations, guys like Harold Hamm have a pretty good idea of what they already have, and don't need more exploratory drilling;
  • it would be unlikely CLR would do "exploring drilling" on someone else's acreage, so I assume if CLR doesn't hold mineral rights in the Tuscaloosa Marine Shale they would not drill there except perhaps as a joint venture
  • Jack Stark's comments may be nothing more than simply "exploring" some "tier 2, 3, or 4" sites in the Bakken. 

Note: see first comment -- there are other opportunities for CLR, as well --

Within means new benches or Madison or new benches in Scoop or the like. Realize they also have PRB and Red River acreage. And even some Michigan acreage. They also drilled a NM well a couple years ago. Further north than the Permian sweet spot. Bad well.

 *********************************
TMS

But, and this is huge. This gave me a chance to go back and look at the Tuscaloosa Marine Shale (which I track at the sidebar at the right but not updated in a long, long time).

It was "fun" to read a Hart Energy post from January 3, 2012.

Likewise, the Australis Oil & Gas investor presentation dated October 29, 2018, regarding the TMS was excellent. 

But the reader may be very, very correct with regard to TMS and CLR. A google search led me to two very, very interesting and recent articles.

First, from March 8, 2021:

Specifically, Australis will recommence leasing of the Tuscaloosa Marine Shale (TMS) Core Area mineral rights, in which the company operates 38 producing wells across 107,500 net acres.

Second, from February 25, 2021:

The oil and gas explorer owns the majority of the Tuscaloosa Marine Shale (TMS), which is one of the last emerging onshore oil shale basins in the U.S.

Ever the wildcatter, this is exactly something that might interest Harold Hamm. 

As the reader said: very, very interesting. 

By the way, the CLR transcript linked above will be archived. Something tells me we may want to go back to that transcript five years from now.

Other articles on TMS:

  • Goodrich Petroleum Corporation, SeekingAlpha, May 18, 2021. Link here. In the TMS:

Goodrich still has 33,000 net acres in the Tuscaloosa Marine Shale [TMS] that is mostly held by production. It also has 1.7 net DUCs there. Goodrich's TMS acreage may eventually prove to be a source of value, but I don't expect further development there for a while.

In 2017, Goodrich mentioned that it believed that the TMS could work for new development with $65 to $70 oil. Spot prices for oil are at the low end of that range currently, but forward strip is still a few dollars lower.

As well, Goodrich is able to deliver consistently excellent returns from its Haynesville Shale assets, so it is hard to envision Goodrich taking a chance on TMS development again unless oil prices got considerably stronger compared to natural gas prices.

Australis Oil & Gas has a 107,500 net acres position in the TMS (including 37,700 net acres held by production) along with net production of approximately 1,200 BOEPD and it has a market cap of under $50 million USD currently (along with a modest amount of net debt). Thus the market isn't attributing much value to undeveloped TMS land at the moment. The TMS may gain some value if new development proves it out some more, but at this point the development pace looks likely to be quite slow. Australis is the company most likely to invest in new development, but it is currently limited by having a modest amount of liquidity.

 

Comments From A Reader Deserve A Stand-Alone Post -- August 5, 2021

The natural gas story absolutely fascinates me. 

In response to a number of recent posts on the US natural gas story, a reader who knows much more about this than I do sent me a couple of notes, again, which are very, very good.

These notes came a few days ago, but so much was happening, I purposely delayed posting them so they (the notes) wouldn't get lost in the shuffle, as they say.

Here are the two notes.

First, August 4, 2021, "regarding northeast gas supply / Algonquin Citygate Price":

I just popped over to the New England ISO site and saw that the June wholesale electricity price averaged $36/Mwh with natural gas pricing at $2.81/mmbtu at the region's 4 tolling connections. 
This is a moderate electricity cost and a low natural gas price. Natural gas plants provide 60% of New England's power.

Looking ahead, that $14/mmbtu at Algonquin Citygate (a major tolling point) is over double last year's cost and almost 5 times June's cost.

Furthermore, a referendum in November in Maine is likely to stifle a much-needed transmission line from Quebec (1,100 Mw Clean Energy Connect).

Like you, I have distanced myself somewhat from New England's ongoing 'energy drama'. 
That said, even a moderate winter will have very high electricity prices
If extended cold snaps occur, those folks will face some precarious situations vis a vis the availability of electricity. The looming high cost is already baked in.
The second note, August 4, 2021, "regarding the Permian and Shell's divestiture":
From what I have been understanding, especially after poring through Liberty's June, 2021, 118-page, Investor Presentation, future, profitable Shale production will reside in the hands of the Big Boys
Economy of scale will not only lower costs, but the higher quality service companies (such as Liberty) will command higher pricing for their services. 
In addition, the extended  (15,000 foot/20,000 foot) laterals which are so common in the Appalachian Basin are increasingly appearing in the Permian at the 12,000 foot lengths.
Land consolidation should enable routine 15,000 footers for the companies who are able to finance the large upfront capital to realize the much higher ultimate returns. 
Exciting times in the Oil Patch.

Different topic ... Continental's COO - Jack Stark - said in his introductory comments st the 2Q21 Conference Call the other day that 'exploratory opportunities' were underway that could greatly increase CLR's size. 
Could possibly be the forgotten Tuscaloosa Marine Shale. 
A tiny Australian company has drilled 6 wells there with moderate success. 
Could be interesting.

