Remember: Saudi Arabia Budgets For $100 Oil -- December 23, 2015

[Snide remark: for all those folks who keep writing me to tell me that the break-even price for crude oil for Saudi Arabia is $7, please see the graph below. It never was $7; it never will be $7.]

Two years ago, Saudi Arabia set its budget based on "$100 oil."

With the incredible slump in the price of oil -- a huge miscalculation on the part of Saudi Arabia -- it is now estimated that Saudi Arabia requires "$106-oil" vs the posted $40-oil, give or take a few dollars.

This is an existential issue for Saudi Arabia.

Fortunately, oil will eventually get back to $100. Twenty-four (24) years from now. CNBC is reporting:

Oil prices will take decades to recover and will still not reach the peak seen in recent years, according to the latest World Oil Outlook (WOO) from OPEC.

In the group's latest outlook on supply, demand and prices to 2020 and 2040, OPEC predicted that a barrel of oil would cost (in real terms) around $70 by 2020 and $95 by 2040, a far cry from a high point of $114 a barrel last seen in June 2014 before prices began to plunge on oversupply. On Wednesday, a barrel of benchmark Brent crude cost $36.51, a shade above WTI at $36.47.

Price declines were exacerbated by the decision last year by OPEC, the 12-member producer group led by Saudi Arabia, not to cut production. Still, OPEC's Secretary General Abdalla Salem El-Badri said OPEC had been a bastion of stability amid volatile times for the oil industry.

"The supply and demand balance in 2015 has been one of oversupply, with stock levels rising to well above the five-year average. Despite this market instability, OPEC has continued to be an efficient, reliable and economic supplier of oil," El-Badri noted in the foreword of report.

Later in the report El-Badri talks about el-unicorns.

By the way, CNBC's analysis is wrong on several points, but the general thesis is correct.

I was unable to post the above due to wi-fi problems. While waiting, a reader sent me this story from The [London] Telegraph: it's now becoming clear -- OPEC has no grand strategy.

About a year ago, Saudi Arabia turned its oil spigots on full in an attempt to maintain market share, the other Opec countries followed suit, and the world was flooded with cheap crude.

The received wisdom is that the club of 13 oil-producing countries is trying to squeeze higher-cost producers like the US shale industry. But that theory is looking increasingly fragile in the face of the facts.

The most telling of these is that US oil production has almost doubled in the past four years from around 5.5m barrels a day in 2011 to a peak of 9.7m in April this year.

The recent oil glut has merely forced shale producers to become more efficient. The increase in output has been achieved, despite a reduction in the number of rigs, thanks to a startling rise in productivity – up by 30pc a year between 2007 and 2014.

It is true that there are some signs of strain. The US energy revolution has been financed with cheap debt: the two biggest months for bond issuance by American oil and gas companies since 2014 were February and March this year.

And that party could soon come to an end now that the Federal Reserve has slowly started to extricate the punchbowl. Two-thirds of bank loans tracked by the S&P oil and gas index were trading at distressed levels at the end of November, up from 13pc in May. US shale production has also started to tail off a little in recent months (though nowhere near as much as was expected).

But even if there is a financial reckoning, and a number of shale companies go bust, their operations will merely be taken over by better-run rivals.

The oil is certainly not going to disappear. Experts now believe that the Permian Basin in Texas is capable of producing up to 6m barrels a day – more than Ghawar, the world’s biggest field, in Saudi Arabia. And shale production is relatively flexible – shut it down for a while and it will bounce right back as soon as prices start rising.

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Venezuela: Tick, Tick, Tick

Old, old news but Rigzone provides an update:

Forget the opposition. OPEC is doing more to ruin the holiday season for Venezuela President Nicolas Maduro than any of his rival lawmakers.

Maduro stepped up attacks on his opponents this month after they won enough seats in congressional elections to challenge his government.

While bonds initially rallied on optimism the opposition victory could lead to more market-friendly policies, Maduro’s comments quickly killed that euphoria.

Now, it’s the rout in oil that’s doing the most damage to the prices of the securities.

Oil, by far Venezuela’s biggest export, has plunged 17 percent to an 11-year low since the Organization of Petroleum Exporting Countries abandoned production limits at its December 4, 2015, meeting.

Venezuela’s benchmark bonds due in 2027 are at the cheapest since August, and traders see a 71 percent probability that the country will default in the next 12 months, credit- default swaps show.

That’s up from 61 percent the day before the OPEC decision.

“The initial reaction to the election results was positive, but then oil just collapsed,” said Phillip Blackwood, a managing director at EM Quest, which advises Sydbank A/S on its debt holdings.

“The bills still need to be paid and that comes from oil.”

Oil at these levels could prevent Venezuela from meeting its debt obligations as soon as February.

The OPEC member relies on income from oil sales for almost all of its hard currency. It may need to sell $20 billion of gold or other assets to meet next year’s commitments.

Venezuela’s crude basket fell to an 11-year low $29.17 last week. “The latest decline in oil may have undermined government confidence, putting even this payment at risk.”

71%? My analysis suggests 73% but I'm often wrong.

More Movement In The Global Oil And Gas Industry -- December 22, 2015

Yesterday it was announced that BP would buy all of Devon's assets in the San Juan Basin in New Mexico. Today is it being announced the COP is leaving Russia after 25 years. From Seeking Alpha:

• ConocoPhillips is exiting Russia after more than 25 years as foreign investors are hit by Russian political tensions and the tumble in oil prices, Financial Times reports
• COP confirms it sold its 50% stake in its Polar Lights JV with Rosneft, which also sold its stake in a deal that valued the business at $150M-$200M
• Polar Lights, registered in 1992, made COP the largest foreign investor in the Russian energy sector in the early 1990s, but the venture became ensnared in domestic Russian politics, and its tax bill increased sharply; COP first announced it would seek a buyer for its stake last year

Only one reason COP did this, but I will let the readers speculate.

Meanwhile, Gazprom Neft is tweeting: 

Russia to stand by flat crude oil output strategy; 'ready for battle', according to Gazprom Neft CEO.

More and more pressure on President Putin, which takes us to this next article sent in by a reader.

I think I've seen this article before, or another iteration of it, somewhere else, and, in fact, I may have posted it somewhere. From oiljobsnd:

It won’t be long now, until the U.S. Shale Oil Industry will bankrupt Saudi Arabia, and claim victory against OPEC. The war isn’t over yet, but America has already won, it’s just a waiting game now.

On Friday, December 18th 2015, President Barack Obama officially signed off on ending the 40 year ban on the export of crude oil. President Obama basically signed the death certificate of OPEC. By passing this new law, the US Shale Oil Industry will crush OPEC in the long-term.

For years now Saudi Arabia has been a major powerhouse in the oil and gas industry. When you think Saudi Arabia, you think of oil. Most people assume OPEC is the one calling the shots and setting the oil prices, it’s not, it’s Saudi Arabia and it’s been them this whole time. Why do you think the Bush Administration was in bed with them?

For the last few decades Saudi Arabia has printed money faster than they can pump oil, and they pump a tremendous amount of oil. When the markets swung up and down, it was due to the Saudi’s actions. Saudi Arabia has been the muscle in the oil industry for the longest time, until US operators cracked the shale oil code.

