A Good News Story -- January 16, 2016; Case Study For The Bakken -- A Learning Case

In addition to all the other disclaimers, this has turned into a very long post; there are likely to be typographical and factual errors. I will correct them as I find them. This is for my benefit only. Feel free to read it but do not quote me on anything. I have not proofread this post.

It took awhile but finally there is some good news. A long, long time ago a reader asked when "they" would start drilling in a certain location. The following is a "cut and paste" from another post, as is, with the question, the original follow-up, and the update all together:

Well file #17077; when will they start drilling more wells in this section? October 24, 2013; they are doing a lot of drilling in Alkali Creek, but no other drilling in this section where 17077 is sited -- May 10, 2014. Still no new drilling in this section -- 5/8-154-94 -- as of October 24, 2014. [Update, January 16, 2016: I noted that there are four wells in this area -- these are 4-section spacing -- section 4/5/8/9 - 154-94:

• 27680, 1,110, Hess, EN-Pederson-LW-154-94-0408H-1, Alkali Creek, t12/14; cum 109K 11/15;
• 27681, 892, Hess, EN-Pederson-LW-154-94-0408H-2, Alkali Creek, t1/15; cum 89K 11/15;
• 27682, 1,183, Hess, EN-Pederson-LW-154-94-0408H-3, Alkali Creek, t1/15; cum 108K 11/15;
• 27683, 762, Hess, EN-Pederson-LW-154-94-0408H-4, Alkali Creek, t1/15; cum 75K 11/15;

In addition there are four more wells on/near the same pad, all still confidential:

• 32029, 1,258, Hess, EN-Pederson-LW-154-94-0408H-5, Alkali Creek, 4-section spacing; sections 4,5,8, and 9; t1/16; Three Forks, 50 stages, 3.5 million lbs; cum 79K 4/16; API: 33-061-03842;
• 32030, 917, Hess, EN-Pederson-LW-154-94-0408H-6, Alkali Creek, 4-section spacing; sections 4,5,8, and 9, a middle Bakken well; 35 stages, 2.5 million lbs; t2/16; cum 38K 4/16;
• 32031, 1,275, Hess, EN-Pederson-LW-154-94-0408H-7, Alkali Creek, 4-section spacing; sections 4,5,8, and 9, Three Forks, 50 stages, 3.5 million lbs; t2/16; cum 63K 4/16;
• 32032, SI/NC, Hess, EN-Pederson-LW-154-94-0408H-8, Alkali Creek, 4-section spacing; sections 4,5,8, and 9;

See first comment below: it looks like there are four more wells that will also be drilling into these sections but in a slightly different 2560-acre (4-section) spacing unit. These wells are still on confidential list but based on their name, all of them are sited in section 07. Three of the horizontals will "end" in section 5, and one horizontal will "end" in section 6. When I look at the NDIC GIS map server it looks like the overlapping 2560-acre spacing unit for these four wells will be sections 5/6/7/8-154-94, and thus "draining" the same 1280-acre unit that has the "index" well, #17077, which started this whole conversation. Again, these four wells are all confidential but my hunch is they are 2560-acre wells, in overlapping 5/6/7/8-154-94:

• 30259, conf, Hess, EN-Madisyn-LE-154-94-0706H-1, Alkali Creek, 4-section spacing; sections 5/6/7/8-154-94,
• 30260, conf, Hess, EN-Madisyn-LE-154-94-0705H-2, Alkali Creek, 4-section spacing; sections 5/6/7/8-154-94,
• 30261, conf, Hess, EN-Madisyn-LE-154-94-0705H-3, Alkali Creek, 4-section spacing; sections 5/6/7/8-154-94,
• 30262, conf, Hess, EN-Madisyn-LE-154-94-0705H-4, Alkali Creek, 4-section spacing; sections 5/6/7/8-154-94,

Again, I type this stuff quickly and there may be typographical and factual errors. If this is important to you, go to the source.

A big "thank you" to the reader for noting the additional wells that impact this area. This has turned into a great "learning case" for me. See below.

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Learning Case

This is a nice "learning case" for me. Most of what follows is a "guess." Do not assume this is all accurate. There's a lot of "stuff" here but it helps me to understand the Bakken.

The first graphic is of the general area that we are talking about. This area is just north of the river and east of Williston. The well with file #17077, which I call the "index well" for this post, started this entire discussion.

The second graphic is of the 4-well pad just to the east (and slightly north of the index well. In addition, there is a 4-well pad that has been completed. Although one can't see it in this graphic, the horizontals from the completed 4-well pad run to the south-southwest, which one will see in a graphic below. The "green arrow" is a guess: I think, based on the legal names of these wells still on the confidential list, that this is the direction the horizontals will take from this pad:

The third graphic is really, really busy. Start with the index well, #17077, at the top center. This well is on 1280-acre spacing. Immediately to the right, to the east is the 4-well completed pad and the 4-well pad still on the confidential list, seen in the second graphic above. The general direction of the four horizontals, shown in green, will likely be in this direction. Again, I could be wrong.

