Whiting, EOG, Oasis To Report Huge Wells Monday; Oil Up $2.15; Futures Up; Good Directions -- December 11, 2016

Futures. Dow 30 futures are up 54 points. Futures don't mean squat ...

Unless. WTI jumps $2.15....

Because. Saudi ready to cut more and ...

Shorts. Worried about OPEC cheating but ...

Could happen, but that's not what the tea leaves suggest. We've seen this movie before. In 1985, Saudi's daily output was around 3.5 million bopd, down from 10 million in 1981. Saudi had lowered their production to prop up prices, but the other OPEC countries were found to be cheating. In response, the Saudis began producing at full capacity. Oil prices plummeted, falling as low as $7/bbl. So ....

Saudi panic. Saudi's breakeven price this year (2016) is $90. Next year, it's $80, or so they say. KSA made one $1 trillion mistake; can't afford another.

Playing shorts like a fiddle? Off-shore can't ramp up; other OPEC countries probably at maximum anyway; US shale -- we'll see.

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Analysts

“Assuming reasonable compliance levels, these cuts will be enough to push the market into deficit,” said Neil Beveridge, a senior analyst at Sanford C. Bernstein in Hong Kong. “This level of coordination is unprecedented.” -- Bloomberg

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The Political Page

Tea leaves? Rex Tillerson out of the running for SecState? Rick Perry for SecEnergy? Heidi for SecAgriculture? Would follow another North Dakota personality as SecAgriculture: Ed Schafer. One wonders what Schumer would promise Heidi if she would turn down Trump's offer -- Senate now at 52 - 48 -- Schumer can't afford Senate to go to 53 - 47.

Pennsylvania learns tomorrow if their votes have been all for nought/naught. I doubt any sane judge would make that ruling. But who knows?

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Active rigs:

	12/11/2016	12/11/2015	12/11/2014	12/11/2013	12/11/2012
Active Rigs	40	65	186	192	183

Wells coming off confidential list --
Monday, December 12, 2016

• None. 

Sunday, December 11, 2016

• 32339, 1,556, Whiting, Carscallen 31-14-3H, Truax, the Carscallen wells are followed here; 45 stages, 8.2 million lbs; t7/16; cum 41K 10/16; 
• 32417, 257, EOG, Austin 421-2821H,  Parshall, 44 stages; 17 million lbs, t6/16; cum 125K 10/16;

Saturday, December 10, 2016

• 31327, 733, Oasis, Johnsrud 5198 12-18 4T2, Siverston, 36 stages 4 million lbs, t6/16; cum 100 10/16;
• 31328, 714, Oasis, Johnsrud 5198 12-18 5B, Siverston, 36 stages, 4 million lbs, t6/16; cum 126K 10/16;
• 32368, 1,764, Whiting, Carscallen 31-14-2H, Turax, 45 stages, 8.7 million lbs, t7/16; cum 140K 10/16;

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 31328, see above, Oasis, Johnsrud 5198 12-18 5B, Siverston:

Date	Oil Runs	MCF Sold
10-2016	30193	60862
9-2016	29500	32283
8-2016	22266	30588
7-2016	28141	34550
6-2016	16005	14950

31327, see above, Oasis, Johnsrud 5198 12-18 4T2, Siverston:

Date	Oil Runs	MCF Sold
10-2016	24001	46703
9-2016	14729	19449
8-2016	19827	24927
7-2016	24534	40337
6-2016	17169	20794

32417, see above, EOG, Austin 421-2821H,  Parshall:

Date	Oil Runs	MCF Sold
10-2016	27811	9916
9-2016	28379	14961
8-2016	29105	13882
7-2016	31212	7860
6-2016	8634	1164

32339, see above, Whiting, Carscallen 31-14-3H, Truax:

Date	Oil Runs	MCF Sold
10-2016	7239	20672
9-2016	3813	8127
8-2016	8262	22092
7-2016	18716	37854
6-2016	2677	2502

32368, see above, Whiting, Carscallen 31-14-2H, Turax:

Date	Oil Runs	MCF Sold
10-2016	22997	58071
9-2016	27860	52005
8-2016	36588	53657
7-2016	40916	60777
6-2016	11411	15802

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Southern California, December 10, 2016

Hedging Could Cause Problems For Some Oil Companies; EOG, CLR Are Not Hedged -- Filloon -- December 11, 2016

OPEC cut/freeze: Saudi Arabia turns to shock and awe, with bigger cuts and more countries joining, after disappointing market reaction to initial OPEC deal. -- John Kemp, via Twitter. 

