The Million Dollar Way (The Bakken Oil Blog): 11/04/21

Thursday, November 4, 2021

Idle Rambling Regarding The CLR / PXD Permian Sale -- November 4, 2021

This story will be tracked at this post. In addition, a separate website will follow this story in greater detail. Link here.

Updates

November 5, 2021: others are confused also; see twitter $CLR. However, it appears my calculations are similar to others.

Original Post

Idle "back-of-the-envelope" calculations regarding CLR's recent acquisition of PXD Delaware Basin acres. This is for my use only and anyone who wants to weigh in. Do not quote me on any of this. If this is important to you, go to the source and run your own numbers .

I'm still trying to figure out how many acres CLR acquired in the Permian. Usually, we are simply told the number of acquired net acres, but in this acquisition, according to the graphic below, CLR said:

92,000 net leasehold acres,
50,000 net royalty acres.

Is the 50,000 net acres part of the 90,000 leasehold net acres, or did CLR acquire 140,000 net acres in the Permian?

It seems like a simple question to answer but I really don't know.

No one else does it this way, but I've done this from the beginning. I know it makes no sense, but it helps me put the Bakken into perspective in a "funny" sort of way. I simply take the total purchase price divided by the total number of net acres acquired to determine $ / net acre.

The Permian Purchase --slide 5 in corporate presentation, November, 2021:

From the slides and my arithmetic:

PDP:

Proved Developed Producing reserves are defined as “the estimated remaining quantities of oil and gas anticipated to be economically producible, as of a given date, by application of development projects to known accumulations under existing economic and operating conditions.”

transaction price: $3.250 billion
PDP (footnote 7) as % of transaction price: 75%
$ / net acre (footnote 8)
0.25 * $3.250 billion = $0.8125 billion = $812,500,000
$812,500,000 / $8,800
92,330 acres

footnotes:

(7): per historical 3-stream reporting. Includes PDP and anticipated volumes from wells in progress expected to be on line in 1Q22
(8) adjusted value derived from purchase press less PDP value

Whoo-hoo! This method suggests 92,330 net Permian acres were acquired by CLR for $3.25 billion. This is almost the exact number in the presentation: "92K net leasehold acres."

Now, back to the original "funny" way of determining value, dividing total purchase price by total net mineral acres:

$3.25 billion / 92,000 net acres = $35,326 / per acre which seems in line with other acquisitions I've seen in the Permian.

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Alternatively

Another standard way to determine valuation / pricing is to calculate price per flowing boepd. Commonly, $20,000 to $40,000 / boepd is considered standard for determining value of mineral acres.

The slide shows 55,000 boepd.

$3.25 billion / 55,000 boepd = $59,090 per flowing boepd at time of purchase.

This is in line with another individual who came up with "$60,000 / flowing boepd" which was posted at twitter. If I find that tweet again, I will link it.

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Bottom Line

The numbers all seem to be in line with what I've seen before for the Permian.

I will be thrilled if anyone who understand the finances of the deal as released by CLR weighs in on this.

I have no dog in this fight. I'm just trying to get some idea of what this part of the Delaware Basin in the Permian is worth, and how it compares to the Bakken.

There Seems To Be A Bit Of Irony Here -- November 4, 2021

I haven't read the story yet, but the headline is this: California regulator approves expanded natural gas storage at Aliso Canyuon. Link here. For background, see this story posted one month ago.

Let's Go, Hess -- Let's Have Some Fun -- You Can Bet Harold Hamm Would -- November 4, 2021

Hess identifies its Bakken permits/wells with a two-letter designation which locates the "Hess play" in which the permit/well is located. So, for example, Hess wells in its East Nessen play (or prospect) are identified "EN-."

Well, it turns out that one of the prospects Hess has was once "owned" by American Oil and Gas (AEZ). Hess re-identified that play as its "Goliath Prospect" and wells located in this play are designated with the letters "GO" preceding the rest of the name of the well.

Today, NDIC announced four new GO-Knudson permits.

Yes, you know where this is going.

Wouldn't it be great if Hess one day announced a number of GO-Brandon permits?

