Hi-Ho, Hi-Ho, It's Off To Work We Go -- July 24, 2018

Every day I ride into town to work on the blog, and every day I wonder if there will be anything new to blog.

And every day I am pleasantly surprised. Today was no different. Wow, there are a lot of stories. And that's even before I get to Trump's tweets, and the "back stories from a reader in New Mexico."

I started blogging about 5:00 a.m. this morning because of family commitments starting about 8:00 a.m. local time.

I may or may not be blogging again this morning, but most likely I will.

It's Off To Work We Go, Snow White and The Seven Dwarfs
From the internets (as both my dad and Bush II would say):

In a foreword to The Hobbit, published in 1937, J R R Tolkien writes:

"In English, the only correct plural of 'dwarf' is 'dwarfs' and the adjective is 'dwarfish'. ... So, "dwarves" was coined by Tolkien about 80 years ago to give his dwarves a dignity that dwarfs could hardly attain.

I remember reading that about "dwarfs" and "dwarves" years ago when I was in my belated "Tolkien" phase. This is one of the reason English is such a hard language for non-native speakers to learn. Or so they say.

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A Note for the Granddaughters

Our son-in-law enrolls the two older granddaughters in activities throughout the summer so they literally have no "free" time: software coding at local university; sailing lessons; scuba diving lessons; painting; cooking classes; baking classes; summer junior Olympics (water polo); etc, etc.

They've been doing that for the past several summers.

Earlier this summer, the middle granddaughter took (another) summer course in computer coding at the University of Texas, Dallas. This time it was Java Script. She said it was very challenging and would like to take the course again. [It's rare that she would call a course "challenging."]

Yesterday, I came across a computer coding article in The Economist. [I was able to access it yesterday, but not today.] Here's another article on the same subject: Is Python the future of programming?

"I certainly didn't set out to create a language that was intended for mass consumption," he explains. But in the past 12 months Google users in America have searched for Python more often than for Kim Kardashian, a reality-TV star. The rate of queries has trebled since 2010, while inquiries after other programming languages have been flat or declining.

The language's popularity has grown not merely among professional developers -- nearly 40% of whom use it, with a further 25% wishing to do so, according to Stack Overflow, a programming forum -- but also with ordinary folk.

Codecademy, a website that has taught 45 million novices how to use various languages, says that by far the biggest increase in demand is from those wishing to learn Python. It is thus bringing coding to the fingertips of those once baffled by the subject. Pythonistas, as aficionados are known, have helped by adding more than 145,000 packages to the Cheese Shop, covering everything from astronomy to game development....

Python was already the most popular introductory language at American universities in 2014, but the teaching of it is generally limited to those studying science, technology, engineering and mathematics.

A more radical proposal is to catch 'em young by offering computer science to all, and in primary schools.

Hadi Partovi, the boss of Code.org, a charity, notes that 40% of American schools now offer such lessons, up from 10% in 2013. Around two-thirds of 10- to 12-year-olds have an account on Code.org's website. Perhaps unnerved by a future filled with automated jobs, 90% of American parents want their children to study computer science. 

"The CIA has employed Python for hacking, Pixar for producing films, Google for crawling web pages and Spotify for recommending songs," notes the Economist.

I sent the article to our middle granddaughter and then mentioned it later to the older granddaughter.

This was the older granddaughter's response: "Oh, yes, I know all about Python."

This was the middle granddaugher's response:

"I'll be sure to read it [the article], but it's quite interesting (even just seeing the headline), as many of my friends use that program to create games and such. My friend and I played around with it whilst still working on the House Museum (to create an interactive advertisement), and I believe it's pretty simple to start writing. However, it would be interesting to see what more complex commands look like."

The family subscribes to The Economist so the middle granddaughter will have no trouble accessing the article.

Meanwhile, this is the youngest granddaughter at "finishing school," learning to properly serve tea.

LOL.

By the way, all the paintings on the wall that can be seen were done by the three granddaughters before they were five years old.

Am I a proud grandpa or what? Wow, I must be overbearing. Sorry. 

Cheaper For East Coast Refiners To Get Oil From Urals Than North Dakota -- Reuters -- July 24, 2018 -- What's Wrong With This Picture?

Just twelve days ago I pondered aloud where the "Delta refinery" was getting its crude oil. Now we know. And it's a bizarre story to say the least.And so many story lines.

From Reuters:

U.S. refiners will import a record monthly volume of crude from the Caspian region in July after snapping up the cargoes when prices reached near six-year lows, according to market sources and Thomson Reuters shipping data.

The unusually large volume of crude is one of many changes in the international oil trade caused by a flood of U.S. shale oil headed overseas. [Three million bopd.]

