The Bakken Goes Boom -- A Look Back -- 2016, 2018

These should download as PDFs on your desktop. 

Link here to Jackson, 2018.

Link here to Conway, 2016.

This Seems So Long Ago -- The Atlantic Monthly's Fascination With The Bakken -- From 2016

API: weekly US crude oil inventories. Link here. Also, at this site.

• previous: 4.755 million bbls 
• forecast: 1.5 million bbls
• actual: 3.229 million bbls (almost twice forecast)
• this is a "build"; but API data, at least recent history, has been significantly different than what the EIA will report -- tomorrow, 10:30 a.m. -- but a build of 3.2 million bbls suggests that the EIA data tomorrow could come in somewhere between a draw of 1 million bbls and a build of 1 million bbls; within that range, it will not change the number of weeks to re-balance which is currently at 20 weeks. I use the EIA data to calculate weeks until US crude oil stores have "balanced"
• analysis six hours before the API data was released; this suggests me to the stronger dollar is not being offset by increased demand/less supply hopes

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Flashback: Williston, ND -- August 8, 2016

I can't recall if I linked this article from The Atlantic Monthly. Regardless, it's fun to read (for the first time) and re-read a second time to see how an East Coast magazine saw Williston back in 2016.

I will leave it to current Williston residents to compare what was written then to how things are going now. All I know is the reference to Walmart. It was reported a few days ago that two Walmart stores in North Dakota will undergo renovation. One of them is the Walmart in Williston. (The other one: Wahpeton, in southeastern North Dakota -- about as far away from the Bakken as one can get and still be in the state. It's about 30 minutes west of Fergus Falls, Minnesota, which also has a Walmart, probably the only other Walmart in the immediate area.)

I doubt Walmart, known for its "tight" spending, would be likely to re-model one of its stores if it thought the local economy was dying.

From the linked article, this will keep the riff-raff out:

The writer mentions one other boom town that succeeded: Denver, CO.

The writer failed to mention, perhaps, the greatest boom town ever that owes its success to oil: Calgary, Alberta, Canada.

Platts: Will India Become The New Engine Of Growth In Asia? Five Commodity Themes For 2017-- December 24, 2016

Funny how things work out.

A couple of hours ago Don sent me a link regarding a story on India which resulted in updating some old posts and posting a new post. For the moment, India seemed to be the theme for the day. Before signing off for awhile, I checked if there were any new tweets. So incredible: Platts tweeted this about two hours ago, "Will India become the new engine for Asian demand growth?" And then a link to their video snapshot titled "five commodity themes to watch closely in 2017." Here they are:

• OPEC production: OPEC's agreement to cut production and then non-OPEC producers also agreed to cut production; tough implementation is just beginning
• US production: US oil production: under Obama, US crude oil production grew "breathtakingly" from less than 5 million bopd to 9.5 million bopd (no comments, please); Trump is pro-US crude oil growth; at $65 WTI, IRR for US operators is estimated to be between 35 and 40%; plenty of capital available; watch for lots of hedging; how will that affect OPEC's plans to cut production
• Asian demand: will India become the new engine for growth in Asia
• for the 3rd year in a row, 2017 is likely to see a larger percentage rate for growth in oil demand in India than in a slowing Chian
• current Indian demand is similar to that of China in the 1990s
• Indian govt likely to increase crude oil demand; Make In India initiative (see link)
• India's initiatives have caught the interest of Saudi Aramco and Rosneft
• see graphic below
• Global gas market: is 2017 the year in which we see the emergence of a global gas market?
• could global prices for natural gas converge? this is a huge story
• see graphic below
• EVs: could 2017 be the year that economic reality hits the electric car market (at 4:13 in the video)
• imminent release of the Chevy Bolt and Tesla Model 3
• fuel more (fake) stories on peak oil demand
• spotlight on the realities
• govt subsidies in EV economics play a key role in EV economics
• incoming Trump administration could change things in the US -- the largest EV market

India vs China crude oil demand growth:

Global gas market:

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A Fake News Story Before Fake News Stories Were Cool

Bakken boom extends to Minnesota.

The Bakken: How Things Stand Near The End Of The Year, 2016 -- December 4, 2016

Sometime in 2014, I started losing interest in reviewing the quarterly presentations of the operators in the Bakken. Perhaps I wasn't losing interest. Better said, it was simply overwhelming. And quarter-to-quarter, and covering a dozen operators in the Bakken, the changes were staggering, but at the same time incremental, if that makes sense.

Yesterday, after a long hiatus I went back and looked at the most recent presentations by Whiting and Oasis. I will look at CLR later today and then update this post.

Observations.

EURS. Staggering. See next "story" below the break, from Wood Mackenzie.

Both Whiting and Oasis consider 900,000 boe EURs the new norm, and are on track to go significantly higher, to 1.5 million boe EURs.

For newbies, this is a screen shot from an SM Energy presentation, five years ago. The Bear Den, in the Watford City area, is one of the best spots in the Bakken. At the end of 2011, EURs were 550,000 in the middle Bakken and 450,000 in the Three Forks (not otherwise specified; all assumed to be first bench). In five years, we've gone from 500,000 boe EURs to 1.5 million boe EURs:

Drilling times:

• two huge changes since the beginning of the boom
• the first change, of course, is the huge decrease in time it takes to drill a two-mile horizontal; at the beginning of the boom, 45 - 65 days. 
• the second change: the way some operators are measuring drilling times. Whiting tracks the time from spud-to-spud: the clock starts ticking when the first well is spud, and continues to tick, until the rig is moved to the next well, and the next well is spud. Whiting has that spud-to-spud time down to 14 days or so in the Bakken; in the Niobrara, Whiting has it down to 7 days. In the old days it could take a week or so just to "tear down" rig once a well had been completed, load it on a truck, move it to the next location, and then set it up again. During the muddy season -- spring thaw -- roads were closed and rigs did not move. Now, even in the spring thaw, rigs can continue pad drilling if the pad is dry; fracking can wait

Cost per completed well:

• costs have come way, way down, but there is a twist
• some operators are "advertising" the costs to complete a DUC, in effect not providing the sunk costs in drilling the well to TD; costs to complete a DUC are in the range of $3.8 million; total costs are in the range of $6.8 million
• I remember at the beginning of the boom, talking about $10 million wells -- and some of those were short laterals

Bragging rights, net acreage in the Williston Basin:

• CLR: 860,000 net acres
• Oasis: 540 net acres (once the SM Energy deal [55,000 acres] closes (scheduled to close December 1, 2016)
• XTO: 494,000 net acres (website, December, 2016); 531,000 net acres  (June, 2015)
• Whiting: 433,125 net acres

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"You Can Enter The Bakken A Lot Cheaper Than You Can Enter The Permian -- Wood Mackenzie

From The Bakken, October 12, 2016, before the OPEC meeting:

Jonathan Garrett, the Bakken expert for Houston-based Wood Mackenzie, has a message for those who think the Permian Basin in Texas is the place to be. 

"The Permian has a lot of upside and the economics to support the interest, but for investors looking from a full-cycle basis, you can enter the Bakken a lot cheaper than you can enter the Permian," he said. "Some of the best parts of the Bakken rival some of the best parts of the Permian. That should at least pique the interest of folks looking outside of west Texas. Developing a portfolio in some of those core areas of the Bakken might make a lot of sense."

And then this (I like it when I see the words "humongous" and "Bakken" in the same paragraph).

Although the number of well completions in the Bakken have been steadily declining, the types of wells being drilled and completed has prevented production from dropping sharply. 

"We track completions in North Dakota closely and while the completion count has been anemic, the wells that are getting completed are absolutely humongous," Garrett noted. "Operators are completing wells that will produce upwards of a million-plus barrels from an EUR standpoint. A few years back, wells were being completed that produced half that."

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COP Adding Rigs Sooner Than Expected In The Bakken

From The Bakken, November 2, 2016, before the OPEC meeting:

ConocoPhillips intends to add drilling rigs to the Bakken sooner than expected. Although the world’s large independent exploration and production company said earlier this year it planned to add rigs to its Bakken operations in 2017, the company unveiled plans this week to bring in three rigs before the end of the year. “We’ve already been able to secure drilling rigs and pressure pumping crews at attractive rates to maintain our low cost of supply, so we expect this incremental drilling work to start ramping in November,” said Al Hirshberg, executive vice president for drilling and projects.