Active rigs:

	12/11/2016	12/11/2015	12/11/2014	12/11/2013	12/11/2012
Active Rigs	40	65	186	192	183

Bakken update: from Filloon over at SeekingAlpha --

Summary:

• Non-OPEC cuts in oil production total between 612,000 bpd and 558,000 bpd.
• Non-OPEC cuts could take time to play out, as OPEC allowed natural declines to be used as a 2017 oil production cut
• The Saudi Oil Minister stated there could be a more sizable cut announced in the near future
• The Saudis have found the leadership role in OPEC again, and orchestrated a historic cooperative effort with non-OPEC nations

Other data points:

• Oil prices may rise from 15% to 35% over the course of the next 12 months. The initial cut by OPEC caused a 15% increase in the price of oil. This was a short squeeze. $52 proved to be a significant resistance level, as producer hedging has the benefit of contango. 

• Contango is a bearish situation that occurs when oil prices are higher in the future. Backwardation is bullish as front month prices are higher. 

• Since oil prices are now higher by $3 to $4/bbl over 12 months, operators can hedge production for better forward prices. Operators hedge to guarantee a price for production. This is encouraged by banks. Cap ex plans can be developed, as it provides revenue certainty. 

• Operators in the Permian, SCOOP/STACK, core Eagle Ford, and core Bakken see decent returns at $54/bbl or $55/bbl. Producer hedging is creating difficulties breaking to the upside. 

• Although many media outlets have reported a 558,000 bpd cut, the 12 nations reporting totaled 612,000 bpd. The OPEC/Non-OPEC cut represents 2% of world production. 

• The size and scope of cooperation is significant, and could move trading ranges higher. 

• Kazakhstan was a surprise with it's 50,000 bpd cut. It had planned to bring a new field online next year. Significant pressure must have been placed on the country, as the IEA had estimated it would increase production in 2017 by 160,000 bpd. Russian production is also a mystery. It self-reports at 11.2 million bpd. 

• Analysts have noted Russian production closer to 10.7 or 10.8 million bpd. It is possible Russia isn't cutting. OPEC has stated it would accept natural declines as cuts. It is possible these cuts may come into effect over time, and not on January 1st.

• Most of the Bakken and Eagle Ford need a steady $60/bbl oil price to increase production. Both plays will continue to see a production decrease. This will offset gains in better plays. 

• It is very important to take a look at operator's hedge books before investing. Companies like Continental and EOG Resources are not hedged and will realize the full value of a drop in world crude inventories. Many of the Permian players will report sizeable hedging losses next year if oil takes off. Many have swaps in the mid-40s.

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A Note to the Granddaughters

A beautiful, beautiful day in north Texas. A bit cool like the rest of the country but very, very pleasant. Arianna, oldest granddaughter, will be Denton all day today for water polo tournament. Four games back-to-back this morning, then afternoon break, to be followed by two early evening games. Arianna is starter on two teams, and reserve on two older-girls team and the National Program team. Pretty exciting.

After dropping her off, I drove into Denton to get cup of McDonald's coffee. Highlight of that trip: I spotted a bald-headed eagle flying above the highway in downtown Denton. Pretty cool. I've seen many eagles in North Dakota; not sure if I've seen an eagle in this part of Texas before. Will add to my bird-spotting list.

Saudi Arabia Tells Refineries To Expect Fewer Deliveries Beginning in January -- December 10, 2016

A big "thank you" to a reader for sending me the link.

Link here. Data points:

• Saudi Arabia to reduce deliveries of crude oil to Europe and North America
• Asian refineries: so far largely spared
• Asia: in fact, three of the region's refiners said they were told they would receive the extra volumes they requested
• Saudi Arabia recently increased oil production to an all-time high of nearly 10.7 million bopd
• has since reduced production to 10.5 million bopd
• one year ago: 1.3 million bopd

Two comments:

• in the early days of the blog, analysts often stated that Saudi Arabia could/would produce 12 million bopd; I never accepted that; we now see that the all-time high was "nearly" 10.7 million bopd, not significantly different than 1.3 million bopd one year ago (remember previous postings that suggest hundreds of thousands of bopd "unaccounted" for)
• best way to track Saudi's comment regarding North American imports: US Saudi crude oil imports; has hardly changed

An old graphic, frequently posted:

Notes From All Over, Mostly Politics -- November 30, 2016

OPEC. If indeed this headline is correct, "Why Saudi Arabia Shocked The Skeptics With An OPEC Deal," shorts are getting hammered today. Had OPEC not cut a deal, the price of oil would have slumped, possibly below $40, taking oil companies down with it.