Much, much more at the link.

November 10, 2015

Active rigs:

	11/10/2015	11/10/2014	11/10/2013	11/10/2012	11/10/2011
Active Rigs	66	192	182	191	199

RBN Energy: School of Energy opportunity.

Update on slump in crude oil prices: Breitbart, September 5, 2015. Some nice graphs.

EIA "Energy Cookie" on the Highway Trust Fund:

In the fiscal year that ended September 30, 2015, the average monthly net HTF tax receipt was about $3 billion, and the average monthly outlay was nearly $4 billion. With outlays exceeding receipts and HTF balances dwindling, Congress in July transferred $8 billion from other sources to ensure the fund's solvency. Before this transfer, the HTF was at $6.1 billion, the lowest monthly value in decades. --- EIA

Another shout-out / thanks to the reader who reminded me to check in on FracFocus if the NDIC file does not include completion data. FracFocus requires the API number so if I check FracFocus I include the API number when reporting the well.

Flashback: it's hard to believe that a single wildcat well started "all this in the Three Forks" and that it was as far back as 2008 (I would have guessed, 2010, and would have been wrong). From The Bismarck Tribune, June 17, 2008:

A single successful oil well tapped below the Bakken shale formation in western North Dakota has spurred speculation that a separate - and perhaps rich - oil-producing reservoir may be buried in the state's oil patch.

Enid, Okla.-based Continental Resources Inc. says its new oil well in Dunn County produced an average of about 700 barrels of oil a day during its first week of production last month.

It was Continental's first well in the Three Forks-Sanish formation, said Harold Hamm, the company's chairman. The formation is made up of sand and porous rock directly beneath the Middle Bakken, which lies two miles under the surface in western North Dakota and holds billions of barrels of oil.

See this presentation which I believe was published about that time. I might come back to this one again, particularly slide 30. 

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Notes to the Granddaughters

After two hours of water polo practice, our oldest granddaughter is ravenous for a snack on the way home. Last night I forgot to bring something from home, so after dropping her off at the natatorium, I drove back to Tom Thumb (major grocery store in this part of the world) to see what I could find. Incredible. Apparently, at the end of the day, they clear out their pastry shelves and mark everything down for "quick sale." Plastic containers with six big fancy donuts, priced at $4.99 during the day, are marked down to 99 cents. [This might explain why Houston and San Antonio lead the nation in obesity data.]

I had one donut this morning; I did not notice much "aging." Actually, it was quite good. Less than 20 cents vs regular price of 75 cents and much less than chocolate croissant at Starbucks. I won't even get into cost of coffee at home vs Starbucks.

Meanwhile, the middle granddaughter, 4th grade, is working on her "healthy eating assignment" this week. Students are recording everything they eat and calculating the calories.

Random Update On CAPEX Cutbacks For 2016 -- November 7, 2015

Reuters/Rigzone provides some CAPEX cutbacks for 2016 in the shale oil industry. There is nothing new here that regular readers wouldn't already know, but Reuters puts it together in one place for a few companies. Some excerpts:

Top shale companies including Devon Energy Corp, Continental Resources Inc and Marathon Oil Corp this week released preliminary 2016 plans for capital spending that may fall by double digits.

Devon said it expects to spend $2 billion to $2.5 billion on exploration and production next year, down from about $4 billion this year.

Marathon Oil is cutting about $1 billion from its projections.

Oasis Petroleum Inc, which produces oil in North Dakota, said it expects to spend $350 million in 2016 on drilling and completion of new wells, roughly $200 million below what it plans to spend for those services this year.

Continental Resources, North Dakota's second-largest oil producer, said it will need to spend $1.5 billion to $1.6 billion next year to maintain output of roughly 200,000 barrels of oil equivalent per day. That would be less than half the roughly $3.4 billion the company expects to spend this year.

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Sam Phillips Book Review Over At The Wall Street Journal

Link here.  

Though he is acclaimed by his biographer as “The Man Who Invented Rock ’n’ Roll,” readers may still need some introduction to Sam Phillips.

Born in Florence, Ala., in 1923, Phillips moved to Memphis after World War II and got into the music business. As operator of a recording studio and later a record company, he discovered Howlin’ Wolf, Elvis Presley, Johnny Cash and Jerry Lee Lewis and made some of the earliest recordings of B.B. King and Ike Turner, including the 1951 song that some buffs consider the big bang in rock history, “Rocket 88.”

Phillips’s biographer may require less of a primer. Peter Guralnick is known for his decorated two-part chronicle of Elvis Presley’s life and his reverent but thorough fan-friendly style.

“Sam Phillips” represents his most personal foray into American music. Mr. Guralnick knew Phillips for 25 years and spent nearly a decade after Phillips’s death in 2003 writing his story. That’s longer than most rock ’n’ roll marriages. Mr. Guralnick shares his love for Sam early in the book, and Phillips clearly held up his side of the deal, sharing intimate details and private documents.

Obviously, much more at the link.

If there is a better DVD on Sam Phillips or Sun Records, I would love to know. And yes, the Muscle Shoals DVD is still the best.  

Was The Bakken Collateral Damage? -- October 12, 2015

On October 3, 2015, I posted this note which caught me by surprise. I assumed it was just a Saudi official with typical "political" talk. The story surprised me because it was not in line with what everyone else was reporting. This is the news item that caught me by surprise:

But this story is probably the most important: Saudi Arabia will maintain spending. From Rigzone/Reuters:

Saudi Arabia is continuing with its investments in the oil and gas industry as well as solar energy despite the current drop in oil prices, the kingdom's oil minister was quoted as saying on Friday.

That part about solar energy? I think you can ignore it. With regard to oil production, we'll let the numbers speak for themselves.

In fact, this is the new reality which has been posted more than once on the blog:

Read the rest of the story at the link and see if the writer said anything more or less than what I wrote over the weekend:

• Saudi is losing about 10% of their cash reserves annually by giving away oil for $50/bbl (but the article above suggests it could be significantly more)
• Saudi apparently had an unsuccessful 5-year, $35 billion program to significantly hike crude oil production
• Saudi recently completed two new refineries
• Saudi has huge desalinization electricity demands -- and growing annually; oil used to produce electricity
• Saudi recently canceled huge solar energy projects
• Saudi put on hold all new capital-intensive projects in addition to aforementioned solar energy projects
• Saudi has been told explicitly by President Obama that the US has no responsibility to guarantee Saudi Arabia' security
• Saudi has major terrorist threat in Yemen
• Saudi has embarked on major weapons acquisition program to defend itself against regional neighbors
• sanctions on Iran recently lifted resulting in a) Mideast nuclear arms race; and, b) $100 billion in "new" money for Iran to pursue military objectives (I thought it was $156 billion but this article says $100 billion).

I didn't post it because it was simply background noise without a historical picture to compare, but last week there was a story of the crude oil rig count globally. With minor exceptions, the only country with more rigs, month-over-month, is Saudi Arabia. [Later, a reader tells me, with regard to Saudi Arabian rig count: the Saudis had 125 rigs working in September, up from 120 in August and up from 119 a year ago.]

