Abraxas To Focus On The Bakken -- Very, Very Interesting; Speaks Volumes -- February 10, 2015; USS North Dakota Ready For Deployment; Cholesterol Isn't As Bad As Once Thought; But CO2 Is Still Dangerous

Some weeks ago I had a lot of fun with this post on IRRs. But there were some significant data points in that post taken from other sources (and credited to those sources).

Look again at that post to see where the Bakken, the Eagle Ford, the Permian are relative to each other and then look at this story from Bakken.com:

Abraxas Petroleum has announced that it will be increasing oil production in 2015 despite the current low prices.

For the upcoming year, the San Antonio-based company will focus entirely on its assets in the Bakken formation and will suspend its drilling operations in the Eagle Ford and Permian Basin formations.

The company has approximately 5,000 net acres in the Bakken, the majority of which are centered on the formation’s core in McKenzie County.

Last week at a Florida industry conference, Abraxas CEO Robert Watson said, “We are fortunate to be in the core of the core. We have a very good inventory of wells to drill when conditions warrant and that would be when crude oil prices go back up or service costs go down.” Until that happens though, the Abraxas team of around 100 expects to produce around 7,300 barrels of oil per day this year.

Very, very interesting. Right now, everything's relative.

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Shakedown Cruise In Devils Lake Apparently Went Well 

For those in North Dakota who are unfamiliar with nautical terms -- which would be about 99.99% of us -- a shakedown cruise is a nautical term in which the performance of a ship is tested. Generally, shakedown cruises are performed before a ship enters service or after major changes such as a crew change, repair or overhaul. The shakedown cruise simulates working conditions for the vessel, for various reasons.

From Bakken.com:

A Navy attack submarine named for North Dakota could be deployed within two months, its senior enlisted sailor says.

Construction of the $2.6 billion USS North Dakota began in March 2009. It was commissioned in late October at a Navy base in Connecticut.

According to Senator John McCain the biggest problem right now is how to get the 150-foot boat from central North Dakota to the East Coast. He says he has Sarah Palin working on the issue since she used to watch Russian submarines off her back porch for many years.  There's no correlation, of course, but for a politician that hardly matters.

Speaking of correlations that seem not to matter any more, a reader sent me this story. When I saw it, I almost fell off my bar stool scattering my steak and egg breakfast over Denny's counter. Did you all see this. The government is ready to say, "hey, we were wrong. Cholesterol isn't bad for your health. It's the other stuff."

The Washington Post is reporting:

The nation’s top nutrition advisory panel has decided to drop its caution about eating cholesterol-laden food, a move that could undo almost 40 years of government warnings about its consumption.

The group’s finding that cholesterol in the diet need no longer be considered a “nutrient of concern” stands in contrast to the committee’s findings five years ago, the last time it convened. During those proceedings, as in previous years, the panel deemed the issue of excess cholesterol in the American diet a public health concern.

The finding follows an evolution of thinking among many nutritionists who now believe that, for healthy adults, eating foods high in cholesterol may not significantly affect the level of cholesterol in the blood or increase the risk of heart disease.

The rumor is that President Obama had finally "had it up to here" (as he pointed to his chin) with Michelle's lectures on healthy eating.

Just in time for the $35,000-plate campaign dinners. 

The next thing too be announced is that the science on global warming is no longer "closed." We can only hope.

Filloon On Possible Tax Breaks For Bakken Operators -- February 9, 2015; Dallas May Have Led Nation In Job Growth In 2014

Link here at Seeking Alpha:

• A North Dakota tax trigger implemented in 1987 may save Bakken operators $1B in 2015 production taxes.
• If the tax break is triggered, North Dakota's production tax rate falls from 11.5% to 5% for 5 months regardless of the price of oil.
• Back in April, the North Dakota legislature voted down a flat tax that would have replaced the current triggers. 

Filloon writes:

History dictates that oil revenues will fluctuate greatly, so taxation needs to be a variable that does not. North Dakota production tax rates are high when compared to other states, which has not deterred development nor do we believe it will. If we look at 2013 production tax rates, we see a wide variance:

Wyoming:  11.7%
North Dakota: 11.5%
Montana: 7.6%
New Mexico: 6.9%
Colorado: 6.8%
Texas: 6.7%
Oklahoma: 3.3%

North Dakota's best acreage is some of the best in the country and provides exceptional IRRs.

So, the percent may not be as much of an issue as triggers built into the current system. Currently, North Dakota has an oil extraction tax of 6.5% and gross production tax of 5%.

The extraction tax has a built-in tax break if oil drops below an inflation adjusted limit set at $55.09/bbl. for 2015. If the realized price of WTI is below that number for 5 consecutive months, then the 6.5% tax is dropped for the first 24 months of the well's life. After the 24 months are up, the tax is reinstated, but at a 4% rate for the well's life, not 6.5%. Keep in mind, a well will produce for 35 to 40 years, so the effective tax break would cover that period of time.

The 5% gross production tax is not affected, and will continue throughout the period regardless of oil price.

This tax trigger may not be relevant today, as it was implemented in 1987 after the last oil boom went bust. Legislators had hoped that this tax reduction would bring vertical development back to the state. At the time, this mattered little as oil prices and technology didn't provide the economics needed. This law was also predicated on vertical production, which is relatively consistent throughout well life, where current horizontally fracked wells produce 19% of total resource in the first year. Half of all production occurs in the first 5 years, so we essentially provide a break on more resource than the trigger had initially envisioned. So, this front heavy production is hit especially hard by the tax break. Also, crude prices generally crash quickly and recover long before 24 months are up, so North Dakota's break reaches too far into the future. To provide an idea of what this trigger could save Bakken operators, I have provided data below on a per well basis.

Much more at the link.

With Citi's recent analysis, the trigger will be pulled -- it's just a matter of time ...

The recent surge in oil prices is just a "head-fake," and oil as cheap as $20 a barrel may soon be on the way, Citigroup said in a report on Monday as it lowered its forecast for crude. 

Despite global declines in spending that have driven up oil prices in recent weeks, oil production in the U.S. is still rising, wrote Edward Morse, Citigroup's global head of commodity research. Brazil and Russia are pumping oil at record levels, and Saudi Arabia, Iraq and Iran have been fighting to maintain their market share by cutting prices to Asia. The market is oversupplied, and storage tanks are topping out.

If oil goes to $20/bbl on supply and demand fundamentals, car companies and airlines are going to do very, very well. Can hardly wait.

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World's Largest Theme Park To Be Built In Ft Worth, Texas

 Link here.

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Dallas May Have Led Nation In Annual Job Growth 

Dallas News is reporting:

Texas added more jobs in 2014 than any other year in history despite declining oil prices for half of the year — but the picture may not be as rosy in the months to come as the effects of oil-related layoffs hit home.

The state gained 457,900 jobs in 2014, which translates to a healthy annual job growth rate of 4 percent, according to data released Friday by the Texas Workforce Commission. The state’s job growth rate in 2013 was 2.9 percent.

Texas probably led the nation in job creation in 2014, but the state-by-state data needed to make comparisons won’t be released by the federal government until Tuesday.

I heard from a local individual that he had seen the data and yes, indeed, Dallas led the nation in job creation last year. So, hearsay now; we'll know more later this week.