Sixty-Three (63) Whiting Wells/Permits Transferred To NP Resources; NP Resources WIth Two Additional Permits Renewed -- March 29, 2016

Active rigs:

	3/29/2016	03/29/2015	03/29/2014	03/29/2013	03/29/2012
Active Rigs	31	97	194	188	206

One well coming off confidential list Wednesday:

31183, 607, CLR, Addyson 4-23H, Brooklyn, 4 sections, t2/16; it looks like this well was completed; tested; and then taken off-line; 30 stages, 7.4 million lbs; TD - 21,013; spud, June 16, 2015; TD, June 27, 2016; first well on this four-well pad; trip gases as high as 9,459 units; the highest non-trip gas show was 5,972 units; for future reference: the geologist's report is one of the best I've seen describing the geology.

One new permit:

• Operator: Petroshale (US)
• Field: Squaw Creek (McKenzie)
• Comment: first new permit in quite awhile

Five (5) producing wells completed:

• 29564, 3,583, Statoil, Skarston 1-12 XE 1H, Banks, 4 sections, t3/16; cum --
• 30077, 246, Triangle USA, Arnegard 150-100-23-14-9TFH, Timber Creek, t3/16; cum --
• 30078, 526, Triangle USA, Arnegard 150-100-23-14-3H, Timber Creek, t3/16; cum --
• 31215, 479, XTO, FBIR Reese 43X-33A, Heart Butte, ICO, t2/16; cum --
• 31665, 814, Hess, AN-Evenson-152-95-0310H-10, Antelope, Sanish pool, t3/16; cum --

Fourteen (14) confidential wells said to be plugged or producing.

NOTE: Whiting transferred about 63 wells to NP Resources; reported on today's daily activity report. The most recent was #30807; the oldest was #08874. All were in southwest North Dakota; in Golden Valley County and Billings County, with about four exceptions (McKenzie County). Full list is here.

Twenty-one (21) permits renewed:

• Oasis (5), five Spratley permits, all in Mountrail County
• CLR (4), two Uhlman Federal and and two Pittburgh permits, all in McKenzie County 
• WPX (4), foru Charles Blackhawk permits in Dunn County
• Thunderbird Resources (3), three Fleck permits in McKenzie County
• NP Resources (2), two Roosevelt permits in Billings County
• Petro-Hunt (2), two Moberg permits in Burke County; the Moberg wells have been very, very good
• Whiting (1), one Pronghorn State Federal permit in Billings County 

********************************

NP Resources

Updates

June 30, 2016: NP Resources is on the hearing dockets for July, 2016; will request the establishment of 13 new 1280-acre units and will place up to four wells on each of these units. 

Original Post

 

Another link relevant to this discussion: the number of Bakken wells Whiting is selling, and the new operators in the Bakken. 

Press release, January 14, 2016.

Williston Basin Acquisition Highlights

• 89,500 net acres, 81.5% average working interest
• 72,250 net acres HBP for development and 17,339 undeveloped net acres
• 53 operated and 7 non-operated wells, 85% average net revenue interest
• 1,050 BOEPD net production from the Bakken/Three Forks
• 173 high quality undeveloped drilling locations 

About the company:

NP Resources, LLC is a newly formed company organized and managed by the principals, founders and management of North Plains Energy, LLC entities along with its private equity partner, Vortus Investment Advisors, LLC . 

"This marks our group's latest acquisition in the current low price environment and provides NPR the opportunity to bring the latest enhanced horizontal drilling and completion techniques to this relatively undeveloped area of the Williston Basin.

The held-by-production nature of the assets will give us time to organize a well-planned development program that maximizes the return on invested capital as the industry evolves," says Steve Mercer, CEO of NPR. 

Clayton Miller, President and COO, noted, "This acquisition will build on our successful model of efficient drilling and production operations in North Dakota that will deliver top tier development and lifting costs." 

Jeff Miller and Brian Crumley, the Co-Founding Partners of Vortus, commented, "The NPM team has many years of experience in the Williston Basin Bakken play.  Having successfully worked with the management team in prior ventures, this gives us another exciting opportunity capitalizing on the current market conditions for the benefit of Vortus' partners."

About NPR Management Holdings, LLC

NPR Management Holdings, LLC is a privately held company headquartered in Denver, Colorado formed by the founders, principals, and management of North Plains Energy, LLC.  NPE's history dates back to 2007 where it set about to acquire and develop 60,000 net acres in Williams, McKenzie, Divide, and Dunn counties in the early stages of development and de-risking the western side of the Nesson Anticline.   

NPE sold its prior joint venture holdings and wholly owned leasehold including production and net undeveloped acreage in 2012 for over $700 million.   

As a result of the team's collective experience and knowledge in the basin, NP Resources, LLC is now capitalized and positioned to seek out "off market" opportunities that it sees as having considerable economic upside with a nominal increase in oil prices during this current price environment.

