What Is Saudi Up To? -- Rigzone -- December 22, 2014; It's All About Market Share

Link here. A John Kemp, Reuters, essay over at Rigzone.

Conspiracy theories are neither necessary nor helpful in trying to understand recent events in the oil market. Not necessary, because they add nothing to explanations for why prices have fallen. And not helpful, because they imply Saudi Arabia could rationally have pursued a different policy.

There are times when history is made through secret backroom deals among the great and powerful. But most of the time it unfolds on its own as a result of mistakes, miscalculations, accidents and unforeseen events which catch senior policymakers as much by surprise as the rest of us.

From an earlier post:

"If my calculations are correct, this (Saudi's inaction) will go down as one of the worst commodity trading decisions ever," Wilbur Ross, billionaire investor and chairman of WL Ross. [Elsewhere: $138 million/day; previously posted.]

Again, Rigzone essays will likely be archived and accessible by subscription only; a word to the wise. 

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... and the answer is: Market Share

Saudi continues to stand by its story -- it's all about market share ... even if oil falls to $20. -- Financial Times.

Bakken, Energy Potpourri -- December 22, 2014

I'm behind on blogging, so a series of links, for the archives, and perhaps maybe come back to later.

Oil storm has Texas wildcat veterans warning Bakken rookies to take cover -- Bloomberg:

Autry Stephens knows the look and feel of an oil boom going bust, and he’s starting to get ready.

The West Texas wildcatter, 76, has weathered four such cycles in his 52 years draining crude from the Permian basin, still the most prolific U.S. oilfield. Though the collapse in prices since June doesn’t yet have him in a panic, Stephens recognizes the signs of another downturn on the horizon. 

Go about 1,300 miles (2,100 kilometers) due north and you get a very different take from the rookie oil barons in North Dakota, where crude output from the Bakken formation went from 200,000 barrels a day in 2008 to about 1.2 million today. They’re not seeing any need to take shelter, and it shows in their swagger.  

Rich Vestal, who’s seen his trucking business double, double again and then double one more time in the past five years, is sipping root beer out of a Styrofoam cup at the Courthouse Cafe in Williston, North Dakota. “I would welcome a slowdown,” he says, while believing one’s not really in the works.

Oil patch towns may get chance to catch up with housing, infrastructure -- The Bismarck Tribune. 

As oil drilling is forecast to see a downturn in the Bakken in 2015, the mayor of Watford City concedes people want to know what will happen in one of the fastest-growing towns in the oil patch.

Nothing and everything is his answer.

Brent Sanford said development and land sales are not slowing because the housing and infrastructure that's needed for permanent oil field employees has not been met.

"Basically, based on projections for a need of 7,000 permanent housing units, we're only at about 2,000. We're so far away. We can't let our foot off the pedal here," he said.

Sanford and Williston Mayor Howard Klug are singing from the same page of the oil boom book.

From The Montana Standard, eastern Montana in critical need for basic infrastructure:

SIDNEY — In the epicenter of the oil and gas boom, communities are growing so quickly they can’t keep up with their basic infrastructure needs such as water and sewage treatment facilities, housing and roads and bridges.

Upgrading water and sewage treatment facilities is the most pressing need in Sidney, public works director Jeff Hintz says. It may cost up to $18 million for the wastewater plant, $17 million for the water treatment plant and $3 million to replace the water storage tank.

Yet local officials say they haven’t received much help yet from state government.

Sold, But Exceedingly Great News -- Same Manager -- December 22, 2014; Taxable Sales

I don't think the current owner has owned the El Rancho all that long. This is a big story for me for any number of reasons. The El Rancho is located just a few blocks due south of where I grew up. The original owners always had a room available for our family to rent whenever we needed a room. That was a long, long time ago.

And now I read that the current owner has sold the El Rancho. The Williston Herald is reporting:

A limited liability company purchased the El Rancho Hotel for an undisclosed sum December 1, 2014.

El Rancho LLC, managed by investor John Tennant, of Vancouver, WA, now owns the hotel on Million Dollar Way.

Day-to-day operations won’t change, Tennant said.

“It’s a very well established hotel in the community and very well maintained,” he said. “The community will see no changes as far as the management is concerned.”

Tennant is also a major investor in the Home Place Lodge and Suites on West Dakota Parkway, near Cutting Field.

Cindy Aafedt, a major shareholder to the sale, will continue managing the hotel.

“I’m still the manager, our employees are still our employees,” Aafedt said. “The point is that the El Rancho Hotel has new owners.”

For those wondering (I was): 

The Williston Brewing Company leases space from the hotel, but isn’t affected by the new ownership.

“The sellers kept that lease,” Tennant said, adding he expects they’ll renew it. “Both the brewery and the hotel are doing very well with that lease.”

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Taxable Sales and Purchases, 3Q14

At the link, scroll to the bottom for the pdf. 