Pelosi wins. Jill Stein asks about a recount.

Priorities. Early in his presidency, Barack Obama brings a law enforcement officer and a Harvard professor together over a glass of beer. Before he was sworn in as president, Donald Trump saved 1,000 jobs in Indiana. No alcohol involved. 

Bully. The mainstream persists in meme-ing the mainstream left's portrayal of Trump. One of the memes: Trump is a bully. (Wow, I hear that from my wife on a daily basis, that Trump is a bully.) Now that Trump has bullied Carrier into keep the Indiana plant open -- I did not hear MSNBC or CNBC use the word "bully" or "bullying" when describing Trump's success in Carrier agreeing to keep at least some jobs in Indiana instead of moving "everything" to Mexico. I guess, like pornography, "bullying" is in the eyes of the beholder.

Tax relief. The new SecTreasurer-appointee said there would be no tax breaks for the top 1%. At least that was on one of the bullets on CNBC today. I doubt any Hillary supporter even saw that. The caps on deductions (like mortgage) will be capped. Those caps will not affect the "average" American.

Damn the torpedoes, full speed ahead: I don't think folks have any idea how fast Trump plans to move. One of the things that slows down the first 100 days is a) Senate confirmations; and, b) the constraints of the House calendar where tax and spending bills begin. If Trump gets any push back, if he sees any hint that there is any political delay he will have the "Obama Pen" that was handed to him on January 20th. The Obama Pen:

• executive orders
• czar appointments (Reagan had one; Obama had 38)

From wiki:

Ready to move day 1: I doubt many caught it but on CNBC this morning, the SecTreasurer-appointee appeared to have really "startled" the "expert" journalists. Mnuchin (the "munchkin") outlined very clearly the Trump plans. The "expert" journalists appeared surprised that the appointee appeared to be talking directly from a very well-laid-out plan. My hunch is that the plan is 90% draft; will be completed over the Christmas holidays; and line items will be laid out by January 20th, and with a series of executive orders, legislative actions, presidential bullying, tweeting, 24/7 attention-to-detail, the line items will be checked off one-by-one.

Presidential bullying. By the way, when did the concern about "bullying" become so noteworthy. If one wants to talk "bullying," one needs to read the biography of LBJ. I just checked my Funk and Wagnall's: next to the entry for "bully" there's a photo of LBJ. But let's go a bit more mainstream. One of our greatest presidents -- in fact, the big national park in North Dakota is named after him -- from wiki:

This term was coined by President Theodore Roosevelt, who referred to the White House as a "bully pulpit", by which he meant a terrific platform from which to advocate an agenda. Roosevelt used the word bully as an adjective meaning "superb" or "wonderful", a more common usage in his time than it is today.

So, the question again, why is "bully" all of a sudden becoming an issue? One word: "cupcakes."

Legacy: on November 11, 2016, I asked the question, "how long is a presidential legacy expected to last?" I suggested that Obama's legacy could be erased before Trump is even sworn in. I'm beginning to think that the Obama legacy is not much more than the smile of the Cheshire cat. The cover of this week's The New Yorker suggests the same thing.

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BHI to build a new FRACKING and CEMENTING services company in North America. Data points:

• new company: under the BJ Services brand
• headquarters in Tomball, TX
• Baker Hughes, CSL Capital Management, and Goldman Sachs fund West Street Energy Partners are backing the new firm
• Warren Zemlak, current president and CEO of Atlanta-based Allied Energy Services will serve as CEO of the new company
• Zemlak has worked as a senior exec with both SLB and Sanjel (two names well known in the Bakken)
• "will renew the BJ Services legacy"
• BHI acquired BJ Services in a $5.5 billion deal that closed in mid-2010
• CSL and WSEP together will own 53.3%; BHI will have a 46.7% stake

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World Chess Championship

King Olaf vs The Tsar.

Tiebreakers will begin this afternoon. Data points here:

• First, a mini-match of four rapid games will be played. Each player gets 25 minutes for all of his moves, plus 10 bonus seconds after every move played. Four games.
• If the players remain tied after those four games, they will play a mini-match of two blitz games. Each player will get five minutes, plus three seconds after every move. They’ll keep playing those, if the two-game mini-matches are tied, for up to five total mini-matches (10 total blitz games).
• Finally, if none of that settles it, they’ll play one sudden-death game using a format known as Armageddon. White gets five minutes and black gets four minutes, but a drawn game counts as a win for black.

Meanwhile, TutorTime will begin teaching chess to 3-year-olds after the first of the year.

