Did Saudi Blink? -- February 16, 2016

Updates

Later, 12:20 p.m. Central Time: Bloomberg says "this" doesn't change anything. The article concludes:

If the intention is real, it may signal panic in OPEC's ranks that a resurgent Iran

-- whose own relations with Saudi Arabia could charitably be described as frozen

-- is about to make a terrible situation a whole lot worse.

Now, back to the article, from the beginning. With regard to the "agreement,"

Written another way, you could say that four large oil producing countries just confirmed that they won't cut output, which was the same situation that prevailed last week, before oil prices rallied on news of talks between OPEC members and Russia.

The writer says the "freeze" faces three big problems:

• things will get worse, with or without Iran adding more production to the current global glut
• Saudi Arabia is on the cusp of ensuring its market share; US producers almost ready to go under; does the "freeze" throw them a lifeline?
• global oil demand is off to a shaky start in 2016 

This is how I see it: a) nothing changes; b) Saudi Arabia throws a bone to the chihuahuas in OPEC; c) it enhances Saudi's image as a deal-maker; d) it allows Saudi to test the waters (how the global investment market reacts); and, e) allows the Saudis an opportunity to "save face" if changes are necessary (in either direction.

Original Post

 

I think the second sentence says it all, "albeit hardly concrete." In fact, it's not a "deal" at all, except to say that production will freeze if "everyone" agrees.

In a sign of tentative cooperation among major oil producers, Qatar, Russia, Saudi Arabia and Venezuela announced a plan on Tuesday to freeze output at current levels, a move intended to help bolster energy prices.

The plan, albeit hardly concrete, reflects the troubled state of the oil industry.

With prices having recently slipped to new lows, major oil producers, particularly in the Organization of the Petroleum Exporting Countries, are trying to calm the markets with talk of a deal. But the proposal gives countries a potential out, a big reason oil prices gave up their initial gains on Tuesday.

While speculation focused for months on production cuts, the talk now centers on holding production steady. Even that would be helpful in a market where countries have been steadily ramping up production to record levels.

The plan represents a reversal for Saudi Arabia. As oil prices have slumped, the country, the de facto leader of OPEC, has avoided trying to manage the market through cuts, or even talking of them. Instead, it has continued to ramp up production, even as prices dropped sharply.

It is also symbolic that Saudi Arabia and Russia are now presenting a united front on oil. The two countries are geopolitical rivals, backing opposite sides in the Syrian civil war.

While major oil-producing countries have been floating ideas to the markets for months, divisions are heating up, as oil prices flirt with $30 a barrel.

Venezuela has been especially vocal about managing production. The country’s economy, which is critically linked to the prices of oil, is in disarray and its leadership has little financial backup.

Now, it appears to be getting support from Saudi Arabia and Russia. While such big players are feeling the pain, they are in better shape, making it easier to weather the price weakness.

But the producers are not committing to a deal, highlighting the difficulty of the process. The four countries said they would freeze their output at January levels only if other major exporters did the same — and that is hardly an easy sell.

Well, we know that's not going to happen.

Since 1998, OPEC has "cheated" on production ceilings/quotas almost continuously. There have only been two (very inconsequential) 'moments' in which OPEC has not exceeded their production ceilings since 1998.

Did Saudi blink? Perhaps a smirk. 

Canadian Update -- Part 2, RBN Energy -- February 16, 2016

Canadian Heavy Crude Oil Producers Can’t Make It Up on Volume -- RBN Energy (archived).

Most Canadian oil sands crude production comes from very expensive mining or underground steam heating operations designed to produce consistently for decades that are costly to shutter in a downturn. Right now the crude netbacks (market price les transport costs) for these projects are more or less under water depending on transport routes. Yet production continues and new projects are still coming online. Today we estimate the netbacks (market price less transport cost) that Canadian producers are realizing.

In Episode 1 of this series we reviewed the woes of hard-pressed Canadian producers in the face of ever lower crude prices. U.S. shale producers are struggling to keep the debt collectors from their doors and cutting capital budgets left and right to survive with prices for benchmark West Texas Intermediate (WTI) trading below $30/Bbl. Yet $30/Bbl probably sounds like lottery money to their counterparts in the Western Canadian oil sands. Crude prices there for benchmark Western Canadian Select (WCS) are currently (11 February 2016) trading at a $12/Bbl discount to WTI in Hardisty, Alberta – reflecting the higher transport cost to get Canadian crude to U.S. refineries and quality differentials for heavier oil sands grades.

