Saudi Arabia: A Tough Week For Denying Rumors

First, it was the pipeline explosion that never happened.

Saudi Arabia denies the report [that there was a pipeline explosion], and less than 24 hours later, the world's journalists accept the Saudi statement as gospel truth, despite the fact that no could confirm it one way or the other. Everyone agrees that the pipeline in question is in Saudi's eastern province, a hop, skip, and a jump away from Iran which is now Saudi's #1 (and maybe only) enemy. 

Now, we have the sandstorm stopping oil-loading operations that never happened.

Operations at King Abdul Aziz Port in Dammam were suspended yesterday [due to a sandstorm], the commercial port’s General Director Naim al-Naim said, according to the newspaper al-Eqtisadiah.

Despite shutting down all operations, oil loading went on as usual, according to the Saudis.

Saudi Arabian Oil Co. is shipping crude normally today from terminals in the Persian Gulf, the world’s largest oil exporter said, even as sandstorms stop other kinds of cargo from leaving the nation’s main eastern port. 

So, the pipeline explosion that never happened, and the sandstorm that stopped all harbor operations except normal oil loading.

Build Your Own Bakken ETF -- Motley Fool

I really don't care for Motley Fool. I lost my "love" for Motley Fool some time ago; I forget the specific tipping point but it had to do with all the focus on getting folks to pay for their newsletters. They write superficial, short stories and then entice you to link elsewhere to pay for a newsletter subscription.

I will still post Motley Fool articles, but I am much more circumspect.

Motley Fool has another such story: superficial, minimal analysis, and a blurb on what Bakken companies would make up his ETF. This writer says there is no easy way to invest in a Bakken ETF; this is not entirely correct. There is a mutual fund that focuses on the Bakken. I forget the name of the fund; I don't follow it and I don't invest in it. This is not an investment site; see disclaimer at the sidebar at the right. [Update: a reader sent me the name of the referenced fund: it is the Williston Basin Stock Fund, managed by a group in Minot, ND, Integrity Viking Funds.] 

Be that as it may, the writer of the linked article says his Bakken ETF would be composed of these five as starters: KOG, Triangle, NOG, Oasis, and Magnum Hunter Resources. I can't argue. But I'm not sure why he wouldn't throw in WLL and CLR.

Of the five companies the Motley Fool writer mentions, Oasis seems to be the one hitting on all cylinders. I don't own Oasis but Oasis is my favorite of the KOG-OAS-NOG triumvirate. KOG has its work cut out for itself to convince analysts it can make a profit next time around, or at least not surprise them. NOG has become packed with too much emotion for many; it has a unique business model, one that I particularly like but I don't own. I hold some shares in Triangle, bought a long time, but no longer follow. (Yes, no typo. Unless I check now, I don't know what Triangle is selling for and I don't know what Mike Filloon says it's worth. It's simply one of my long-term holdings. I follow the news closely but I don't follow day-to-day fluctuations.)  I don't follow Magnum Hunter but it is getting a lot of press.

I  have no plans to buy or sell shares in any Bakken-play company in the near term.

Discussion Developing for Best Lateral Spacing

Update

March 8, 2012: the discussion continues. An individual from Hawaii has summarized my thoughts quite well. Check out "kuaudave" and his/her comments at this link, March 8, 12:03 a.m.


March 6, 2012: Teegue's board is nothing if it's not predictable -- today Teegue suggested the topic be taken over to the water cooler if "they" introduce politics into the discussion. I did not see any indication of politics in the discussion, but I did see a lot of apologies to Teegue. "They" desperately don't want to be kicked off the discussion board. I see that the most recent post (by BRI-VA) references my blog which is blogga-non-grata. It will be interesting to see what the response is. Generally, Teegue will respond that this blog is a joke and he won't "recognize" it. In this case, BRI-VA is only referencing a very important link for surface owners which I can guarantee practically no one on the Bakken Shale Discussion Group has seen. BRI-VA takes great risk in referencing this blog. If one references my blog at that site more than once, they are generally threatened with being "kicked off the island." A third time, and it's all over.

March 6, 2012: Wow, I think it's time for Dufus to take the conversation over to the water cooler, over at Teegue's Bakken Shale Discussion Group. (See link below.) Teegue is starting to get a bit hot under the collar (see Teegue's long entry at the link this date). In my eyes, Teegue has always been correct with regard to the Bakken, but I think he is wrong in this case. Read the entire thread at the link below.  Then come back here and read the following. Tight oil/unconventional oil/shale oil is something new for everyone involved. One can argue, under oath, that a single horizontal well can drain a 1,280-acre spacing unit, but it will take 30 years or longer, and a lot of oil will be left behind because of the ineffectiveness of the frack more than 500 feet away. One can argue that by putting in additional wells/infill wells/density wells one can drain the spacing unit in a shorter period of time, and, oh by the way, recover more oil than a single horizontal. Teegue is thinking like a non-participating mineral rights own who inherited a few acres from his grandfather; others are thinking like oilmen. Much more could be written, but it starts to open more Pandora boxes.

March 5, 2012:  I hope the folks who argue against Teegue know they could be excluded from the discussion group.

Original Post

Elsewhere there is a nice discussion regarding the optimum lateral spacing for horizontal wells in the Bakken.

