Thoughts on Takeaway Capacity -- Bakken, North Dakota, USA

In the December, 2010, NDIC Director's Cut, it is reported that takeaway capacity continues to exceed productivity.

Hmmm.

Other data points from the same report:

75 percent of oil production is trucked from the pad
The amount of oil being shipped by train is increasing
The amount of oil being trucked to Canada is decreasing
Excessive flaring continues to be a problem
Daily production in November was impacted by snowstorms (trucks can't get to sites in inclement weather)

What does that suggest to me?

Takeaway capacity exceeds production only because production is impacted by infrastructure choke points, weather and the railroads' ability to scale up.

The two data points we don't have:

To what extent (in bbls/day) does takeaway capacity exceed production?
To what extent can railroads scale up? (physically and economically)

75 percent of productivity is impacted when trucks can't get to the site. But is inclement weather the only thing keeping trucks getting to the sites? Are there adequate number of trucks, adequate number of drivers on a daily basis to meet demand? How often are pumps turned off when on-site tanks are filled and trucks don't arrive on time?

By law / regulation, operators are not allowed to maximize oil production when natural gas is still being flared. Operators are putting in natural gas pipelines, it seems, as fast as they can to "get rid" of this problem. It's, of course, exacerbated by the fact that natural gas prices aren't all that great. So, if there's natural gas being flared at a site, you can bet that oil production is being choked back. Periodically on the monthly NDIC dockets you will see industry requests to waive the natural gas flaring rule.

With regard to price, I think it's becoming a wash whether rail or pipeline is better. Refineries pay less for North Dakota oil when it arrives by pipeline because it is mixed with less desirable heavy oil from Canada; refineries pay more for "pure" Bakken oil when it is shipped by rail, but it costs the producer more to ship it by rail.

For an individual mineral rights owner, the fact that he/she is not taking a loss on Bakken oil due to lack of takeaway capacity is good news.

But for the industry and for the state of North Dakota, having excess capacity is not good news. It highlights the fact that overall production is being held back, mostly due to lack of pipeline (oil and natural gas) infrastructure.

At least that's how I read it.

ND Budget: $100 Oil, 425,000 Bbls/Day In This Cycle

Link here.

State Lease Sales Still Interesting -- North Dakota, USA

This is just idle chatter while waiting for today's news cycle to begin.

The quarterly state lease sale remains interesting.

Most of the attention in most recent sale (November, 2010) was in Williams and McKenzie Counties; relatively quiet elsewhere. Both Williams and McKenzie had sales exceeding $11 million whereas Mountrail did not even break the $1 million threshold.

It appears the largest bonus paid was $8,600/acre by Trinity Western for 3.34 acres under the river in McKenzie County.

Slawson paid $6,000/acre for 176 acres under the river, also in McKenzie County.

Total dollar amount paid to the state in the November lease sale: $42 million for 30,000 acres which works out to an average of $1,400/acre.

By comparison, the totals for August, 2010, were $64 million for 42,000 acres ($1,500/acre).

For May, 2010, $158 million for 53,000 acres ($3,000/acre).

And finally for February, 2010, $47 million for 40,000 acres ($1,200/acre).

As a reminder, in the best Bakken,the EUR for a well is conservatively estimated at 500,000 bbls. They will drill three wells per section = 1.5 million bbls EUR. Dividing by 640, that's 2,400 bbls/acre. At $50/bbl, that's $120,000/acre at the wellhead.

Number One in Flax

North Dakota will set another record in flax production and production is slated to increase next year.

North Dakota produces 95 percent of the nation's flax.

The iPad -- Not a Bakken Story -- But Surprising News, Nontheless

I have never owned a non-Apple personal computer. My first desktop computer was an Apple -- bought back in 1984 or thereabouts (I forget the exact year) and my daughters, starting at age two and six years of age, have grown up with them.

I bought an Apple iPad the first day the 3G (wireless) model became available (April 30, 2010), and I have found it incredible.

My wife and I live in various locations around the US (Boston, Los Angeles, San Antonio, and Williston [North Dakota]) following our grandchildren around, and could not afford to have wireless / internet cable in each of those locations. The iPad is perfect for our situation. In addition, while traveling, we are guaranteed wireless access wherever we end up. It truly is remarkable.

I didn't have the iPad yesterday while traveling because my wife had it in Los Angeles, where I am now.

This morning, without getting out of bed, I was able to catch up on all my e-mail, and update my blog using the iPad. I minimized my comments due to fact I was using the virtual keyboard, but now I'm up and about, and the iPad is in its dock with the not-so-miniature keyboard, and I can type to my heart's content.

I do not own stock in Apple, Inc. (Another mistake I made.) But not owning stock in Apple, Inc., I feel comfortable recommending one for a family member or yourself for a Christmas gift.

The second generation iPad is likely to be released in about two months, February, 2011. It will have at least one camera, maybe two (front-facing, and rear-facing) as well as a USB slot. I can only assume the price will go up if these add-ons are included. I have no need for either the camera or the USB slot. It's very possible the price of the first generation iPad will go down if the model is discontinued when the new model comes out. But even if it isn't, I am likely to get a second first-generation model, if only so my wife can keep hers (which I bought for her) and I will have one while traveling. They really are magical.

The 250 megabyte download on a monthly basis for $25 cannot be beat. If one doesn't download movies, the 250 megabytes is more than enough for e-mail and routine internet surfing.

Wow, wow, wow --- I just checked ATT iPad plans to make sure I was correct on the pricing, and wow, am I surprised! ATT has now lowered the monthly rate to $14.99.

That's incredible. The competition for wireless access must be huge.

Update: see comments below regarding ATT 3G coverage in North Dakota. Here's the link regarding ATT coverage: http://mobile.engadget.com/2010/06/23/atandt-seals-deal-on-verizons-divested-alltel-marhttp://mobile.engadget.com/2010/06/23/atandt-seals-deal-on-verizons-divested-alltel-markets/kets/.

Comment: I got a kick out of this requirement that Verizon sell Alltel wireless; it was a huge gift to ATT as far as I can see. What a great country. ATT, by the way, raised its dividend and is considering a 300 million share buyback.