CLR Has A New Presentation -- September 6, 2016

Link here (a dynamic link).

A More Detailed Look At Mike Filloon's Most Recent Bakken Update -- September 6, 2016

Re-posted from an earlier post; this deserves a stand-alone post.

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Filloon Bakken Update

Not long ago I mentioned that a surge in Filloon Bakken updates suggests the boom is back. Here's perhaps the fifth Filloon Bakken update in just the past few weeks.  Summary:

• Enhanced completions continue to improve initial production rates in US unconventional plays.
• Mega-fracs were only used sparingly in 2015, but still improved 270-day production year over year by 22%.
• As oil prices improve, we will find that improvements in well design provide a much larger footprint of development in US plays.
• If correct, production increases could be much more substantial at lower prices than analysts expect.

A few points from the article that caught my eye:

There are several graphics showing mega-fracks, including sliding sleeve vs cemented liner with plug & perf.

There is an EOG graphic comparing high-density vs old completion technology. EOG Resources shows over 700% more events (fractures) than back in 2010; more importantly, these events are closer to the well bore.

As I write this, a thought occurs. Saudi Arabia drills (mostly) conventional wells. There productivity is such not a lot of effort (R&D) is being spent on improving technology. For conventional wells in Saudi Arabia, the "low-hanging fruit" is not technology. If the "Bakken Revolution" did what it did with "old" technology in 2020, imagine what Bakken 2.0 is going to bring to the table. Saudi Arabia has to be painfully aware of this.

Continuing with the Filloon update:

Better well designs have produced positive results in fringe areas of US plays. Initial testing was seen mostly in the core.

Looking at the Bakken, there are two main targets. The first is the middle Bakken. This is what the Williston Basin is known for. As a general rule, the best wells will produce from this zone. The Three Forks has a series of up to 4 intervals. There has been little said about the fourth bench, and only a few wells have targeted the third. The upper Three Forks has seen the majority of activity, but in some areas there have been good 2nd bench completions. The middle Bakken core is located around the Nesson Anticline but also includes Parshall and Sanish fields.

There had been very few excellent results from areas outside of the core. Mega-fracs have changed this. We have seen a few wells that not only produce outside the normal ranges, but are producing new records. In NE McKenzie County the cutoff for good well results had been west of Banks field. Banks field does not produce as well as the fields on the border with Mountrail County, but still quite good. [I've always considered the Banks field a pretty good field.]

Using certain criteria, Filloon posted this table which can be compared to tables I have posted in the past:

Name	Well Count	CUM Gas	CUM Oil	Oil/Well
BANKS	5	897,623	522,864	104,573
TRUAX	21	4,009,771	2,172,268	103,441
LONG CREEK	9	1,507,363	903,150	100,350
STOCKYARD CREEK	5	637,349	481,714	96,343
POE	3	313,662	237,987	79,329
TOBACCO GARDEN	6	624,795	471,247	78,541
SIVERSTON	3	379,367	221,575	73,858
BAKER	25	1,208,918	1,752,136	70,085
STONY CREEK	3	252,345	206,163	68,721
EAST FORK	27	1,917,323	1,814,027	67,186
ELK	4	240,459	253,430	63,358
BROOKLYN	9	848,503	559,909	62,212
CRAZY MAN CREEK	5	335,905	302,540	60,508
TODD	8	373,863	467,328	58,416
MOLINE	3	142,742	165,362	55,121
MONDAK	3	124,304	162,185	54,062
ARNEGARD	5	306,481	238,805	47,761
CAMP	10	541,181	433,661	43,366
COW CREEK	4	140,972	144,891	36,223
INDIAN HILL	6	223,793	192,786	32,131

Filloon notes a significant problem right now with comparing wells: shut-ins. He also does not mention wells that may not be shut in but may, in fact, be producing at less than maximum capaicyt for any number of reasons.