That means Canadian producers get $15/Bbl at best ($14.20/Bbl on February 11, 2016) for their crude in Alberta. And some of that $15/Bbl has already been spent to buy the lighter and more expensive hydrocarbon diluent that is required to blend heavy oil sands bitumen at the lease so that it can flow in pipelines.  Since most of the demand for heavy oil sands crude comes from U.S. refiners – in the Midwest or increasingly on the Gulf Coast – producers have to eat high transportation costs to get their crude to market. We also discussed how oil sands extraction plants that use steam assisted gravity drainage (SAGD – used by the majority of recent projects) are difficult to shut down when economics are this bad – because the start up process is very lengthy and expensive and the process of stopping production can damage the resource reservoir.

In the circumstances cash struck producers are selling midstream assets and hunkering down even as – in some cases – they are experiencing a net cash outflow on every barrel produced. In today’s episode we take a look at the economics for a typical oil sands producer to understand just how bad things are in the Canadian oil patch these days.

Six (6) New DUCS In The Bakken; Halcon Reports A Nice Well -- February 15, 2016

Active rigs:

	2/16/2016	02/16/2015	02/16/2014	02/16/2013	02/16/2012
Active Rigs	41	136	185	181	200

 
Tuesday, February 16, 2016
30732, drl, Slawson, River Rat Federal 1-23-14H, Big Bend, no production data,
31587, SI/NC, Statoil, Ruth 28-33 7H, East Fork, no production data,
31646, 1,020, Hess, HA-Swenson-152-95-1819H-10, Hawkeye, t12/15; cum 20K after 17 days;

Monday, February 15, 2016
30965, SI/NC, CLR, Uhlman Federal 2-7H1, Banks, no production data,
31621, 361, SM Energy, Schell 3B-28HN, Whiteaker, t12/15; cum 8K after 32 days;
31647, 835, Hess, HA-Swenson-152-95-1819H-9, Hawkeye, t12/15; cum 20K after 25 days;

Sunday, February 14, 2016
30731, drl, Slawson, River Rat Federal 6-23-14MLH, Big Bend, no production data,
30964, SI/NC, CLR, Uhlman Federal 307H, Banks, no production data,
31525, 87, Resonance Exploration, Resonance R.E. Ballentyne Farms 1-30H, Westhope, a Spearfish/Madison well, 320-acre spacing, horizontal, vertical depth about 3,400 feet; total depth 5,347 feet, t10/15; 
31586, SI/NC, Statoil, Jack 21-16 7TFH, East Fork, no production data, 

Saturday, February 13, 2016
30616, SI/NC, Noah Energy, BP North Haas 1-4-20-163-82, North Haas, no production data,
30680, 823, HRC, Fort Berthold 147-94-1A-12-9H, McGregory Buttes, t8/15; cum 88K 12/15;
30966, SI/NC, CLR, Pittsburgh 3-7H, Banks, no production data,
31620, 224, SM Energy, Schell 3-28HSA, Moraine, t12/15; cum 8K 12/15;

Comments: the first Noah Energy permit in North Dakota was mentioned on February 2, 2015. Noah Energy has two permits in North Dakota. I believe this is the first of their two wells to come off the confidential list. There other permit is #30638. Both wells will be in same section.

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31620, see above, SM Energy, Schell 3-28HSA, Moraine:

Date	Oil Runs	MCF Sold
12-2015	6450	3818
11-2015	1079	0

30680, see above, HRC, Fort Berthold 147-94-1A-12-9H, McGregory Buttes:

Date	Oil Runs	MCF Sold
12-2015	8939	6188
11-2015	21629	16460
10-2015	11857	6902
9-2015	31251	29953
8-2015	14242	13364

31525, see above, Resonance Exploration, Resonance R.E. Ballentyne Farms 1-30H, Westhope:

Date	Oil Runs	MCF Sold
12-2015	456	0
11-2015	459	0
10-2015	740	0

31647, see above, Hess, HA-Swenson-152-95-1819H-9, Hawkeye:

Date	Oil Runs	MCF Sold
12-2015	19344	22584

31646, see above, Hess, HA-Swenson-152-95-1819H-10, Hawkeye:

Date	Oil Runs	MCF Sold
12-2015	19596	20004

31621, see above, SM Energy, Schell 3B-28HN, Whiteaker:

Date	Oil Runs	MCF Sold
12-2015	6036	5232
11-2015	1580	0

California Wind Farm Investors Feel A Huge Sucking Wind -- February 15, 2016

I talked about this wind farm back on July 24, 2011. It is amazing what goes around, comes around.

