$300 Oil? January 18, 2022

Link here.

Increased Density In The Bakken -- The CLR Simmental Federal / Angus Federal Wells -- November 6, 2019

Locator: 10010CLRANGUS.

Updates

December 26, 2021: update here. 

June 5, 2021: CLR is starting to report these DUCs drilled back in late 2019. Oil prices were very, very low all of 2020. What a great time to starting fracking / completing these wells.

Original Post

Nomenclature:

• H: middle Bakken, 1280-acre spacing, generally
• H1: Three Forks, first bench, 1280-acre spacing, generally
• H2: Three Forks, second bench, 1280-acre spacing, generally
• HSL: middle Bakken; section line well; 2560-acre spacing generally
• HSL1: Three Forks, first bench; section line well; 2560-acre spacing generally
• HSL2: Three Forks, second bench; section line well; 2560-acre spacing generally

April 7, 2021: it appears the wells have been completed, or are in the process of being completed; runs are being reported for the first time as of 2/21;

September 15, 2020: CLR has permits for thirteen more Charolais South Federal wells in the immediate are, to the northeast, sited in section 10. See this link.

June 14, 2020: CLR to report four new Angus Federal wells this week.

• 37055, ros (1/8/20)-->drl/NC-->1,471, CLR, Angus Federal 12-9H, Elm Tree, producing, 6 days, 2/21; cum 81K 10/21; cum 282K 11/22; cum 342K 9/23; cum 414K 6/26;
• 37056, conf-->drl/NC-->drl/A, CLR, Angus Federal 11-9H2, Elm Tree, producing, 3 days, 2/21; 28K first full month, 6/21; cum 116K 10/21; cum 291K 11/22; cum 329K 9/23; cum 383K 6/26; 
• 37057, conf-->drl/NC-->drl/A, CLR, Angus Federal 10-9N, Elm Tree, producing, 4 days, 2/21; 41K first full month, 5/21; another 40K 6/21; cum 205K 10/21; cum 357K 11/22; cum 396K 9/23; cum 448K 6/26;
• 37058, conf-->drl/NC-->drl/A, CLR, Angus Federal 9-9H, Elm Tree, producing, 4 days, 2/21; 25K over 25 days, 4/21; cum 153K 10/21; cum 291K 11/22; cum 337K 9/23; cum 409K 6/26;

An 18-well pad in Elm Tree. The wells:

• 37060, conf-->drl/NC-->drl/A-->AB (5/25) , CLR, Angus Federal 7-9H, Elm Tree, producing, 4 days, 2/21; 20K first full month, 5/21; cum 75K 9/21; offline 10/21; cum 129K 11/22; cum 148K 5/24; AB;
• 37059, conf-->drl/NC-->drl/A, CLR, Angus Federal 8-9H1, Elm Tree, producing, 4 days, 2/21; 19K 6/21; cum 114K 10/21; cum 222K 11/22; cum 279K 5/24; cum 317K 6/26;
• 37058, conf-->drl/NC-->drl/A, CLR, Angus Federal 9-9H, Elm Tree, producing, 4 days, 2/21; 28K 6/21; cum 153K 10/21; cum 291K 11/22; cum 409K 6/26;
• 37057, conf-->drl/NC-->drl/A, CLR, Angus Federal 10-9H, Elm Tree, producing, 4 days, 2/21; 41K 5/21; cum 205K 10/21; cum 357K 11/22; cum 416K 5/24; cum 448K 6/26;
• 37056, conf-->drl/NC-->drl/A, CLR, Angus Federal 11-9H2, Elm Tree, producing, 3 days, 2/21; 28K 6/21; cum 116K 10/21; cum 291K 11/22; cum 383K 6/26;
• 37055, ros (1/8/20)-->drl/NC-->drl/A, CLR, Angus Federal 12-9H, Elm Tree, producing, 6 days, 2/21; cum 81K 10/21; cum 282K 11/22; cum 414K 6/26;
• 37054, conf-->drl/A, CLR, Angus Federal 13-9H2, Elm Tree, producing, 4 days, 2/21; cum 26K 10/21; cum 269K 11/22; cum 490K 6/26;
• 37053, conf-->drl/NC-->drl/A, , CLR, Angus Federal 14-9HSL1, Elm Tree, producing, 4 days, 2/21; cum 76K 10/21; cum 317K 11/22; cum 442K 5/24; cum 510K 6/26;
• 37052, conf-->drl/NC-->drl/A, CLR, Simmental Federal 5-16H2, Elm Tree, producing, 3 days, 2/21; 17K 6/21; cum 61K 7/21; off line 8/21; cum 198K 11/22;  cum 317K 6/26;
• 37051, conf-->drl/NC-->drl/A, CLR, Simmental Federal 6-16H, Elm Tree, producing, 4 days, 2/21; 27K 5/21; cum 298K 11/22; cum 379K 6/26;
• 37050, conf-->drl/NC-->drl/A, CLR, Simmental Federal 7-16H2, Elm Tree, producing, 3 days, 2/21; 24K 5/21; cum 236K 11/22; cum 275K 5/24; cum 301K 6/26;
• 37049, conf-->drl/NC-->drl/A, CLR, Simmental Federal 8-16H, Elm Tree, producing, 4 days, 2/21; 24K 6/21; cum 260K 11/22; cum 318K 6/26;
• 37048, conf-->drl/NC-->drl/A, CLR, Simmental Federal 9-16H1, Elm Tree, producing, 4 days, 2/21; 17K 6/21; cum 169K 11/22; cum 221K 6/26;
• 37047, drl/drl-->drl/NC--drl/A, CLR, Simmental Federal 10-16H, Elm Tree, first production, 4/21, t--; cum 96K 6/21; cum 264K 11/22; cum 305K 6/26;
• 37046, conf-->drl/NC--drl/A, CLR, Simmental Federal 11-16H2, Elm Tree, first production, 5/21, t--; cum 48K 6/21; total drilling days, 11; second bench, Three Forks; target: land the wellbore 66' below the Three Forks formation top, but more specifically 12' into the Three Forks 2nd bench; the wellbore stayed within the ideal 12' target window 93.4% of the production lateral length; cum 232K 11/22; cum 297K 6/26;
• 37045, conf-->drl/NC--drl/A, CLR, Simmental Federal 12-16H, Elm Tree, producing, 6 days, 2/21; cum 183K 11/22; cum 280K 6/26;
• 37044, conf-->drl/NC--drl/A, CLR, Charolais South Federal 2-10HSL, Elm Tree, producing, 5 days, 2/21; cum 376K 11/22; cum 471K 5/24; cum 512K 6/26;
• 37043, ros (1/8/20)-->drl/NC--drl/A, CLR, Simmental Federal 13-16HSL2, Elm Tree, producing, 4 days, 2/21; cum 156K 11/22; cum 310K 6/26;

• 23493, 568, CLR, Simmental Federal 4-16H, Elm Tree, t6/13; cum 342K 12/20; was offline 4/20 - 5/20; off line again, 1/21; remains off line 2/21; back on line 3/21; off line 5/21; cum 355K 6/21; cum 357K 10/21; cum 374K 11/22; cum 389K 5/24; cum 398K 6/26;
• 23494, 360, CLR, Angus Federal 5-9H, Elm Tree, t6/13; cum 489K 11/20; off line 11/19; back on line 1/20; off line 4/20 - 5/20; off line, again, 12/20; remains off line, 3/21; back on line 4/21; cum 504K 6/21; cum 535K 11/22; cum 552K 5/24; cum 559K 6/26;
• 23495, 240, CLR, Simmental Federal 3-16H, Elm Tree, t6/13; cum 372K 12/20; off line for short periods of time in 11/19 and 12/19; off line 4/20 - 5/20; appears to have come off line12/20; back on line 2/21; one day of production, 2/21; six days, 3/21; back off line 5/21; cum 378K 5/21; cum 384K 11/22; cum 400K 6/26;
• 23496, 300, CLR, Angus Federal 4-9H, Elm Tree, t5/13; cum 390K 12/20; off line 4/20 - 5/20; off line 11/20?; off line 12/20; remains off line 2/21; six days, 3/21; cum 424K 6/21; cum 471K 11/22; cum 479K 5/24; cum 485K 6/26;

To date (9/19):

• middle Bakken: 13
• Three Forks, first bench: 3
• Three Forks, second bench: 6

Earlier posts:

• August 31, 2017;
• June 11, 2017;

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Photos

A reader was kind enough to send a photo of the 17-well Simmental pad -- this picture looks west-to-northwest toward Williston. Isn't it just a superb picture of North Dakota? I just love it.