Regular readers are aware that despite huge outlay in capital, Saudi Arabia has not significantly increased production, and any production increase could easily be offset by increased domestic consumption, including the new refinery (or is it refineries) that Saudi has recent brought on-line in the desert.

Now, with a story that is more likely to be more accurate than the political talk by the Saudi oil minister, Oilprice is reporting:

Saudi Arabia has reportedly resorted to spending cuts to cope with a budget deficit caused by the steep decline of oil prices over the past year.

Bloomberg reported Oct. 8 that the Saudi Finance Ministry has directed government agencies not to embark on any new spending initiatives for the rest of the year. It also froze government hiring and promotions, suspended the purchase of furniture and vehicles and urged revenue collectors to accelerate their operations.

The primary reason for the spending cuts is the drop in oil prices since June 2014, from over $110 per barrel to around $50 today; oil accounts for around 90 percent of Saudi revenue.

But the kingdom’s finances also have been strained by its involvement in wars in Syria and Yemen.

As a result, Saudi Arabia’s ratio of debt to GDP is in danger of rising to 33 percent in five years, according to a new report by the International Monetary Fund (IMF). The report says the Saudi budget has gone from a surplus to a deficit of more than 20 percent of GDP, more than twice as deep as those that beset the United States and Britain in 2008 and 2009, the darkest period of the recent recession.

I don't think the demise of the Kingdom of Saudi Arabia is likely to happen in my lifetime (as suggested by one of the stories at one of the links above), but Saudi Arabia is facing a number of headwinds, the least of which is the low price of oil right now. They have ISIS and other terrorists to contend with; they have an "Iran without sanctions" to contend with; they know the US is no longer a reliable ally; and, oh by the way, their major global competitor, Russia, has just moved into Syria.

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Was The Bakken Collateral Damage?

Updates

November 9, 2015: a Wall State Journal update on "yieldcos." Not good news.

Original Post

 

I don't recall if I ever posted my thoughts on this or now; it would be difficult to find, if I did.  I've always thought Saudi's biggest concern was "intermittent energy" (wind/solar) and the world, especially China, buying into the "global warming/climate change" scam.

When the Kingdom elected to flood the market with oil, they hoped a) to stop the intermittent energy movement; and, b) get the world "hooked" on crude oil again.

Now we have this story from The New York Times: intermittent energy financing has hit a snag (if you hit a paywall, google renewable energy financing hits a snag).

Only a few months ago, it seemed that the renewable energy sector could do little wrong: Stock prices were soaring and money was pouring in as investors flocked to get in on the action.

That is no longer the case. Low oil and gas prices have roiled the energy markets, and the specter of rising interest rates has rattled investors’ confidence in the industry’s returns. Although energy and financial experts say that the basics of the business remain sound, the lofty stock prices have tumbled, leading renewable energy companies to scramble for new approaches to their businesses.

Nowhere has the retrenchment been more acute than in a newfangled financing mechanism called a yieldco. Yieldcos, public companies conceived by renewable energy companies as a way to raise cheaper capital for project development, have attracted billions in new investments.

The yieldcos buy and operate power plants, mainly those that their parent companies develop. The yieldcos then collect the contracted electricity fees and pay the bulk of them out as dividends. With investors hungry for stable returns, energy yieldcos were greeted with enthusiasm through initial public offerings of their stocks over the last year and a half.

Last week, though, one of the most aggressive companies in the sector called a timeout.

SunEdison, which has bought several companies in recent months in a bid to become the world’s largest renewable energy developer, told investors it would not sell any more projects to its yieldcos, TerraForm Power and TerraForm Global, until conditions change.

The company said it would trim expenses and streamline operations, including reducing project development by 20 percent, withdrawing from Britain and cutting roughly 15 percent of its work force.

I've always thought that Saudi Arabia was more concerned about the intermittent energy surge than US shale. If so, perhaps the US "tight" oil industry was a victim of collateral damage. But I won't argue with those who say maybe the Kingdom was concerned about both equally. 

How Well Is Saudi Arabia's Oil Strategy Working? -- September 27, 2015

How's that strategy to flood the market with oil working out for Saudi Arabia? Financial Times is reporting:

Saudi Arabia has withdrawn tens of billions of dollars from global asset managers as the oil-rich kingdom seeks to cut its widening deficit and reduce exposure to volatile equities markets amid the sustained slump in oil prices.

The Saudi Arabian Monetary Agency’s foreign reserves have slumped by nearly $73bn since oil prices started to decline last year as the kingdom keeps spending to sustain the economy and fund its military campaign in Yemen.

The central bank is also turning to domestic banks to finance a bond programme to offset the rapid decline in reserves.

Of course, under Sharia borrowing / lending money is not allowed. Whatever. I assume if one buys a Saudi bond one will not be paid interest; rather one will get a pre-arranged "installment payment" at regular intervals.

Reminder (no links -- with one exception; previously reported):

• Saudi is losing about 10% of their cash reserves annually by giving away oil for $50/bbl (but the article above suggests it could be significantly more)
• Saudi apparently had an unsuccessful 5-year, $35 billion program to significantly hike crude oil production
• Saudi recently completed two new refineries
• Saudi has huge desalinization electricity demands -- and growing annually; oil used to produce electricity
• Saudi recently canceled huge solar energy projects
• Saudi put on hold all new capital-intensive projects in addition to aforementioned solar energy projects
• Saudi has been told explicitly by President Obama that the US has no responsibility to guarantee Saudi Arabia' security
• Saudi has major terrorist threat in Yemen
• Saudi has embarked on major weapons acquisition program to defend itself against regional neighbors
• sanctions on Iran recently lifted resulting in a) Mideast nuclear arms race; and, b) $100 billion in "new" money for Iran to pursue military objectives (I thought it was $156 billion but this article says $100 billion)

Disclaimer: I often make factual and typographical errors. It is hard to separate opinion from fact in this blog. If something does not seem right and/or is important to you, go to the source. 

Oil's Drop Puts Spotlight On Saudi Arabia -- WSJ -- August 25, 2015

These two stories came out yesterday (I was too tired to post earlier):

• Headline: Out in the Real World, Oil Market Is Much Better Than It Looks
• Headline:  Saudi Arabia Hit by Low Oil Prices, Faces Difficult Decisions 

Late last night, a most interesting WSJ article, oil's drop puts spotlight on Saudi Arabia.

The stories all have a very similar theme: for the US, it's a "cyclic thing." For the Saudis, it's an "existential thing."

And this article in The New York Times which we have talked about many times before: "From Venezuela to Iraq to Russia, Oil Price Drops Raise Fear of Unrest."

In oil-endowed Iraq, where an Islamic State insurgency and fractious sectarian politics are growing threats, a new source of instability erupted this month with violent protests over the government’s failure to provide reliable electricity and explain what has been done with all the promised petroleum money.

In Russia, a leading oil producer, consumers are now paying far more for imports, largely because of their currency’s plummeting value. In Nigeria and Venezuela, which rely almost completely on oil exports, fears of unrest and economic instability are building. In Ecuador, where oil revenue has fallen by nearly half since last year, tens of thousands of demonstrators pour into the streets every week, angered by the government’s economic policies.