Record exports of crude from the United States to Europe and Asia have pushed down the price of comparable oil, such as the crude produced near the Caspian in Kazakhstan and Russia.

That oil is pumped through the CPC pipeline and loaded in the Mediterranean.

U.S. East Coast refiners, which rely on crude imports, have bought most of the 3.7 million barrels of CPC crude that will reach the United States in July.

The East Coast refiners have limited access to the oil produced in the shale fields hundreds of miles away in Texas or North Dakota. They buy additional crude from West Africa, Middle East and Europe.

That is because U.S. domestic shipping rules can make it more expensive for East Coast refiners to ship crude from the Gulf coast to the northeast than it is to import oil.

East Coast refiners "can get oil cheaper from the Urals than the Eagle Ford," said Kyle Cooper, a consultant for options broker Ion Energy.

Anyone who thinks they understand the oil industry better think again.

MLPs And Investors -- Important Update -- RBN Energy -- July 24, 2018 - Quick! What's The CPC?

Pending today: API crude oil inventory data this afternoon.

• consensus: a drawdown of 3.0 million bbls
• actual: a drawdown of 3.16 million bbls
• WTI pretty much unchanged throughout the day; just above $68

Short stack:

• Score tied: Israelis, 1; Syrians, 1. 
• Saudi IPO: Saudi Aramco CEO: deal for Sabic would affect IPO timeline. Saudi Aramco signaled another potential delay for the world’s largest initial public offering after it started talks this week to buy a stake in a local petrochemical company. Anyone really think this IPO will ever happen? Rhetorical, don't reply.
• Yawn: war of tweets between Trump and Iran had zero impact on price of oil yesterday. Just between you and me, I find that ... amazing ...
• Record: US refiners boost purchases of CPC blend to record as prices drop. This was going to go on the "short stack, " but it's such an incredible story, it became a stand-alone post.
• Oh-oh; HAL shares fell yesterday despite a great earnings report; guidance was terrible based on bottlenecks in the Permian -- some of the smaller, newer players in the Permian could be in trouble -- buying Permian acreage at $40,000/acre; the word Reuters used to describe HAL's share action yesterday: plunge. Not a good word to see in the same sentence as share price ... unless one has shorted the stock. Now, waiting for the other oil services' shoe to drop: SLB.
• Trumped: folks who doubted Trump and Kim need to look again. The WSJ is reporting that NOKO is dismantling a rocket launch site. 
• Predictions: which reminds me -- the mainstream media has been reporting for the past year (?) that Trump's chief of staff John Kelly would resign ... and resign ... and resign ... of course, he will step down at some point, but so far ...
• Heidi's calendar: does not include a visit with Mr Kavanaugh. Or so I'm told.
• Worst list ever: do not visit the MoneyWise site listing the worst 25 states to retire in; it's nothing but click bait. Nothing new. Texas was ranked #24 because of ... poor physician-patient ratio ... hellooooo -- it's called west Texas, but in Houston, DFW, San Antonio, Austin, more than adequate and best health care in the states; most of New England were on the list (high taxes) and most of Deep South were on the list. Not making the list: ND, SD, MN, IA, MT, KS, NE, WY, ID, etc.

Disclaimer: this is not an investment site.

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Back to the Bakken

Wells coming off the confidential list later this morning:

• 31955, 1,118, Hess, EN-Vachal-155-93-0532H-8, Alger, t6/18; cum --
• 24518, SI/NC, Slawson, Gabriel 6-36-25TFH, North Tobacco Garden, no production data, (#32617, #21250, #24521)

Active rigs:

$68.33↑	7/24/2018	07/24/2017	07/24/2016	07/24/2015	07/24/2014
Active Rigs	66	59	32	73	193

RBN Energy: FERC actions on gas and liquids pipeline taxes bring some summer joy.

Back on March 15, the Federal Energy Regulatory Commission shook up master limited partnerships (MLPs) and their investors by deciding that income taxes would no longer be factored into the cost-of-service-based tariff rates of MLP-owned pipelines. We said then that there was no need to panic. In part, this was based on the view the FERC policy wouldn’t affect as much of the industry as some worried it would. But more importantly, our soothing message was tied to the fact it would take a long time for this to play out. It looks like we were right to have some confidence. Today, we explain why the commission’s July 18 vote on a topic as nerdy as “accumulated deferred income taxes” can warm the hearts of MLP investors.