Think about it. Seventeen wells, $10 million each just to get started -- $170 million pad and on-going operational costs. Big, big, big business.

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The Graphics

September 15, 2020:

January 8, 2020:

Original post:

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On Fire

Four Consecutive Years Of Declining Conventional Oil Volumes Which Has Never Happened Before -- IHS -- May 23, 2016

Oil & Gas Journal is reporting that the conventional discoveries of oil and gas outside North America have fallen to the lowest level since 1952. Some data points:

• outside of North American in 2015: just 12 billion boe recoverable resources were discovered from conventional wells
• lowest level since 1952 (about the time I was born)
• wow: the volume of oil alone discovered in 2015 totaled just 2.8 billion bbl -- also a record on the downside -- since the ramp-up of oil and gas exploration following WWII
• 9 million boe of conventional gas discovered: fifth straight year that gas discoveries have exceeded oil discoveries
• the fall in discovered volumes for conventional oil outside North America has been stead and dramatic during the past few years
• four consecutive years of declining oil volumes, which has never happened before
• the bottom has completely fallen out of conventional exploration
• the supply gap in the future is going to be challenging to overcome

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Oil Production Won't Meet Demand In Five (5) Years -- Former Shell CEO

CNBC is reporting:

"We cannot ever produce enough oil, in my opinion, to satisfy global demand five or 10 years out. We have to start using natural gas and more biofuels as a source of transportation fuel," former Shell Oil CEO John Hofmeister said in an interview with CNBC.

On Thursday, the American Petroleum Institute reported petroleum deliveries rose by 3.6 percent from a year ago to 19.7 million barrels a day, making it the highest April deliveries in eight years.

This is not an investment site. Do not make any investment, financial, travel, work, or relationship decisions based on what you read here, but as for me, I'm looking around. 

Chinese Surging Oil Demand Saving OPEC's Butt -- The Telegraph -- April 16, 2016; Bill Nye: First We Need To Jail Climate Deniers

Note: my thoughts on the upcoming Doha meeting tomorrow at this link. 

This is really pretty cool. The other day I wrote:

Earlier today it was reported that OPEC forcast non-OPEC production falling faster than predicted, from 700,000 bopd to 730,000 bopd or about a 0.03 percent change. LOL.

As soon as I read that, I knew that the price of oil rests on the Chinese and the Indian economy. Right on cue, Bloomberg/Rigzone report: China’s crude imports climbed to a record in the first quarter as higher refining margin encouraged refiners to boost purchases.

A reader sent me this link from The Telegraph: soaring Chinese crude oil demand is saving OPEC's butt.

A dramatic build-up in China’s strategic petroleum reserve and surging demand for imported crude oil are likely to transform the global energy markets this year, regardless of any production freeze agreed by OPEC and Russia this weekend.

Chinese credit stimulus and a 20 percent rise in public spending has set off a fresh mini-cycle of growth that is already sucking in oil imports at a much faster pace than expected.

Barclays estimates that the country will import an average of 8 million barrels per day this year, a huge jump from 6.7 million bopdlast year. This is arguably enough to soak up a big chunk of the excess supply currently flooding global markets.

Standard Chartered said Chinese imports could reach 10 million bopd by the end on 2018, implying a supply crunch and a fresh spike in oil prices as the market is turned on its head.

Energy consultancy Wood Mackenzie says $400 billion in oil and gas projects have been shelved [worldwide] since the onset of the commodity slump. A great number of depleting fields will not be replaced.

Feifei Li, Barclay’s oil analyst, said China is in a rush to fill four new storage sites of its petroleum reserve coming available this year. “It is an urgent priority of the government to fill up the tanks while the price of oil is cheap,” he said.

Fresh storage is likely to average 250,000 bopd, five times the level last year. The pace will rise further in the second half of the year.

China is building vast underground rock caverns in the interior of the country as a top national security priority, fully aware of the way Japan was squeezed by the US fuel embargo in the late 1930s. It aims to boost reserves to 550 million barrels and ensure a 90-day buffer to resist an external supply shock.

China’s own output of oil has fallen by 200,000 bopd over the last year as PetroChina and Sinopec slash investment, while demand has continued to grow.

So much more at the article. Worth archiving.

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Bill Nye: We Need To Jail Climate Deniers

First we start with the weather men. Accuweather is reporting: Powerful April snowstorm to bury Colorado Rockies, High Plains this weekend.

A slow-moving, strengthening storm will cause snowfall to ramp up over a large part of the Rockies and to spread over part of the High Plains this weekend.

People in the region, including the Denver area, should be prepared for travel disruptions, power outages and property damage.

The Comments Speak Volumes -- March 29, 2016

This story has been reported multiple places over the past few days. OilPrice is reporting that the oil majors replaced only 75% of the oil and gas that was produced in 2015:

The seven largest oil and gas companies only replaced about 75 percent of the reserves on average that they produced last year, the worst replacement rate in over a decade.

Perhaps the most eye-raising fact was that ExxonMobil, the world’s largest publically-traded oil company, was unable to replace 100 percent of the oil and gas it pulled from the ground. The oil supermajor replaced just 67 percent of the oil produced in 2015.

The story is a re-hash of what's been reported for quite some time now. What I find interesting is the "quality" of the comments.

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Peak Energy?

From Seeking Alpha:

• ConocoPhillips reportedly is planning to shut down its Lincolnshire gas pipeline and Theddlethorpe gas terminal in the North Sea, which would cut the U.K.'s gas capacity by ~10%
• Lincolnshire is one of the 15 largest gas pipeline networks in the U.K. section of the North Sea, and shuttering the operation would impact at least 10 oil fields that are dependent on the Lincolnshire infrastructure.
• COP says it is in talks with North Sea regulators about its plans.

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My 2011 Honda Civic -- Just Before The 2012 Debacle -- And I Love It 

Yahoo!Finance is reporting a great story on the fall and rise of the Honda Civic in the course of one model cycle.

Some data points from the article:

• The 2016 Honda Civic has won the North American car of the year award and a lot of other kudos.
• After years of success, the 2012 Honda Civic was an underwhelming dud. Honda had misjudged the market.

Background:

The fix came quickly. Within a year, Honda had tightened up the car’s performance, upgraded the interior and grafted friendlier styling onto the front and rear. Critics marveled at a revamp done in half the time, or less, than it normally takes. Honda didn’t say so at the time, but there was a reason: “Before we even launched, we knew we had zigged when we should have zagged,” Mendel explains. We actually launched the remake prior to the launch.” The 2013 Civic got back on the Consumer Reports recommended list, ending the embarrassing episode for Honda.

Around the time of that relaunch, Honda began drawing up the 2016 Civic, which debuted last year. The rebirth of the Civic now appears to be complete. In the U.S. News metarankings, which aggregate the results of dozens of reviews, the Civic is first in its category. “Excellent engineering,” raved Autoblog. “The new Civic has set itself apart,” said Kelley Blue Book. Critics especially like the handsome styling, a generous set of standard features, the upscale interior and tight, sporty handling.