As long as I'm doing Williston stuff, I might as well add one more. In taxable sales and purchases, Williston leads again. The last time Fargo was ahead of Williston was 2Q11. Williston led the state in 3Q14 taxable sales and purchases:

• Williston: $984,433,645
• Fargo: $757,410,916
• Bismarck: $497,247,696
• Minot: $425,717,626
• Dickinson: $391,276,547
• Grand Forks: $325,888,455
• Tioga: $258,800,232
• West Fargo: $106,123,617

Counties

• Williams (Williston): $1,263,947,915
  Cass (Fargo): $888,712,608
• Burleigh (Bismarck): $500,612,814
• Ward (Minot): $452,334,582
• Stark (Dickinson): $425,661,220

Compare with 2Q14:

• Williston: $911,990,254
• Fargo: $707,24,918

This is the 12th consecutive month that taxable sales in Williston exceeded taxable sales in Fargo; the last time Fargo was ahead of Williston was 2Q11.

CLR, Hamm, Forbes, Saudi, Iran, Russia -- December 22, 2014

A reader sent this link, thank you: Harold Hamm "slashes" 2015 CAPEX -- Forbes. The reader noted these paragraphs of particular interest:

How bad could it get? The analysts at Bernstein Research figure that if oil were to stay at $65 per barrel for 2015, it would mean a 50% reduction in oil company cash flow and precipitate a 35% overall cut in capex. Bernstein doesn’t 2015 will be that bad, however. And neither does Hamm. “I still think this is a short term move,” he says. “This is the Saudis trying to cut the legs out from under people.”

Which people? If the Saudis are trying to take market share from the U.S. producers, why not just come out and say it? “There’s more going on,” says Hamm. He sees the Saudi move not to cut oil production not as an attack on American producers (the U.S. is Saudi’s protector after all) but more as a volley launched at its true religious and political rivals Iran and Russia. “This is about taking away capital,” says Hamm. “It’s their way of waging war.”

There’s a wildcard that Hamm sees creeping to the top of the deck. And it’s labeled “The law of Unintended Consequences.” Low prices have turned the ruble into rubble, while Iran needs much more oil revenue to keep its economy afloat. Venezuela too is teetering on the edge of collapse, while Libya remains a basket case. It wouldn’t take much of an oil supply disruption in any of those countries to send prices right back up to match long-term marginal costs of around $100 a barrel.

Also, from SeekingAlpha:

• Continental Resources continues to cut its 2015 capital budget in response to falling oil prices, now forecasting 2015 capex of $2.7B after announcing a $4.6B budget last month, which itself was a cut from its original $5.2B target
• CLR also lowers its outlook for next year's production growth to a 16%-20% increase after telling investors last month to expect 23%-29% growth in 2015
• CLR reduces its expected average rig count for the year to 31 from earlier expectations of 50
• CLR's 2014 capital budget was $4.05B

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Lauren Bacall, Robin Williams....

Everyone has their favorite Joe Cocker video; this is mine:

Cry Me A River, Joe Cocker

Shout-Out To A Geologist In The Bakken -- December 22, 2014

A "shout-out" to the geologist over at Sunburst Consulting who provided services for this well, in today's daily activity report:

• 26830, 2,443, XTO, Rolfson 14X-34E, Siverston, a Three Forks B1 well, background gas fluctuated between 500 - 2,000 units; highest gas show was 3,112 units; ideal target zone was 19 feet thick, an offset well suggested that the formation would stay nearly flat until a depth of 17,500 feet; TD = almost 21,000 feet; the lateral was 100% within the target interval; t12/14; cum -- 

I found the geologist's narrative very pleasant to read, and very informative. Interestingly enough, I went to college with a male student who had the same last name. Purely coincidental, no doubt.

One of the reasons this report caught my attention: while driving cross-country, we crossed a number of mountain ranges. Crossing through some of the passes, I pointed out to my wife, the geologic formations or seams easily observed along the "cut" mountain passes. Generally speaking, the seams/formations had an incline or decline rate of about 10 - 20 degrees, or so it seemed. Generally speaking, we did not see any faults, just a straight, uninterrupted seam or formation. I pointed out to my wife that this is exactly what the seams would look like where they are fracking in the Bakken -- nice and straight with few faults (the colors and texture would be different, of course).

I pointed out that's why I have always felt that horizontal fracking in California would be a challenge, with all the faults and uneven seams.

After reading a lot of well reports, I get the feeling that the difference between a good well and a great well might be what percent of the horizontal lateral stays in the seam. When the seam/target zone is only 4 feet to 40 feet thick, two miles down, that must be a huge challenge. In this particular well, the roughnecks and geologists kept the lateral in the seam the entire stretch. Pretty impressive.

Again, a big "thank you" to the geologist for a nice report (actually, all reports are good; something about this report just caught my attention; whatever).