This graphic has a lot of "purple" in it. That's because I highlighted overlapping 2560-acre spacing units. If you look closely, you will also see "2560" at the intersection of four sections -- which are the four sections that make up the particular 2560-acre spacing unit.

Then, in the lower left-hand corner is another 4-well pad, all wells still confidential, that a reader pointed out to me, that I had missed. Again, but this time in red, I've shown the likely direction the horizontals from these wells will take.

If you look closely you can see the dotted line to the far left: this is the county line -- Williams County to the west, Mountrail County to the east. The area under discussion appears to be in Mountrail County.

Finally, the last graphic, and the one that I think makes this a great "learning case" for me. This is where I could be really wrong. But it looks like the two overlapping 2560-acre spacing units are as noted: spacing unit A and spacing unit B. One spacing unit is outlined in black; the other spacing  unit in red. From this, one can see why overlapping spacing units are so incredibly important.

About six years ago, after having following the Bakken for two years, I told folks if "they had one well," they were definitely going to have four wells, probably eight wells, and possibly 16 wells. That has come true. But it's likely folks who have one well will eventually have 32 wells or more.

Again, so much of the above could be wrong. If this is important to you, go to the source. Do not use this post or any of the blog to make financial, investment, or travel decisions.

Seven (7) New Permits -- January 15, 2016

Active rigs:

	1/16/2016	01/16/2015	01/16/2014	01/16/2013	01/16/2012
Active Rigs	49	157	187	185	200

Seven (7) new permits --

• Operators: BR (4), SM Energy (2), Sinclair
• Fields: Corral Creek (Dunn), Ambroses (Divide), Little Knife (Dunn)
• Comments:

Four (4) permits renewed, including:

• BR, 3, a Jerome and two Merton wells in McKenzie County;
• MRO, 1, a permit for a Veronica USA well in McKenzie County;

Comments:

• still no reports of wells transferred
• very few DUCs being added this past week
• seven new permits in one day considering the pricing environment is pretty good

North Dakota Oil Production Defies Calls For A Decline -- Rigzone -- January 16, 2016

This is pretty cool. This was the top story at Rigzone yesterday, and the headline: North Dakota Oil Output Defies Calls For A Decline:

North Dakota's oil production once again defied expectations for a decline in November, even seeing a slight uptick for the second consecutive month, as unusually warm weather helped offset the deepening decline in fracking activity.

Production in the second-largest U.S. oil producing state rose by 5,000 barrels per day (bpd) to 1.18 million barrels, monthly data from the Department of Mineral Resources showed.

Last month, it also rose 5,000 bpd. Output in North Dakota's Bakken shale fields has generally outpaced expectations even as oil prices have plunged to about $30 a barrel this week from over $100 in mid-2014.

Despite repeated forecasts for a decline, even from the U.S. government itself, output has remained surprisingly resilient. Last October, the U.S. Energy Information Administration forecast that Bakken output would slide by 23,000 bpd to 1.16 million bpd.

"Looking at the weather, we had relatively few days where there was too much wind and (there was) no precipitation in November. It was a very dry month, and it was not a cold month," Lynn Helms, director of the state's Department of Mineral Resources, told reporters on a conference call on Friday. 

Ah, yes, global warming: nice weather explains the production curve in North Dakota. Lynn Helms is the perfect commissioner for North Dakota: quiet, unassuming, taciturn, reserved. He easily could have pointed out that the real reasons North Dakota has maintained its production (so far) is due to some of the following factors:

• ISIS cells in western North Dakota have been pretty much shut down; kudos to the overworked police department responding to fights at the stripper clubs
• Turkish Kurds sabotaging pipelines into Johnson Corner have never been (much of) a problem
• Libyan revolutionaries have had minimal success taking out pipelines going into Hess' Tioga plant
• the Port of North Dakota has not seen any Teamster strikes in quite some time
• earthquakes did not shut down any North Dakota operations this past summer
• tornado alley is well south of North Dakota
• the hurricane season is relatively short in the entire Bakken region
• the state has pretty much secured the northern border without having to resort to a "wall"

We're not hearing much from Peak Oil folks any more. By the way, I was firmly in that group of "Peak Oil" folks prior to the Bakken.