Even in wealthy Saudi Arabia, where the ruling family spends oil money lavishly to preserve its legitimacy, the government has been burning through roughly $10 billion a month in foreign exchange holdings to help pay expenses, and it is borrowing in the financial markets for the first time since 2007. Other Arab countries in the Persian Gulf that are dependent on oil exports, including Kuwait, Oman and Bahrain, are facing fiscal deficits for the first time in two decades.

While the price has been declining for months, forecasts have always been hedged with the assumption that oil would eventually stabilize or at least not stay low for long. But new anxieties about frailties in China, the world’s most voracious consumer of energy, have raised fears that the price of oil, now 30 percent lower than it was just a few months ago, could remain depressed far longer than even the most pessimistic projections, and do even deeper damage to oil exporters.

“The pain is very hard for these countries,” said René G. Ortiz, former secretary general of the Organization of Petroleum Exporting Countries and former energy minister of Ecuador. “These countries dreamed that these low prices would be very temporary.”

Mr. Ortiz estimated that all major oil exporting countries had lost a total of $1 trillion in oil sales because of the price decline over the last year. 

Much, much at the linked articles.

Countries on the "watch list."

There are indications it has already begun in Venezuela. Be careful. The photo-essay does not provide any background to what is really going on -- although in the big scheme of things it may not matter. In these shortages (real or artificial) one can be assured the government and the military are running the show, take bribes, diverting food and medicine to their own "ports." My hunch is that the upper middle class and the rich are doing just fine; it's the lower middle class and the poor that will really get hit -- but regardless, it will lead to social unrest (already has, if one "believes" the pictures -- remember, this is a PBS link).

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Back To The Bakken

Active Rigs:

	8/25/2015	08/25/2014	08/25/2013	08/25/2012	08/25/2011
Active Rigs	75	194	184	189	195

RBN Energy: a 150-mile gap in the nation's natural gas pipeline system stymies propane shipments. This is a great article with a great graphic that paints the problem.

Coal?

Twitter: this is an interesting factoid. There are three major tight crude oil plays in the US -- the Permian, the Bakken, and the Eagle Ford. Yesterday, Twitter (mostly Platts) had multiple tweets on future of the Bakken; none on the other two.

Cobalt Is Bolting; Emergency OPEC Meeting? Won't Happen -- August 24, 2015; John Kemp's Thoughts

The other day I mentioned that things were not looking good for either Angola or Nigeria. More evidence today that the observation was very, very accurate. Cobalt is bolting; it will sells its off-shore Angola interests back to state-owned Sonangol:

Cobalt International Energy Inc. has agreed to sell its interests in two blocks in deep water offshore Angola to state-owned Sonangol for $1.75 billion and will concentrate on appraisal and development of deepwater discoveries in the Gulf of Mexico.

Cobalt, Houston, holds 40% interest each in Angolan Blocks 21/09 and 20/11 and operates both. It claims to have opened the Kwanza basin presalt play with the Orca and Lontra discoveries on Block 20/11 and the Mavinga, Cameia, and Bicuar discoveries on Block 21/09 to the south.

Of the discoveries, Cameia is closest to development. Cobalt said a final investment decision is expected by year end. It estimates the Cameia resource at 300-500 million bbl and expects productivity of 30,000 b/d/well of 39°- 41° gravity oil. Cobalt will operate both blocks until replaced by Sonangol or another operator. Sonangol will bear all costs in the interim.

Gee, just when Cameia was about to come on line, also. I wonder if Sonangol has the finances to develop that field "in the interim."

As a reminder:

Refineries are configured to operate most efficiently when processing certain types of crude

• light oil: 32 - 40 degrees
• above 40 commonly seen from shale basins such as the Eagle Ford and the Bakken
• ultra-light: above 50 (again, from the Eagle Ford and the Bakken); generally known as condensates
• diluted bitumen from Alberta oil sands: 22 - 31 degrees
• heavier crudes require more complex refiners (think, more expensive)
• sulfur must be removed during processing; heavier crudes, more sulphur

Short history: historically, going back to the early days in the US, refiners were optimized for light US oil. At the end of the 20th century, with the relative demise of the US on-shore oil and gas industry, with heavier oil being the major oil available, refiners spent billions of dollars retro-fitting their refineries to handle heavy oil. They were betting on the come that western Canadian oil sands would be flowing down the Keystone. In fact, that failed, and lo and behold, the Bakken revolution. Unfortunately, it was the revolution of the "light brigade." Light oil would not work in US refineries along the coast and those refiners had to scramble to blend overseas heavy oil with US light oil to make it work. Now, the refiners have invested huge amounts of money to optimize their refineries to handle light oil.

Angola's off-shore oil at 39 - 41 is absolutely not needed by the US which has a glut of that lighter oil. Angola will have to look elsewhere to sell its light oil.

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Emergency OPEC Meeting?

Over the weekend I said to myself I need to post a note to the effect that the next regularly scheduled  OPEC meeting is in December, 2015, but an emergency meeting before December would speak volumes. I did not really discuss with myself the likelihood of whether an emergency meeting would be called.

Wow, I wish I had posted that. Whatever.

Today, Platts:

Iranian oil minister Bijan Zanganeh said on Sunday he supported the idea of an emergency OPEC meeting to discuss how the oil producer group might respond to the latest oil price rout that on Friday saw US light crude trade below $40/barrel for the first time in six years.

However, he added, such a meeting was unlikely to take place because of what he called the "political objectives" of some member countries. He did not elaborate. 

Exactly. I think OPEC needs to meet but they can't meet for "political reasons." First, the meeting would result in inter-tribal squabbling and would end with no "true" consensus. Second, just calling the meeting would be interpreted as Saudi "losing face."

There could be some informal meetings, but the real problem is this: OPEC as a functioning organization is dead. Venezuela, Ecuador, and west African OPEC nations are on the outside looking in; they will be the first to fall. One might add Libya to that group except that country is already in free fall.

If Saudi has last this long, they will easily last three more months, if nothing else, just to keep from "losing face."

The tag "Price_Slump_2014_2015" is for events related to the crude oil price slump between October 1, 2014, and September 30, 2015. Which, by the way, is the US federal government's fiscal year.

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John Kemp's Thoughts

John Kemp link here. (Archived)

Saudi Arabia's strategy for rebalancing the oil market through a period of lower prices shows few signs of working so far - with rival producers claiming they will raise output even as prices slide to new lows.

Saudi policymakers insist the kingdom will maintain its market share and let low prices take care of the surplus by forcing cuts from higher cost producers and stimulating fuel demand. 

With prices down by more than half compared with the same point in 2014, oil consumption is growing at some of the fastest rates for a decade. 

There are signs output growth from shale drillers and other producers outside OPEC is starting to slow, but it is not falling yet. 

Within OPEC, other producers, principally Iraq and Iran, are determined to continue raising their output even as prices slump. 

"We will be raising our oil production at any cost and we have no alternative," Iran's Oil Minister Bijan Zanganeh said in a news story carried on his ministry's website. 

"If Iran's oil production hike is not done promptly, we will be losing our market share permanently," Zanganeh added. 

Saudi Arabia's strategy may not be enough to eliminate the surplus and lead to a sustained rise in prices in the next two or three years. 