I get calls on a regular basis from our local Honda dealer asking if I would be willing to trade "up." I'm sure this is common throughout the industry to get folks into the showroom to buy a new car, but there's no way I will trade in this 2011 Honda Civic, one of the sportiest cars I have ever driven.

Speaking of which. Grapevine, TX, where I live, has a huge Italian sports car presence. Huge. It's so "bad," that when I see a sports car coming toward me from the distance and it's not a Ferrari or Lamborghini, I say to myself, "oh, shoot, it's only a Corvette." The American Airlines pilots' car of choice is the Corvette. Everyone else who drive sports cars in the DFW area, it appears, drives Italian.

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Mirror, Mirror On The Wall 

The president says the #1 question he gets from foreign leaders around the globe:

"The No. 1 question I'm getting is, 'What is happening to America?'" he said at the Robin Toner Prize dinner, according to pool reports.

It's not hard to answer. The narcissist-in-chief needs to pull out his mirror.

Less than 297 days and counting. 

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And with that, I'm off the net for awhile; going biking.

Bakken Update: Mike Filloon -- March 26, 2016

Summary over at SeekingAlpha:

• Expectations are for oil prices to trend lower in the coming weeks as the recent gains were probably a relief rally
• The dollar should continue to weigh on oil prices through year end as the US economy significantly outperforms markets abroad
• Although we have seen improvements in contango and current prices, the 3.1 billion barrel glut will weigh on the market for some time
• Fears remain that this glut is much like that of the 1980s, but the market is much tighter and OPEC doesnt have the spare capacity
• Cap ex reductions are over done and the price of oil could improve significantly in 2017

The question is not whether "contango is the new normal," but just how severe could the rebound be in 2017?

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A Note to the Granddaughters

Granddaughter #3 is watching granddaughter #2 play soccer. Granddaughter #1 is on a road trip with her dad to Corpus Christi for the weekend for a business trip / father-daughter weekend.

Sophia, not-quite-21 months old.

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The Apple Page

The SkyView app. At the App Store, for $1.99.

A couple of days ago I mentioned that I wished Tim Cook would take Apple private, limiting ownership of the company to Apple employees, current and past. Apple is known for its attention to detail and it drives some investors nuts, spending extra money on stuff they don't think is necessary.

For example:

One of the Apple Watch's quirkier features is its "Motion" watch face, which sets the time against a backdrop of fluttering butterflies, floating jellyfish, and blooming flowers.

Not everyone will like them, but Apple thought that some people really would. So, as Wired's David Pierce recounts, the Watch design team went to some pretty extreme measures.

"We shot all this stuff," human interface lead Alan Dye tells Wired. "The butterflies and the jellyfish and the flowers for the motion face, it's all in-camera." The flowers were photographed in stop-motion, which can be a painstaking process — Dye says one flower required more than 24,000 shots over 285 hours.

For the jellyfish, meanwhile, Apple built a tank inside its design studio and used a Phantom slow-motion camera to shoot 4K 300-fps footage, even though it would be displayed on a tiny 312 x 390-resolution watch.

While the Apple Watch is far from a perfect product at launch, it's clear that Apple expended a huge amount of effort in areas of its development. "No reasonable person can see that level of detail," says Dye. "And yet to us it's really important to get those details right."

285 hours x $50/hour for a photographer? Nope -- I'm sure it was all done by automation once things were set up. But it probably still cost a lot more than some investors would like to see.

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Still Drying Out

I mentioned the other day that I got caught in a Texas downpour -- completely soaked by the time I got home. I've been drying out my tennis shoes in the dryer for the past three days -- I guess this is the third day -- they are almost dry, but I am beginning to think they are not salvageable.

The good news: I never liked those tennis shoes to begin with.

The tennis shoes I prefer have been worn for years. They no longer have any "leather" sole but in all other respects they are all soul and I can't get rid of them. It is amazing. When I wear them, I can feel the street against my feet. There are no holes in the bottom of the shoes, but the sole is so incredibly thin. They are no longer any good for walking or running, but wow! what perfect bicycle shoes. Funny how things work out.

What irritates me most is I bought a pair of goggles two summers ago for bike-riding (some nights the bugs are pretty bad, and when going through areas of mowing or construction, it would be nice to have goggles. And now I can't find those incredibly unique "Minion" goggles.

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Just "Use" Whatever Works

And "They" Call Trump A Buffoon

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Fathomless Ignorance

  

The good news: we are now less than 300 days until President Obama gives his last military salute as POTUS.

The bad news: It looks like the "JV Team" may have just moved into Division 1, among the other varsity teams.

The New York Times is reporting that the JV Team may have what it needs to put the Belgian nuclear industry in play.  And if The New York Times reports it, it must be true.

As a dragnet aimed at Islamic State operatives spiraled across Brussels and into at least five European countries on Friday, the authorities were also focusing on a narrower but increasingly alarming threat: the vulnerability of Belgium’s nuclear installations.

The investigation into this week’s deadly attacks in Brussels has prompted worries that the Islamic State is seeking to attack, infiltrate or sabotage nuclear installations or obtain nuclear or radioactive material. This is especially worrying in a country with a history of security lapses at its nuclear facilities, a weak intelligence apparatus and a deeply rooted terrorist network.

On Friday, the authorities stripped security badges from several workers at one of two plants where all nonessential employees had been sent home hours after the attacks at the Brussels airport and one of the city’s busiest subway stations three days earlier. Video footage of a top official at another Belgian nuclear facility was discovered last year in the apartment of a suspected militant linked to the extremists who unleashed the horror in Paris in November.

The EU has no "excess" energy. The continent is on the cusp -- they've been shuttering so many nuclear plants in Europe, returning to coal and emphasizing inefficient solutions like wind and solar: if any more nuclear plants are taken off-line unexpectedly, due to terrorist concerns, look for this story to be reported again: US distillates exported to northwest Europe from US gulf coast have surged this month (March). That was a "cut and paste" from this week's to stories. It isn't even summer yet, but winter in Europe comes soon enough.

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Maybe Not

I thought I had posted the fact that Belgium does not allow raids on terrorists during the night, but I couldn't find the post, so maybe I had not. But for those who missed it, The New York Times reports it:

The authorities in Belgium said on Wednesday that one of the Paris attackers may have been holed up in a house in Brussels two nights after 130 people were killed and hundreds more injured — but that he could have escaped because of a law banning police raids on private homes from 9 p.m. to 5 a.m., according to the country’s justice minister.

The revelation by the justice minister, Koen Geens, that the suspect, France’s most wanted man — Salah Abdeslam — might have gotten away because of an arcane law intended to safeguard family privacy only adds to the picture of a severely dysfunctional and ineffective government in Belgium.

Even The Times uses "arcane," "severely," "dysfunctional," and "ineffective" when describing Belgium.

POTUS? The Times gives him a pass. 

Hillary and The Times? Don't even go there. 

The Crude Oil Market Will Re-Balance This Year -- Rystad -- March 22, 2016

Updates

March 23, 2016: Outlook for The US Offshore Industry Is Darkening.

After enunciating an energy policy in March 2012 that was based on the concept of an “all of the above” resource strategy, President Barack Obama has abandoned it in his recent energy policy actions. First, he rejected the construction application for the Keystone XL pipeline, and now he is ditching the Atlantic Lease 260 sale from the proposed five-year offshore oil and gas lease sale program for 2017-2022.

Even more recently, President Obama has directed that the government tighten air pollution standards for offshore drilling. The removal of Atlantic Lease 260 is a reversal of President Obama’s previous policy calling for opening up the East Coast offshore to oil and gas exploration. This is the second time that acreage in the Atlantic Ocean has been bumped from proposed five-year lease sale programs. The first time was in 2010 when President Obama was siding with including an Atlantic lease sale in the 2012-2017 sale program, only to withdraw his support after the Macondo accident and resulting oil spill.