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Geico Rock Award: Best In Show 2012

We Can't Drill Our Way to Lower Gas Prices -- President Barack Obama with best advice money can buy:

one minute sixteen seconds of fathomless ignorance same guy who "believes" in global warming

• Presdident Washington: I won't run for re-election; the country does not need a king
• President Lincoln: so, you're the little lady that started this war
• President Truman: the buck stops here
• President Kennedy: to the moon and safely back before the decade is out
• President Nixon: certainly in the next 50 years we shall see a woman president, perhaps sooner (1972 -- 43 years ago)
• President Reagan: Mr Gorbachev, tear down this wall
• President Obama: we can't drill our way to lower gas prices

Week 2: January 10, 2016 -- January 16, 2016

Wow, talk about a miserable week for the oil and gas industry. North Dakota hit a new post-boom record for the number of active rigs -- now down to 49. In addition, I don't know if folks saw this, Bakken oil is now priced at $20/bbl. But this was most incredible: the Red Queen is still pedaling -- despite active rigs at an all-time post-boom low, completions plummeting, permitting hitting new lows, the amount of crude oil produced by North Dakota actually increased month-over-month.

Operations
Top North Dakota oil producers for 2015
The Bakken has a new operator: Petroshale (USA)
Oil company working the Bakken forfeits well / produced oil for drilling "wrong" location; first time ever -- NDIC
Month-over-month production increases despite completions falling; rigs hitting new post-boom low
Top four oil-producing fields in the Bakken 
Post-boom low: active rigs at 49
John Kemp's weekly energy tweets; gasoline demand plummets; oil glut increases
Whiting transferring wells to Fundamental Energy Management ; and, here
Reuters predicts minimal decrease in January, 2016, month-over-month production

CBR
BNSF trains in Willmar, MN, could be traveling in both directions

Fracking
Nitrogen

Bakken economy
Williston strip clubs stripped
Tax revenue plummets

Commentary
John Kemp explains this week's energy tweets

Miscellaneous
Vern Whitten photographs
Poll: price of oil going forward, long-term trend
NDSU wins fifth consecutive NCAA Division II football title

Crude oil exports
Several links to national stories 

Friday, January 15, 2016; Running The Wal-Mart Numbers; What's The Minimum Wage In DC?

Updates

January 17, 2016: Mark Perry chimes in -- Fallout from DC’s minimum wage law: Wal-Mart abandons plans to expand and the city’s restaurants shed jobs. I had not posted on the "restaurant job. What did Mark have to say about restaurants in DC?

[S]ome early evidence suggests that DC’s minimum wage law is having a pretty devastating effect on the city’s restaurant employment. Looking at the city’s monthly restaurant employment over the last decade and comparing DC food jobs to the surrounding suburbs in Virginia and Maryland, I concluded that: a) the city’s restaurants survived the Great Recession pretty well without any major job losses, especially compared to the loss of nearly 6,000 food jobs in the surrounding suburban areas, and b) the city’s restaurants are now facing a much bigger struggle following the city’s passage of a minimum wage law in January 2014 that will raise the District’s minimum wage to $11.50 an hour in less than six months.

At the same time, the DC suburban restaurants are booming with strong hiring last year of nearly 5,000 new food jobs that brought the area’s restaurant employment to an all-time high in November.

[However, there is] another perspective to the struggle DC restaurants are now facing.

In the five-year period between January 2010 and December 2014, DC restaurants were hiring an average of 187 new food workers every month. Last year though, restaurant hiring stalled out, likely due to rising labor costs, and the city’s food jobs fell by an average 21 every month in 2015 (through November). If jobs had continued to be added at the 2010-2014 rate of 187 per month, there would now be nearly 50,000 jobs instead of the current level below 48,000, which is a gap of more than 2,000 DC food jobs that weren’t created last year due most likely to the current $10.50 minimum wage along with the pending increase to $11.50 on July 1.

Add to that known damage of rising labor costs, the additional damage that could come from the successful passage of a $15 minimum wage ballot initiative scheduled for this November, and you’ve got an economic reality that just doesn’t support restaurant expansion in DC. The rising minimum wages in DC and around the country ultimately aren’t really so much about politics as they are more simply about “restaurant and retail math.” And that math of $10.50, $11.50 and $15 an hour labor costs just doesn’t work well for the profitability and survival of restaurants and retailers in a hyper-competitive industry with razor thin margins.

January 16, 2016: what's the minimum wage in DC? The Washington Post says "DC" is upset that Wal-Mart not building stores in their poor neighborhoods. After seeing what happened in Baltimore, do you blame Wal-Mart? Wal-Mart in DC poor neighborhoods? Crime magnets.

Walmart abruptly announced Friday that it was abandoning a promise to build stores in Washington’s poorest neighborhoods, an agreement that had been key to the deal allowing the retailer to begin operating in the nation’s capital.

The giant retailer cited increasing costs for the new projects and disappointing performance at the three D.C. stores it opened over the past several years. But news that Walmart would pull out of two supercenters planned for east of the Anacostia River, where its wares and jobs are wanted most, shocked D.C. leaders. In one case, the city had already committed $90 million to make a development surrounding one of the stores viable.

