More Details On The Coming Surge In The Bakken: 6,000 Additional Bakken Wells Over The Next Three Years

Disclaimer: for personal use only. Archival. Rambling. Not ready for prime time. 

Lynn Helms was recently quoted as saying folks should prepare to see a huge surge in oil production in the Bakken. In an op-ed pieced in The Bismarck Tribune, a bit of back story is provided.

Data points:

• has recently signed authorization for 530 multi-well pads (repeat: multi-well pads, not individual wells)
• another 334 are nearing completion, ready for his signature/approval

The Bismarck Tribune says:

That translates to nearly 6,000 additional wells in the next three years — more than are currently producing in the state — and a huge bump up in production.

As of February, 2013 (most recent data posted), there are 8,202 producing wells in North Dakota, averaging 95 bbls/day, a record (except for outliers back in the 1950s).

As of February, 2013 (most recent data posted), there are 5,312 Bakken/ Three Forks producing wells in North Dakota, averaging 135 bbls/day.

Story A

A couple of points: this sounds like something "new." But regular readers are well aware that operators are already drilling nearly 2,000 wells/year. So, 2,000 wells/year over the next three years is hardly news (for those who have been keeping up with the Bakken).

The impact The Bismarck Tribune is concerned about could be a lot less than they anticipate.

First of all, if we are already drilling 2,000 wells/year, why would there be a huge new surge in impact for the state if we continue at the same rate, 2,000 wells/year?

In addition, we are going to multi-well pads (we've been there for quite some time, actually) which means a lot less impact on infrastructure. We've talked about it before.

Also, a lot of new wells will go to pads that are already built; they will obviously have to enlarged, but the roads leading to the original pad is already in place. And, oh, by the way, pipelines to the original pad have already been laid in many (most?) cases.

More salt water disposal wells have been drilled; more solid waste facilities have been built: both decrease number of truck-miles.

The real question: is 2,000 wells/year the steady-state in the Bakken, or will it increase/decrease over the years. And that for me is a "toughie." Oil companies need to manage their assets, and all things being equal, I think a lot of operators will start to spread their CAPEX over several basins: Permian, West Gulf, Williston, Denver, southern Californian. 

My hunch, based on the in-depth report from Statoil at Petroleum News, reported earlier this morning, 2,000 wells/year will be the steady state for the next decade, and perhaps even drop back a bit.

I wonder if it would make North Dakotans feel a bit less anxious if they were told that the surge in oil production will not be accompanied by a huge new surge in activity. I think the "seed corn" has been planted, or perhaps a better analogy, the Bakken Assembly Line is well on its way to being completed: production will increase but it won't require a surge in manufacturing.

One exception: takeaway. The rail is in place and number of rail cars is scalable. But eventually, "everyone" in the business wants to see more pipeline. But laying pipeline, in contrast to building pads and drilling 10 wells on a pad, has a lot less impact.

Story B

Lynn Helms says he has signed and is ready to sign authorizations that equate to 2,000 wells/year over the next three years (6,000 in total).  This is huge. If the inference is that within the few weeks, another 6,000 wells will be permitted, but the NDIC will continue reviewing applications and approving permits, this is huge.

I doubt Helms is suggesting that once he signs these permits for 6,000 wells he is done with permits for the next three years.

If the 6,000 is just a snapshot in time, then there will be even more than 2,000 wells/year and the impact will be felt.

So, I am a bit confused. If he is now approving 6,000 wells, why was it stated that the wells will be drilled over the next three years? If that is accurate, it sounds like his data suggests that permitting will not be the chokepoint; the operators will have all the permits they can handle.

I haven't checked recently but I thought there was generally about a 500-well-backlog at the end of any calendar year: of all the permits signed in any given year, at the end of the year there were still about 500 of those permits to execute.

So, if he signs authorizations for 6,000 new wells now, and only 1,500 more wells are drilled this year, that leaves a huge backlog going into next year, and more permits will undoubtedly be signed in 2014.

To keep up with the permitting, significantly more than 2,000 wells per year will have to be drilled.

Another way to look at it: "they" say the Bakken/Three Forks will eventually required 50,000 wells which were to be drilled over 20 years.  That's 2,500 wells/year.

CONCLUSION

The only way I can sort this out, is to suggest that authorizing multi-well pads is not the same as authorizing well permits. The well permits will come later. But still, once one permit is approved for a given multi-well pad, won't it be fairly quick to approved the additional wells for the same pad? Perhaps the NDIC staff will get a well-deserved vacation once those 6,000 wells are permitted. Smile.

