Random Notes Regarding Recent SM Energy - Oasis Deal; SM Eenrgy Sells Some Bakken Assets To Oasis; SM Energy Adds To Permian -- October 20, 2016

This is a screenshot from a 2016 Oasis presentation showing its Bakken assets prior to the SM Energy acquisition:

This is a screenshot form a 2016 SM Energy presentation showing its Bakken assets prior to selling 55,000 net acres to Oasis:

From an SM Energy presentation in 2016 showing the production curves for SM Energy's holdings in Divide County vs their holdings in McKenzie County to the south.

SM Energy has an October, 2016, presentation in which they detail their Permian acquisition. It's a presentation well-worth reading. SM Energy presentations can be found here; I assume some of these presentations will eventually go away.

Note:

Bakken Update: RSP Permian's Silver Hill Acquisition -- October 20, 2016

From SeekingAlpha.

Summary:

• The Acreage in Loving County has eight proven intervals, with the Wolfcamp providing very good economics at $50/Bbl
• RSPP only strengthens its position, as its Loving acreage may be better than its core in Midland
• The average Silver Hill well economics in 2016 have a type curve that produces a net of over $3 million in just 31 months
• RSPP has a high ceiling in Loving, because its well design is much better than Silver Hill's so well performance should improve

Less than 30 minutes ago I noted in a post that operators and investors are starting to look at a different method of "measuring" mineral acres. Obviously the have been doing this internally for quite some time, and anyone paying attention has done the same thing. But generally, it was done in a "qualitative" manner. Now it's being done in a "quantitative" manner.

From the linked Filloon update:

We really liked this purchase based on the location. 41,000 net acres may not seem huge when looking at deals in other US plays. It is a huge deal, based on the large number of intervals. Looking at horizontal acres (if we consider all of the intervals and locations that can be drilled per section) it comes out to 512,000 net acres. It contains 5,800 economic locations.

Thickness:

RSPP's Delaware leasehold has a combined thickness of 4,500 feet compared to 1,800 in Midland. The majority of Delaware intervals produce more resource per foot on a BOE basis. IRRs are a little better in Midland, but natural gas percentages are higher in the west. Silver Hill has completed 37 wells.

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Valiant Ambition: George Washington, Benedict Arnold, and the Fate of the American Revolution

Nathaniel Philbrick

c. 2016

DDS: 973.4 PHI

Chapter 9

Unmerciful Fangs

 

Begins with Joseph Reed, champion of Pennsylvania's radical Constitutionalists.

Fell out with Geo Washington in the winter of 1776 over his clandestine correspondence with Charles Lee.

Reed adamant in hanging colonists accused of treason. Went after well-to-do Quakers.

Reed and Cadwalader: former friends; began to despise each other; Benedict Arnold was the litmus test.

Arnold, as governor of Philadelphia had been targeting the radical Constitutionalists.

Reed becomes president of the state's Supreme Executive Council, making him the most powerful man in one of the most powerful states in the country.

But things intervened.

Geo and Martha Washington moved from Middlebrook, NJ, early winter, 1778, to Philadelphia for temporary winter quarters, so that he could meet with Congress on plans. 

Washington increasingly upset over Benedict Arnold fighting with the states' other leaders.

Late January, 1779, Geo Washington back to Middlebrook.

February: Geo Washington planning trip to New York via New Jersey. Remember: most Brits have gone south.

By now, Reed going after Benedict Arnold. But not enough evidence to convict him.

Geo Washington refused to take sides.

 

Arnold's life falling apart: marriage on the rocks; financially in deep trouble; leg not healing; a total mess. And Reed still after him.

Many areas of the country where colonists deeply divided. By 1779, Arnold believed the experiment in independence had failed.

Arnold wanted the Brits back, but that was assuming they could win the war. A big assumption. Spain was about ready to join the French on the side of the colonists.

But the small British Army continued to hassle the poorly fighting colonists in New York area; it was hard to say who might win. Arnold decided to tip the scales.

Arnold still a huge supporter of Geo Washington, but writes a hysterical letter to Washington on May 5, 1779 -- and references "money" which will be his downfall. 

And that's where the chapter ends. Arnold's court martial had been delayed from May to June and he intimated to Washington he would send out feelers to the Brits if necessary, and that if that was treason, he should be found guilty and executed.