Filloon produces a table of the eleven (11) top producers. Here are the top six:

Name	Well Count	CUM Gas	CUM Oil	CUM Water
OASIS PETROLEUM	29	1,467,239	2,104,030	3,813,375
CONTINENTAL RESOURCES	26	2,030,618	1,499,468	1,214,252
Statoil Oil & Gas LP	25	1,803,522	1,495,686	2,436,510
WHITING OIL AND GAS	25	3,939,474	2,530,454	3,551,414
ZAVANNA, LLC	17	2,160,910	1,375,781	1,463,946
XTO ENERGY INC.	15	972,379	725,499	567,944

Whiting out produces all other operators. Oasis is second, and the other producer over 2 million BO. The difference in production of crude per well is quite large. Whiting's results point to a better well design or geology. It is possible this is a combination of both.

A relatively large production improvement was seen over the first 270 days' year over year. Over 16,000 more bbls of oil were produced. This represents an improvement of 22%.

Of the 181 wells, 30 produced over 100,000 BO within the first 9 months. This includes wells that produced for less time. 9-month average production increases to 143,510 BO. It provides some insight into where completions design is taking us. 

Another Filloon Bakken Update; NDIC's Daily Activity Report Index Finally "Back Up" -- September 6, 2016

At the moment, the September 1, 2016, daily activity report is linked including Friday's September 2, 2016, report, but don't bother going there. I was correct when I suggested there were technical problems. There was no Friday activity report due to technical difficulties. And, of course, Monday, was a holiday. See you this afternoon.

The index is at this link.

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Filloon Bakken Update

Not long ago I mentioned that a surge in Filloon Bakken updates suggests the boom is back. Here's perhaps the fifth Filloon Bakken update in just the past few weeks.  Summary:

• Enhanced completions continue to improve initial production rates in US unconventional plays.
• Mega-fracs were only used sparingly in 2015, but still improved 270-day production year over year by 22%.
• As oil prices improve, we will find that improvements in well design provide a much larger footprint of development in US plays.
• If correct, production increases could be much more substantial at lower prices than analysts expect.

A more detailed look at the latest Filloon Bakken update is here. 

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A Blind Spot

I canceled my New Yorker magazine a few weeks ago. The few non-Hillary stories were no longer relevant. I, however, do "read" the magazine every week at the local library.

This week's issues:

• only one short item on Hillary; only one big cartoon on Hillary and Trump (and, surprisingly, it was fair and balanced);
• two articles at the back I would enjoy reading: one on philosophy; one on annual business report letters written by CEOs to investors;
• and, then this one: "How do you go about reforming a corrupt political system?" I looked forward to an article on Chicago or maybe Detroit, but instead the very, very long article is a "Letter from Kiev: After the Revolutions" and, of course, about Ukraine. 

Wow. Talk about a blind spot.

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How Tough Can Investing Be?

In the short note above, I referenced an article in this week's issue of The New Yorker. Here's the article and the link: a book review of Dear Chairman: Boardroom Battles and the Rise of Shareholder Activism, JeffGramm, c. 2016 (I believe).

The essay ends with:

For the rest of us, the difficulty is in telling the guys who can be trusted with your money from the guys who can’t.

Warren Buffett can, and his letters make it sound easy. (“There seems to be some perverse human characteristic that likes to make easy things difficult,” he says.) Reading him, you think, How hard can this investing business be?

His biographer gives us a clue as to the answer. When Buffett was in high school, he was earning twenty-one hundred dollars a year, more than his teachers, from a daily paper route. With the proceeds, he bought a forty-acre farm in Nebraska.

So that’s the answer: if you bought a farm with your earnings while still in high school, you, too, will find investing simple. If not, business letters can still be fun to read, but it might be best to regard them as a form of literary fiction.

Corn, Wheat Crops At Record Production Levels -- Nothing Like A Bit Of Additional CO2 To Help -- September 6, 2016

Whether or not you agree with or appreciate the "tone" of this linked article, the fact is that a) clement weather for the past ten years; and, b) growing atmospheric CO2 concentrations -- minimal as they are -- crop yields are growing (almost) exponentially in the US.

From American Interest quoting Financial Times:

Extensive planting and benign weather have forced analysts to repeatedly raise crop outlooks. The International Grains Council last week increased its global wheat production forecast to a record 743m tonnes, up 1 per cent from last year. […]

The recent US winter wheat harvest was 45m tonnes, up 21 per cent from 2015, according to the US Department of Agriculture. 