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The Red Queen

I can't wait to check the North Dakota crude oil production numbers next July, which we won't know until September, 2017, about ten months from now. In October, 2016, Lynn Helms suggested that North Dakota's crude oil production will bottom out at 900,000 bopd in June or July next year.

That statement was made before OPEC announced plans to cut/freeze oil production. On the day the October, 2016, Director's Cut, was released, it was reported that there were 33 active rigs in North Dakota. Today there are 39:

	12/4/2016	12/04/2015	12/04/2014	12/04/2013	12/04/2012
Active Rigs	39	64	191	192	181

(39 - 33) / 33 = an 18% increase in the number of active rigs. (In July, 2016, there were 31 active rigs, and recently the number of active rigs has occasionally hit 40: (40 - 31) / 31 =  a 29% increase in active rigs.

If operators continue to add rigs -- perhaps another 10 by next summer, and if the DAPL is completed, my hunch is that North Dakota will be back above 1 million bopd by next summer. 

Musings On Shale As We Anticipate The "OPEC Meeting" -- November 28, 2016

Some thoughts:

• at one time I bought into "peak oil"; no longer. We're not going to run out of affordable, accessible oil for at least three more human generations (through my granddaughters); probably four generations
• I have no clue why folks are so 'interested" in gasoline at $5.00/gallon. For me, I love gasoline at $1.50 / gallon (free market-based; supply and demand; not subsidized)
• I don't buy into anthropogenic climate change 
• with regard to global supply of oil, right now it's the Mideast (mostly Saudi Arabia); Russia; and, the US
• there is no such thing as "swing" producer any more; having said that, US producers respond to the market; Saudi Arabia tries to manipulate the market; and, Russia ignores the market

I say all that as a preface to this very interesting article in Forbes: shale wars -- where are oil prices headed as Saudi Arabia lets the big bet play out?

Comments and observations:

First, the Forbes subject line: "oil prices." It's a fool's errand to predict oil prices. And oil prices don't matter. As in everything else, it's not the price that matters, it's the margin that matters. If oil is priced at $200 but it costs $180 to produce, the margin is $20. If oil is priced at $50 and it costs $20 to produce, the margin is $30. Price doesn't matter; margins matter.

Second, Saudi Arabia's "big bet." I suppose one could call it a "big bet." Most now consider it a "trillion-dollar mistake." Saudi Arabia tried this at least once before, back in the 80s, to bankrupt America oil companies by driving the price of oil down below what US operators needed to stay in business. It worked in the 80s. It didn't work this time (at least not so far). 

Now back to the article.

Saudi has lost something like $200 billion since their decision in 2014; this jibes with other writers who have suggested $180 billion. So, $200 billion is a nice round number; easy to remember.

Saudi's sovereign wealth fund was $2 trillion; now it's $200 billion less. I guess.

The writer says we are witnessing a two-part test.

The first question: how much damage low oil prices will have caused America's shale industry?

Okay, let's stop right there. Who cares?

In economics, today is always the first day of the rest of your life and yesterday is a sunk cost.

Oh, I get it. The author is suggesting this: if the US shale industry was hurt badly enough, it won't be able to respond quickly to changes in global supply, and Saudi Arabia will gain market share by default.

I didn't see that because I don't see anything to suggest that US shale operators are incapable of successfully responding.

I guess the author had to fill out two long internet pages because instead of asking/answering the two questions he posited, he digresses into the "history of oil."

Let's skip all that, and get back to the two questions, or as the author says, the "two-part test."

Again, the first "test" / question: can the US shale industry respond to global supply and demand or did Saudi succeed in crippling the US shale industry?

Again, the writer digresses back into the "history of shale oil." We all know that history.

Finally, here it is. The Forbes contributor writes:

The results of the first part of the experiment are now known. Over the 30 months of declining prices the number of shale drilling rigs in operation collapsed nearly four-fold, and about one-third of the companies in the shale business went bankrupt or became seriously financially distress.....

wow, he's going back to history that we already know. What's his opinion?  Can the US shale industry respond to global supply and demand or did Saudi succeed in crippling the US shale industry?

Ah, there it is:

The lesson from the first half of the experiment is thus clear: a price drubbing achieved only modest production declines and did nothing to slow and arguably accelerated the radical technology gains in the cost-effectiveness of shale drilling.

Put another way; the Saudis have seen that the amount of money needed to add more American supply keeps shrinking and is moving monthly closer to the Middle East’s vaunted low-cost advantage.

At the current tech-driven growth rate, output per rig will double every 3.5 years. That kind of progress is normally seen in Silicon Valley. For consumers it’s exciting, but not so much for shale’s competitors.

Finally.

Now "part two of the experiment." Just how quickly will American shale production rise this time? 

The writer says we know the answer. The answer is "fast." The writer says: "it won't take much of a rig count rise to produce world-shaking results.

Wow, the writer and I are on the same page. I agree with him completely.

Given what we know from very recent history it’s reasonable to think that the shale industry today could grow again at least as fast as it did from its inception circa 2005 when shale companies went on to more than double U.S. production in a handful of years.

And that happened using technology that was literally half as good as what exists now, and with operators who then had to learn-on-the-fly to use techniques for which there was no prior experience.

That industrial ecosystem now has fantastically better technology, deep experience, and a pre-built infrastructure. One might pay attention to what shale pioneer Harold Hamm, Continental Resources founder and CEO, said earlier this year about U.S. oil production:

“We’ve doubled it. We can double it again.”

The writer than provides the four key characteristics of shale that differ radically from the traditional oil business and that account for shale's past and future velocity.

You can go to the linked article to "discover" those four key characteristics. Regular readers of the blog already know these four key characteristics.

I just wanted to know whether this writer felt that the US shale industry was up to the challenge.

It is.

And I agree. It's really not a question at all, is it?

Oh, by the way. Did the writer ever get around to answering the initial question: where are oil prices headed? Yes, he did. I agree with him. If anything, he's a bit optimistic.

By the way, let's go back to something said early in the article:

At the current tech-driven growth rate, output per rig will double every 3.5 years. That kind of progress is normally seen in Silicon Valley. 

At one time North Dakota had around 200 active rigs and production was wide open and about one million bbls of oil per day.

Now, North Dakota has had less than 40 active rigs for an extended period of time, with much production "choked back" due to economic reasons (DUCs, etc), and production is still about one million bbls oil per day. Unfettered, North Dakota could get to two million bbls per day "overnight."

Oh, one more thought. I started off with this comment/observation:

It's a fool's errand to predict oil prices. And oil prices don't matter. As in everything else, it's not the price that matters, it's the margin that matters. If oil is priced at $200 but it costs $180 to produce, the margin is $20. If oil is priced at $50 and it costs $20 to produce, the margin is $30. Price doesn't matter; margins matter. 

It looks like things might be working out just right: a) prices might rise; b) costs to produce are definitely coming down. Result: better margins. Regardless of the price of oil.

The US Demand For Gasoline, Jobs, Unemployment, And The US Labor Force Participation Rate -- November 5, 2016

Gasoline demand:

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Jobs Report

Jobs report: I posted this yesterday, but never got around to finishing it --

Jobs: first stories coming out on the jobs report today are rosy, but by the end of the day we will know how bad the report really is. Again, the numbers underwhelm. The only reason the unemployment rate ticked down was because a larger number of folks dropped out of the labor force. The numbers are bad, not really, really bad, but bad. We'll post them later. I'm getting ready to go biking -- before the rain hits.

First, the numbers:

• forecast: 177,000 new jobs would be added
• actual: 161,000

Then the spin: The New York Times was literally giddy overt this jobs report.

The magic numbers: New jobs: 200,000 (< 200,000 new jobs: economic stagnation). This is the number that was used throughout the George W. Bush presidency and in the very early days of the Obama administration. 