So, at this point, we have two punch-drunk armies (as Philbrick calls them) with no clear winner. The colonists remain divided. France has joined the colonists against the Brits, and the Spanish may soon do likewise. Benedict Arnold, a broken man, is ready to put out feelers to the Brits to try to tip the scales in their direction. And he has sent a letter to the only man who might help him, suggesting what he is thinking.

Oil Drops Back To About $51 -- October 20, 2016

Jobs: first time unemployment claims surge; back up to 260,000; an increase of 13,000 from the previous week's revised level (previous week revised up by 1,000). The 4-week moving average was 251,750, an increase of 2,250 from the previous week's revised average.

The DOL said there were no special factors impacting this week's initial claims. Mainstream media suggested claims could rise following Hurricane Matthew, when in fact, South Carolina was one of two states with largest decreases in new unemployment claims. States with largest gains in unemployment claims, the usual suspects: CA, PA, TX, NY, WA.

The Wall Street Journal suggests that the surge in claims was due to Hurricane Matthew. The DOL said there were no special factors impacting this week's initial claims, and South Carolina was one of two states with largest decrease in new unemployment claims. Florida was not mentioned by the DOL. The WSJ says the number was also impacted by Columbus Day. Really?

Interestingly, the Journal was way off on its forecast. The Journal anticipated 250,000 new claims, a slight increase.

This is what the Journal said about the holiday:

The Columbus Day holiday, on Oct. 10, also makes the data difficult to read. Holiday periods can affect seasonal adjustment of the data. 

I do believe these holidays happen every year; are predictable; and, unremarkable. All things being equal, holidays should result in few applications because state and federal offices would be closed, making it more difficult to get some claims filed -- or least delaying them into a new week. Maybe that was it. The surge was due to folks waiting a week to file claims. LOL.

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Shale Drillers Are Going Long, Not Deep, In The Oil Patch

From Bloomberg/Rigzone. It looks like SM Energy learned the technology for going long in the Bakken and is now taking that technology to the Permian. Very interesting story.

Long is the new deep.

Just ask SM Energy Co., which on Tuesday spent $1.6 billion to expand its acreage in America’s most prodigious oil patch, the Permian Basin.

The unique geologic makeup of the Permian, consisting of multiple layers of oil- and gas-trapping shale that span hundreds of miles, is well suited for a technique that’s allowing producers to pull more crude out of fewer wells.

Explorers there are drilling longer and longer wells, running thousands of feet sideways to tap as much of the crude-bearing rock as possible.

The technique means owning drilling rights across 1,000 acres in the Permian may actually be just as valuable as holding ones for 5,000 because you’re having to bore less wells.

It’s a strategy more and more companies are taking advantage of to cope in an era of historically low oil and natural gas prices. This ability to bore longer so-called laterals “adds enormous value to each well that we drill,” Herbert Vogel, SM Energy’s executive vice president for operations, said during a call Tuesday on its purchase of 35,700 acres in the Permian from QStar LLC. “I can’t understate how much of a difference contiguous acreage makes.”

The average length of laterals has increased by hundreds of feet in both oil- and gas-bearing rock this year, with an unofficial record 18,544 feet, about 3.5 miles, claimed by a well in Ohio. Denver-based SM said it expects to drill 10,000-foot (3,048-meter) laterals over most of its Texas property in the Permian. And it’s not alone.

This is interesting because the other day a small operator noted they had 1,000 surface acres but 5,000 net mineral acres, or something to that effect, which I had not seen before and which did not make sense. Operators may subtly be changing the say they "market" their mineral acres.

Mineral acres (surface acres) may mean one thing to traditional leaseholders, but they may mean something different to operators and investors, if that makes sense.

Other data points at the linked article:

• unofficial record of 18,544 feet (3.5 miles); claimed by a well in Ohio (I assume this is the horizontal segment only); a "super lateral"
• SM Energy: expects to drill 10,000-foot laterals over most of its Permian acreage
• doubling laterals from 5,000 feet, combined with other techniques, could make a well 4.5x more valuable
• it only takes two to three days to drill that extra 5,000 feet; only spending 10% more (does not include additional fracking cost); getting a 25% net increase in productivity
• Chesapeake: stretching to an average 8,000 in Eagle Ford; and, 10,000 in Haynesville (Louisiana)
• Eclipse Resources plans two, 19,000-foot lateral in the Utica but not unless oil tops $50/bbl

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Contrarian

Exxon's CEO doesn't see "supply shortage" pushing up oil prices. Says ample production from US shale regions will keep prices subdued for years to come, disagreeing with others in the industry who have warned about a looming shortage.