LOL.

One can see the two-letter designations Hess uses at this post.

OMG! I Hope You Aren't Charging Your Tesla In Boston Right Now --$150 / MWh -- November 4, 2021

Link here.

Halcyon Days For Investors -- Four New Permits; WPX Reports A Completed DUC -- November 4, 2021

EOG gets it, XOM does not:

XOM raises its dividend from 87 cents to 88 cents;
EOG: raises quarterly dividend from 41.25 cents to 75 cents; and declares a special dividend of $2.00 / share;

Jim Cramer:

"a halcyon season for stocks" -- who would have thought last year -- March, 2020, when folks thought Joe Biden might actually win the presidency; no one thought he could win, but folks were nervous, scared;

one year ago at this time, we were told:

higher income taxes
capital gains tax hike
higher dividend taxes; taxes were to go way up on dividends
pricing pressure on drug companies
increased banking regulation
no more mergers
heath insurers crushed
crackdown on billionaires
higher rates
stock ownership diminished
all leading to a bear market

what really happened

all turned out to be completely bogus
no new taxes
not much new spending

WTI: fall 2.54%; falls $2.05; closed at $78.81. Buying opportunity.

EOG: reported November 4, 2021 --

excellent 3Q21 results;
raises regular dividend 82%;
declares $2.00 special dividend
shares: jump 3.69% after hours; up $3.35/share; trading at $94.25

Peloton: in the tank. Fell 25% today. Down 28% after hours.

McDonald's: surging. Up 1.22% today; up $3.06; closed at @53.46, all-time high; intra-day high, all-time high, $254.16.

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Back to the Bakken

Note: I haven't checked out the active list today, scanning through it quickly, it looks like NDIC might have cleaned it up.

Active rigs:

$78.81	11/4/2021	11/04/2020	11/04/2019	11/04/2018	11/04/2017
Active Rigs	32	13	56	66	55

Four new permits, #38639 - #38642, inclusive:

Operator: Hess
Field: Dollar Joe (Williams)
Comments:

Hess has permits for four GO-Knudson wells to be sited in SESW 20-156-97; to be sited 567 FSL and between 2316 FWL and 2217 FWL;

Two permits canceled:

Whiting: two LBJ permits in Mountrail County;

One producing well (a DUC):

37231, 1,523, WPX, Patricia Kelly 2-1HX,

Everything Is Moving Very, Very Quickly -- Trying To Make Sense Of It -- November 4, 2021

So much has happened, and is happening, over the past four days, it's impossible to keep up.

There are four stories most interesting right now that have my attention. To keep things somewhat organized, I've posted a blog on each of the four.

Those blogs will be updated over the next few weeks to see how they play out.

The stories:

the European and UK energy crisis;

it's going to be a big deal;
Putin is the "story" to watch.

the oil sector in the US:

for investors, the best is yet to come;

the Thanksgiving market:

by this time next year, the supply chain crunch will be improving;
Americans will have adjusted to inflation;
Jay Powell has done a great job up to this point.

CLR entering the Permian.

Harold Hamm knows exactly what he's doing;
he will surprise everyone in the Permian;
HH knows what he is doing and the"smart money" won't bet against him.

individual investors may or may not make money, but HH will certainly do very, very well

And, now, back to Elizabeth Taylor and The Girl Who Had Everything (1953) on TCM.

US Fossil Fuel In The News -- November 4, 2021

Pipeline capacity:

added "transnational oil pipeline capacity" could reduce CBR
the EIA is talking about trans-Canada-US pipeline capacity, specifically Enbridge's Line 3 replacement project; link here;
the DAPL could become superfluous: interesting commentary; link here;

Another Louisiana deal: when will Texas join the Haynesville party? Southwestern Energy. Link here. Archived.

Saudi has it right: it's not OPEC's fault.

the US is lagging in crude oil production, mostly due to Brandon's policies and even worse, uncertainty about future Brandon actions;
it's the uncertainty that keeps oil companies from drilling;
windfall profits taxes in their crystal balls, as just one example?

Spare capacity?