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Gasoline Demand and Jobs

My thesis is this:

Gasoline demand in the US is driven by two numbers:

• commuting miles to work
• leisure miles

Generally speaking:

• leisure miles is affected most by an individual's income, and the price of gasoline (comparing same months year-over-year).
• commuting miles to work -- pretty much depends on whether one has a job or not; public transportation year-over-year changes very, very little

Right now, oil prices are as low as they have ever been, taking into consideration the value of the dollar, inflation, cost of living, whatever -- gasoline is very inexpensive, and incredibly available. In this month's report, it was also stated that wages have increased. So, wages are increasing, the price of gasoline is down, and yet, the demand for gasoline has plunged over the past few weeks. That would suggest there has not been a decrease in leisure driving. In fact, with more and more folks out of the labor force, more and more of these folks, when driving, are driving either for leisure, or to the bank to deposit unemployment checks. Or disability checks.

So, when I see the demand for gasoline plunge in the US -- as it did over the past few weeks -- I assume it is related directly to job growth, and the jobs reports seem to bear it out.

There are a lot fewer folks driving to work these days because the percent of Americans not in the labor force continues to rise. The absolute number not working would also be rising because the population of the United States is rising.

Number of Americans UP x percent of Americans not in labor force  UP = number of Americans not driving to work UP. This is not rocket science.

With no spin whatsoever, directly from Google when asked "percent of Americans not in the labor force":

Labor Force Participation Rate in the United States averaged 63 percent from 1950 until 2016, reaching an all time high of 67.30 percent in January of 2000 and a record low of 58.10 percent in December of 1954. Labor Force Participation Rate in the United States is reported by the U.S. Bureau of Labor Statistics.

That google reply came from tradingeconomics. The US Labor Force Participation rate. The recent slight increase is due to an increase in service jobs (aka "flipping hamburgers"):

Nothing To Do With The Bakken -- October 27, 2016

At National Review, our neutron bomb election.

I was sent the link to this review by several readers.

Many, many comments.

1. The writer of this editorial a) either did not know any of this before she wrote the editorial; or, b) she did know this.

Either she did or she didn't.

If she did not know of any of this before WikiLeaks, she is, hands-down, no question, the winner of the Geico Rock Award for 2016. I can think of only one other past winner who has said something more incomprehensible: "We cannot simply drill our way to low gasoline prices."

If she did know this before WikiLeaks, one has to ask why she waited until the week or two before the election to write it. (Not that it would have made any difference.) But did it require WikiLeaks for this writer of this editorial to learn about the following four items cited in this editorial?

• CNN vice president Virginia Moseley is married to Hillary Clinton’s former deputy secretary at the State Department Tom Nides (now of Morgan Stanley) — suggesting “The Clinton News Network” is not really a right-wing joke.
• Former ABC News executive producer Ian Cameron is married to Susan Rice, a — pre-Benghazi — regular on the Sunday talk shows.
• CBS president David Rhodes is the sibling of aspiring novelist Ben Rhodes, Obama’s deputy national security adviser for “strategic communications and Speechwriting,” whatever that fictive title means.
• ABC News correspondent Claire Shipman married former White House press secretary Jay Carney (now senior vice president for “worldwide corporate affairs” at Amazon: not just “corporate affairs” or “worldwide affairs” but “worldwide corporate affairs”).

You and I may not have known all of those (or many others), but that's not our job. It's the job of the media to bring that to our attention, not WikiLeaks.

2. Ninety-nine percent of Americans will never read the editorial at The National Review. Shoot, I'm not sure even nine percent of Americans have even heard of The National Review. The one percent who do read The National Review editorial should already know the facts that were in it, even if the writer did not.

3. What bothers me most: anyone who actually read this editorial (one percent of Americans) and who found this material new or shocking; they, too, are nominees for the Geico Rock Award for 2016.

4. But this is the biggest problem: the analogy to the neutron bomb. From the lede, the first three sentences in full:

• The shells of our institutions maybe survive the 2016 campaign, but they will be mere husks.
• The infamous neutron bomb was designed to melt human flesh without damaging infrastructure. 
• Something like it has blown up lots of people in the 2016 election and left behind empty institutions.

The writer is correct about only one thing, which was expressed in the second sentence: what a neutron bomb was designed to do. Everything else is wrong, dead wrong.

Does anyone really believe:

• that the shells of our institutions will be mere husks after the 2016 election?
• that something like a neutron bomb has blown up lots of people in the 2016 election and left behind empty institutions?

In fact, after the 2016 election, the federal institutions will still be there, and they will be stronger than ever: including but not limited to the EPA, the IRS, DOJ, DOE, HHS, Congress, the Supreme Court, and POTUS (especially if a felon by any other name is elected).

Does anyone seriously doubt that?

After this election, our federal institutions will certainly not be "mere husks."

With regard to the second wrong point, WikiLeaks (which this editorial is all about) did not "blow up" a single individual. If anything, every individual "exposed" by WikiLeaks is stronger than ever (by definition: "that which does not kill us, makes us stronger"). If anything, every individual mentioned in the editorial, starting with the network news anchors, are stronger than ever. (Megyn is asking for a $20 million salary, isn't she? That's more than POTUS will likely earn.)

If I'm wrong, name one individual "exposed" by WikiLeaks whose career has been destroyed and whom we will never hear of again or who might actually go to prison. Nope, not one. Okay, maybe the wiener.

In fact, if Hillary is elected, it will simply be "revolving doors" writ large as deputy directors of federal agencies move to become directors of other federal agencies. In fact, if there are not enough agencies to go around to reward everyone named in WikiLeaks, existing departments will spin off new departments. EPA will spin off a new agency: the Federal Agency of Global Warming. Treasury will spin off a Federal Agency of Debt, thereby moving $19 trillion in debt to a new federal agency, and simply mandate that the US Treasury start over with a clean slate, with a zero balance. The Treasury Department will take in revenue; the Federal Agency of Debt will simply keep a separate set of books, classified ultra-top secret, to be seen only by George Soros. The Federal Reserve will spin off a Federal Reserve Agency for Journalism to post minutes that cannot be interpreted by anyone.

If Trump is elected, the bureaucracy is such he might be able to appoint/move/fire/affect 200 individuals but that leaves about 150,000 entrenched bureaucrats who have learned to survive by showing up to work generally on time, keeping their heads down, and simply waiting out any president. Does anyone really think the Senate will approve any Supreme Court justice appointed by Trump? We've survived the past year with eight justices; we can survive four more (years) without Sarah Palin on the bench.

For me, all WikiLeaks did was start to level the playing field. Prior to WikiLeaks only one or two percent of Americans were in on the joke. Ninety-eight percent of Americans had no clue; some may have had suspicions but nothing "concrete" on which to hang their pitchforks. Now maybe six percent of Americans are in on the joke.

By the way, speaking of jokes, the cruelest joke (and there have been many) in this administration was this which was "revealed" just this past week: $25,000 in 2017 in the US is considered a "modest" income by the folks who brought us ObamaCare. That's why Megyn needs $20 million.

I don't watch network news so I don't know if WikiLeaks has been reported to any extent on ABC, NCB, CBS, CNN, HLN, MSNBC, FOX, etc, etc., but I assume not. Nor do I suspect we will ever see anything from WikiLeaks mentioned on Sixty Minutes.

So, back to the writer of this editorial. If she really was unaware of Caligula's Circus or Nero's Nepotism in Washington, DC, she is the winner of the 2016 Geico Rock Award.

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Updates

October 28, 2016: grifters-in-chief, from The Wall Street Journal; again, it took WikiLeaks to open this reporter's eyes. Wow.

October 28, 2016: most Americans think media is biased. 

Overall, 56 percent of likely voters say the media is biased against Trump, just 5 percent say it's biased in his favor and 37 percent say coverage is mostly balanced.

Eighty-seven percent of Trump's supporters see the media as biased against him, and even Hillary Clinton's supporters are more likely to see bias against Trump than bias in his favor, 30 percent to 8 percent. Sixty percent of Clinton's supporters see no bias in either direction.

Supports my thesis above. At least 54% of Americans are not paying attention. And among Clinton supporters, at least 60% of them, are just like Clinton herself. Delusional.