Bakken Well Costs Are Decreasing Faster Than Companies Indicate -- Mike Filloon

Reporting at SeekingAlpha.

Two words: seed corn.

Many Stories Being Posted -- WSJ Links

The wells coming off the confidential list have been posted.
There are several important and/or interesting stories coming in from readers. In an effort to get them posted as soon as possible, I may just post the link and a quick note, and then come back to them.

If you see "In Progress" at the top, it means I plan to come back to the article and clean it up.

Taking up a lot of time this morning is sorting out KXNET's story about Charlotte 2-22H which I think is an error. At the link, it's the very last story.

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WSJ Links

Section D (Personal Journal): some good stories today, but not enough time; maybe later

Section C (Money & Investing):

• Age starting to catch up with ATT 

That vitality may be skin-deep, though. Tuesday's first-quarter results should look fine. Analysts polled by FactSet forecast earnings per share of 64 cents, up from 60 cents a year earlier.

But AT&T's ability to throw off cash may have peaked last year. That matters for any company, and especially one whose shares are valued for their yield in a low-rate world. 

AT&T's stock has risen almost twice as fast as the broader market in the past year, with its dividend yield dropping to 4.6% from 5.6%. But that still leaves it as the highest-yielding component of the Dow Jones Industrial Average.

• Netflix growth goes from stream to rapids. 

The Internet-video company Monday said it added a net 2.03 million domestic streaming subscribers in the first quarter, compared with a net 1.74 million in the first quarter of 2012. That gives Netflix 29.2 million total domestic streaming subscribers, roughly the same as Time Warner's TWX +0.30% HBO in the U.S. Aiding this growth was the media buzz surrounding Netflix's original series "House of Cards."

• Consumers running on more than fumes.

This might have something to do with the weather, since last month was wintrier than usual. But the decline in a variety of consumer-confidence gauges suggests there is more than just a chill in the air at work. The favorite theory is that January's payroll-tax increase has begun to weigh on consumers just as sequester-related government-spending cutbacks are putting a further drag on paychecks.

But while spring swoons in consumer spending have in recent years become a regular occurrence, any downtick this time around will likely be brief. While government-related moves are sapping consumers' strength, two other forces, lower energy costs and rising asset prices, are bucking them up.

• Germany joins low-speed Europe.

Germany's sudden aversion to new cars has been more puzzling. The latest 17% year-on-year drop in sales in March was partially attributed to there being two fewer working days this year. But German car manufacturers are generally at a loss to explain the sales slump, other than to cite weak consumer confidence amid continuing uncertainty around the European economy.

The concern is that Germany's car market is simply now catching up with other depressed European markets. Germany's car sales last year were still only 11% short of their 2006 peak, whereas Spain and Italy's markets have shrunk about in half since precrisis highs. 

Section B (Marketplace):

• Viewers stream to Netflix.

Shares of Netflix soared 24% in after-hours trading. The company also reported a small profit compared with a loss a year earlier, as well as a strong reception for "House of Cards," its high-profile original series which debuted in the quarter.

Netflix now is nearly on par with Time Warner Inc.'s HBO premium cable channel in terms of paying customers. HBO had 28.7 million paid U.S. subscribers at the end of the year, according to SNL Kagan, while Netflix's paid streaming subscribers at the end of March totaled 27.91 million.

The company ended the quarter with 29.2 million U.S. streaming video subscribers, including those with free promotions, beating Wall Street's expectations.

• Pilot Flying Chief CEO 'embarrassed' by fraud allegations

Pilot Flying J Chief Executive Jimmy Haslam III said Monday the truck-stop giant has put some of its sales team on administrative leave and is reviewing all contracts with trucking companies amid allegations its employees defrauded customers on diesel-fuel rebates.

Pilot also will scrap manually processed contracts by the end of June and hire a chief compliance officer and outside special investigator in the coming weeks to address allegations of wrongdoing, Mr. Haslam said in a statement delivered to reporters at company headquarters in Knoxville, Tenn. The allegations were raised by a current employee and a former employee, among others, according to the Federal Bureau Investigation.

• US seized $21 million from electric car make Fisker

The U.S. Department of Energy said Monday that it has taken $21 million out of a reserve account set up as part of a loan to luxury plug-in car maker Fisker Automotive Inc. in anticipation of a default on a payment the company owes on a federal loan.