It should be noted that many of the media stories about the proposed Atlantic lease sale reported that the previous drilling off the East Coast some 40 years ago resulted in no successes. The reality is, as one story we read pointed out accurately, there were 51 wells drilled and hydrocarbon resources discovered, but they were not in sufficient quantities to be developed commercially.

The key in conducting more exploration would be as an aid in determining if there were sufficient resources that could be developed commercially.

While we watch the evolution of our offshore oil and gas leasing program, it is important to understand that there are other ways the offshore oil and gas business is being attacked in an effort to hamper operations and boost operating costs in U.S. waters. If successful, the efforts will reduce offshore activity and resource development. That outcome would go against two of President Obama’s key energy policy tenants – to produce economic and employment growth while also boosting U.S. energy security. 

Original Post

 

I think it's pretty well understood that in three to four years there may be a relative shortage of crude oil based on current data and current events. Most people are not looking that far out; most are trying to figure out what might happen in the next six months or even less.

It wasn't too long ago that Goldman Sachs was suggesting that oil would decline again, falling back as low as $20/bbl. I don't hear much of that talk any more, and it seems most folks think we're in a new trading range.

It also seems that most folks think that crude oil will be in the $40 - $60 range by the end of year.

But it seems even $40 - $60 may be on the very low side. Rystad (see below) has suggested that the market would "re-balance" by the end of the year. For me, $40 - $60 oil is not re-balanced. Others will disagree. Be that as it may, but Rystad's forecast is certainly in line with what Saudi Arabia has said. Saudi has based its budget on an average of $60-oil this year. I don't see how we get there from here, but that's what Saudi is basing their budget on and Rystad is pointing in the same direction.

I don't know if anyone has defined what is meant by "re-balancing" but before Saudi "opened the spigots in October, 2014," with supply and demand supposedly "balanced," oil had been in the $100 range. 

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BloombergBusiness has a most interesting article that continues the them: drillers are not replacing reserves.

For oil companies, the legacy of $100 crude is starting to run dry. 

A wave of projects approved at the start of the decade, when oil traded near $100 a barrel, has bolstered output for many producers, keeping cash flowing even as prices plummeted. Now, that production boon is fading. In 2016, for the first time in years, drillers will add less oil from new fields than they lose to natural decline in old ones.

XOM and Shell both made news in the past few weeks when it was reported that neither replaced reserves this past year.

With regard to reserves, BloombergBusiness is reporting that Shell posts worst performance on oil reserves since the 2004 scandal:

Royal Dutch Shell Plc said it depleted its oil and gas reserves much faster than it replenished them with new resources in 2015, its worst performance since an accounting scandal that engulfed the company 12 years ago.

Shell said its reserves replacement ratio -- the proportion of oil and gas production during the year that was offset by the addition of new resources -- was minus 20 percent. The company not only failed to replace any of the 1.1 billion barrels equivalent it pumped in 2015, but also wrote off another 200 million barrels to account for the plunge in oil prices.

Back on February 21, 2016, it was also reported that XOM failed to replenish its reserves (in 2015) for the first time in 22 years. Exxon Mobil’s so-called reserve-replacement ratio fell to 67 percent in 2015, much, much worse than Shell, if I read the numbers correctly.

Note the dates in the BloombergBusiness article:

“There will be some effect in 2018 and a very strong effect in 2020,” said Per Magnus Nysveen, Rystad’s head of analysis, adding that the market will re-balance this year. “Global demand and supply will balance very quickly because we’re seeing extended decline from producing fields.”

But look how minuscule some of these projects really are:

Royal Dutch Shell Plc is scheduled to start the Stones project in the Gulf of Mexico’s deepest oil field this year after approving it in May 2013. Benchmark Brent crude averaged $103 a barrel that month compared with about $41 on Monday. Stones will add about 50,000 barrels a day to Gulf of Mexico output at a peak rate, according to Shell.

50,000 bopd is trivial.

[Two other deepwater projects] will help boost production in the Gulf of Mexico by 8.4 percent this year to a record annual average of 1.67 million barrels a day, according to the U.S. Energy Information Administration.

1.67 million bopd is a record, but it's not much of an increase (8.4%) considering how fast other fields are declining.

Upstream CAPEX Reductions -- March 11, 2016

From Woods Mckenzie:

I think two interesting data points is the extent to which California Resources will quit drilling in California, and the fact that Whiting is not on the list (if it is, I missed it).

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Here We Go Again!

WKOW/Madison is reporting:

The Wisconsin Department of Health Services is reporting four more cases of Elizabethkingia in the Madison-Milwaukee area.

Wisconsin State Hygiene Communicable Disease Deputy Director David Warshauer says 48 cases is worrisome.

"Laboratories may see a case a year, so it is concerning,"  Dr. Warshauer said about the rare blood infection being found in 12 counties.  D.H.S does say they have revised the numbers of deaths from 18 to 15 possibly linked to the bacteria.

Right now, researchers in his lab are isolating Elizabethkingia DNA samples.  Just one of isolation can take up to 48 hours.  His lab has done more than 40 in the last few weeks.

"Everybody has been busy, hoping to find the source for this."

But CDC Spokesman Tom Skinner says there is no smoking gun just yet.

 "We're now including any possible food source here that maybe implemented here, including any soil water or medical products that anyone who may have acquired this infection may have been using," Skinner said.

Hopefully, Chipotle is not part of this story.

Regarding the bacterium:

Elizabethkingia meningoseptica is a gram-negative rod-shaped bacterium widely distributed in nature (e.g. fresh water, salt water, or soil). It may be normally present in fish and frogs but is not normally present in human microflora.

In 1959 American bacteriologist Elizabeth O. King (who isolated Kingella in 1960), was studying unclassified bacteria associated with pediatric meningitis at the CDC in Atlanta, when she isolated an organism that she named Flavobacterium meningosepticum (Flavobacterium means "the yellow bacillus" in Latin; meningosepticum likewise means "associated with meningitis and sepsis"). 

In 2005, a 16S rRNA phylogenetic tree of Chryseobacteria showed that C. meningosepticum along with C. miricola (which was reported to have been isolated from Russian space station Mir in 2001 and placed in the genus Chryseobacterium in 2003 were close to each other but outside the tree of the rest of the Chryseobacteria and were then placed in a new genus Elizabethkingia named after the original discoverer of F. meningosepticum.

Another Top Energy Story Of The Week? Chevron Cuts CAPEX Another 36% -- March 9, 2016

I posted/linked this article earlier but really didn't stop to consider the implications. This is a big story that hardly got a footnote in the business pages today, it seems. From any number of sources, this one from oilprice:

The California-based multinational just announced that it would cut its capex in 2017 and 2018 by another 36 percent, bringing annual spending down to between $17 and $22 billion.

That is down from an October 2015 estimate, when Chevron said that it expected to spend $20 to $24 billion each year in 2017 and 2018. It is also sharply lower than the $26.6 billion Chevron is spending this year, which itself is a 25 percent reduction from last year’s levels.

The severe cuts come as Chevron has had to take on debt in order to afford shareholder dividends, as the company has not generated enough cash flow to cover the payouts with oil prices as low as they are. Dividends cost the company $8 billion in 2015 alone. Chevron would need oil trading at $50 in order to cover the dividend with cash flow.

So, to recap, CVX CAPEX:

• 2015: $35.5 billion
• 2016: $26.6 billion
• 2017: first estimate -- $24 billion (max)
• 2018: first estimate -- $24 billion (max)
• 2017: new estimate -- $22 billion (max)
• 2018: new estimate -- $22 billion (max) 

The cut in CAPEX in percent has a broad range because the estimates Chevron provides are quite broad.