Not-Ready-For-Prime-Time Thoughts On Hillary And Her Anti-Fracking Comments During The Campaign -- October 19, 2016

A reader asked me about my thoughts with regard to Hillary and her campaign promise to kill fracking. This was my "not-ready-for-prime-time" reply with minimal editing:

I honestly don't know about Hillary. This is the problem: she is no longer (or never was) her own woman. She will be defined by whom she puts around her. (The White House Iranian Committee will grow larger, much larger.)

She had to be against fracking during the campaign to "keep" her base, and to fight off Bernie.

But deep down, she is a lot more reasonable: she was in support of the Keystone; she was in support of fracking before the primaries. I don't think she would spend three minutes with the Standing Rock Reservation; she certainly would not visit: they have no money to give her.

Hillary can be bought and persuaded; she is not ideological like Obama. She can be pragmatic. The unfortunate thing is that if she is ill, she will not have the stamina to be pragmatic and those around her will run the show.

If she wins by a landslide, the EPA is hers; and the fossil fuel industry is in for a shock.

If it's a close vote, and she has no mandate, it might not be quite as bad.

The good news: the Dems are no different than the GOP (in the House and the Senate) when it comes to watching their personal pocketbooks. They are all white males with silver/balding heads. Their only difference is their rhetoric, it seems. For all their talk, their sentiments are about the same.

At the end of the day, I think global events, Russia, and Saudi Arabia will account for 90% of where oil goes; what oil does. I think, at best, Washington politics will account for 10% of where oil goes; what oil does.

More likely, this is how it breaks down, what influences/accounts for where oil goes / what oil does / how it prices out:

• global, non-US, geo-politics (Saudi, Russia, Iran): 90% 
• integrated oil companies (CVX, XOM, COP): 9% 
• Washington politics: 1%

Saudi Arabia is truly in a fight for its life. It can't last two more years with $50-oil.

Russia can last a long time with $50-oil -- they held out in Stalingrad for a long, long time some decades ago -- but Putin won't like $50-oil. So, regardless of what the US wants, it's hard for me to imagine oil staying in a trading range of $50 to $60 for the next two years.

If the price of oil remains at $50, Saudi Arabia is toast: the Mideast will blow up as Iran, Iraq, and Russia all try to seize Saudi's oilfields.

I truly doubt Hillary will want to confront Putin in the Mideast over oil and the risk of initiating WWIII.

If Russia-US do end up in a shooting war because of Saudi Arabia, it will be do to a misstep, a mis-calculation, a la Bay of Pigs, or the Gulf of Tonkin, or the assassination of a Prince-Duke.

By the way, if Hillary wants to hold off Putin, she better be "Thatcherite-steel" in her first head-to-head with him; if she waffles, Putin "has her." Against Putin, I have no doubt Hillary can hold her own but I wouldn't bet the farm on her. If her health goes, which I suspect it will, the US may, in fact, be governed by a part-time president, which wouldn't be all bad. Except that Putin would pounce.

Having said all that, it has been said that historically two-term presidents focus on domestic issues the first term, and then when they fail at that, they turn to global issues.

My hunch is that with her SecState resume and her globe-trotting resume, she will focus on global issues sooner than her predecessor. He withdrew; she will get back into the global fray. The international stage is her comfort zone, although her health will preclude her from doing much traveling.

When it comes to international trade she is truly the antithesis of Trump, though that doesn't mean Trump's policies might be worse; he's a much better negotiator and that could make up for bad policy.

As long as gasoline is $2.00 / gallon, Hillary can do anything to and say anything about fracking; she can even kill it. But if she does, the price of natural gas sky-rockets in Philadelphia -- in fact, I think that's the problem for folks in North Dakota. They equate fracking with oil. Without fracking, the entire East Coast implodes -- they destroyed nuclear and coal, and shutting down fracking in Marcellus and Utica ... well, that's a show-stopper right there.

But back to gasoline (or natural gas, for that matter; it's just that I understand gasoline better): once gasoline starts heading to $3.00 in Oklahoma (least expensive in the US) it will head to $5.00 in California and that's when Hillary gets the memo, "maybe fracking is good for the US."

For investors this seems to be an open-book test: I can't see oil trending below $50. I have trouble seeing oil remaining in a trading range between $50 and $60.

For very, very conservative investors who fear anti-fracking forces in Hillary's administration, focus on legacy oil giants (XOM, CVX, COP).

For investors willing to take more risk, look at the survivors in Texas/Permian: EOG, Pioneer, etc.

For speculators, start accumulating shares in Bakken companies.

For me, I'm in the very, very conservative group.

Bakken 2.0 -- October 19, 2016

Note: Bakken 2.0 is important enough that the original post will remain at the top. Updates will be provided at the bottom. 

I think we've just entered Bakken 2.0 with the announced Oasis-SM Energy deal.

SM Energy presentations here.

The Montana Bakken mini-boom began in 2000. At that time, the spot price of WTI at Cushing: around $30 / bbl. There was no infrastructure and the land rush had not begun.

The North Dakota Bakken boom began in 2007. At that time, the spot price of WTI at Cushing: around $80 / bbl but quite a range. There was no infrastructure. The land rush would begin soon. Leasing rates were astronomical. Most wells were short laterals, costing upwards of $6 million/short laterals with EURs less than 300,000 bbls. The Bakken hit its stride about three to five years later. Between 2010 and 2012, the spot price of WTI at Cushing ranged from $70 to $105 / bbl with much volatility.

I am not sure what will define Bakken 2.0 in  hindsight, but these are the indications suggesting we may be in the early stages of Bakken 2.0, whatever that means:

• we're finally seeing some realignment of ownership of mineral acres in the Bakken; the SM Energy - Oasis deal
• completions are leaning toward mega-frack/high-intensity fracks (50 stages; 10 million lbs of sand) -- see Mike Filloon, and others
• the norm for Bakken wells has been long laterals; now costing much less than in 2007 
• the infrastructure is in place (pad drilling, pipelines, roads)
• spot price of WTI at Cushing is around $50 / bbl and trending upward

If we are in the early stages of Bakken 2.0, then we should see Bakken 2.0 hit its stride in three to five years, 2019 to 2021.

Supporting Posts

March 5, 2017: aspects of Bakken 2.0 --

• we're starting to see the survivors: EOG, Whiting, Petro-Hunt, Newfield, CLR, XTO but not all particularly active; Whiting, Petro-Hunt, maybe Newfield, seem more active than others
• we're seeing new names in the Bakken, but generally "hedge fund"-like mineral owners, not operators
• some operators sticking with 4-million-lb fracks; others moving toward 10 million; some to 15 million; EOG with some incredible 20+ million-lb fracks
• halo effect easy, easy to find: bump in production is huge in some cases
• operators will be able to do with 50 rigs what used to take 200 rigs (currently 45 rigs, vs 35 rigs one year ago)
• pad fracking now the norm
• DAPL almost ready to come on-line; if not shut down, it could be defining moment in Bakken 2.0 (if WTI remains near $55)

October 25, 2016: CLR's 2nd 10-well pad in two days.

October 25, 2016: Oasis -- when planning meets opportunity. 

October 24, 2016: Comprehensive Plan for Williston and Williams County (draft) released in mid-October, 2016. 

October 23, 2016: Filloon's article, which appears today, on the status of the Bakken/Three Forks supports my contention that we are in the beginning stages of Bakken 2.0.  

The Obama Legacy In The Mideast -- October 15, 2016

The phrases that come to mind when thinking about the Mideast and Obama's eight years as president:

• withdrawal of US troops from the region
• creating a vacuum
• lack of interest in the region
• self-described "no-drama Obama"
• a chess game: Putin vs Obama
• Obama: "red lines"
• Putin: no "red lines" 
• ISIS: the JV team
• Yemen: poster child for democracy
• Saudi Arabia's security no longer a US responsibility
• throwing allies under the bus

The resulting legacy:

• the vacuum resulted in ISIS
• the vacuum resulted in loss of "western coalition" gains in Afghanistan and Iraq
• first president to be at war (in fact, two wars) for his entire presidency
• resurgence of Russian influence in the Mideast

Going forward.