The resilience of non-OPEC output despite slumping prices, coupled with a continued battle for market share within OPEC itself, contributed to the "lost decade" in oil markets after 1986. 

Oil producers and investors fear the same stalemate could be playing out again.

Later in the article:

"Saudi Arabia believes that the price war eventually will eliminate much oil from non-OPEC producers, such as Britain and the United States, because their oil is too expensive to produce," the Wall Street Journal wrote in 1986. The exit of this oil would make more room for OPEC production growth.

But while non-OPEC production stopped growing for four years after 1985, it defied expectations it would fall, and started rising strongly again in the early 1990s. 

MIT economist Morris Adelman explained: "The shock of the oil price chilled investment. Non-OPEC production barely increased from 1985 to 1992. But its failure to decline was a great disappointment." 

One reason production failed to decline was lower prices stimulated a drive to make production much more efficient, including the first widespread use of three dimensional seismic surveys and horizontal drilling. [Think Bakken -- world's largest micro-seismic array, I believe.]

Finally:

There are key differences between 1986 and the oil market today. In 1986, there were estimated to be 6 million barrels per day of spare capacity shut in among OPEC members, compared with less than 2 million currently.

But there are also echoes, including Saudi Arabia's insistence it will not cut production, attempts by Iran and Iraq to boost theirs, and the resilience, so far, of non-OPEC output in the face of slumping prices. 

Saudi Arabia's strategy could yet be vindicated. It takes time for a price crisis to work through to changes in production and consumption. 

There are lags in the production data. Output from shale producers and the non-OPEC non-shale sector could already be falling even though it is not evident in the official numbers yet.

Much, much more at the link, including other links and references.

Saudi Arabia has much more to fear from Iran than from the United States.

Random Look At Several EOG Wells -- August 9, 2015; "TA" Will Be Inspected At Least Annually -- How Long Does EOG Expect Slump In Oil Prices To Last

For archival purposes. Bakken 101. Price slump.

A look at a few wells in the same local area:

• 17011, IA/1,663, EOG, Parshall 4-20H, t8/08; cum 415K 6/15; inactive since 5/14;
• 27444, TATD, EOG, Parshall 78-20H, perfed,
• 27445, TATD, EOG, Parshall 158-20H, perfed,

• 28728, SI/NC, EOG, Parshall 28-2928H,
• 28727, SI/NC, EOG, Parshall 85-2928H,
• 28726, SI/NC, EOG, Parshall 29-2928H,
• 28725, PNC, EOG, Parshall 142-2928H,

• 17294, 1,718, EOG, Parshall 11-28H, t12/08; cum 354K 6/15;
• 28638, 587, EOG, Parshall 91-28H, t1/15; 25 stages, 5.8 million lbs; big well, choked back now;
• 28639, 848, EOG, Parshall 92-28H, t2/15; 34 stages, 6.8 million lbs;  cum 55K 6/15; choked back now;
• 28714, 541, EOG, Parshall 93-2827H, t2/15; 41 stages, 8 million lbs; cum 51K 6/15; choked back now;

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Updates on selected wells noted above.

17011: went inactive 5/14; still inactive;

From sundry form received August, 2014 -- EOG is currently executing a downspacing and infill drilling program. During this process the new infill wells are being hydraulically fractured offset to existing/producing wells. The existing wells in close proximity to the new infill wells are shut in during the drilling and completion process.

Pressure pulses have been noted in the existing shut in wells during this process. Due to the pressure pulses, sand from the completions in the original wells can become dislodged and enter the wellbore. When wand enters the existing wellbore it can damage pumping equipment and/or plug the wellbore. When this occurs wellbore intervention is required to replace the damaged pumping equipment and may also require the wellbore to be cleaned out, both operations are costly and slow the process for returning the offset wells to production. 

Proposal: as a mitigation measure, EOG is requesting approval to fill the existing wellbore with produced water from nearby producing wells. The fluid would increase the hydrostatic pressure in the existing well and assist in counter acting the pressure pulses and sand influxes impacting the well from the drilling and completion process of the infill wells.

The fluid will be pumped at a very low surface pressure with a non-positive displacement pump. Pumping pressure are planned below 500 psi. At or before reaching 500 psi, pumping would cease keeping the pressure below fracture pressure.

27444, TATD: from a sundry form received May, 2015 -- future use of the well will be completed once oil prices improve; the well will be inspected at least annually ... and will be reported on the TA extension if one is requested.

27445, TATD: from a sundry form received May, 2015 -- future use of the well will be completed once oil prices improve; the well will be inspected at least annually ... and will be reported on the TA extension if one is requested.

28728, SI/NC, EOG, Parshall 28-2928H, spud date, 2/23/14; cease drilling, 10/2/14;
28727, SI/NC, EOG, Parshall 85-2928H, spud date, 9/13/14; cease drilling, 9/21/14;
28726, SI/NC, EOG, Parshall 29-2928H, spud date, 9/1;14; cease drilling, 9/10/14;

17294, 1,718, was off-line from 8/14 to 3/15; sundry form received August, 2014, identical to sundry form for #17011 above;

28638, 587,  production profile:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	6-2015	24	9380	9299	5031	4667	0	4305
BAKKEN	5-2015	31	14885	14836	8638	7627	4124	3018
BAKKEN	4-2015	30	20603	20722	16202	11804	11320	0
BAKKEN	3-2015	31	22382	22408	29904	11521	9036	1989
BAKKEN	2-2015	19	10740	10285	22822	4743	3464	995

28639, 848, production profile:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	6-2015	26	6657	6556	9195	3540	0	3130
BAKKEN	5-2015	28	8783	8737	12986	5224	2780	2035
BAKKEN	4-2015	30	11045	11193	17669	6578	6094	0
BAKKEN	3-2015	31	16376	16566	32568	8853	6848	1508
BAKKEN	2-2015	22	11908	11404	35754	4485	4142	0

28714, 541, production profile:

Pool	Date	Days	BBLS Oil	Runs	BBLS Water	MCF Prod	MCF Sold	Vent/Flare
BAKKEN	6-2015	27	4594	4588	11974	2320	0	1918
BAKKEN	5-2015	31	8735	8709	17855	4527	2326	1702
BAKKEN	4-2015	30	12243	12381	24871	7065	6581	0
BAKKEN	3-2015	31	16829	16863	36588	8685	6719	1479
BAKKEN	2-2015	22	8414	8058	28698	3012	2681	0

At time of original post:

Thursday, August 6, 2015 -- Part II; XOM To Expand In The Permian

Gasoline demand (dynamic link):

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Risk Of Social Unrest

Back on February 23, 2015, I suggested there was a risk for serious social unrest in the smaller crude oil exporting countries. I also suggested that countries that depend on OPEC largesse, like Palestine, were at particular risk. It looks like someone is reading the blog. The linked article doesn't say that explicitly, but it's not hard to connect the dots:

“As Iran comes back to the market, under the current Saudi oil policy, it is still more likely in our opinion that any sustained price recovery will come through another OPEC country breaking down than from North American crude oil production collapsing."