CAPEX in 2017 and 2018 ranges as low as $17 billion to as high as $22 billion.

In a worse case situation, a cut from $35.5 billion (2015) to $17 billion (next year) would represent a 52% cut in two years. My arithmetic could be wrong. If the numbers are right, that's huge. A 50% cut in CAPEX in two years by a major.

I think 2017 will be a most interesting year for US consumers when it comes to the price of oil.

US Shale Oil Stares Into Abyss With OPEC Ready To Push It Over -- The [London] Telegraph -- October 8, 2015

From The [London] Telegraph:

Shale drillers in Texas and North Dakota hung on for longer than anyone expected, but are too reliant on crude trading at above $60 a barrel to remain profitable.

To their credit, shale drillers and operators in Texas and North Dakota have hung on for far longer than anyone expected after OPEC launched its pre-emptive oil price war last November. However, a year of oil prices trading at an average of around $50 per barrel is finally succeeding in reversing the dramatic increases in US production that had been so troubling the Gulf’s oil-rich sheikhs.

Total US output has fallen by almost 600,000 barrels per day (bpd) since the end of the first quarter, with the biggest declines occurring recently as operators begin to crack under the financial pressure caused by OPEC’s squeeze on prices. By next year, the US government expects output to decline to an average of 8.6m bpd, down from an average of 9.3m bpd in 2015.

According to Mark Papa, the former head of US shale oil specialist operator EOG Resources, this is just the beginning of the downturn in North America. Speaking at the annual Oil and Money conference in London this week, Mr Papa said: “We are about to see a pretty dramatic decline in US production growth.”

Be sure to parse that last sentence: "We're about to see a pretty dramatic decline in US production growth." The operative word is in bold.

There is no question that this could get really, really nasty ("blood on the streets," as they say in some places), but whenever I read these doom and gloom stories, I think about the following:

• the Chinese, subcontinent Indian, and Indonesian middle class continues to grow, and the middle class loves gas-guzzling SUVs and air-conditioning
• the low price for crude is getting Americans (and the rest of the world) hooked on crude oil again
• Saudi Arabian production is maxed out (discussed numerous times on the blog)
• production in the Mideast may increase -- it may increase significantly -- but nothing is guaranteed
• Russia is now in the Mideast; Russia's presence changes everything
• Russia's economy is on the ropes; we can talk about Ecuador and Venezuela failing due to the low price of oil, but the Russian Bear won't ... fail (one has to ask why Russia went into the Mideast)
• upwards of 50% -- maybe more, I keep forgetting -- of all US oil production comes from onshore
• US onshore production coming from three plays: the Permian, the Bakken, and the Eagle Ford (and the Eagle Ford looks to be lagging due to low crude oil prices)
• off-shore projects have dried up; it will take a decade to get a new off-shore project up and running
• the Arctic was a huge disappointment 

I wonder what an errant cruise missile hitting a Saudi oil field would do to the price of oil? Just asking?

I am inappropriately exuberant about the Bakken. I may be whistling past the graveyard. But I don't think Genie Energy went looking for oil in the Golan Heights because they thought oil was "dead."

By the way, this is a cool essay by Boone Pickens ... cool because he talks about D-Day/Normandy. I am reading Stephen Ambrose's D-Day and have recently blogged about it.  I feel bad for Boone Pickens: Washington politics must give him a lot of heartburn.

Oasis Fined For Not Paying Royalties -- September 22, 2015; Replace Good-Paying Union Jobs With $15/Hour Flipping Hamburger Jobs

Hey, You Can Always Move To Minneapolis And Flip Hamburgers

Becker To Minneapolis: 50  Miles -- Single Charge For An EV

Ya gotta love the governor: supports $15/hour to flip hamburgers but will shut down good-paying union jobs. Whatever. And the governor thought it was only his neighbor to the west that had "a coal problem." Midwestern Energy News is reporting:

The debate over the fate of Minnesota's largest -- and most polluting -- coal fired power plant has intensified as state policy makers begin creating a roadmap to meet goals set by the U.S. Environmental Protection Agency's Clean Power Plan.

On Monday House Job Growth and Energy Affordability (JGEA) Committee Chair Rep. Pat Garofalo led a tour of the Sherburne County Generating Station (Sherco) along with Rep. Jim Newberger, who represents the town of Becker, where the plant is located. A hearing afterward focused on the plant's importance to the community.

Importance to the community?  Becker, population, 5,000. Hello. The plant is the community. Close the plant and the community ....

The Sherburne County Generating Station, also known as Sherco, is a massive coal-fired power plant in Becker, Minnesota, which is in Sherburne County. Its three units have a combined capacity of 2,400 megawatts, making it the largest power plant in the state.

To replace 2,400 megawatts with wind, at $2.5 million /MW = $6,000 million or $6 billion. Solar would be significantly higher. The typical wind farm is about 240 MW, so we are talking at least ten (10) wind farms in North Dakota to make up the loss of this coal plant. And intermittent energy needs back-up natural gas plants. North Dakota, I would say, is sitting in the sweet spot for energy. Ten more wind farms around West Fargo, and a new natural gas plant in Tioga. Wow, the possibilities are endless.

The state can use UND / Grand Forks drones to inspect everything.

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Chesapeake Bookkeeping

The Dickinson Press is reporting: 

Oasis Petroleum has been assessed a $72,438 fine for failing to make royalty payments on oil production on the Fort Berthold Reservation, the Department of Interior’s Office of Natural Resources Revenue announced Monday.

The civil penalty was for failing to make royalty payments on production from an American Indian lease between February 2013 and June 2014, the Office of Natural Resources Revenue said.

The company eventually paid the royalties in July 2014.

Learning from Chesapeake? 

It would be nice to see the fine distributed among the mineral owners. In a perfect world, any fine would be doubled: a matching amount would be paid the mineral owners.

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Transparency

Compare the disclosure rules of Idaho with North Dakota. Here are the rules of Idaho has reported by The SF Gate: 

The new rule approved by the Idaho Legislature last spring requires companies to turn over production records six months after a well starts producing. Six months after that, the state is required to make those records public.

In other words, insiders inside the state government have access to private information for six months before it is released to the public. Gee, I wonder....

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Setting Us Up For $200 Oil

EIA "energy cookie":

In response to the decline in crude oil prices since mid-2014, the number of active offshore rigs has declined worldwide, dropping close to 20%—304 offshore rigs were operating in August 2015, down from 377 in August 2014.

During this period, the number of active offshore rigs in the U.S. Gulf of Mexico dropped more rapidly, falling by 46%.

Over the past 15 years, the U.S. GOM's share of active offshore rigs worldwide has declined significantly—from almost half of all active offshore rigs worldwide in 2000 to less than 20% since 2008. --- EIA 

It looks like the number of rigs in the Mideast has dropped from around 400 at the peak to about 300. 

Setting Us Up For $200 Oil -- COP To Get Out Of Deep Water E & P -- September 1, 2015

They can't "turn on a dime" in the ocean. Fox 2 Houston is reporting that COP will lay off 10% of its workforce, most of it in North America, and most of it related to "deep water." From the company:

"We have taken several significant steps as a company to strengthen our position, including reducing our capital spending and future deepwater exploration program. However, the workforce reductions are necessary to become a stronger, more competitive company."

Look out in 2020, if not sooner. And then Congress will call for investigations why the price of oil is so high.

Tuesday, July 28, 2015 -- Part III

I have said from the beginning that Tesla is a battery company disguised as a car company surviving on government subsidies and mandates.

I guess we got a bit more proof of that today, with this headline over at The Street: Tesla Tanks As GE Eyes Energy Storage Role.

This is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here.

By the way, based on many, many articles about GE over the past year, it appears GE has gotten its act back together, is on a roll, and will be a powerhouse of an energy company in the US and in France, of all things, by 2020.