• Putin will still be in office after Obama leaves office in about three months
• it's hard to believe Putin will give up gains he has made in the Mideast any time soon
• Putin looks to be putting the Russian empire back together again; Alexander the Great comes to mind; it looks like Putin is not afraid of a new Cold War
• ISIS may or may not remain a credible force, but Putin will 
• US no longer dependent on OPEC oil or constrained by OPEC policies

I thought about all that after seeing this story in today's Wall Street Journal: "Egypt Juggles Its Allegiances As Russian Influence SURGES."

Note the word SURGES. Not "increases," or "grow," but SURGES.

I remember during the early years of the Cold War, "Egypt was a client of the USSR." That changed in the 70's when the US started providing significant economic and military aid to Egypt. Putin took advantage of two "events":

• President Obama distanced himself from the Middle East
• Saudi Arabia can no longer support Egypt financially

From the linked WSJ article:

Balancing acts are precarious by definition and, as Egypt is finding out, even a small move can have cascading consequences.

Until recently, Cairo managed to maintain strong relations with Saudi Arabia and other Gulf monarchies that provide it with tens of billions of dollars in aid, while also cultivating warm ties with Russia and staying away from Saudi-led efforts to topple the Syrian regime.

Then last Saturday, Egypt had to vote on a Russian-sponsored United Nations Security Council resolution favored by the Syrian regime. Alone among Muslim nations on the Security Council, it decided to support the Russian draft, which received only four out of 15 votes and failed to pass. The same day Russia vetoed a separate resolution drafted by France and backed by 11 Council members.

By the way, no one has yet commented on this: generally the US GDP rises when it is at war. Despite being at war during his entire presidency, President Obama was also the first president in modern history to never preside over a year with 3% growth -- not even during the energy revolution early in his presidency. Wow. Sounds like thesis material for a budding US Nobel Laureate in Economics.

Update On The Sunni Caliphate: ISIS -- Aleppo And Mosul -- October 15, 2016

Again, I've lost the bubble on ISIS; the importance of Mosul and Aleppo; and, Kurdistan. This is for my benefit only; it has nothing to do with the Bakken.

If you came here looking for the Bakken, scroll down, or go to the sidebar at the right.

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Miscellaneous

April 3, 2017: BBC update -- again, a very nice update with many maps. Allied forces have taken eastern Mosul and are ready to attack western Mosul. Western Mosul is expected to be much more difficult: more densely populated; civilians pro-ISIS. And, of course, ISIS militants using civilians as shields. One can assume an energy/food/weapons blockade will severely hurt ISIS.

December 2, 2016: the Sunni caliphate footprint continues to shrink. Nice map.

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Part Four

Syria Update

See the post; at the link, scroll to the bottom.

With Turkey having taken Afrin and about to take Eastern Ghouta, Syria now has three local groups supported by foreign sponsors: Assad's Syrians/Russia; Kurdish Syrians/US; and, now Turkish Syrians. One needs to look at the current situation in Syria and this new analysis (the war will go on for at least another four years until a stable balance of forces is established) and then think about Trump's "plan" to pull out of Syria sooner than later.

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Part Three

Update On Kurdistan

Link here.

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Part Two

"Part Two" below is about Aleppo and Mosul and appeared in recent issue of The Economist. "Part One" was from a long piece on the Sunni Caliphate (ISIS) from London Book Review back in March, 2016, which provided the background to how we arrived where we are today.

The Spanish Civil War as a proxy conflict between major world powers comes to mind.


Where we stand, October 15, 2016, from The Economist

The Sunni Caliphate (IS) Outcome May Well Be Determined By What Happens In Aleppo, Mosul

Background:

• in the entire region of the Fertile Crescent, from the Mediterranean to the Gulf, the brunt of war for the most part sustained by the Sunnis
• the Sunnis: the largest ethnic group, heirs of fabled empires; many of their cities now in the hands of others
• Jerusalem: held by the Jews
• Beirut: held by Christians and Shias
• Damascus: held by the Alawites
• Baghdad: held by Shias
• where Sunnis do hold power they feel a) encircled; and, b) abandoned by the US
• the Sunnis' sense that they are assailed from all sides helps to explain how the jihadists of Islamic State (IS), offering to help the ancient caliphate, were able to take over vast Sunni-populated areas in Syria and Iraq
• nothing will be complete until the Sunnis' dispossession is dealt with
• right now the future of the region is being decided in two venerable cities: Aleppo and Mosul
• Aleppo: the last urban redoubt of the Syrian rebellion against Mr Assad
• Mosul: IS's most prized possession in Iraq

Aleppo

• Russia is helping Assad; the Iranian and Shia allies pound the besieged Sunni rebels
• it appears Russia/Assad's goal is to take the entire city before Obama leaves office in three months
• even if Russia/Assad "win", Aleppo will "never" be the same

Mosul

• a loss would deal a blow to IS: it was from there that Abu Bakr al-Baghdadi, the IS leader, declared his caliphate
• better outcome possible
• Iraqi, Kurdish, local Sunni forces, and America closing in on Mosul
• Turkey is complicating things; wants to be part of the coalition (of course: to keep an eye on the Kurds)
• operations to retake Mosul begin this month 

Iraq

• The Economist argues that Iraq could provide new model of devolved power
• Mosul offers a chance to convince beleaguered Sunnis that there is a better alternative to the nihilism of jihad

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 Part One

Original Post, March 10, 2014, link here.

End Times for the Caliphate (IS / Abu Bakr al-Baghdadi)
Kurdistan, Rojava, and ISIS

This was from the London Review of Books, March 3, 2016. 

The war in Syria and in Iraq have produced two new de facto states in the last five years and enabled a third quasi-state greatly to expand its territory and power.

The two new states are two separate Kurdish states, one to the west (Syria) and one to the east (Iraq). Neither are recognized internationally but they are stronger militarily and politically than most members of the UN.

Both states are very, very small in population.

17 million Kurds live in Turkey.

The three states:

• the caliphate: ISIS -- eastern Syria / western Iraq
• Rojava: Syrian Kurds (PYD) along Syrian / Turkish border (rojava means "west")
• Kurdistan Regional Government (KRG): northern Iraq along Iraqi / Turkish border

For me, this is how I will keep track of them:

• ISIS
• Rojava (Syria) -- 2.2 million -- surrounded by much larger states
• Kurdistan (Iraq) -- 6 million

The three states -- origin and geography:

• ISIS: established itself in the summer of 2014 after capturing Mosul and defeating the Iraqi army

• Rojava: the Syrian Kurds who filled the vacuum when the Syrian Army withdrew in 2012; west of the Tigris; across northern Syria between the Euphrates and the Tigris; along Syrian-Turkish border

• KRG: Kurdish Regional Government; had been highly autonomous; took advantage of IS's destruction of Baghdad's authority in northern Iraq; expanded territory 40% -- south toward Baghdad to include the Kirkuk oilfields 

The question as discussed by Cockburn: will any of these "states" persist after the current conflict is over.

Cockburn gives short shrift to ISIS: "The Islamic State is likely to be destroyed eventually ... though its adherents will remain a force in Iraq, Syria, and the rest of the Islamic world.

So, it comes back to the age-old battle between the two Kurdish divisions AND the age-old battle between Kurdistan and Turkey AND Kurdistan and outside forces (US and Russia).