Merchants who have run out of room in silos are piling wheat outdoors. 

Storage concerns are also growing in Russia, which is this year set to become the largest wheat exporter after hauling in more than 70m tonnes. In Canada, the government anticipates the second-largest wheat crop in 25 years, of 30.5m tonnes. Australia’s imminent wheat harvest is forecast at 26.5m tonnes, the most in five years.

From an earlier post:

Speaking of blended gasoline, did you all read the WSJ article today that said there's a glut of US corn, and prices are falling fast. By the way, did you see one of the reasons why there are record crops this year?

Clement weather this summer has fueled expectations that U.S. farmers will harvest the largest U.S. corn and soybean crops in history. The USDA earlier this month projected that the nation’s corn crop will reach about 15.2 billion bushels, and the soybean crop about 4.1 billion bushels.

So much for "extreme weather" destroying US crops. And, oh, by the way, that little bit of CO2 is doing great things for corn crops. Both "upstream" and "downstream." 

In addition to clement weather, minimally higher atmospheric CO2, my hunch is technology and government policies have driven a lot of this increase in production.

This will be an interesting story to follow, and thus the new tag, "Agriculture_2016."

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NAWG On Wheat

Linked here, the September 1, 2016, newsletter:

Record yields across the U.S. and favorable conditions around the world this harvest season have brought the lowest price of wheat in nearly a decade, with wheat futures down, causing a dilemma for elevator operators as an oversupply of wheat has caused over-capacity in some areas.

Affecting everyone from farmers to agriculture suppliers, these depressed prices are contributing to a general downward spiral of the farm economy, exacerbated by the threat of cut to certain programs in the Farm Bill, such as crop insurance and Title 1 programs, which protect farmers in times like this. With stagnant markets, many producers aren’t able to cover their cost of production.

Farmers in North Dakota have two "relative" advantages compared to previous years of record harvests.

• taking lessons learned from oil patch on storage
• huge railroad infrastructure buildout during Bakken boom 

EOG To Buy Privately-Held Yates Petroleum; Enbridge To Buy Spectra Energy -- September 6, 2016

Note: this is not an investment site. Do not make any investment, financial, travel, job, relationship, business, or space travel plans based on what you read here or think you may have read here. 

Updates

Later, 8:36 a.m. Central Time: Barron's -- with merger, Spectra and Enbridge see eight (8) years of 10 - 12% dividend growth. Wow!  Dividend growth at 8 - 10% through 2024. Another open-book test.

• 2016: $1.62
• 2017: 1.08 x 1.62 = 1.75
• 2018: 1.08 x 1.75 = 1.89
• 2019: 1.08 x 1.75 = 2.04
• 2020: 1.08 x 2.04 = 2.20
• 2021: 1.08 x 2.20 = 2.38
• 2022: 1.08 x 2.38 = 2.57
• 2023: 1.08 x 2.57 = 2.78
• 2024: 1.08 x 2.78 = 3.00 

Memo to self: check on this in 2024.

Original Post

Active rigs:

	9/6/2016	09/06/2015	09/06/2014	09/06/2013	09/06/2012
Active Rigs	33	75	196	185	192

RBN Energy: building crude oil pipelines -- how to make preliminary cost estimates.

The Shale Revolution sparked a multibillion-dollar re-plumbing of the U.S. crude oil pipeline network that continues to this day, two years after oil prices started falling and one year after oil production volumes followed suit. While the pace of development has at times seemed hectic, the individual decisions to build new pipelines involve a lot of studying, vetting and number crunching. After all, pipelines don’t come cheap, and their success depends to a considerable degree on their long-term usefulness to the market. One of the most important factors in determining whether a crude oil pipeline project makes sense is its capital cost and, with that, the cost of moving oil through it. Today, we continue our look at crude pipeline economics with a discussion of the basics of estimating pipe size and cost, and figuring the optimal capacity of a given pipeline project.