Sophia is already getting ready. The best part is going to be ringing the bells when one has made his/her move (and the M&M treat whenever an opponent piece is captured).

Sophia has already told me she is going to replace/rename the chess pieces, to include:

• the front row will be eight Disney princesses instead of pawns
• the rooks will be miniature Barbie doll houses
• knights will be small unicorns or "My Little Pony" 
• bishops will be Harry Potter wizards
• the King: papa
• the Queen: Sophia, of course

 On a side note: people may laugh at TutorTime introducing chess to 3-year-olds, but TutorTime is nationally-recognized leader in childcare. There is no question that they have researched this to the nth degree. So, let's google "chess and three year olds": in 0.68 seconds, there were 3,880,000 results.

"Chess at Three" was the first non-ad hit. And, then, of course, YouTube. At 2:26 in the video note the highly sophisticated move this kid makes -- castling:

The "OPEC Freeze"? -- All Talk -- Nothing Changed -- October 1, 2016

Updates

October 3, 2016: Mike Filloon weighs in on the OPEC "frreze."

October 2, 2016: oil is threatening $50, and may already be targeting $60 or above -- CNBC. It's a typically "crappy" CNBC story. The talking head says the "deal" represents a "real cut." Anyone paying attention knows a) there is no "deal"; and, b) there is no cut. In fact, the rhetoric would allow a slight increase -- and that comes on record production by Saudi Arabia the past two years. If the price of oil rises, it will come because of "emotional" investing, not investing based on fundamentals of supply and demand. 

October 2, 2016: the best thing about this Forbes article is that it reminds folks that Saudi Arabia needs $100-oil. To get $100-oil, Saudi needs:

• Iran's help 
• US environmentalists' help (regulate fracking to kill it)

October 2, 2016: The OPEC Announcement Means Squat -- WSJ

Link here.  

• "cut" not big enough
• won't happen "soon enough"
• WSJ sees the "cut" to be as much as 700,000 bopd -- I don' t know Nicole sees, but I certainly don't see any cut -- in fact, John Kemp suggests OPEC production might even increase under the "cut"
• nothing in the article that regular readers don't already know 

Original Post

John Kemp has a nice analysis of the "OPEC freeze" at this link. Some data points:

• it's a vague statement: unenforceable, and doesn't even set quotas by country
• before the annual summer surge in production (for domestic consumption), OPEC produced 32.45 million bopd 
• the "freeze": a range between 32.5 million and 33.0 million bopd
• the delta: inconsequential

The only "thing" that comes out of the hastily-called meeting was the fact that Saudi Arabia showed some flexibility and was willing to talk.

Actually, the only other "thing" that came out of this hastily-called meeting was an admission, though not explicitly stated, that Saudi had made a trillion-dollar mistake, is in deep trouble, and has now admitted as much.

Back in late 2014, when the price of oil dropped precipitously nothing had changed. There was no change in the fundamentals of supply and demand to result in a drop in prices to the extent we saw. It was simply a policy statement by the now-gone Saudi Minister of Energy that Saudi Arabia would no longer be bound by quotas. Saudi made that decision, supposedly, to protect its own market share. Others suggest Saudi Arabia was trying to "break" US shale.

Saudi's trillion-dollar mistake:

• the downturn in oil prices lasted much longer than Saudi policymakers thought likely in 2014 
• the downturn shows no sign of ending
• falling oil revenues are having a huge impact on Saudi Arabia
• Saudi Arabia foreign reserves have declined by 24%, or $182 billion, since August, 2014
• reserves declined by $53 billion in first seven months of 2016 despite big cuts in government spending and attempts to raise non-oil revenues
• Saudi Arabia still has $564 billion in cash reserves and the ability to raise a lot of cash by issuing debt but risks: losing confidence in the riyal's peg to the US dollar; a flight in capital; and, a run on currency

I have always said that whether oil is priced at $40 or $60, it won't make much difference for Saudi Arabia. From the article:

Prince Mohammed indicated earlier this year it did no matter for the kingdom whether oil prices were $30 or $70 per barrel. But in recent months officials have indicated they believe prices are unsustainably low and want them to rise.

This is John Kemp's bottom line:

The Saudis probably calculate that an increase in prices to $50-60 per barrel would bring useful extra revenue without stimulating too much extra shale production.

Saudi Arabia bases its budget on $100-oil and has done that for years. Ninety percent of Saudi's revenue comes from oil. One can safely say that $80-oil will result in Saudi Arabia coming up 20% short in their budget, year-after-year. And folks are only talking about $50-, maybe $60-oil at best.