Evans said that, behind closed doors, Walmart officials were more frank about the reasons the company was downsizing. He said the company cited the District’s rising minimum wage, now at $11.50 an hour and possibly going to $15 an hour if a proposed ballot measure is successful in November.

He also said a proposal for legislation requiring D.C. employers to pay into a fund for family and medical leave for employees, and another effort to require a minimum amount of hours for hourly workers were compounding costs and concerns for the retailer.

Note that The Washington Post does not tell the reader that the family medical leave will be extended to 16 weeks. 16 / 50 = thirty percent of the year paid leave -- what a great deal.

January 16, 2016: obviously I'm wrong and The Wall Street Journal is correct but I still don't get it. Wal-Mart is going to close 102 Wal-Mart Express stores (a failed "test") and seven (7) stores in Puerto Rico. Big deal. Wal-Mart is going to open 170 "large" stores this year (the standard Wal-Mart store, the supercenters, and Sam's Club's).

Wal-Mart may end up with fewer US stores by the end of the year but it's footprint, measured in square footage that matters. If the Neighborhood Markets are 40,000 square feet, I assume the Express stores are about 20,000 square feet. Very few Markets are closing, and instead are going to open 95,000 more Markets, as well as 60 new supercenters which are about 180,000 square feet. Do the math. They're going to close 154 mostly-smaller stores; open 170 mostly-larger stores.

150 x 25,000 vs 170 x 100,000. Whatever.  4 million square feet being shut down; 20 million square feet being added. Poor performing / redundant stores being closed.

The real story is that the Wal-Mart Express failed. I was a strong proponent of the concept. I was wrong. My hunch is that Wal-Mart Express could never compete in upscale strip malls in major urban centers. Even the slightly larger Neighborhood Market in our neighborhood (Southlake, TX) will be closed with this announcements. Wal-Mart Express could drive out the competition in the small rural towns across Texas (Texas will see more Express closures than any other state) but the return on investment was not worth it. It's all about volume for Wal-Mart. Not much volume for these Express stores, even though the communities who had an Express Wal-Mart loved 'em.

Original Post 

Tweeting now: Ebola death confirmed in Sierra Leone, hours after World Health Organization declared West Africa outbreak over - BBC (tweeted on the evening of January 14, 2016)

 -- At least it's easy to treat  -- President Obama. 

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Whole Lotta Shakin' Goin' On

Tweeting early Thursday: Oklahoma Corporation Commission asks disposal well operators to reduce volumes following recent earthquakes.

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Wal-Mart Closures

Stated purpose of the closures: to become more nimble in the face of increased competition from all fronts, including from online rival Amazon.com.

Raw data from the AP.

In general:

• company has 11,000 stores worldwide
• more than 5,000 stores in the US
• stores being closed account for less than 1% of Walmart's global revenue

154 stores in the US to close

• of the 154 stores, 102 of them are Wal-Mart Express stores, opened in 2011, as a "test"
• Wal-Mart Express stores never caught on; they served the same purpose as Wal-Mart's larger Neighborhood Markets

Breakdown of non-Express stores that will close:

• 23 Neighborhood Markets 
• 12 supercenters 
• 7 stores in Puerto Rico 
• 6 discount stores 
• 4 Sam's Club stores  

Note:

• more than 95% of the stores to close in the US are within 10 miles of another Wal-mart
• Wal-Mart will now focus in the US on supercenters, Neighborhood Markets, e-commerce, and pickup services for shoppers (order on-line; pick up at local store)

In 2016 Wal-Mart will open:

• 60 supercenters
• 95 Neighborhood Markets
• 10 Sam's Clubs 

The Drudge Report (based on placement of link) and local media outlets, as well as major business news  networks made it sound like retail was dead in the US, and that was the reason Wal-mart was closed 154 stores in the US.

When I look at these numbers, I see something completely different. The Wal-Mart Express stores, which account for 102 of the 154 closures, was a "test" and it simply failed; the return on investmnt simply did not meet Wal-Mart's expectations. If you subtract out those 102, one is left with 52 closures. Wal-Mart, in other words, is closing 52 stores that have been part of a network for decades. In its place, Wal-Mart is going to build 170 new, bigger stores.

I hardly see that as a "negative" story. Maybe I'm missing something. Ninety-five percent of the closing stores are within 10 minutes of another larger Wal-Mart store. This tells me that the area couldn't "support" two Wal-Mart stores, and, as for the workers, they will likely find jobs at the neighboring Wal-Mart store if they want. And some of those folks will actually have a shorter commute. Some a longer commute.

For all the press this story is getting, including this post, it's a non-story -- except to say Wal-Mart is expanding its footprint significantly.