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EOG To Acquire Yates Petroleum

Updates

September 11, 2016: why oil companies are gobbling each other up. A bit of fluff because it's not particularly accurate. In fact, there have been very few M&A deals considering how far the oil sector has fallen. Part of the reason: regulators not particularly favorable to M & A in the oil patch. But some data points from the linked article:

• over the summer, Pioneer Natural Resources also picked up acreage in the Permian, as did Concho Resources, which announced a $1.6 billion deal last month
• one analyst: “US oil production will continue to decline, demand will continue to grow modestly and the inventory overhang will decline,” he said. “This will help oil prices rise slowly, reaching $60 in 2018."
• same analyst: ExxonMobil, Chevron, and Occidental Petroleum are all on the lookout for smart deals, with still more appetite on tap for EOG, Apache, Pioneer and Concho.

Original Post

EOG to buy privately-held Yates Petroleum in $2.5 billion deal.

• EOG Resources agrees to acquire privately-held Yates Petroleum as well as some of Yates' subsidiaries and other entities in a cash and stock deal valued at $2.5B, raising its position in the Permian Basin and Powder River Basin.
• EOG will issue slightly more than 26M common shares valued at $2.3B and pay $37M in cash, and assume $245M of Yates' debt while receiving $131M in cash from Yates at closing.
• EOG says the Yates acquisition adds ~1,740 net premium drilling locations in the Delaware Basin and Powder River Basin to EOG's inventory of premium drilling locations, a 40% increase; EOG plans to begin drilling on the Yates acreage in late 2016 with additional rigs added in 2017.

From the press release:

EOG and Yates Petroleum Corporation today announced definitive agreements under which EOG has agreed to combine with Yates Petroleum Corporation, Abo Petroleum Corporation, MYCO Industries, Inc. and certain other entities (collectively, Yates). Under the terms of this private, negotiated transaction, EOG will issue 26.06 million shares of common stock valued at $2.3 billion and pay $37 million in cash, subject to certain closing adjustments and lock-up provisions. EOG will assume and repay at closing $245 million of Yates debt offset by $131 million of anticipated cash from Yates, subject also to certain closing adjustments.

Yates is a privately held, independent crude oil and natural gas company with 1.6 million net acres across the western United States. Since 1924, when it drilled the first commercial oil well on New Mexico state trust lands, Yates has amassed a rich acreage position across the western United States.

Highlights of Yates' assets are summarized below:

• Production of 29,600 barrels of crude oil equivalent per day, net, with 48 percent crude oil
• Proved developed reserves of 44 million barrels of oil equivalent, net 
• Delaware Basin position of 186,000 net acres 
• Northwest Shelf position of 138,000 net acres 
• Powder River Basin position of 200,000 net acres 
• Additional 1.1 million net acres in New Mexico, Wyoming, Colorado, Montana, North Dakota and Utah.

($2.3 billion +$37 million +$245 million -$131 million) = $2.45 billion / 1.624 million acres = $1,500 acre.

If the deal had only included the Delaware Basin: $2.5 billion / 186,000 net acres = $13,500 / acre.

Note:  I often make simple arithmetic errors; some numbers are rounded.

This was a steal. Even the "pros" agree. Look at this from a contributor over at SeekingAlpha had to say:

• EOG Resources surges more than 6%, as analysts say its $2.5B acquisition of Yates Petroleum strengthens its Permian Basin presence at an inexpensive price.
• Tudor Pickering & Holt analysts say EOG is paying $7K-$8K/acre for the Delaware Basin properties, assuming a value on proven reserves that are producing and still being developed of ~$800M for the 29.6M boe/day EOG said it is picking up (48% oil). [I think it's a lost less than $7 - $8/acre for the Delaware.]
• Simmons analyst Pearce Hammond calculates that the deal comes in well below some recent transactions in the play, including Diamondback Energy's $560M purchase of Luxe Energy, which he says came in at $26K-$27K/acre.
• Cowen analysts say EOG is paying less than $1M per new premium location, and the deal is $2/share accretive to net asset value just on initial locations.

Yes, this is a huge story.

EOG (prior to deal announcement, except share prices as indicated):

• close Friday: $88.91
• futures Tuesday: $89.55
• closed on Tuesday at: $94.93 -- up almost 7%
• market cap: $50 billion
• enterprise value: $55 billion
• total cash: $780 million
• total debt: $7 billion  

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Enbridge To Acquire Spectra Energy 

Updates

Later, 3:45 p.m. Central Time: The WSJ weighs in -- suggests this is a no-brainer. We'll see. I'll believe it when I see it. The regulators love to kill these deals; makes them look they are doing something. From the link:

A proposed pipeline deal between Canada’s Enbridge and Spectra of the U.S. should succeed because of simplicity, limited overlap and low commodity exposure. 