"Given the obvious difficulties the company is facing, we are taking strong and appropriate action on behalf of taxpayers," the Energy Department said in a statement. The department "recouped the company's approximately $21 million reserve account—funds that came from the company's sales and investors, not our loan—and will apply those funds to the loan."

Fisker's chief executive, Tony Posawatz, said in March the payment on the $192 million the company borrowed under a federal advanced technology vehicle program was due Monday. 

The Energy Department said it took the money 12 days ago. The Obama administration has been criticized by Republicans in Congress for its management of loans made to several clean energy technology companies, including Fisker. A GOP-controlled House subcommittee has scheduled hearings on the Fisker situation later this week.

Section A:

Stories about the surviving Boston Marathon bomber and his legal rights. The rhetoric from the Obama administration: terrorism. Legal actions suggest he will be tried as a common criminal. He is a US citizen; he was read his Miranda rights once he was officially accused and, more importantly, conscious, and able to respond (folks were upset that he was not given his Miranda rights, despite the fact he was unconscious; part of the Miranda mantra includes a "do you understand" clause). By the time this is over, 47% of Americans will remember him as a enemy combatant who went back to an Al Qaeda training camp in Chechnya for training (right or wrong, that's what 47% of Americans will believe). Others, including his mother, will believe he was framed by the FBI.

• Mayo Clinic's upmarket move.

The Mayo Clinic has big plans to join other top-flight medical centers in an expensive fight for well-heeled patients, but it faces a problem: Its sleepy hometown needs a face-lift.

Mayo, the biggest private employer in Minnesota, is proposing to invest $3 billion to $3.5 billion over 20 years to transform its already big operation here into a "destination medical center." But the clinic thinks Rochester needs some major upgrading as well—including new parking, sewers and other public works and maybe even a high-speed rail link to Minneapolis/St. Paul some 75 miles to the north.

Much of that would be aimed at attracting a bit of glitz to this out-of-the-way city, such as high-end hotels and restaurants, to help the clinic appeal more to lucrative patients from around the world.

• Obama budget spreads the tax pain. Obama decides to start raising taxes on the poor. This I have to read. Later. And especially the 48 comments, so far. Apparently the rich don't have enough money to pay for ObamaCare.

The op-ed articles are all great today, but don't have time to go through them here. 

Bakken Oil To Port of Vancouver USA

Updates

Later, 7;38 pm: This post explains why they need to ship Bakken oil to California in ocean-going tankers rather than railing it there directly.  This will come into play if there's a oil-tanker event spilling oil into the Pacific Ocean.

 

Original Post

A reader sent me this story overnight, thank you. The reader who sent me the story below noted that Bakken oil would be railed to Vancouver, and then placed on ocean-going tankers for California, Washington, and Alaska. Because of the regulatory issues railing directly to California, it is easier/cheaper/whatever to go via Vancouver and then down to California.

The Columbian is reporting:

North Dakota's oil boom is bringing crude oil — and jobs — to the Port of Vancouver.

Tesoro Corporation and Savage Companies said Monday they've launched a joint venture to build and operate facilities to store, load and unload crude oil at the port. The crude oil would be shipped to the port by rail from the Bakken oil formation in North Dakota. Then it would be hauled by ship to refineries in Washington, California and Alaska for domestic purposes, including gasoline for cars and trucks.

The companies would own the facilities, designed to initially handle 120,000 barrels per day with the potential to expand to 280,000. However, Tesoro and Savage need to secure a ground lease with the port, which initially is expected to be for 10 years. The public will have a chance to weigh in on the matter: The port's Board of Commissioners is expected to decide a lease deal by June. Likewise, a public vetting will occur before Washington state's Energy Facility Site Evaluation Council, a one-stop place for evaluating requests for permits to build major energy facilities.

Tuesday Morning -- Catching Up. Top Cover for President Obama to Deny Keystone XL Permit; Statoil Business Plan For The Bakken; CBR Update in the Gulf; CLR's Third Bench In The TFS A Success -- How It Changes The Bakken

Updates

Later, 11:03 pm: wow, I love blogging. See this post and an earlier post. In both cases I posted the LA Times story and suggested it will give "top cover" to President Obama to kill the Keystone XL. Bloomberg is now reporting the very same thing, and using the same terminology:

Keystone XL critics said they amassed more than 1 million comments against the pipeline to carry oil from Canada, showing what they called grassroots opposition to the $5.3 billion project across six U.S. states. 

The department collected comments through yesterday on its draft environmental analysis that is seen favoring project supporters. Keystone foes said the level of opposition should give President Barack Obama cover to reject TransCanada Corp.’s pipeline, which is backed by oil companies and labor groups as a source of jobs and greater U.S. energy security.