The same article noted:

Norbert Ruecker, head of Julius Baer commodities research, told the WSJ that oversupply concerns are a burden on oil prices. “Shale oil producers are lowering costs swifter-than-expected, proving their superior competitiveness within the industry,” Ruecker told the WSJ, adding that US unconventional producers have surprised many with their “resilient production.”

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Railroad History

In four short pages (pages 113 - 115) in Appetite For America by Stephen Fried, c. 2010, provides some analogies that might be relevant today for the oil and gas industry. Paraphrasing:

Since the beginning of the Civil War, the US government had given away almost one-tenth of all the land in the entire continental US to the railroads to encourage construction and development. Most of these land grants were in the central and western stages, where the railroads controlled over 30 percent of the land. 

Then Grover Cleveland was elected president.

Cleveland orders a massive investigation of the land grant system, and the railroads were forced to return about 80 million acres.

Next, the president began to look into the "monopoly-like" powers the railroads had and began to take measures to change that. The biggest change: the creation of the Interstate Commerce Commission, which Congress established in 1886, the year the Supreme Court ruled against the railroad fare system. Overnight, the President and Congress basically added a fourth branch to the American system of government: the federal regulatory agency. The ICC was the first such government regulatory agency.

With the creation of the ICC, the railroads went wild competing with each other, trying to undercut one another.

In the chaos of this new economics of railroads, William Strong (president of the Atchison, Topeka, and Santa Fe railroad at the time) believed that only a few of the strongest would survive. He felt he was left with no choice -- his Santa Fe had to get much bigger and more powerful very quickly, or it would be swallowed by Jay Gould and the other big eastern financiers who were still the power players in the industry.

By the way, Barstow, CA, is named after William Barstow Strong.

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Australian Wind: For The Archives

Website: Hornsdale wind farm.  As of this date, August 6, 2015, 35% of proposed power has been bought; 0% construction.
Press release from The Lead.
315 MW; $250 million.

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The Apple Page

From Macrumors:

In an interview with USA Today, Apple's Eddy Cue reveals that Apple Music currently has 11 million users taking advantage of the initial three-month trial period, with two million of those taking advantage of the family plan that will cost $14.99 per month once the trial ends. A single-user membership will be priced at $9.99 per month. 

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This Is Not An Investment Site

Reporting today:

• APA: beats by 48 cents; crushes loss estimate on production gains; shares up nicely; Reuters story here;
• AXAS: AP story; EPS in-line; loss of 6 cents;
• EOG: Rigzone story here; beats by 17 cents; press release here;
• MRO: Zacks; loss narrower than expected; 23 cents vs 27 cents;

The list may or may not be accurate; things change.

********************************

XOM To Expand In The Permian

Link here.

Exxon Mobil today announced it has executed two agreements to obtain horizontal development rights in 48,000 acres in the core of the Midland Basin.

The two agreements include an acquisition and farm-in adjoining XTO’s existing acreage position in Martin and Midland Counties, providing rights to all intervals within the basin. The acreage will be operated by ExxonMobil’s subsidiary XTO Energy Inc.

“The recent emergence of strong Lower Spraberry results, combined with the established Wolfcamp intervals, demonstrates the significant potential of the stacked pays in the Midland Basin core.”

ExxonMobil has executed five agreements in the Midland Basin since January 2014, providing the company with over 135,000 operated net acres.

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Can't Please Everyone

Link here.

In interviews and in hundreds of comments on Facebook, Wal-Mart employees are calling the move [to boost store workers' minimum wage] unfair to senior workers who got no increase and now make the same or close to what newer, less experienced colleagues earn. New workers started making a minimum of $9 an hour in April and will get at least $10 an hour in February.

Some workers also said they suspect their hours are being cut and annual raises reduced to cover the cost of the wage increase for newer workers. Wal-Mart denies that and says it’s taking steps to ensure all employees have an opportunity to move into higher-paying jobs. Along with bumping up the minimum wage, it increased the amount workers receive when promoted, boosted pay for some managers and raised the maximum pay for all hourly positions.

One word: kwityerbitchin. Life ain't fair. 

Casualties In The Oil And Gas Industry; Look At The Brazilian Numbers -- Staggering -- July 17, 2015

This is really quite a remarkable story.

On June 1, 2015, I posted this:

With today's Wall Street Journal article on the slump in oil prices, I was reminded of the list I posted back in January.

Countries on the watch list with plummeting oil prices:

• Venezuela
• Russia
• Jordan
• Lebanon
• Nigeria
• Brazil 

One can add Argentina to that list.

One can add Columbia to the list.

Add Mexico to the list.

So, where do we stand? Bloomberg/Rigzone is reporting:

Eight months into OPEC’s plan to hit rival oil producers, the casualties are mounting.

Surprisingly, the most resilient may be the one that triggered the fight: the U.S.

Projections for combined daily output from Brazil, Canada, Russia, Mexico and Colombia by the end of the decade were cut by 2.8 million barrels since oil slumped last year, data from the countries and the International Energy Agency show.

In contrast, the U.S. Energy Department increased its estimate for crude output in 2020 by more than a million barrels.

Prices fell more than 45 percent in the past year after the Organization of Petroleum Exporting Countries refused to cut output, instead pressuring rival producers to eliminate a global supply glut.

While the number of active U.S. oil rigs has halved, production remains close to a three-decade high and is forecast to keep growing after a pause in the coming year.

Projects elsewhere will suffer more, according to Standard Chartered Plc and BNP Paribas SA.

“Some have misinterpreted OPEC’s strategy as targeting U.S. shale oil production,” said Harry Tchilinguirian, head of commodity-markets strategy at BNP Paribas in London.

“But any attempt at shutting down U.S. shale oil will prove futile. Rather, OPEC has aimed at crowding out investment in higher cost and less efficient conventional basins.”

I'm not exactly sure how Bloomberg can say the "US triggered the fight." It's my understanding that back in October, 2014, with a glut of oil on the world market, the country (or organization) that has historically cut back on production to keep prices high, specifically said they were not going to cut production. In fact, Saudi Arabia suggested that they would be increasing their production.

But I have trouble agreeing that the US started this fight.

Also, note that the Red Queen is still on the treadmill. From the article: "While the number of active U.S. oil rigs has halved, production remains close to a three-decade high and is forecast to keep growing after a pause in the coming year."

To the list above, Mexico needs to be added.

Memo to self: another note to Jane Nielson.

More at the linked story:

Brazil and Canada are among those “most in the firing line” at current prices, Paul Horsnell, the head of commodities research at Standard Chartered in London, said July 13.

Brazil’s so-called pre-salt offshore fields, and Canada’s tar sands are “frontier” oil provinces where costs are higher because of their technical complexity or remoteness, he said.

Petroleo Brasileiro SA cut its 2020 production target by 1.4 million barrels a day to 2.8 million, reducing planned capital expenditures through 2019 by a third, the Rio de Janeiro-based company said June 29.

The Canadian Association of Petroleum Producers reduced its 2020 oil production forecast by 270,000 barrels a day to 4.64 million on June 9.

The IEA pared its 2019 production estimates for a range of non-OPEC nations on Feb. 10. Its forecast for Russia was cut by 5.4 percent to 10.45 million a day while Mexican output was projected at 2.67 million, 8.9 percent lower than previously.