Investor demand for chunky, rising payouts became a challenge as volumes, hydrocarbon prices, and even customers’ creditworthiness sank over the past two years. Their response, a wave of proposed mergers, has seen as many failures as successes. The latest, a $28 billion proposed deal between announced Tuesday between Canada’s Enbridge Inc. and Texas-based Spectra Energy Corp., looks like an example of the latter.

The proof was in Spectra’s share price, which jumped above the original $40.33 value of the all-share offer to as much as $42.33 early Tuesday afternoon. That reflected a rise in Enbridge’s shares and a merger arbitrage spread of less than 5% for a deal expected to close in early 2017.

Traders clearly are betting that antitrust and financing concerns are minimal and that the premium paid for Spectra was modest considering potential synergies. Under the deal, announced jointly by the companies, Spectra Energy shareholders will receive shares of Enbridge valued at around $40.33 each, or a premium of about 11.5%, based on the closing price of Enbridge shares on Friday.

Later, 12:59 p.m. Central Time: Bloomberg weighs in, further increasing the changes this deal is DOA.  Bloomberg calls the deal "exciting." That's a word Obama regulators do not like to hear. Remember: "no drama, Obama." His own words.

Later, 12:58 p.m. Central Time: this is the only headline the regulators will need to read before they kill the deal -- Enbridge seeks to create the 'FedEx' of pipelines.

Original Post

 

$28 billion -- WSJ.  

New company will have assets in crude oil, liquids and natural gas pipelines, terminal and midstream operations.Canadian pipeline company Enbridge Inc. on Tuesday agreed to buy Houston’s Spectra Energy Corp. in an all-stock deal valued at about $28 billion, creating a major North American energy-infrastructure company at a time when energy-industry operators continue to deal with the fallout from low oil prices.

The arrangement has an enterprise value of about $127 billion and the deal, which has the full support of the boards of both Enbridge and Spectra, is expected to close in the first quarter of 2017, the companies said in a release.

On closing, Enbridge shareholders are expected to own about 57% of the combined company, to be called Enbridge Inc., and Spectra Energy shareholders will own the remaining 43%. The merged company will have assets spanning crude oil, liquids and natural gas pipelines, terminal and midstream operations, a regulated utility portfolio and renewable power generation operations.

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GE To Acquire Two European 3-D Printing Firms

From SeekingAlpha:

• General Electric has agreed to acquire two European 3-D printing companies for a combined $1.4B, tapping into manufacturers' growing demand for digital technologies.
• Both Arcam and SLM Solutions make machines that can print metal parts used in aircraft components such as turbines.
• 3-D printing "will drive new levels of productivity for GE including a wide array of additive manufacturing customers, and for the industrial world," CEO Jeff Immelt said in a statement.

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The Market

At the close: what a great day for the market. It did not go up all that much, but the NYSE saw 299 issues trade at new 52-week highs; and only 10 issues (about the same as at the opening) traded at new lows. 

Mid-afternoon trading: new highs on the NYSE now hit 272. New lows, now at 9, have not increased. 

Early afternoon trading: new highs on the NYSE now hit 261. 

Noon trading: the market is now down slightly, down 8 points (the Dow 30). But there are now 249 issues on the NYSE reporting new highs.

Early morning trading: NYSE on a tear --

• new highs: 226 -- EOG, Spectra Energy, Sprint, WPX, XLNX (not on NYSE),
• new lows: 10

Opening: Dow 30 opens up 45 points. Summer is over. The traders are back. ENB opens up 1% up after acquisition announcement (see above). EOG surges: up 3.45% on announcement. In early morning trading, ENB surges almost 4% following Barron's article on dividend growth. XLNX trading at new highs. There are going to be a lot of new highs reported today.

Futures: up about 30 points (Dow 30) just before the open. Positive news on oil brings WTI to about $45. Trivial. SRE at 105.18 at close on Friday.