Other speakers at the conference echoed his views. 

ConocoPhillips CEO Ryan Lance estimates that new wells are viable in the Permian, Eagle Ford and Bakken shale basins at just $40 a barrel. 

Production in the Permian can grow by 300,000 barrels a day for the next 10 years “easy,” said Scott Sheffield, chief executive officer of Pioneer Natural Resources Co., which is adding five drill rigs in the basin. 

“It’s difficult to see a big supply precipice out there,” Tillerson said. “It’s difficult to see a big price blowout. 

”Despite persistent fears of bankruptcies in the U.S. oil patch as banks cut lending to the energy industry, Tillerson said the current boom-and-bust cycle has “confirmed the viability of a very large resource base in North America,” adding that shale would serve as “enormous spare capacity” to meet future demand. 

The comments are likely to reinforce the emerging view at the Oil & Money conference, which every year gathers some of the leading industry voices, that oil prices will remain at around $50 to $60 a barrel for the next few years.

Saudi can't make it on $50 to $60 a barrel for the next few years. If things go the way they seem to be going, there may be a  huge shakeup in Mideast leadership economically and militarily.

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Back to the Bakken

Active rigs:

	10/20/2016	10/20/2015	10/20/2014	10/20/2013	10/20/2012
Active Rigs	33	68	191	184	186

RBN Energy: for the first time, LNG exports impact US natural gas supply, demand, and price. Part 2.

After about four weeks offline for modifications and maintenance, Cheniere’s Sabine Pass liquefaction terminal in Cameron Parish, Louisiana began accepting nominal deliveries of feed gas starting last Friday, indicating the facility is due to ramp up to capacity any day now. Since the first export cargo in February, about 130 Bcf, or 0.6 Bcf/d, of natural gas has been delivered to the terminal.

While those aren’t quite game-changing volumes yet, deliveries just prior to the outage were averaging more in the vicinity of 1.2 Bcf/d and indications are that deliveries could ramp up to more than 1.0 Bcf/d in short order with the restart and grow to more than 2.0 Bcf/d by the end of 2017. It’s clear that LNG exports are quickly becoming a prominent and inescapable feature of the U.S. natural gas market.

Today, we wrap up our series on the growing impact of LNG exports on the U.S. supply/demand balance.

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 Fear-Mongering With Large Numbers

New Yorkers subsidizing aging nuclear plants "could" cost them -- worse case scenario -- $8 billion.

OMG.

Over 12 years.

New York state population: 20 million.

Works out to 9 cents/day/New Yorker.

Once the judge sees that bottom-line number, he/she will throw out the suit. As frivolous.

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The Market

UNP plummets; drops almost 7% in trading as it misses estimates. Earned $1.36 vs estimates of $1.39. Profits dropped 13%. 

Mid-day trading: that was a nice reversal. Now up about 20 points. NYSE:

• new highs: 47 -- CNOOC;
• new lows: 16

Open: Dow 30 down 60. Market must be worried about last debate; new polls. Profit-taking in oil, or reality sets it: drops over 2% and back to barely above $50. 

Bank of New York Mellon surprises. Top line and bottom line both beat estimates. Forecast 81 cents; actual, 90 cents.

Not-Ready-For-Prime-Time Thoughts On Hillary And Her Anti-Fracking Comments During The Campaign -- October 19, 2016

A reader asked me about my thoughts with regard to Hillary and her campaign promise to kill fracking. This was my "not-ready-for-prime-time" reply with minimal editing:

I honestly don't know about Hillary. This is the problem: she is no longer (or never was) her own woman. She will be defined by whom she puts around her. (The White House Iranian Committee will grow larger, much larger.)

She had to be against fracking during the campaign to "keep" her base, and to fight off Bernie.

But deep down, she is a lot more reasonable: she was in support of the Keystone; she was in support of fracking before the primaries. I don't think she would spend three minutes with the Standing Rock Reservation; she certainly would not visit: they have no money to give her.