I can almost hear the chuckle in Warren Buffett's voice when he phones the president and reminds him that the president needs to pay attention to those one million comments. Warren owns the railroad taking oil out of the Bakken.

My only comment: if the president kills the Keystone based on these one million comments, the inmates are running the asylum. The good news: all things being equal, the price of oil does not continue to fall.

A big "thank you" to a reader for sending me this link with a photograph of the faces of the "pipeline fighters."

Original Post

Active rigs: 187

There were two big stories linked overnight. I will post them again here so that folks don't miss them.

• First: a long article in Petroleum News on the Statoil's long-term business plan. It appears Statoil will balance drilling activities in the Bakken with several other on-shore plays around the world.

• Second: a very disturbing article in the LA Times regarding the Keystone XL. The EPA has released a scathing report on the Keystone XL. This gives the president top cover for denying a permit for the pipeline. It is interesting that I have not yet seen this story elsewhere: perhaps I am overreacting to the importance of this article. But a) this many years out; b) re-jiggering the route to appease activist environmentalists; and, c) now Nebraskans support, the timing of the release of this document is interesting .... and, concerning. 

RBN Energy: CBR, Gulf Coast Destinations

By the end of 2014 an additional 1.7 MMb/d of pipeline capacity will open up from the Midwest and the Permian basin – bringing crude into the Texas Gulf Coast region. A good deal of that crude will pass through pipelines and/or storage in the Houston Ship Channel area. Ordinarily all that pipeline capacity should trump crude-by-rail due to lower transport costs. But the onslaught of rail could change the game, as over 200 Mb/d of new rail capacity is being built in the Channel area Today we discuss the logic of crude-by-rail in Houston.

An excerpt:

With all the pipelines being built into the Gulf Coast region, there must be reasons other than the need for additional crude unloading capacity for companies to build new dedicated rail unloading terminals in the Houston Ship Channel (HSC).

In the short term it makes sense for any HSC terminal to have the ability to unload incoming crude from rail tank cars. In that way HSC terminals can provide a service to their refinery customers by supplying advantaged crude from the Midwest and West Texas before it is available by pipeline.

Until the Cushing logjam unwinds and teething problems at the Houston end of the Seaway pipeline are cleared up the ability to offer barrels by rail in this capacity has value. That explains companies like BOSTCO and LBC Terminals are not ruling out crude-by-rail as a sideline alongside their main business.

Longer-term however, Mercuria’s strategy for the new KW Express 210 Mb/d dedicated rail-unloading terminal may not be obvious to the casual observer.   Surely pipelines will make this terminal redundant before it is running at full capacity?  Right?  Not necessarily.

The article then goes on to explain why CBR has long-term viability even when pipeline "catch up."

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And then this, the story on CLR's recent success drilling into the 3rd bench of the Three Forks.  KXNET is reporting. I'm a bit confused by the story, and when confused, I'm usually wrong. So, go to the source articles. But this is my confusion. Generally speaking, stories posted on the net by television stations are generally "old" news -- not real old, but often two or three days old. This story has to do with CLR's successful drilling into the third bench of the Three Forks. They highlight Charlotte 2-22H as the well that drilled into the third bench. But the Charlotte 2-22H reported out quite some time ago; this is not news.

• 21128, 692, Charlotte 2-22H, Banks, TF2, SWSW 22-152-99; 30 stages; 2.3 million lbs; t10/11; cum 74K 10/12; total depth: 21,358 feet; 

Note that Charlotte 2-22H was completed/tested back in late 2011 (November, 2011). I always thought the Charlotte 2-22H was a second bench well.

On the other hand, Charlotte 3-22H seems a much more likely candidate for the KXNET linked story:

• 23664, 657, Charlotte 3-22H, Banks, TF1, SESE 22-152N-99W, t11/12; cum 30K 2/13

And the well file confirms that. I'll post details later.
 
But 23612 confuses the story for me, also. At one time it was listed as "A", but today I see it is on DRL status, and it has begun releasing production runs. 

• 23612, A-->DRL, Charlotte 4-22H, TF3, Banks, [Update: see press release, December 3, 2012]

One can easily search the MDW to see all the posts about the Charlotte wells. Some examples:

• it's official: the Bakken is a trillion-barrel reservoir
• the Bakken: 45 billion bbls recoverable?
• the Charlotte wells and drilling the lower benches of the Three Forks

Time for another stand-alone post to sort this out.