Callon Petroleum Acquires 35,000 Acres In The Permian For $20,000 / Acre -- August 5, 2021

Callon Petroleum: new acquisition in the Permian, link here.

The lede:

Callon Petroleum Co. disappointed investors with its biggest-ever acquisition aimed at expanding in America’s most prolific shale patch.

The Houston-based oil explorer agreed to buy closely held Primexx Energy Partners Ltd. for about $788 million in cash and stock, while separately agreeing to swap debt for equity with Callon’s largest shareholder, Kimmeridge Energy Management Co. Callon lost almost one-fifth of its market value as the stock posted its steepest daily loss in more than a year.

“The deal does come with increased gross debt near term,” JPMorgan Chase & Co. analysts including Arun Jayaram wrote Wednesday in a note to investors. With more than 9 million shares issued to Primexx owners and another 5.5 million deployed in the debt-for-equity swap, Callon investors are seeing a 31% dilution as well, according to the bank.

The deal:

  • $788 million in cash and stock
  • 35,000 net acres in Reeves County of west Texas
  • apparently Reeves County sits atop both the Midland and the Delaware basins
  • $788 million / 35,000 net acres = $20,000 / acre (rounding)
  • to pay for this, a 31% dilution of outstanding stock, as well as the cash the company will need to pay for this transaction

Note:

  • Callon acquired Permian rival Carrizo Oil & Gas, Inc, for $736 million two years ago.

Vaccination Updates -- CDC -- August 5, 2021

Updates

Later, 12:21 p.m. CT, corrected data:


Original Post

Yesterday, this was the data from the CDC posted at the blog:

Today, from the CDC, posted at 1:35 p.m., August 5, 2021:


It will be interesting if the CDC corrects this error. I generally don't see these numbers corrected once posted. Later: as noted above, the data has been corrected. I'm impressed.

Notes From All Over -- August 5, 2021

Natural gas, link here:

  • Texas Eastern pipeline
  • back in operation: opens "a floodgate for more Appalachian gas to flow to US Gulf Coast
  • bullish for Northeast gas market
  • flows through Danville compressor station up 300 MMcf/d
  • northeast-to-southeast capacity lifted by 500 MMcf/d
  • Columbia Gas, Eastern Gas South cash prices jump August 4, 2021

NOG: earnings, 2Q21 -- 

  • cash flow up 42% fro 1Q21
  • declares a 50% increase in dividend over 1Q21
  • guidance: will do more with less
  • NOG up almost 6% up almost a buck; trading at $16.81

ERF: will report after market closes today

  • at $5.91 trading up 3.50%

SRE: earnings, 2Q21 --

  • EPS: beats byk 6 cents
  • beats on revenue
  • updates guidance
  • GAAP EPS misses by 29 cents
  • this $124-stock is up $1.16 today, trading at $132; whoo-hoo
  • pays 3.33%

AMD: my new favorite stock to follow

Covid-19: Louisiana --

  • clearly experiencing a fourth wave;
  • cases straight up
  • deaths starting to reflect the fourth wave
  • it may be not be as bad as the third wave, but will clearly be worse than the second wave

Chariots on fire! The Washington Post -- go ahead -- park your Chevy Bolt and/or your Tesla inside your garage;

Weber IPO: prices below expectations.

BP: increases dividend. Previously posted. 

XOM: the company's falling production is highly bullish for oil prices -- link to Alex Kimani.

India: gasoline demand surges.

Roku, link here:

  • stock slides as "reopening" leads to less streaming: no.
  • check out its P/E

No Wells Coming Off Confidential List; AAPL Goes Ex-Div Tomorrow; Pays Next Week -- August 5, 2021

Bakken production: June, 2021, data has posted. NDIC is back! Whoo-hoo!

AAPL: ex-dividend tomorrow. Pay date: August 12, 2021. 

Ten-year treasury:1.22%

Bryson De: no vaccine until it "goes mainstream." What a doofus.

***********************************
Back to the Bakken

Active rigs: the data below is not current. This data has been temporarily relocated to the daily activity report which is released at close of business non-holiday Monday through Friday.

$69.29
8/5/202108/05/202008/05/201908/05/201808/05/2017
Active Rigs2311596458

No wells coming off the confidential list.

RBN Energy: active and planned carbon capture and storage projects in Canada, part 2

Although it’s not well publicized, Canada’s oil and gas sector is already a global leader in active projects targeting significant reductions in greenhouse gas emissions, primarily carbon dioxide. These successes — some dating back as far as Y2K — are being used as a springboard for additional projects, all aimed at helping Canada achieve its aggressive GHG-reduction goals for 2030 and beyond. The scale of many of these projects is noteworthy. In today’s blog, we discuss the existing operations and planned projects that together will help the U.S.’s northern neighbor reduce its carbon footprint.

Often categorized as a resource-intensive country, it should come as no surprise that Canada’s oil and gas sector is one of the nation’s largest contributors to its GHG emissions. Perhaps that’s why the sector, with decades of study and innovation in dealing with emission-related issues, is leading the way in Canada in ramping up existing projects that sequester CO2, as well as developing a multitude of new initiatives that will significantly expand sequestration efforts in the near future.