The market today, with 3 - 5% rise in share prices in the energy sector show just how fast things can change.

For investors, the change in the price of shares will start showing up about six months before we see the demand for oil catch up with the supply of oil. 

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For The Archives: Politics

Updates

July 30, 2015: The National Journal agrees -- it's Biden's moment. 

July 29, 2015: Trump is now saying the same thing -- Hillary will flame out and Biden's star will rise.  

Original Post

 

I am/was ambivalent about posting this. This is an e-mail note I sent a reader with regard to some political story last week. As I wrote it, I wrote it thinking I might post it sometime. This note, of course, is not ready for prime time, but I don't want to lose it, so will post it (pretty much as originally written with some editing) for archival purposes, and then add some stuff on the end.

Oh, yes, now I remember. It was in response to the article suggesting that the White House is beginning to undermine Hillary's campaign:

Yes, that was an interesting story. I've thought about it a lot.

Each succeeding president may / may not destroy the preceding president's successes; may / may not re-write history of the former president.

1. When Bush left office, Iraq may or may not have survived as a success story. It probably would have turned out the way it did, regardless. However, Obama made sure Iraq imploded and Bush's legacy (a free, democratic, thriving Iraq) is dust. Obama made sure of that. Along the way, Jarrett took over, and made Iran the Mideast superpower.

2. Obama has very, very weak legacies in the making: ObamaCare, the Iran nuclear deal, global warming, etc. He very, very badly needs a successor to shore up his weak legacies. His only hope is a Democrat winning. If he orchestrates the implosion of Hillary, the GOP wins, almost by default without much of a battle.

3. Unless.

4. Unless there's an Obama knight-in-waiting. Obviously it's not going to be Sanders. And we haven't heard much from O'Malley. It is interesting that the Drudge headline (I did not read the story at the link) today is Biden: in or out. Biden would most likely keep the entire Obama staff in their various bureaucracies and replace them with his own cronies only as necessary. Jarrett might even stay. Biden would do what he could to save the Obama legacies. Only problem: age. Well, actually a second problem: old white guy. Well, actually a third problem: a buffoon. [There's only one greater buffon in Washington, right now, at a similar level of power: Boehner.]

5. Having said that, both Hillary and GOP need to fear Biden. In Obama's eyes, even if Biden lasted only one term (due to age, health) that would be enough time for him to save Obama's legacies -- think LBJ following JFK.

6. An aside: I will be irritated if Congress does not put Hillary under oath when she comes to testify. Even if "under oath" vs not being "under oath" before Congress is a fine line, just knowing that she has raised her right hand to swear to tell the truth will make her very, very cautious in her answers. A lot of "I never intentionally...." "I don't recall the specifics, but I never knowingly lied ..." Etc. etc.

7. It's also very possible, the IG investigation will go nowhere; this was simply a leaked threat to keep her in line.

8. The primary system of nominating candidates really challenges the Dems this time; if we had the pre-60's convention nominating process, it is very, very likely a charismatic Democratic governor -- somewhat centrist -- would steal the show on the second or third ballot, but now candidates have to put together a winning primary race starting months early.

9. The GOP is screwed if Trump goes nuclear -- third party option.

So, the added comments:

1. Regarding #7 above: that appears to be a hoax of a story. It is now being reported there never was any intention of this administration to sic the IG on Hillary.

2. To win the presidency, actually to win anything, one needs to peak at the right time. Even in soccer, the US Women's team needed to peak at exactly the right time. For Hillary, she peaked before she became SecState; perhaps she peaked as the junior senator from New York, much like the junior senator from Illinois, though his star kept rising. She may have peaked when "she stood by her man."

3. The Planned Parenthood's "Josef Mengele-like research" story appears to have some legs to it and the fact that Hillary has not yet distanced herself from at least the part about working to minimize the crunchiness will cause her great problems. I don't think mainstream America has problems with what are analogous to miscarriages in the first trimester, but when talking about crunchy skulls, that is beyond the pale. And the videos are going to keep coming.

4. It looks like the Dems are coming down to this -- Hillary, fading; Biden, goofball; Kerry, a legend in his own mind and his star is rising. Kerry will get the Nobel peace prize next year, right as the presidential campaign gets into full swing.

5. For the GOP: the best debates since the Reagan candidacy. One-on-one, Trump will destroy any other candidate in a debate -- even if he makes no sense.

6. For the networks: hoping beyond all hope, Trump will win the GOP nomination. The ratings for the presidential debates will set new records.

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$200 Oil

I've posted it before but just to reiterate: when I suggest "they" are setting us up for "$200 oil," I don't mean "literally" that oil will go to $200. I am suggesting that when the demand catches up to supply, and the price heads back to $100 fairly quickly, pundits and talking heads will start talking crazy talk, they will start talking about $150 oil, $200 oil, etc.

The data points and graphs that haunt me day-in, day-out:

1. The graph of Saudi oil production over the past five years, despite a 5-year, $35-billion expansion of its drilling program and an all-time high of active rigs in the Mideast.

2. The fact that $200 billion (maybe more) and at least 45 projects have been canceled, deferred, scrapped, whatever in the past six months, and most of these projects have been off-shore projects that take six to seven years to get on-line.

3. The end of the second quarter 2015: North Dakota hits 68 active rigs, a post boom low. Early in the 3Q15, North Dakota back to 73 active rigs.

4. Oil companies planning to add 80 million bbls of new crude oil storage capacity along the Texas-Louisiana coasts this year alone (for perspective, Cushing holds 150 million bbls). The storage facilities in Texas/Louisiana are around 300 million bbls of crude oil.

5. Nigeria, a huge exporter of crude oil, may be the first Saudi-engineered casualty of the oil wars.

6. Besides off-shore projects being deferred / canceled / scrapped, the current off-shore plays in the North Sea are showing their age. Brazil and Mexico are both struggling with their off-shore projects.

7. Other than the Permian, Eagle Ford, and the Bakken, most of other shale plays in the US are being ignored.

8. The tsunami of oil hitting the market in 2015 finally tails off in 2016, but will take a good year to "burn off" the excess.

$200 Billion, 45 Projects, Most Deep-Sea Deferred, -- July 27, 2015

Reuters/Rigzone is reporting:

Oil and gas projects in deep basins account for most of deferred investments worth more than $200 billion made due to the oil price crash.

Oil and gas majors have slashed capital expenditure budgets between 10-15 percent this year in response to oil prices halving over the past year. A large chunk of these cost savings have been made by deferring investment decisions in expensive projects, shelving more than $200 billion worth of investments. .... dentifying 45 major project deferrals across the globe.

As much as 10.6 billion barrels of oil equivalent in resources located in deep or ultra-deep oil and gas projects are affected by the delays, showing projects in frontier areas are worst hit. Canada's oil sands projects make the country most vulnerable to project deferrals, with 5.6 billion barrels of liquid reserves at risk in the country.

Related, from Bloomberg/Rigzone:

The deep-ocean strategy is coming back to bite South Korean shipyards.

Hyundai Heavy Industries Co., Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. -- South Korea’s Big Three shipbuilders -- ventured into offshore oil rigs starting around 2010.

The goal was to avoid direct competition with China, where inexpensive labor could churn out low-profit tankers at cheaper rates. With oil prices climbing toward $100 a barrel, offshore rigs seemed like a savvy bet. Today the strategy seems to have backfired.

Struggling with technology and a plunge in oil prices that has discouraged exploration.

It’s the latest example of difficulties for the global shipbuilding industry, after a glut of vessels and low freight rates have spelled financial trouble for Chinese yards in recent years, prompting them to seek government aid.

It takes 6 - 7 years to bring a deep-sea project on-line once decision is made to drill. 

Setting us up for $200 oil in 2020.