I doubt it.
so does an oil-peaker. Link here.
by any stretch of the imagination, I am not a peak-oiler but I do argue that the tea leaves suggest OPEC has little spare capacity; and,
the corollary is that the Permian has become the swing producer.

Market commentary, Horizon Kinetics.

This is an extremely long commentary on energy, twenty-nine pages.
lots of interesting information for those who have time to wade through almost thirty pages of commentary. It will download as a pdf: https://horizonkinetics.com/app/uploads/Q3-CVALUE-Review_FINAL-1.pdf.

Global inventories:

Seven oil stocks: hitting seven-year highs.

Devon? Delaware wells? Link here.

US shale: there's never been a better time ... anything decent has a <1-year payout new drill .... link here. It appears most oil analysts are not aware of this.

A ton for free cash flow. Literally. Link here.

LNG: largest-ever supply deal between US and China just announced. Link here.

Venture Global LNG; a 20-year supply deal with Sinopec;
$30 billion deal
Venture Global now the top American LNG exporter to China
this something that Europe cannot do; this is what Europe is so afraid of when it comes to energy and the US. It explains why the EUro-crats are so eager to vilify fossil fuel. We've talked about this before.

The Market: The Thanksgiving Surge -- November 4, 2021

The war is over! There is a feeling among some CEOs that Americans feel they have just come out of a war. Think about that.

Dividend increases announced:

EOG; raises regular dividend 82% -- $3.00 annualized rate, so 75 cents/share; declares special dividend of $2.00 / share -- November 4, 2021; payable 12/15/21

Headwinds coming out of October, going into November -- gobble, gobble, gobble:

Halcyon days for investors: Jim Cramer, link here; posted November 4, 2021.
The Fed: November 2, 2021 -- Jay Powell could not have been more dovish. Incredibly transparent.
the Fed has two mandates: control inflation at max employment
Jay Powell said he needs to re-visit the definition of full employment (I've said the same thing)
seems to be more concerned about middle class; the "working American" as the Dems call them
knows that the "working American" is checking his/her IRA daily when times are good
Inflation? What inflation?

weekly jobless claims: better than expected;
most interesting: no one knows what causes inflation; previously posted;
Americans "adjusting" to inflation
Jay Powell suggested the same again this week at the November 2, 2021, Fed meeting
two-year bond yield at multi-year low
ten-year bond yield can't get above 1.6%, much less 2% or even 3% that everyone fretted about
both McDonald's and Chipotle's have said they have increased prices (in some cases, significantly) and neither has seen a drop in number of customers;

Earnings: beating expectations, 82% of companies exceeded forecasts for 3Q21.
WTI: seems to be holding, and may hold below the point where it really hurts consumers; hard to say
supply chain: was this over-hyped? See Ford's SUV sales; hits all-time record
discretionary cash surging; my favorite graph
VIX: about as low as it can go; at 15 today

EU will let inflation run
the US, meanwhile, is starting to taper --> brings the ten-year Treasury down

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Tickers

EOG: reported November 4, 2021 --

excellent 3Q21 results;
raises regular dividend 82%;
declares $2.00 special dividend
shares: jump 3.69% after hours; up $3.35/share; trading at $94.25
EOG; raises regular dividend 82% -- $3.00 annualized rate, so 75 cents/share; declares special dividend of $2.00 / share -- November 4, 2021; payable 12/15/21

Qualcomm: incredible

earnings beat on record revenues; two key words: BEAT and RECORD
signs that the supply chain crunch is easing;
posts record sales amid demand for 5G smartphone; link here: https://www.foxbusiness.com/markets/qualcomm-posts-record-sales-amid-surging-demand-for-5g-smartphones.

WFRD:

huge 3Q21; shares surge.

SRE:

will report earnings, tomorrow, Friday, November 5, 2021, before the open;
earnings preview;

sales improve; SUVs post best month in 21 years. Is anyone paying attention?
what supply chain crunch? Link here: https://www.foxbusiness.com/lifestyle/ford-sales-improve-suvs-best-month-21-years.