There are several issues brought up: how far from the lateral is oil recovered; is technology changing things; do models have to be updated; are EURs increasing due to improving technology and experience? It's a messy discussion (skipping from topic to topic) but the data points are interesting and helpful in understanding the Bakken. 

This was the question, and rhetorical answer:

The original question asked here was how far oil is recovered from the lateral.  Marathon's evidence shows it is recovered from at least 3/4 mile over 25 years, upon which legal determinations have been made regarding that only one well is necessary in a unit. 

I guess there are at least two questions: a) how far is oil recovered from a lateral; and, b) how far out is fracking effective, which I started discussing a long, long time ago, and a question that operators are discussing in their corporate presenations.

I do agree that EURs are increasing due to improving technology and experience.

I understand "pressure" arguments for liquid pools; I don't understand "pressure" arguments as well when discussing "tight" or shale oil.

Decade For Energy? Kinder Morgan Announces Huge New CBR Terminal In Pecos, TX

I remain concerned that this will be another lost decade. With gasoline at $5.00/gallon in some places, and flirting with $4.00 everywhere, the president praises the Volt (whose production is temporarily suspended due to underwhelming demand) and promotes algae-oil (I feel the term "pond scum" too inflammatory to use). I feel I have reasons to worry. Especially when he promotes algae-oil at the same time he kills the Keystone XL 1.0 and 2.0.

But market forces and technology are such that there may be hope. "Anon 1" just sent me a great story: Kinder Morgan announces plans to build a mega-railroad-crude-oil-terminal in Pecos, Texas, to gather, process, and transport the liquids coming out of the Permian Basin.

The first stage of the terminal is expected to be completed and operational by May 2012. Crude oil, natural gas liquids, frac sand, pipe, tube, structural steel, rig mats and other commodities can be railed in and out, and transloaded to truck for delivery to the surrounding area. Once the terminal has been fully developed, it will encompass approximately 85 acres and will be able to support unit trains. Total railcar capacity is anticipated to be 300 to 600 per day based on demand. The terminal is strategically located along the Pecos Valley Southern Railway (PVS) and directly adjacent to the Union Pacific mainline in the city of Pecos, and will offer scalability and convenience for local area producers.

“KMP is excited for the opportunity to join with Martin Midstream and Watco to develop this opportunity in the Permian Basin.  

This is Watco's eighth crude-by-rail terminal.

Along with crude oil, natural gas liquids, frac sand, pipe, tube, structural steel, rig mats and other commodities, KMI will probably ship kitchen sinks for Sears.

So, there is hope.

Pecos, Texas, is about 100 miles southwest of Midland, Texas.

Two Huge (?) Pipeline Stories That Might Make News Monday

Enbridge shuts down a major pipeline due to spill

BP increasing flow of midwest oil just before the spill

Expect some volatility in WTI/Canadian oil market Monday

Economic spillover (pun intended) for the Bakken? -- no, there is no Bakken oil spil

Keystone XL decision looms in background

Updates

Later: "opening" futures Sunday evening suggest this is not having a major impact on market in general; stock mkt futures up a bit; WTI up a bit; mostly flat

Original Post

First link: Enbridge oil spill due to vehicular accident; does not know when they will re-open the major pipeline.

The pipeline, called Line 14/64, normally carries up to 318,000 barrels of oil a day to Griffith, Indiana, from Superior, Wisconsin.

They say this will further depress the price paid for Canadian oil, but I can't imagine that Bakken oil won't be affected also, if Canadian oil is affected.

Second link: a bit more confusing for me because the writer combines two stories -- the planned ramping up of oil before the spill AND then the spill that resulted in Enbridge closing the pipeline.

The line usually carries 175,000 barrels per day of West Texas Intermediate and West Texas Sour from the storage tanks in Cushing, northeast to BP's massive 431,500 bpd Whiting, Indiana, refinery, a major supplier of gasoline and diesel to the Chicago market.

A spokesman for Genscape said the refinery was running normally but the decision to cut back on the flow out of Cushing could be economic.

"BP could be maximizing the CDU that runs Canadian heavy crude while cutting back on the one that runs WTI and WTS," said Abudi Zein, a spokesman for Genscape.

"The other lines that we monitor and that could compensate are already running full," Zein said, adding that the outage will "blow out" the Canadian crude spreads.

Canadian crude is already heavily discounted to the United States WTI benchmark. On Wednesday, Canadian Heavy crude was bid at $35 under WTI while sellers were looking for $30 under. WTS is trading at about a $25 premium to Canadian crude, according to Reuters data.

From wiki:

Whiting is a city located in the Chicago Metropolitan Area in Lake County, Indiana, which was founded in 1889. The city is located on the southern shore of Lake Michigan. It is roughly 16 miles from the Chicago Loop and just short of two miles from Chicago's South Side. Whiting is home to Whiting Refinery, the largest oil refinery in the Midwest. 

It is not clear how this will play out, but my hunch is we will see volatility in the oil markets, and it's possible the price of gasoline will edge up in the Chicago area. 

This might be a stretch, but that decision to kill the Keystone XL looks more and more irresponsible/ill-advised all the time. Yes, spills happen, but they're cleaned up and life goes on. But in the meantime, the lack of adequate pipeline capacity threatens operations at any given refinery. The country runs on gasoline/diesel.