Minor Notes -- July 23, 2015; Looks Like Off-Shore Is Off-Limits

Is anyone even aware that the American men's soccer team got beat by Jamaica earlier this week, 2-1?

After watching an exciting American women's soccer team earlier this month trounce Japan in the finals to take the World Cup, talk about a huge let down to see the US men's team (ranked #1?) lose to Jamaica (ranked #76) in a semi-finals game. The WSJ is reporting:

ATLANTA—In what has to be considered the darkest night of Jurgen Klinsmann’s four-year run as head coach of the U.S. Men’s National Team, the reigning Gold Cup champions were unceremoniously bounced from the biennial confederation championship in a shocking 2-1 upset by Jamaica.

The Reggae Boyz, ranked 76th in the world, stunned the U.S. with two first half goals scored within five minutes of each other on two costly mistakes by a U.S. team that last month knocked off world champion Germany. This was just the second win for Jamaica over the U.S. since 1988 and the first ever on U.S. soil.

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Not Gonna Happen This Year

Winter In The Arctic Is Just Weeks Away

The US says Shell does NOT YET HAVE AUTHORITY to drill in the Arctic. Reuters/Rigzone is reporting:

The U.S. Interior Department on Wednesday granted Royal Dutch Shell two final permits to explore for crude in the Arctic this summer, but said the company cannot drill into the oil zone until required emergency equipment arrives in the region.

The department's Bureau of Safety and Environmental Enforcement (BSEE) conditionally granted Shell permits for exploration in the Chukchi Sea off Alaska, in a season which sea ice limits from July until October.

But Shell must have emergency equipment to contain a potential blown-out well deployable within 24 hours before drilling into the oil zone.

Shell discovered weeks ago that the Fennica icebreaker that holds the required equipment, called a capping stack, had a three-foot (1-meter) gash in it.

Shell last week sent the Fennica, which it is leasing, to Portland, Oregon, for repairs. Fixing the gash and sending it back could take weeks more.

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Expensive Parking Lot: The Caribbean

Reuters/Rigzone is reporting:

Imagine parking your $300 million boat for months out in the open sea, with well-paid mechanics hovering around it and the engine running.

The Gulf of Mexico and the Caribbean Sea have become a garage for deepwater drillships -- at a cost of about $70,000 a day each. It’s either that or send your precious rig to a scrapyard. The dilemma underscores how an offshore industry that geared up for an oil boom is grappling with a bust. Rig owners are putting equipment aside at unprecedented numbers as customers including ConocoPhillips pull back from higher-cost deepwater exploration.

That’s helped make Transocean Ltd. and Ensco Plc two of the three worst performers in the Standard & Poor’s 500 Index over the past year.

“Most contractors have never seen an environment like this, where demand is falling as quickly as it is,” David Smith, an analyst at Heikkinen Energy Advisors in Houston, said in a phone interview. “It’s been a big headache, and the problem is that we’re not halfway through.”

A growing glut of newly built exploration vessels looked worrisome enough before the oil rout. Now it’s beginning to look disastrous.

It looks increasingly obvious that off-shore drilling is off-limits: either it's uneconomical (COP pulling out of the Gulf) or illegal (Obama administration).

Chinese-Controlled CNOOC In Deep Doo-Doo In Canada -- July 23, 2015

This is being reported in The Wall Street Journal today:

China’s Cnooc Ltd. knew it was buying into trouble when it acquired Canada’s Nexen Inc. in 2013. It is now finding out just how much.

Weeks after the state-controlled oil company bought Nexen for $15 billion, its executives were in Calgary with a blunt message for the Canadian company, which had struggled for years to extract crude from the oil sands in the Alberta wilderness.

Two years later, Cnooc is still trying to fix Nexen, its troubles compounded by low crude prices.

And now Cnooc must explain an oil spill: This month, a pipeline Nexen installed last year ruptured, spilling nearly 31,500 barrels of a mixture of crude oil, wastewater and sand in northern Alberta.

The nice thing about this article is it helps me sort out the three big Chinese oil companies: CNOOC, Sinopec, and China National Petroleum Corp.

Back to CNOOC:

Buying Nexen appeared to fulfill the Chinese conglomerate’s three-decade mission to become a global oil company. Nexen gave Cnooc stakes in:

• Canada’s oil sands; 
• North Sea wells off Scotland; 
• Yemen; and, 
• an increased Gulf of Mexico presence.

Call me naive but every one of those appear to have been a bad investment:

• besides cost of extraction, oil from Canadian oil sands is landlocked with no Keystone XL
• recent news regarding UK off-shore wells is not good
• Yemen? what more needs to be said?
• Gulf of Mexico: with $50 oil, not economic and huge environmental risks

Not only that, but:

Nexen was the highest-priced of those acquisitions, and its Canada project shows how wrong some of those bets have gone. Its oil-sands project, called Long Lake, is one of the least productive oil-sands operations in northern Alberta—Canada’s oil-sands center—based on key benchmark measurements, according to BMO Capital Markets, Bank of Montreal’s investment-banking unit.

Back to the spill:

The spill [31,000 bbls] is among the largest onshore in recent years.

By contrast, a 2010 leak that flowed into Michigan’s Kalamazoo River was estimated at 20,000 barrels. Nexen’s spill has been contained to a field along the pipeline and hasn’t contaminated water sources.

The pipeline may have been leaking for up to two weeks before the leak was detected after it returned to service on June 29 following routine maintenance.

The leak shut production of some 9,000 barrels a day.

Nexen was already weighing on Cnooc’s bottom line. Cnooc has pledged to cut capital expenditures around 30% this year, after reporting nearly $700 million in impairment losses for 2014 that it blamed on operations in North America and the North Sea. Its energy-sales revenue fell 40% in the first quarter.

Most Important Oil And Gas Story For 2015

Tectonic shifts in the oil and gas industry.

From 2010 - 2015, the most important story was the shale revolution.

In 2015, the biggest story is the fact that Saudi Arabia is transitioning to a refining economy. Huge. The reason this is so big:

• Saudi Arabia export numbers are now "shifted"; it will take time to sort out KSA petroleum export numbers
• one could measure Saudi Arabian exports; no one outside KSA can independently verify refinery activity inside the kingdom
• in other words, KSA crude oil production and export numbers will be much, much harder to interpret

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Setting Us Up For $200 Oil

Reuters/Rigzone is reporting:

Oil firms trying to sell ageing North Sea oilfields are considering shouldering hundreds of millions of dollars in future dismantling costs to help find buyers.

One of the world's oldest and most important offshore oil and gas production basins, the UK North Sea faces dwindling output and a growing number of redundant platforms that require decommissioning in a scale and complexity never seen before.

The near halving of oil prices over the past year to below $60 a barrel has forced the industry to slash spending, increase efficiencies and sell or shut down assets that are least profitable or which do not fit their portfolios. But despite a large rise in the number of assets up for sale in the North Sea in recent months, only a few deals have been completed.

Decommissioning, which involves plugging wells with cement on the seabed and removing obsolete platforms and pipelines, has proved to be a major stumbling block for deals.

Think about where "we" would be had there not been the Bakken revolution. All that talk about "peak oil" might have taken on more ... I can't think of the word.

By the way ... just a reminder. And we all survived "2009."

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For The California Readers

Cool Water, Gaither Vocal Band

COP Raises Dividend; Terminates Contract For Deepwater Drill Ship Originally Scheduled For Gulf Of Mexico -- July 16, 2015

From Seeking Alpha:

• ConocoPhillips says it will reduce future spending on deepwater drilling, due to low crude oil prices.
• COP says the most significant spending reductions will come from its program in the Gulf of Mexico, where it will terminate its contract for an Ensco deepwater drill ship which was scheduled to begin drilling later this year.
• COP says its decision to cut deepwater spending will strengthen its ability to achieve cash flow neutrality in 2017, even if lower commodity prices persist.
• However, COP raises its quarterly dividend to $0.74 from $0.73, which will cost an additional $12.3M per quarter.