“U.S. production is going to continue to tick up over the next few years,” said Standard Chartered’s Horsnell. “Non- shale, non-OPEC is going to struggle.”

EIA Predictions For US Crude Oil Production, August, 2015 -- July 13, 2015

Reuters via Rigzone is reporting: EIA:  Oil Output From US Shale Plays Seen Down For Fourth Consecutive Month.

July 13 (Reuters) - Oil production from U.S. shale in August is expected to fall by the most since at least 2007.

Oil production from the largest U.S. shale plays will plunge in August for a fourth consecutive month.

Output was expected to decline by 91,000 barrels per day, 12 percent over July's forecast production decline, to 5.4 million bpd, the lowest level since November for the seven shale plays tracked in EIA's productivity report.

Energy firms cut back on new drilling after U.S. crude futures collapsed 60 percent from over $107 a barrel in June 2014 to near $42 in March on oversupply concerns and lackluster world demand.

Despite the cuts, however, U.S. production averaged 9.6 million bpd during the week ended July 3 for a seventh week in a row, its highest level since the early 1970s, according to the most recent government data.

Several energy firms decided to return to the well pad during May and June when prices averaged $60 a barrel after rebounding off the March lows. The firms have not publicly changed those new drilling plans even though crude prices fell last week and were now trading around $52 a barrel.

In the Bakken shale play, for example, North Dakota regulators said the state's well count hit a record high in May with producers deciding to hydraulically fracture more freshly drilled wells, bucking a trend to mothball them. Drilling permit applications also spiked.

Oil production in the Bakken in North Dakota and Montana was expected to fall 22,000 bpd to 1.2 million bpd in August, while Eagle Ford oil production in South Texas was expected to drop 55,000 bpd to 1.5 million bpd.

Oil production in the Permian play of West Texas and New Mexico, the biggest U.S. shale oil play, however, was expected to rise 5,000 bpd to 2.0 million bpd.

Some said that the Permian was a dying oil basin until the shale revolution came along. Sort of up-ends Hubbert's peak oil theory. No matter how they spin it. 

Key Dates With Regard To Slump In Oil Prices -- June 26, 2015

Previously posted (June 22, 2015) but I wanted to re-post for various reasons.

It's pretty clear, based on:

• new permits
• number of active rigs
• production profiles
• number of wells coming off confidential list
• number of wells on fracklog

... that new Bakken production has shut down. 

Key dates:

• October 1, 2014: Saudi slide starts
• June 20, 2015: new Bakken production shuts down

The next key point is when we reach bottom; we won't know that date until one month to six months after it has happened. The "bottom" won't be affected by weather in North Dakota until January - February, 2016, time frame. Until then, the operational data coming out of the Bakken won't be affected by weather. Between late December, 2015, and June, 2016, weather will play a factor. Data between now and December 1, 2015, is still meaningful when trying to assess when the bottom has been reached or will be reached; but data between late December, 2015, and June, 2016, will make "predictions" difficult.

For example, one might see a small uptick in the number of rigs by the end of November, 2015, but then be frustrated to see that rig count drop again in the winter. Likewise, we may start to see an increase in fracking later this summer and into December, but after that, all bets are off.  

With regard to key dates above, production was tapering off between October, 2014, and June 20, 2015, but "new Bakken production shuts down" is finally here. By "new Bakken production shuts down," I mean that operators are producing only what they absolutely need to produce to survive. They may not even be producing all the oil they need to produce to meet refinery contracts; they could be buying cheaper oil on the "spot" market. There are obviously contracts with regard to transportation (pipeline or CBR) but the former (pipeline) is less flexible, and the latter (CBR) is more flexible.

Setting Us Up For $200 Oil -- Again -- June 1, 2015

30-second soundbite: considering where "we" are with regard to global oil and the strength of the US dollar, all-in-all, this was a pretty good day for oil bulls. And, no, this is not an investment site.

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With today's Wall Street Journal article on the slump in oil prices, I was reminded of the list I posted back in January.

Countries on the watch list with plummeting oil prices:

• Venezuela
• Russia
• Jordan
• Lebanon
• Nigeria
• Brazil 

One can add Columbia to the list.
 
From today's Wall Street Journal article:

Oil bulls ought to be cheered by news from Colombia last week.

Ecopetrol, the country’s national oil champion, cut its projection for oil and natural-gas output in 2020 by more than 400,000 barrels of oil equivalent a day. Assuming 82% of that is oil—in line with output last year—that is roughly 350,000 barrels of incremental supply off the table.

That is a lot. The International Energy Agency’s medium-term projection has production from outside the Organization of the Petroleum Exporting Countries rising by 3.4 million barrels a day by 2020 compared with 2014. Ecopetrol’s retrenchment equates to roughly 10% of that.

Except that it doesn’t really. The IEA, anticipating Ecopetrol’s struggles, wasn’t banking on a Colombian gusher. Indeed, it expects the country’s oil output to fall by 150,000 barrels a day by 2020. Certainly, at less than $68, 2020 oil futures don’t indicate panic.

That isn’t to say the risk of expected barrels evaporating isn’t real. Take Brazil. The IEA sees its production rising almost 900,000 barrels a day by 2020, roughly a quarter of the projected non-OPEC increase. But Petróleo Brasileiro, accounting for about 90% of Brazil’s oil output, has become a byword for corruption and missed targets.

And Petrobras, as the company is known, is due to announce new, likely reduced, guidance soon.

Scandal aside, what ails Petrobras, as well as Ecopetrol, is the need to curb spending as lower oil prices constrain cash flow and access to capital, undermining growth plans. In the IEA’s outlook, emerging markets, including such oil powerhouses as Russia, account for virtually all the cuts in forecast supply relative to last year’s outlook.

There are a lot of story lines here. I would love to opine on some of them but folks would think I'm nuts (if not certifiably "nuts," then at least inappropriately exuberant when it comes to oil). So, we'll let it go at that. For now. 

Maybe I'm just wearing rose-colored glasses:

Rose-Colored Glasses, Jon Conlee

From The "For What It's Worth" Department -- May 21, 2015

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

I received a long note from an analyst in the UK -- one of many such notes I receive in the course of a  day. I normally don't read them, consign them to spam, and move on. For whatever reason this one caught my attention, and so I will post it. It's from "Jonathan Lacouture, GlobalData’s Upstream Analyst for Onshore Americas."

Of the nine short paragraphs in the analyst's comments, here are six paragraphs (the analyst based his comments on IP30 -- a well's average production over its first 30 days of active life):

While the 12 counties with Bakken production between North Dakota and Montana have lost the majority of their horizontal rigs over the last eight months, core areas of the shale play remain attractive, especially as oil prices creep towards $70 per barrel, says an analyst with research and consulting firm GlobalData.

Lacouture explains: “Mountrail and Mckenzie Counties both possess median IP30 values of 550 barrels per day, between 17% and 50% greater than the other counties which contain productive Bakken areas.

“Both counties possess break-even prices that still generate profit in the current market; however, the margin of this financial gain is dramatically lower than the same date last year. This is reflected starkly by the over 50% drop in active rigs capable of multi-stage lateral drilling in the Bakken.”