Now, The Miami Herald is reporting that investors in this wind farm may be on the hook for millions in "pay-back:" Investors in huge California wind farm might end up repaying federal subsidies.

A giant wind farm in California’s southern San Joaquin Valley is blowing gusts through a faraway federal court, with tens of millions of dollars potentially up in the air.

Some of the wind farm’s early investors want more than $200 million in additional subsidies that they say the federal government owes them. Obama administration officials, in turn, argue that the government paid $59 million too much. This week, a judge sharpened the administration’s side of the sword, agreeing that the U.S. can try to retrieve some of the taxpayer dollars paid.

U.S. Court of Federal Claims Judge Thomas C. Wheeler said in a decision Monday that the Treasury Department could counter the claims from investors in the Alta Wind project, the largest wind farm in the United States.

The wind farm investors, Wheeler wrote, “have no guarantee of keeping the amounts that Treasury paid them.” He noted that “a refund always was a possibility given a proper understanding of the issues.” As a result, an upcoming trial will determine who owes money to whom.

Wheeler’s ruling seems an unexpected turn for the Alta Wind Facility, located in the Tehachapi Mountains of Kern County. When some of the Alta Wind investors first started suing in 2013 to get a bigger share of federal money, the possibility that they could be the ones owing $59 million did not appear to be on the table.

Read more here: http://www.miamiherald.com/news/nation-world/national/article59876436.html#storylink=cpy

Don't mess around with Jim, don't spit into the wind, I came to get my money back:

Don't Mess Around With Jim, Jim Croce

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Nevada Solar

Meanwhile over in Nevada, regulators are thinking of phasing in rate increases over 12 years rather than over 4 years.

The Nevada Public Utilities Commission has voted to phase in higher rates for rooftop solar customers over a longer period of time than previously approved.

Regulators voted 3-0 on Friday to implement the new rates over 12 years, rather than four years.

Commissioners approved new rates in December for customers who use net metering, or sell excess energy from their solar panels back to the utility.

Regulators say the rates better reflect the declining cost of solar power and phase out a subsidy traditional energy customers pay to support a much-smaller group of rooftop solar customers.

Solar customers say it means their panels will take years more to pay off. Solar companies have responded by laying off employees and staging large protests outside PUC meetings.

And the vote wasn't even close: 3 - 0.

Random Update Brent-WTI Spread -- February 15, 2016

I track the spread here, periodically. Remember, also, this change.

From February 8, 2016, a dynamic link:

Brent WTI Spread is at a current level of 1.93, an increase of 0.44 or 29.53% from the previous market day. This is a decrease of 2.29 or 54.27% from last year and is higher than the long term average of 0.7531.

From Yahoo!Finance:

NYMEX near-month WTI (West Texas Intermediate) crude oil futures prices fell 8.1% in the week ending February 5, 2016. WTI crude oil prices closed at $30.89 per barrel on Friday, February 5, compared to $33.62 per barrel for the week ending January 29, 2016. In comparison, Brent oil first-line futures prices fell 2% to $34.06 per barrel in the week ending February 5 from $34.74 at the end of the previous week. Thus, WTI crude oil prices fell more during the week, resulting in an increase in the WTI-Brent spread.

From Market Realist, February 10, 2016 (see first comment below; Market Realist may be comparing March apples to April oranges):

The current Brent-WTI spread is at $2.36 per barrel as of Tuesday, February 9, 2016.

Brent and WTI crude oil prices settled at $37.72 and $36.76 per barrel, respectively, on January 4, 2016. The Brent-WTI crude oil spread was $1.04 per barrel on the first trading day of 2016.

The lifting of the US crude oil export ban boosted US crude oil prices in early 2016. US crude oil prices also rose due to slowing US crude oil production. However, the long-term oversupply concerns and record production from OPEC (Organization of the Petroleum Exporting Countries) weighed on Brent crude oil prices. So Brent prices fell more than WTI, making the Brent-WTI spread narrow in early 2016.

US crude oil production has not slowed down in 2016 as expected. So US oil prices started to fall more than expected in 2016. But speculation of a collective production cut from OPEC and non-OPEC boosted Brent more than WTI in the last two weeks.

However, the fading ties of production cuts are putting pressure on oil prices. Rising supplies are also putting pressure on US oil prices. So the Brent-WTI spread widened in February.

By the end of the week, according to an e-mail from a reader, the WTI-Brent spread had gone to $3.75.

This was posted back on December 17, 2015:

Some analysts suggest WTI has to have a $4 premium to Brent to make WTI competitive; right now, WTI is selling about $1.10 less than Brent. The WTI-Brent spread will take on huge importance.