Twice in the past four months we ventured into the strange and sometimes frightening world of FERC rate-setting, dealing with a decision that sent shock waves through the industry. In its March 15 decision, FERC told natural gas and liquids pipelines owned by master limited partnerships (MLPs) that they could no longer have an allowance for income taxes in the rates they would be allowed to charge shippers. The rationale was that MLPs didn’t pay income taxes at the partnership level — only their partnership-unit owners did, in the same way that stockholders in a corporation pay taxes on dividends (which also aren’t allowed in rates). Regardless of the reasoning, the impact had the potential to kick out as much as 10% or 15% of the total rate levels of the MLP-owned pipelines that use “cost of service” to set their rates. That made unit prices (the MLP version of a stock price) go down a lot and there was a hint of panic in the air. It calmed pretty quickly as we and others explained why the policy didn’t necessarily affect everyone, why it would take a while, etc.

Then in May, by which time not much had happened, we wrote to explain the intricacies of the three things FERC had said March 15, how they related to each other and what they did, and we explained the concept of “FERC Time” — a pace considerably more stately than what we’re used to in a market-driven world. A few days ago (on July 18), FERC (its commissioners pictured below) took a couple of actions that make the situation a lot better for the industry, a rare piece of really good news for pipeline owners. It got everyone’s attention and made unit prices for a bunch of MLPs jump, some by double-digit percentages.

Now, the update and good news:

But then came July 18. In an order on rehearing of the Statement of Policy, FERC decided unanimously that MLPs eliminating their income-tax allowance could just erase their whole ADIT balance — pretend it was never there. So suddenly, most of the MLPs with cost-based rates got a bunch of net investment back, on which they could earn their rate of return — in other words, the income hit they faced because of the elimination of the tax allowance was offset by an income bump from this newly earning investment. In some cases, it’s a complete wash, in some not quite, and in other cases, a pipeline’s rates might go up. Heard on the street: “Say hallelujah one time.”

FERC also issued the final version of the NOPR, telling everyone how the Form 501-G and potential rate-review process would work. Without going into detail, for the most part, it came out a lot better for the reporting entities, especially the MLPs that now would be less likely to show a big over-recovery that could trigger a rate reduction. The fact that FERC acted on this whole mess of complicated issues just four months after starting the process is a testament to how seriously they took the impact on financial markets that resulted from all the uncertainty. In FERC Time terms, they acted at light speed.

Much more at the link.

What Don't You Want? -- July 23, 2018

Folks following this story might read between the lines: Oasis, having sold some of its non-core assets in North Dakota to raise cash to buy very expensive acreage in the Permian now says "Bakken is still the company's focus."

It will be interesting for the next twelve months or so to see how the Permian plays out for Oasis, what with the takeaway issues; high cost of completions; and, lack of infrastructure.

From The Williston Herald

Earlier this year, Oasis sold some of its Williston acreage and bought a $946 million position in the Permian’s Delaware Basin.

That works out to a pricey $46,600 per acre, and, at the time, was the most expensive entry yet to the Permian on a per-acre basis, according to analysts. One question that company’s officials heard a lot since acquiring that costly acreage is: What does it mean for the Bakken?

Vice President of Operations for Oasis Petroleum, Jason Swaren, had an answer for that question during the Bakken Conference and Oil Expo.

“Ninety-five percent of our total hydrocarbon production comes from Bakken assets, and only 5 percent comes from the Permian,” he said. “From our company perspective, I cannot stress enough how important the Bakken is to our company.”

At upwards of $50K/acre in the Permian, I would think investors might want to know what they are getting for their money. A billion dollars and only 5% of their production comes from the Permian. Wow. A billion dollars would go a long way in the Bakken these days.

WTI-Permian spread has been as much as a $15 deficit for Permian oil, while Bakken has been commanding a slight premium.

Well, time will tell.

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

What Don't You Want, Come Hell or High Water

On a more pleasant note, this is interesting. Oasis saw a potential conflict next year with development of the new Williston airport impacting development of an "Oasis" oil field in the same area. So, Oasis, on its own and shouldering the cost of building the road, procured a right of way that would allow folks to access the new airport without being impacted by oil activity. From The Williston Herald:

A new development that [airport director Anthony] Dudas was excited about is construction of a new access road to the airport, which began Tuesday. The project is not part of the XWA construction itself, and was spearheaded by Oasis Petroleum as a means to allow residents to avoid the development the company will be doing in the area within the next two years.

According to Dudas, Oasis procured the right of way and are constructing the road at their own cost, with the city stepping in to cover the cost of laying gravel and paving the road.

"It's really a great public/private partnership," he said. "and a cost savings to the city. It's really a positive safety outcome as far as improving the road to get out here."

See this post to see where airport will be located.

This graphic suggests where Oasis is likely to be developing wells near the airport over the next couple of years, and where the new access road is likely to be:

Just Posted -- Legacy Fund Deposits For July, 2018

Link here.

July, 2018: $62,538,185.90.

Memo to self: note to Art Berman and Jane Nielson, the oil companies paid the state of North Dakota over $62 million for the month of July.

$62 million.

And 90 cents.