Urban Centers

Extent of Two Kurdish States: About 600 miles west to east

Along the Turkish border (Syria/Rojava)

• Afrin, about 50 miles northwest of Aleppo; key transit city across Turkish border; current flashpoint between Turkey and the PKK/Rojava
• Kobani, northeast of Aleppo; on the Euphrates river; key to Rojava/PYD/PKK -- see below)
• Tal Abyad -- key to linking two of three enclaves (Kobani and Qamishi)
• Hasak
• Qamishi

Along the Turkish border (Iraq/Kurdistan)

• Sinjar
• Erbil (about 50 miles east of Mosul)
• Kirkuk
• Sulaymaniyah
• Halabja (on Iranian border) 

Caliphate (ISIS may or may not hold these cities); all to the northeast of Damascus, or north of Baghdad

• Aleppo: Syria
• Raqqa: Syria (currently held by ISIS) (on the Euphrates River); capital cityof ISIS -- self-declared; about 80 miles due east (slightly southeast) of Aleppo)
• Manbij: on road to Raqqa in Syria; "allies" re-take Manbij, August, 2016
• Mosul: back and for between ISIS and Kurds; on the Tigris
• Tikrit: midway between Mosul and Baghdad; on the Tigris
• Ramadi: on the Euphrates, west of Baghdad, west of Falujah
• Fallujah: on the Euphrates, between Ramadi and Baghdad

Rivers, Borders, and Boundaries

• Neither major river separates Syria/Iraq; no natural boundary between northern Syria/northern Iraq
• Euphrates cuts northern Syria in half
• Tigris cuts northern Iraq in half
• Syria reaches the Mediterranean Sea; small seacoast between Lebanon and Turkey

Geo-Politics

The West: Rojavo/PKK/PYD/SDF

• Turkish response: belligerent in tone; ambivalent in practice
• it appears that current conflict, starting with Kurdish uprising in 2011, resulted in resurgence of PKK (Kurdistan Workers' Party) which Turkey has been fighting since 1984
• the ruling party in Rojava is PYD (Democratic Union Party)
• so, PYD = PKK
• IS finally defeated in Syrian city of Kobani: Rojava expanded territorially in every direction
• by capturing Tal Abyad last June, Rojava/PKK/PYD linked up two of its three most important enclaves (Kobania nd Qamishli)
• now working to link up Afrin on the far west
• Turkey has drawn a line in the sand at the Euphrates but seems uneasy to act
• Rojava's Arab proxy militia: Syrian Democratic Forces (SDF)
• SDF crosses Euphrates and Turkey does not respond: US + Russia --> a/s on ISIS in that area
• Key area of concern now: narrow corridor between Aleppo (once Syria's 2nd largest city) and Turkish border (Afrin) -- if opposition cut off -- the Sunni states of Turkey, Saudi Arabia, and Qatar -- will have failed to overthrow Bashar al-Assad.
• if the "allies" fail, Rojavo/PKK/PYD/SD becomes that much stronger; 17 million Kurds
• Turkey wants to intervene, but Turkey would be fighting: US, Russia, Iran, Syrian Army, PYD, and IS (LOL)
• Turkey's only allies: Saudi Arabia and a few Gulf monarchies
• this is the area where Turkey shot down a Russian bomber; carefully planned; Russia responded by setting up "permanent" bases in this area (Turkey: one meager step forward; result: stomped on by Russian)
• US + Russia: begrudging/suspicious but supporting the Kurds, and not the Turks in this area

Kurdistan / KRG / Iraqi Kurdish state

• once considered the "new Dubai" with its oil fields
• now Kurdistan is a failed nation; a disaster; its rich folks trying to get to the west
• Kurdistan: an economic disaster; low oil prices have led to the debacle; government taking to stealing bankers' money; has nothing but oil for revenue; nothing indigenous -- imports vegetables
• Kurdistan: before ISIS, before the plummet in oil prices was becoming more independent; now Kurdistan looking to Baghdad for help

The Caliphate is similarly falling

• loses Manjib, August, 2016
• defeated at Kobani: IS now changing tactics -- not fighting to last man to save its territory but it may do so in Raqqa (Syria) and Mosul (Iraq)
• conditions in the Caliphate unbearable (a holocaust by any other name)
• people smuggled out of Mosul say IS is buckling; fled Mosul to safe refuge in Rojava -- this is where the migrants are coming from -- from rich Kurdistan oil regions to Rojava into Turkey and on to Greece
• IS opponents have captured/re-captured: Sinjar, Ramadi, Tikrit (Iraq) and closing in on Raqqa (Syria)
• Ramadi: still in contention
• YPG, Syrian army, Iraqi armed forces, and Peshmerga: inadequate supplies against IS, but can call in Russian and US devastating air support

How the two Kurdish states see this playing out

• the allies (YPG, Syrian army, Iraqi armed forces, Peshmerga, Russia, US) will ultimately prevail
• once IS defeated once and for all, Kurds concerned Baghdad will again turn against Kurdistan; Damascus will turn against Rojava

Last comments (mine)

• Iran, the 800-pound gorilla, not mentioned in the article
• Assad (Syria) given new lease on life with US + Russia emphasis on taking out IS
• Sunni allies Turkey and Saudi Arabia stymied in taking out Syria (Iranian proxy?)
• when it's all over, who gets Kirkuk's oil fields? Kurdistan or Baghdad
• when IS is taken out, how much longer do Russia + US stick around? 
• one wonders if after IS, if Russia (pro-Iran) and US (anti-Iran) get back to where they were before IS
• it looks like the current situation has "destroyed" any progress Kurdistan had made in previous 50 years
• Turkey is becoming more and more repressive; is it feeling the stress; it looks like while Kurdistan might be failing, Turkey's real Kurdish nemesis, the PKK (Rojava) is gaining strength

Note: greater Kurdistan

• west Kurdistan: Rojava, northern Syria
• east Kurdistan: northwestern Iran 
• northern Kurdistan: southern/southeastern Turkey
• southern Kurdistan: northern Iraq (military forces - Peshmerga)

The Epiphany And The Seven Stages Of Grief -- September 7, 2016

Sometimes it's just an epiphany.

... a sudden, intuitive perception of or insight into the reality or essential meaning of something, usually initiated by some simple, homely, or commonplace occurrence or experience. 

Or perhaps it's simply the seven stages of grief: disbelief, denial, bargaining, guilt, anger, depression, and acceptance/hope.

I went through disbelief but not denial.

I never went through any bargaining or guilt.

Anger, yes, and perhaps even depression.

And now I'm comfortably at acceptance (but not hope).

If it was an epiphany it occurred sometime in the last 24 hours. I can't say when the specter began to appear, but it was staring me in the face, full frontal, when I read the article that Saudi Arabia is looking to cut $20 billion in government spending. That, of course, comes on top of several previous stories in which Saudi Arabia was desperate to cut costs, raise cash.

After I saw that story, I saw a number of articles that pretty much convinced me my epiphany was not off-base.

This morning, after driving one of the granddaughters to school, the business report on the radio stated that "oil would start the day at $44-something." And that was it.

We've been at $44-something for so long, it was no longer news. Yesterday, and over the past few days, there were suggestions that oil was headed higher. Oil went a bit over $45 but that was it. This morning it is being reported that Iran will continue increasing production regardless of what RussiaArabia does.

The epiphany: $45 is good for the US. I am more than happy to see oil in the $46 - $52 range, in current dollars, current circumstances. That's the sweet spot for me. Sixty-dollar oil might be a bit on the high side, but I'll take that, but no more.

I like filling my Honda Civic for less than $2.00 / gallon.

I love to see SUV and big pick-up sales records being broken.

Intermittent energy (wind, solar) requires more and more tax breaks, government mandates to survive. On its own, wind, solar can't compete with "cheap" fossil fuel.

Investors in the oil sector re-set their portfolios when oil hit $30. Oil hit $28.47 on January 19, 2016.

The US economy can't handle a quarter percent raise in the Fed rate -- at least according to conventional wisdom. If the US economy can't handle a quarter percent raise in the Fed rate, could the economy handle $100-oil at this point? Hardly.

US shale operators are making money on $45 oil. North Dakota is doing just fine, thank you. Another $60 million infrastructure project just announced, and Target Logistics is defying Boomtown's directive to shut down mancamps. Apparently the operators and Target know something The Atlantic does not know.

It took two years, but finally low oil is resulting in some merger action; there would be more merger and acquisition activity but US regulators frown on anything "good" happening in the oil sector.

At $45 oil, oil companies are working smarter. We have seen Darwinian economics at work; we will see more.

This is the big story: at $45-oil, the entire Mideast picture changes. Saudi can't survive on $45 oil. Funding terrorist activities will take a low priority. Iran's star is rising. We will see new alignments in the Mideast, to include Russia. OPEC is seldom talked about any more. Now it's simply all about Saudi Arabia, or maybe Saudi Arabia-Russia. Or perhaps, Saudi-Arussia. Not to be confused with Saudi Dakota.