AAPL:

MacBook Air drives 6.5 million Apple laptop shipments in 3Q21; link here; did someone say supply chain crunch?
an $85,000 modified iPhone with a functional USC-C port; link here;

Becton, Dickinson:

raises quarterly dividend to 87 cents;

Snap-on:

raises quarterly dividend to $1.42;

DE:

says it's done with bargaining; the company says it has offered its best and final offer. Link to The WSJ.
if the strike is prolonged, it will take the average union worker more than two years to recover.

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Anecdote

I have a favorite pen. They come in packs of four at Target and I buy a four-pen pack maybe once a year or maybe a bit more often.

Today, I went to Target to purchase a new four-pen pack. Plenty on the rack. No supply chain shortage.

But I noted they were much less expensive than I had anticipated. They always seem so expensive. Even at Walmart where I used to get them.

So, I was surprised to see them so much less expensive than I thought they would be, and, in fact, affordable for the first time ever. LOL.

Then, I noted: only three pens in the usual four-pen pack. Didn't bother me a bit.

It's all about waste and cash flow.

On a per-pen basis, the pens were a bit more expensive, maybe as much as twenty percent, who knows. But twenty percent on a one-dollar pen is only $1.20. Over three months of use, I can handle it. LOL.

But this is the deal. When I buy a four-pack, I take one out, and put the other three in a drawer, or often in my backpack. Invariably, one gets misplaced or lost over the months. Or Sophia takes one for one-time use and lost forever. So, I pay for four, and end up using two or three.

But even if I end up using all four, there's still the issue of cash flow. I spent less money than I expected today, and I doubt I will end up buying replacements any more often than I used to in the past.

That was anecdote #1 with regard to all that talk about inflation.

Anecdote #2 with regard to inflaiton will be about "conspicuous consumption."

European Energy Crisis -- Winter, 2021 - 2021

Winter: Americans forget that cold weather hits Europe up to two months before it hits the US.

Ukraine: is it already running out of energy; and it's not even December, yet? Link here.

UK: another UK energy retailer goes bust; Javier Blas has lost count of how many have gone bust. This time is CNG which supplied 41,000 businesses. Link here. I believe we are well into double-digit the number of electricity providers in the US that have gone bust due to high cost of natural gas.

EU: woke. Slowly, than all at once, the world is waking up to the absurdity of wind and solar "LCOE" cost -- reliability matters in the real world. Link here.

Okay, here's the count: at the start of the year, the UK had 47 domestic natural gas and electricity retailers. Today, that has fallen by nearly half with only 25 suppliers remaining. Link here.

Equinor: spiking its natural gas output with butane and propane (which normally are split and sold separately), another example of whatever-it-takes to boost supply to Europe. Link here.

The Day The Oil Sector Felt A 6.0 Earthquake -- CLR Announces A $3.0 Billion Permian Deal -- November 4, 2021

CLR's November 2021 investor update, November 3, 2021. Link here.

Breakevens:

LCU: the Long Creek Unit in Williams County
it should be noted that this area is a very good Bakken location, but it certainly is not the best, nor one that was talked about much before CLR announced the LCU project
in the CLR presentation on page 8 they say that the 11 LCU wells have a break even after 4 months......

Post-announcement, link here.

Poll: would you invest personal money into the CLR/PXD deal? Link here.

The next victim? CLR. The Delaware fringe -- JPE, OAS, PE, PXD, CLR? Link here.

Josh Young is asking the same question. Link here.

It's happening. The third big, high priced Permian deal since the oil price crash. First was PXD/fFour Point. Next was COP/Shell. And now, CLR/ PXD. It will be interesting to see what Pioneer does with the money and how the stocks react. And if Continental ramps drilling.

Someone who doesn't get it: Energy Cynic. Link here. Nice graphic of the check Harold Hamm wrote his wife.

Map of part of PXD Delaware acreage: link here.

WTI In Free Fall? Not So Fast. Chillax. Stay calm. Keep On Frackin" -- November 4, 2021

ISO NE, link here: spikes to $94. Now $96 in New Hampshire.

WTI: $82.35