From an earlier article last October:

It usually takes about six years before deep-water discoveries become commercial bounties, and during that time oil markets could take prices up or down, and technological breakthroughs could lower costs. But oil companies will still have to accomplish engineering feats to exploit the next generation of oil fields. 

Six years. We're being set up for $200-oil. I explain what I mean by this at this post.

Along that same line, Reuters/Rigzone is reporting:

Mexico auctioned only two of 14 blocks in a pivotal oil and gas tender on Wednesday, falling far short of the government's modest expectations as it begins to open up the long-nationalized industry to private investment.

Both the shallow water exploration and production contracts were awarded to the same consortium made up of Mexico's Sierra Oil & Gas, U.S. firm Talos Energy and Britain's Premier Oil.

The other 12 blocks received no bids, or none that cleared the bar set by Mexico's finance ministry. All told, it was an inauspicious start to the rollout of President Enrique Pena Nieto's signature economic reform.

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Note: this is not an investment site. See disclaimer.

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TECO shares jump; rumors of being bought; (Tampa Electric). Later, TECO confirms it is exploring a sale:

Utilities have been looking at mergers and acquisitions for growth as they grapple with tepid sales and rising costs from new regulations and the need to upgrade aging infrastructure. This week utility owner Black Hills Corp said it had agreed to buy SourceGas Holdings LLC for $1.89 billion.

Teco, which was valued at about $4.4 billion before Thursday’s move, is Florida’s third-largest investor-owned utility behind NextEra Energy Inc.’s flagship Florida Power & Light and Duke Energy Corp.’s Florida utility.

Teco’s Florida utility borders those of Duke and FP&L. Both may be suitors for Teco, along with Dominion Resources Inc., Southern Co., and perhaps CenterPoint Energy Inc.

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Speaking Of Buyouts: Goldman Has Seven Oil And Gas Buyout Targets

EOG, CLR On The List

From SeekingAlpha:

• Global oil majors have $150B of firepower than can be used for M&A and have the ability to defer another $325B in capex on marginal projects; with so much cash available for potential deals and up to 15M bbl/day of production potentially available for purchase, Goldman Sachs analyst Ruth Brooker sees a pickup in M&A activity in the oil and gas space coming soon.
• The firm thinks shale production has the potential to double by 2025, and Brooker argues majors likely will take the current opportunity to increase their exposure to U.S. shale at historically low prices.
• Goldman sees seven companies as most likely to draw buyout attention from the majors: EOG, PXD, CLR, COG, NBL, APC, RRC

I would add Oasis and maybe even Whiting, although the latter is less likely now that three years ago.

APC has a market cap of almost $40 billion and an enterprise value of over $50 billion; and, EOG has a market value of $45 billion. 

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For The Archives: Argentina

Reuters/Rigzone is reporting:

Argentina's state oil company YPF, Pan American Energy and Wintershall will invest $38 billion over 35 years in the country's vast but mostly untapped Vaca Muerta shale formation, the governor of Vaca Muerta's home province of Neuquen said on Wednesday.

Saudis Set New Production Record; Saudi Increases Production 1% Month-Over-Month Vs North Dakota 3% Increase Month-Over-Month -- July 13, 2015

Updates

July 14, 2015: increase in Saudi production will NOT off set record domestic demand. Platts is reporting:

Saudi Arabia's refinery intake increased by 235,000 b/d or 12% year on year in the second quarter, and total consumption is expected to reach 3 million b/d in Q3.

Refinery intake increased as the new 400,000 b/d Yasref refinery ramped up to full capacity.

The refinery, a joint venture between Saudi Aramco and Sinopec, will contribute to total Saudi crude consumption reaching 3 million b/d in Q3, as demand peaks due to the summer months. 

Original Post

 

This is what the Saudis have achieved with their five-year, $35 billion program to increase production:

The world’s biggest oil exporter pumped 10.564 million barrels a day in June, exceeding a previous record set in 1980, according to data the kingdom submitted to the Organization of Petroleum Exporting Countries.

10.564 million bbls.

From my post of June 30, 2015:

Saudi Arabia, OPEC’s top producer, increased output by 150,000 barrels a day to 10.45 million in June, the most in monthly Bloomberg data going back to 1989. [This increase comes after a $35 billion, 5-year program to increase production. So, after announcing this $35 billion program, Saudi sets a record by increasing output by 150,000 bopd, from 10.30 million = a whopping 1.46% increase. Disclaimer holds.]

So, 10.564 - 10.45 = 0.114
0.114 / 10.45 = 0.0109 = 1% increase month-over-month.

In the most recent data available from the NDIC, North Dakota increased its month-over-month production by almost 3% despite a huge decrease in active rig count and choking back in response to low oil prices and to comply with self-imposed flaring rules and mandated conditioning rules.

Back to Saudi Arabia. We are getting close to the magic 11 million bopd number.

Citigroup Inc. predicts the kingdom will push toward its maximum daily capacity, which the bank estimates at about 11 million barrels, in the second half of 2015.

Also from that post:

In my simple mind, this is my world view:

• numbers coming out of Saudi Arabia can never be trusted;
• Saudi's production fluctuates around 9.5 million barrels of oil;
• at one time, pundits said Saudi's maximum production was 12 million bbls (now it's 11 million bbls);
• this post and the graph at this post tell the story;
• a jump from 10.3 million to 11 million (assuming it's even "real") is hardly earth-shattering especially as off-shore projects are cancelled / delayed;
• Saudi needs to increase production by a million bbls just to meet its own domestic demand -- which is increasing -- and to meet the requirements of the new refineries Saudi is building in-country; 
• Saudi has huge new self-defense expenses and a shooting war to fund; but the biggie is ...
• ... Saudi has just canceled its solar projects for desalination and will require more oil for the energy required for desalination

Goldman Sachs has been talking down oil for months, I think at one time anticipating $40 oil by this time, and hinting at possibilities of $20 oil.

But the graphic that sticks in my mind, in light of Saudi's $35 billion, 5-year project to boost oil production is at this June 5, 2015, link, also linked above. Maybe I'm misreading the graph, but the EIA has Saudi pumping around 12.5 million bopd in the past, and production remains flat, regardless of what the "real" number is.

And then this. This is so cool. I posted that when the numbers come out, analysts will focus on "increased production numbers" but will not emphasize why Saudi needs to increase production. Bloomberg mentions this early in the story:

“Saudi Arabia is still pursuing a market-share strategy,” Torbjoern Kjus, an analyst at DNB ASA in Oslo, said by phone. “They need more oil domestically for air conditioning in the summer, so they could choose to either produce more or reduce exports. Clearly they choose to produce more.”

I've always gotten a kick out of that. Folks go ballistic over the flaring in the Bakken, and yet Saudi uses its most precious commodity -- oil -- to run air conditioners. Wow.

From the Bloomberg article:

Global oil demand will accelerate next year to 1.34 million barrels a day compared with 1.28 million in 2015, led by rising consumption in emerging economies, according to the report. Supply growth outside OPEC will slow to 300,000 barrels a day in 2016 from 860,000 a day this year with the gain concentrated in the U.S.

Setting us up for $200 oil.

By the way, Saudi's strategy to give oil away at $50/bbl:

The group sees “a more balanced market” in 2016 as demand for its crude strengths and supply elsewhere falters.

OPEC said it expects expanding oil consumption to outpace diminished output growth from rival producers such as U.S. shale drillers, whittling away a supply glut. The strategy is taking time to have an impact, with crude prices remaining 46 percent below year-ago levels and annual U.S. production forecast to reach a 45-year high.

Spin.