They say Saudi can produce oil for under $10/bbl. That doesn't give the Saudis much incentive to improve technology in the oil patch, and with less and less money to pay for such R&D, US companies will take their business elsewhere. The low hanging fruit in Saudi Arabia is not finding cheaper ways to bring oil to the surface; Saudi's low hanging fruit is cutting the country's social spending, terrorist funding, and long term energy projects -- which, of course, runs the risk of a death spiral.

Meanwhile, the low hanging fruit in the US oil sector:

• cutting costs to bring profits in at $40 oil
• taking this opportunity of low costs to continue to build out the infrastructure
• mergers and acquisitions; we see the true value in established companies, pipelines. infrastructure
• weed out inefficiencies
• weed out poor performers
• award the nimble and aggressive (most recent example: EOG buying the Permian for "a song")

Continental Resources' most recent presentations remind us how far shale operators have come in just a few years. When the boom began, the big talk in the Bakken was one well in every 640 acres and EURs of 350,000. Now, we're talking 12 wells (and more) in every 1280-acre drilling unit and 1 million EURs as a target. Filloon talked about 1 million EURs years ago; he was spot on. When the boom began, wells were costing upwards of $12 million to complete (and many of those were short laterals); the target now, $8 million and some operators even target closer to $6 million. In STACK/SCOOP, CLR expects EURs of 2 million boe.

More interesting, CLR has caught on to "clever" marketing, clever financing, clever bookkeeping -- whatever you want to call it. Taking advantage of the way Wall Street analysts reward and punish public companies (quarterly earnings), CLR now re-sets the bar every quarter. Forget how much it cost to drill a well last quarter. Put that well in SI/NC status, and then report the new completion cost for that well  in the current quarter -- just the $3 million for fracking the well and voilà, a 70% ROR. The well was drilled a year ago; the analysts have already moved on. They are looking at future earnings. CLR projects 190 DUCs at the end of the year. The money for those wells to be drilled to total depth has already been expensed. Now CLR just talks about what it will cost to complete those wells.

And guess what? When those wells are completed the price of oil might be a bit higher than when they were drilled. Is this a great way of doing business or what?

I've completed the seven stages of grief (skipping some stages, as noted above). $45 oil is perfect; it's at the low end of the range for the sweet spot, $46 - $52 at current dollars, current conditions.

I'm not even looking for the downside of "low" oil prices any more.

If oil drops below $40, I will go through the seven stages again.

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Dorothy Outslicks Grace

When I first heard this group, my first thought was: Grace Slick. I had not heard of the group until recently. See wiki:

DOROTHY fielded early comparisons to The Kills, The White Stripes, Patti Smith and Grace Slick. London-based fashion publication Hunger TV commented "it feels good to know raw power, sex and whiskey is back en vogue".

On July 24, 2014, Huffington Post named "After Midnight" the #1 song on their 12 Songs You Need to Know This Week, calling them "dangerous," "kick-ass" and "exactly what rock needs".

Adele on crack. In a good way.

49 year anniversary.

Dorothy, 2015:

Bang, Bang, Bang, Dorothy
Nancy, 1966:

Bang, Bang, Nancy Sinatra

Fascinating Read: "Shale And Demand Uncertainty Put Big Oil On Defensive"; Shale's Breakeven Price Is $25/Bbl -- September 2, 2016

For me, the biggest takeaway from this article: Saudi Arabia has much to fear. 

First half of the article; much more at the link:

Under pressure from low oil prices and their rising debt levels, top oil executives at the ONS 2016 conference this week might well have found the blunt message of shale driller Scott Douglas Sheffield unsettling.

The chief executive of Pioneer Natural Resources seemed to enjoy the role of spoiler-in-chief, harrying Big Oil with some uncomfortable assertions.

The bad news, for those in the industry who missed out on shale and expected it to fade in the face of low prices, is that the Permian basin should be able to increase its output from 2 million b/d to 5 million b/d in the next 10 years, assuming prices reach $56/b in 2025, Sheffield said. Pioneer itself is growing its output by 27-30% annually.

“It’s in that [price] strip that I see the Permian adding 300,000 b/d per year in US supply,” he told the Offshore Norwegian Seas conference, held Aug. 29 through Sept. 1 in Stavanger. Ramming home his contrarian stance, he said he was skeptical of some of the higher forecasts of long-term oil demand growth due to global warming, alternative energy and electric vehicles, while boasting of the company’s use of renewables in its own operations and the solar panels on his home.

In Sheffield’s view, the dip in US production has been misconstrued, with some in the industry underestimating the Permian basin as output falters in the Eagle Ford and the Bakken.

Some have failed to appreciate that rig reductions in the Permian have happened partly because of reduced drilling at conventional, non-shale sites, rather than in the shale plays, he said.

The Spraberry-Wolfcamp shale, where Pioneer operates, remains resilient and Pioneer’s own breakeven price is below $25/b.

Prices paid for shale acreage have been rising, in some cases, to levels higher than in 2013-2014, he said.

“In the Permian we still have about 600,000 b/d of conventional production that’s declining — it’s arresting the growth. [However] there’s one field in the Midland basin, six fields in the Delaware basin that make up most of the growth in production. The Permian is still growing,” he said. With the Permian accounting for over half of US oil rigs, he forecast another 50-75 would be added.

But while the world’s oil majors were largely caught off guard by shale and have of late struggled to maintain a foothold in many parts of the world, Shell chief executive Ben van Beurden insisted on their relevance, reiterating the International Energy Agency’s central scenario for a 25% increase in energy demand by 2035 and predictions of oil demand growth of 1-1.5 million b/d for the next five years.

That, together with decline from existing fields of 5% per year, means the notion of stranded assets, by which oil and gas becomes redundant, is a “red herring,” he said. The industry is now filling the gap between demand growth and natural decline “quite comfortably, with all the investment decisions that we took four-five years ago. [But] that time will dry up,” he said. “We will see the tightness come back into the market. I’m more worried about supply shrinkage.”

And then the second half at the link.

Oil Price Spike Inevitable -- Oilprice.com -- August 31, 2016

I haven't read the article yet, but the headline suggests what I have suggested for quite some time: oil price spike is inevitable. New discoveries hit seventy-year low. US onshore shale cannot possible replace deep-sea elephant fields. Mideast is (relatively) tapped out.

This is from oilprice.com yesterday, sent to me by a reader, thank you very much. 

This is the timeframe I'm looking at:

• from now (mid-2016) to 2Q17: WTI pricing volatile; could it go below $40? Possibly, but I doubt it
• summer 2017: the market will telegraph whether the inevitable spike occurs in 2018 or later
• summer 2018: first suggestions of a spike, which could result in significantly high prices very quickly; spike to me is defined as around $100; if not in 2018, then 2019. 

If price remains in the $50 range for another full year (end of 2017), Saudi Arabia is in deep trouble.

If price remains in the $50 range for two more years (end of 2018), Saudi Arabia is toast. 

The US shale operating sector will look a whole lot different if the price remains in the $50 range for the next two years, but the US shale industry is not going away.

Tight Oil Plays In The US -- EIA -- Annual Energy Outlook 2016 -- August 22, 2016

First the screenshot:

See poll at the sidebar at the right, asking readers what they think is most remarkable about this graphic? Update, August 24, 2016, results of the poll:

• that the Bakken is the dominant US tight oil play: 58%
• that the Eagle Ford dwindles relatively quickly, compared to the Bakken: 16%
• after peaking in 2030, Bakken production barely declines through 2040: 13%
• that Oklahoma's STACK/SCOOP plays are relegated to "other plays": 6%
• that the Bakken is forecast to "last" this long: 6%

From this link.

I don't know about you, but for me, this graph is incredibly compelling. It takes me back to the original estimates by Harold Hamm and Bentek.

Note which "play" is absent from the graphic. It is part of "other," no doubt.

Right now, in late 2016, the Permian is getting a lot of interest, but at the end of the day, it's hard to beat a play with oil comprising 93% (or more of the output).

By the way, it appears that the "area under the curve" for the Bakken is about 14 billion bbls of oil (from 2015 to 2040). Conservative estimates: the Bakken will produce at least 50 billion bbls of oil, assuming we don't go back to coal to power all the EVs in the US by 2050. 