Hillary can be bought and persuaded; she is not ideological like Obama. She can be pragmatic. The unfortunate thing is that if she is ill, she will not have the stamina to be pragmatic and those around her will run the show.

If she wins by a landslide, the EPA is hers; and the fossil fuel industry is in for a shock.

If it's a close vote, and she has no mandate, it might not be quite as bad.

The good news: the Dems are no different than the GOP (in the House and the Senate) when it comes to watching their personal pocketbooks. They are all white males with silver/balding heads. Their only difference is their rhetoric, it seems. For all their talk, their sentiments are about the same.

At the end of the day, I think global events, Russia, and Saudi Arabia will account for 90% of where oil goes; what oil does. I think, at best, Washington politics will account for 10% of where oil goes; what oil does.

More likely, this is how it breaks down, what influences/accounts for where oil goes / what oil does / how it prices out:

• global, non-US, geo-politics (Saudi, Russia, Iran): 90% 
• integrated oil companies (CVX, XOM, COP): 9% 
• Washington politics: 1%

Saudi Arabia is truly in a fight for its life. It can't last two more years with $50-oil.

Russia can last a long time with $50-oil -- they held out in Stalingrad for a long, long time some decades ago -- but Putin won't like $50-oil. So, regardless of what the US wants, it's hard for me to imagine oil staying in a trading range of $50 to $60 for the next two years.

If the price of oil remains at $50, Saudi Arabia is toast: the Mideast will blow up as Iran, Iraq, and Russia all try to seize Saudi's oilfields.

I truly doubt Hillary will want to confront Putin in the Mideast over oil and the risk of initiating WWIII.

If Russia-US do end up in a shooting war because of Saudi Arabia, it will be do to a misstep, a mis-calculation, a la Bay of Pigs, or the Gulf of Tonkin, or the assassination of a Prince-Duke.

By the way, if Hillary wants to hold off Putin, she better be "Thatcherite-steel" in her first head-to-head with him; if she waffles, Putin "has her." Against Putin, I have no doubt Hillary can hold her own but I wouldn't bet the farm on her. If her health goes, which I suspect it will, the US may, in fact, be governed by a part-time president, which wouldn't be all bad. Except that Putin would pounce.

Having said all that, it has been said that historically two-term presidents focus on domestic issues the first term, and then when they fail at that, they turn to global issues.

My hunch is that with her SecState resume and her globe-trotting resume, she will focus on global issues sooner than her predecessor. He withdrew; she will get back into the global fray. The international stage is her comfort zone, although her health will preclude her from doing much traveling.

When it comes to international trade she is truly the antithesis of Trump, though that doesn't mean Trump's policies might be worse; he's a much better negotiator and that could make up for bad policy.

As long as gasoline is $2.00 / gallon, Hillary can do anything to and say anything about fracking; she can even kill it. But if she does, the price of natural gas sky-rockets in Philadelphia -- in fact, I think that's the problem for folks in North Dakota. They equate fracking with oil. Without fracking, the entire East Coast implodes -- they destroyed nuclear and coal, and shutting down fracking in Marcellus and Utica ... well, that's a show-stopper right there.

But back to gasoline (or natural gas, for that matter; it's just that I understand gasoline better): once gasoline starts heading to $3.00 in Oklahoma (least expensive in the US) it will head to $5.00 in California and that's when Hillary gets the memo, "maybe fracking is good for the US."

For investors this seems to be an open-book test: I can't see oil trending below $50. I have trouble seeing oil remaining in a trading range between $50 and $60.

For very, very conservative investors who fear anti-fracking forces in Hillary's administration, focus on legacy oil giants (XOM, CVX, COP).

For investors willing to take more risk, look at the survivors in Texas/Permian: EOG, Pioneer, etc.

For speculators, start accumulating shares in Bakken companies.

For me, I'm in the very, very conservative group.

China's Crude Oil Production -- Second Greatest Monthly Decline On Record -- October 19, 2016

Some time ago, I had a post with this heading: China's peak oil problem. That was September 13, 2016. Now look at this, over at Rigzone. You cannot spin this story: China's September crude oil output was its second-biggest decline on record. Read that again: China's September crude oil output was the second-biggest decline on record.

Yes, there is such a thing as "Peak Oil." Just ask China. 