The analyst adds that rig activity will likely remain depressed until prices are up to twice their break-evens. Rig counts have already begun to level off in core areas as the price continues to slowly rise and economic returns increase with it.

Lacouture continues: “The scalable nature of the Bakken affords it a flexibility which allows marginal cost barrels to be gradually added or removed, as quickly or slowly as prices allow.

The analyst concludes: “If a given Bakken well produces over 50% of its total estimated ultimate recovery (EUR) in the first nine months of activity, withholding on drilling and completing wells by a few months to a year, until prices climb to, say, above $70 per barrel, will prove more economically fruitful than the alternative.”

Wells in the best Bakken should have in excess of 1 million bbls EUR. I am unaware of any Bakken wells have produced 500,000 bbls in the first nine months of production. I honestly don't see (m)any Bakken wells producing 50% of their EUR in the first nine months of production. Poorer Bakken wells on the edges of the Bakken with EURs of 350,000 bbls are certainly not going to produce 175,000 bbls in the first nine months of production.

But I could be wrong. Way wrong. Take what I say with a grain of salt and don't make any decisions based on what you read here or what you think you may have read here. This is simply an opinion from someone with no formal training and no background in the oil and gas industry. I blog about the Bakken simply because I am trying to understand it better and it gives me something to do when I'm not with our granddaughters.

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Will The Chinese Build Another North American Railroad?

Reuters is updating:

Chinese state firms are poised to be strong contenders in the race to make high-speed trains that will sprint between Los Angeles and San Francisco, part of a $68 billion project to bring the service to the United States for the first time.

While "bullet train" manufacturers from Germany, Japan, South Korea, and France are expected to be among those jockeying for the estimated $1 billion train contract, China’s ability to offer low prices and hefty financing appear to make it the one to beat, say lobbyists and industry insiders.

Lacking experience in the technology, California must turn to foreign firms to build the trains – albeit domestically and with American workers - setting off a geopolitical race to grab a foothold in the nascent U.S. high-speed rail industry.

Germany's Siemens is expanding its rail factory in Sacramento to incorporate a “high-speed lot.” Japan has voiced its interest, boasting a record of no fatal accidents in over 50 years operating high-speed trains. France’s Alstom, which produces rail cars in upstate New York, is also a potential contender.

Awarding a piece of America’s most ambitious and expensive infrastructure project in decades to strategic rival China – over a long-term ally such as Japan - would be prone to political controversy.

Saudi Arabia's Production Surges -- Up 0.1% -- May 12, 2015

Update

May 13, 2015: talk about prescient / timely. I posted the note below later last night. This morning, over at CNBC, EIA is reporting that US shale industry "blinked." Somewhat unconvincing argument. 
 

Original Post

Note: I'm always a bit nervous when I post these meanderings. There may be huge errors. This is to help me put things into perspective. Don't quote me on any of this stuff. In fact, it's probably advisable to ignore this post. 

As we will see in a few moments, it's hard to get a reliable number for a) the amount of oil Saudi Arabia produces on a daily basis; and, b) how much of that production is exported.

These numbers are probably not all that reliable, and they are certainly out of date but wiki reports:

Saudi Arabia produced 10.3 million barrels per day in 1980, 10.6 Mbbl/d in 2006, and "about" 9.2 million bopd in 2008. The country announced plans to increase this capacity to 12.5 million bopd by 2009. (I remember that figure, not 12.5 exactly, but the figure of around 12 million bopd was forecast back then.)

Also according to wiki, Saudi crude oil production has varied from as low as 8.25 million barrels per day (average for 2009) up to 9.83 million barrels per day (average for 2012). Overall, in the nine years since 2004 (2005-2013), Saudi crude oil and lease condensate production has averaged 9.20 million barrels per day, just slightly higher than 2004 levels.

Now, we get this, Bloomberg at Rigzone reporting:

Saudi Arabia boosted crude oil production for a second month to the highest level in at least three decades, helping to raise OPEC output as U.S. supply growth showed signs of slowing. The Middle Eastern country increased crude output by 13,700 barrels a day in April to 10.308 million, according to data the country communicated to the Organization of Petroleum Exporting Countries’ secretariat in Vienna.

OMG! "To the highest level in at least three decades." Except maybe in 2006 when maybe they produced even more. 

On the other hand, from outside sources:

OPEC’s data compiled from external sources showed Saudi Arabian output of 10.095 million barrels a day in April, lower than the figure directly communicated from the nation. The kingdom’s output was 10.069 million barrels a day in March, according to these figures, which OPEC describes as being compiled from “secondary sources.”

This all seems to be a "war" of words. There is not a whole lot of difference (at least in my mind) between 10.31 million bopd and 10.07 million bopd when one recalls that Saudi Arabia at one time announced plans to increase their production to over 12 million bopd.

[The difference between 10.069 million and 10.095 million bbls is 0.3% --  hardly worth getting excited about -- since these are all "wags" anyway.]

Saudi Arabia's number of 13,700 bbls represents 0.1% of 10.3 million bbls. Is that correct? Only 0.1%. Let's see, checking, 0.001 x 10,300,000 = 10,000 bbls. Okay, close enough.

So, this is a headline? Saudi Arabia boosted crude oil production for a second month to the highest level in at least three decades.

Wiki said the "number" was 10.6 million bopd back in 2006. As noted, the numbers are unreliable for a number of reasons and then there's the question of whether one is measuring crude oil only or also associated condensates. Whatever. The increase seems unremarkable when looking at the collapse in oil prices.

Can anyone really get excited about this? Last August before Saudi made their famous announcement, Saudi oil imports into the US about 28 million bbls/month; in February (most recent data), 26 million bbls/month:

Which brings us to the second story. At the linked article, an analyst had this to say:

“The Saudis must be content that their policy of protecting their market share has worked so well and prices did not stay below $50 for long,” said Christopher Bellew, senior broker at Jefferies International Ltd. in London. “They held their nerve and now see a stable market with their share preserved.” 

Really? Six months in the history of the oil and gas industry is hardly very long.  Graphically, the story looks even more unremarkable.

The EIA estimates that US shale production will decrease by 86,000 bopd in April, which is a much bigger decrease than the paltry 13,700 bopd Saudi Arabian increase.

I think the whole increase (Saudi) / decrease (US shale) is trivial -- up to this point.

The whole thing is "manipulated." I miss the days of blaming the price of oil on "speculators." Joking. The mainstream media only mentions speculators when the price of oil rises "too high too fast" and I don't want to see that.

Anyway, I often make simple arithmetic errors. That 0.1% above may be an error. Maybe I misread something, but if the increase truly is 13,700 bopd on 10 million bopd and if that truly works out to about 0.1%, it seems a lot of talk about something pretty trivial. Shoot, I think Libyan exports are down to around 300,000 bopd when they could easily be over a million. Don't quote me on that; it's been a long time since I looked at Libyan exports. Speaking of which, I think Iraqi exports have fallen significantly also. But now I'm rambling.

Time to move on.

Two last non sequiturs:

• oil doesn't spoil with age
• all oil produced is eventually sold/refined 

One last thought: some have opined that Saudi took their action not against shale fracking but against the surging solar and wind industry worldwide. In fact, it's probably all about Iran.

"Futures" suggest it could be a nice day tomorrow.