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The Music Page

Lou Reed

Warning: sexually explicit lyrics. 


Initial critical review was mixed. Rolling Stone seemed to have "panned it" when it was released. It stood the test of time. From wiki:

In 1997, Transformer was named the 44th greatest album of all time in a 'Music of the Millennium poll conducted in the United Kingdom by HMV Group, Channel 4, The Guardian and Classic FM.

Transformer is also ranked number 55 on NME 's list of "Greatest Albums of All Time." In 2003, the album was ranked number 194 on Rolling Stone magazine's list of the 500 greatest albums of all time.[12] It is also on Q Magazine's list of "100 Greatest Albums Ever".

If Oil Prices Don't Rise, The Mideast Will Sink -- Contributor At The Street - August 13, 2016

Link here. 

The one thing that appears certain, however, is the Middle East is on a path toward social upheaval that will make the Arab Spring pale in comparison, if oil prices don't at least start rising toward where they were before the collapse began two years ago.

I think we will know more in September after OPEC meets.

My 30-second soundbite: Iran is on the way up; everyone else in the Mideast (except Israel, a special case) is on the way down.

Natural Gas Demand Prospects, Global; For The Archives -- July 1, 2016

Wow, this is an interesting graph.

I have said many, many times that if I had only one metric with which to gauge the well-being of the American economy it would be "gasoline demand." Period. Dot. (Just as many folks suggest the best way to gauge inflation is to track the price of a McDonald's Big Mac.)

It is now clear, beyond a shadow of a doubt, the economics is settled, that the fuel of the future is natural gas (except for India and China, where coal will still be incredibly important for the former, and nuclear energy important for the latter).

I think that outside of China and India, one will be able to gauge the economic well-being of a region or continent or political bloc by following the growth in natural gas demand for that entity.

There are qualifiers and outliers.

For example, the Mideast growth in natural gas will be mostly due to Saudi Arabia's strategic goal to move from crude oil to natural gas to generate electricity for domestic consumption. I'm not sure I would equate growth in natural gas demand in the Mideast to economic well-being.

Europe, of course, is another outlier, but for different reasons. Europe wants to move from fossil fuel to unreliable energy (wind and solar). The tea leaves suggest that unreliable energy is nearing its "top" in the EU (for many reasons). Europe is also moving away from nuclear. One can argue that the fact there is absolutely "zero" natural gas growth in the out years for Europe has nothing do with economic growth. But something tells me that would be an inaccurate interpretation of the graphic. To me, it is absolutely glaring: when the rest of the world shows not only growth in natural gas demand, but significant growth in natural gas demand, and Europe bucks the trend ... not only does Europe not show significant growth in natural gas demand, it shows zero growth. Nada. Zilch. Null. None. That's fifteen years of no growth in natural gas, from 2020 to 2035.

Europe is truly an outlier. 

Idle Chatter On The "Halo Effect" In The Bakken -- July 1, 2016

Updates

Later, 2:10 p.m. Central Time: see first comment. Think about that observation and the future of water boarding flooding in the Bakken.
 

Original Post

 

The other day, I posted a note about the jump in production of a particular well as seen in this production profile (the fourth column is produced bbls of oil; the sixth column in water:

BAKKEN	1-2014	31	5992	5823	1523	5253	5253	0
BAKKEN	12-2013	31	4904	4615	1465	4412	3187	1225
BAKKEN	11-2013	30	9118	9226	2140	8027	6207	1820
BAKKEN	10-2013	31	6773	6764	3033	6002	5692	310
BAKKEN	9-2013	30	17708	17902	2128	16480	16480	0
BAKKEN	8-2013	26	18007	17547	3392	14073	12373	1700
BAKKEN	7-2013	1	0	186	0	0	0	0
BAKKEN	6-2013	27	658	600	17	425	378	47
BAKKEN	5-2013	31	990	1166	30	683	653	30
BAKKEN	4-2013	30	970	775	22	598	598	0

I think it is due to the halo effect of fracking; see the linked post above. I could be wrong. Something else may account for this jump.

But assuming it is due to the halo effect of fracking, I often wonder why analysts don't talk about this more often. I seldom see any mention of it.

I think the reason has to do with the fact that the jump in production is relatively short-lived. It appears that these wells revert to their earlier production profiles. That may be.

But look at from this angle. This well was down to producing less than a thousand bbls of oil per month (for whatever reason). Then, over a period of 26 days, it produced 18,000 bbls, and then the next month, produced another 18,000 bbls. At the previous rate of 1,000 bbls/month, this equates to 36 months of production over a short two-month period.

Not only that, but even though production dropped quickly after that second month, these were the amounts per month that this well was still producing (remember, the base line was less than 1,000 bbls / month), numbers rounded:

• Third month: 7,000 bbls
• Fourth month: 9,000 bbls
• Fifth month: 5,000 bbls
• Sixth month: 5,000 bbls
• Seventh month: 2,000 bbls
• Eighth month: 2,000 bbls 

And now, two years later, monthly production still exceeds the 1,000-bbl baseline prior to the production jump.

But look at this, same well. Look at the months highlighted in red bold, especially that nearly 5,000 bbls of production in August, 2015:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	5-2016	31	1215	1111	555	741	207	534
BAKKEN	4-2016	30	1429	1591	565	1023	412	611
BAKKEN	3-2016	31	2184	2255	699	1757	742	1015
BAKKEN	2-2016	29	2281	2278	722	1088	0	1088
BAKKEN	1-2016	31	3332	3179	918	2685	0	2685
BAKKEN	12-2015	26	2022	2031	580	1460	0	1460
BAKKEN	11-2015	19	928	1108	477	616	0	616
BAKKEN	10-2015	3	525	226	0	118	0	118
BAKKEN	9-2015	12	1980	2450	267	1644	0	1644
BAKKEN	8-2015	31	4727	4466	1345	3800	0	3800
BAKKEN	7-2015	9	1427	1102	965	1043	0	1043
BAKKEN	6-2015	5	98	434	22	196	148	48
BAKKEN	5-2015	31	884	867	213	1371	1108	263
BAKKEN	4-2015	30	930	911	287	722	220	502
BAKKEN	3-2015	31	1206	1168	378	1437	1055	382
BAKKEN	2-2015	15	515	694	152	649	469	180
BAKKEN	1-2015	31	1932	2037	355	1802	1802	0
BAKKEN	12-2014	31	1371	1120	133	1318	1318	0
BAKKEN	11-2014	30	987	897	225	1182	1164	18
BAKKEN	10-2014	31	1658	1790	200	1674	1641	33
BAKKEN	9-2014	30	1242	1762	143	1942	1942	0

Which brings me to another point.

A lot of folks talk about Bakken wells that are not economic. They say the production is too low. From the beginning, it always seemed strange to me that folks were concerned about these wells not being economic, but yet operators were not permanently abandoning these wells. Although it may not cost much, it is a cost to keep a non-economic well on the books. Non-economic wells never bothered me, and that was before the "halo effect" observations.

A lot of "non-economic" wells were part of the learning process. And, wow, did the Bakken operators ever learn a lot. Some learned faster than others.

In addition, a lot of "non-economic" wells held leases by production, allowing operators time to go back and drill new wells later.

But now, we have the "halo effect." It may or may not exist. It may or may not exist everywhere. It may not amount to anything. I don't know. But when I see a well produce 36 months' of production over the course of two short months in a well that might have otherwise been "non-economic" it makes one wonder.

Another point. This is occurring in a drilling unit where there are very few wells, maybe four, five or six. Think what might happen when 28 wells (or more) are put into this drilling unit.

Most of the stuff regarding EURs, etc, is based on new wells and production profiles of the first few months. One wonders if some folks might not be going back to these older wells and revising
EURs for older wells based on other factors.

Finally, one wonders: if the halo effect is real, what does that mean for "water flooding" in the Bakken. I do think there's a difference between water flooding shale (think gumbo) and water flooding sandstone/limestone/dolomite (think sandy beach).

But even if the "halo effect" amounts to nothing, at least in this case, the mineral owners must have been pleasantly surprised to see a jump in their royalties back in August and September 2013. All things being equal, their royalty check should have jumped by a factor of 20?