China's crude oil production fell 9.8 percent in September from a year earlier, marking the second-biggest year-on-year decline on record, government data showed, as major producers shut high-cost wells to rein in spending.

Domestic crude output fell to 15.98 million tons, or 3.89 million barrels per day (bpd), near the lowest in six years on daily basis, the National Bureau of Statistics data showed, reflecting both spending cuts at oil fields and the closure of old wells.

After that, lots of jaw-jaw at the linked article. It is what it is. Yes, I know, China says they dropped domestic production because of large imports the previous month. But if that's the case, that also speaks volumes about China's domestic oil industry.

 
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The Apple Page

Apple has officially announced an October 27th Mac-Centric Event. The excitement seems to focus on the MacBook Pro.

I have both: the MacBook Pro and the MacBook Air.

The MacBook Pro has one moving part: the hard drive.

The MacBook has no moving parts.

Without question, I will never go back to a machine with moving parts (excluding keyboard, track pad; I'm talking about hard drives).

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A Note For The Granddaughters, Especially Arianna

Alexander Hamilton has gotten a lot of attention recently.

From Valiant Ambition: George Washington, Benedict Arnold, and the Fate of the American Revolution, by Nathaniel Philbrick, c. 2016, page 201, is quite interesting. This is a description of the Caribbean during the US revolutionary war:

There was nowhere in the world where money could be made at such a staggering clip as the Caribbean. In 1776 the British West Indies generated 4.25 million pounds of trade, almost three times what had been made by great Britain's East India Company.

France was just as dependent on her Caribbean possessions, which accounted for more than a third of all her overseas trade. If Britain could scoop up a few more of these precious islands from the French, it might provide a way to pay for what had so far been a financially ruinous war Britain was even considering giving up entirely on its American possession so that it could concentrate what resources it still had left to fighting the French.

For Philadelphia's loyalists it was almost beyond comprehension: after a mere eight-month British occupation, they were about to suffer the same reversal of fortune that their counterparts in New Jersey and Boston had already experienced and get handed back to the patriots.

Putting that paragraph into perspective, and reading the history of Alexander Hamilton's first 18 years of life (wiki) puts much of the Revolutionary War and the financial history of the US into perspective.

Perhaps the one article you should read today if you have time for only one article (and this article is very, very long): "Adding a Zero." The profile of Sam Altman in The New Yorker, October 10, 2016, issue -- the story of Y Combinator and "accelerators."

 

In the same issue, a huge miss by The New Yorker, a four-page review of "The Birth of a Nation," Nat Turner's movie on a slave rebellion, arriving amid a resurgence in movies about slavery. The movie bombed. No links. Probably not hard to find if interested. I'm not.

In the same issue James Surowieki whines about racial economic inequality, which for him, revolves around one issue: home ownership. He does manage to slip in his own suggestion to solve things, by spending other people's money, which is in the concluding paragraph of this really, really awful op-ed:

Closing the racial wealth gap would require radical measures, like reparations, which few politicians will discuss. But what's really dismal is that even reforms that could keep the gap from getting wider -- ending the mortgage-interest deduction, challenging residential segregation -- are politically toxic.

Wow, I'm glad I canceled my subscription to The New Yorker.

But then this, in this week's issue (I'm catching up on The New Yorker after being gone for several weeks), there is a profile on Leonard Cohen. The title in the print edition: "How the Light Gets In." On-line, the same essay, "Leonard Cohen makes it darker." Leonard Cohen, no doubt, was on the short list of those who nominated Bob Dylan for the Nobel Prize for Literature. I prefer a profile on Leonard Cohen rather than on Bob Dylan: Cohen, I think, is a much, much deeper thinker. Dylan tapped into an American conscience that wasn't particularly deep (think Joan Baez) whereas Cohen went to the depths of the human condition.

The big loser in all this was the legacy of that artist who was formerly called Prince. He left no will. He never sat for an interview (of which I am aware). He was incredibly secretive even by the standards of musicians. He seldom toured and when he did, they were incredibly limited in venues. Cohen continues to tour; and Bob Dylan really continues to tour, even at age 75. Cohen has written books. So has Bob Dylan, including his acclaimed memoir, volume one. If the artist formerly known as Prince wrote a book, I am unaware.

Speaking of books, this might be very, very interesting. I'm serious. Future Sex, Emily Witt, c. 2016. More on this later. Maybe.