About Vortus Investments

Vortus Investments was founded by Jeffrey W. Miller and Brian C. Crumley and is headquartered in Fort Worth, Texas. Vortus is an energy private equity firm focused on partnering with successful owner/operators to provide development capital in the lower middle market onshore U.S. upstream sector.  NP Resources, LLC represents Vortus' fourth investment in the upstream sector and its first investment in the Williston Basin.   

For more information, visit www.vortus.com.

************************************

Whiting 4Q15 Earnings Transcript

The above NP Resources press release was dated January 14, 2016. I did not see anything about this sale specifically in the 4Q15 Whiting transcript. From the 4Q15 Whiting transcript, in the Q&A:

Hi, Jim. Thanks for taking my question here. Looking at the latest presentation, it looks like the Bakken acreage is down to 455,000 net acres, a couple hundred thousand acres down from the last time. Can you go into what the change is there and what drove that?

James J. Volker - Chairman, President & Chief Executive Officer

Sure. Basically we sold off some of our western, which is the far west edge of the Williston Basin where the results in the Bakken out there for other operators has not been all that great. So we let that go. And then we sold part of the old Lewis & Clark, which was only about 1,000 barrels a day, but got a great price for it. Got about $41 million for it for people who wanted to go in there and do some other types of drilling as well.

So, yeah, we basically sold off a part of the Bakken that we didn't think made it in a $30 long-term price environment. But we kept roughly 0.5 million acres, as you just pointed out, that's 99% HBP and that we consider to be, as we say in that slide, 700 MBOE-plus type acreage. So we've got a lot of acreage left to develop.

When you look at our whole sort of across-the-board inventory of things that we have to drill, we're up there to close to 4 billion barrels with all reserve categories, including resources and everything. So, lots of future net revenue out there that we can develop even if price is in the, I'm going to say, the $45 or less, down to $30-type category. And we're just kind of cutting back on spending here until we hopefully can see at least a little bounce up in the price of oil.

Paul Grigel - Macquarie Capital (USA), Inc.

Okay. And all those asset sales are included in the roughly $500 million from last year, correct?

James J. Volker - Chairman, President & Chief Executive Officer

Yes, sir.

*********************************

Whiting Shopping Texas Assets

I don't know where this stands. Dated March 13, 2015:

Whiting Petroleum Corp, North Dakota's largest oil producer, has put Texas acreage and pipeline assets up for sale as an alternative to a sale of the full company, according to sources familiar with the matter.

This strategy could appease investors outraged by the possibility of any outright sale. It would dispose of assets not central to the core shale operations and generate cash for the company's balance sheet, laden with more than $3 billion in debt after the December buyout of smaller rival Kodiak Oil & Gas.

JPMorgan has shopped the full company in recent days to select parties, several people said. However, several potential acquirers' interest in buying all of Whiting was tepid due to concerns about Whiting's $5.63 billion debt load, the sources said.

Looking quickly at the transcripts for the four quarters in 2015, I didn't see any mention of Whiting selling Texas assets.

Cleaning Out The In-Box: Uber Is Top Threat To Oil -- Gartman -- March 29, 2016

Updates

March 18, 2018: Mark Perry schools Dennis Gartman.

February 26, 2018: an update on Dennis Gartman, Uber, Big Oil, and public transportation.

May 16, 2016: an update on "mobility" and Gartman's nonsense about threats facing Big Oil. It's very possible what Gartman noted (the mobile millennials) are a bigger threat to the big automakers, and not to Big Oil (that would come later). Over at AP/Yahoo we have this:

In congested and expensive cities, people are increasingly content to share cars or summon rides using their smartphones.

In five years, 35 million people globally will be using car-sharing services, up from 5.8 million now, according to Boston Consulting Group.

That means 550,000 fewer cars sold each year. Within another few decades, fleets of self-driving taxis could replace the need for personal car ownership altogether. Automakers that don't adapt risk being supplanted by high-tech competitors.

This is not what we are hearing out of India. Or China. Just saying. But Boston Consulting Group knows more than I know.

March 29, 2016: how coincidental. After posting the Gartman nonsense about Uber, Mark Perry had some useful comments about the ride-sharing concept (as did a reader; see comments below). Mark Perry:

I’ve written before about some obvious signs of widespread inefficiency in the traditional taxi market, as illustrated in the photo above that show the dozens of taxis that line up every day at The Mayflower Hotel in DC (and at every other major hotel in DC) and sit idly for very long periods of time waiting for passengers. In this post from last August “Why are a dozen taxis lined up every day at The Mayflower Hotel?” I wrote:

In a dynamic Uber world, the available drivers respond to demand, and are directed by Uber to areas where there are a lot of passengers. And when demand is really high, surge pricing goes into effect to attract even more drivers to areas of high demand. But when there are always a dozen taxis sitting around idly at The Mayflower (and most other DC hotels), that just seems like an outdated form of transportation inefficiency, an inefficient excess supply, a failure to balance supply and demand, and something that would never happen in a ride-sharing world of much greater transportation efficiency.

There’s now evidence of just how inefficient legacy taxis are compared to UberX when measured by two capacity utilization rates: a) the fraction of time taxi and UberX drivers have a fare-paying passenger in their cars and b) the percentage of total miles driven by taxi and UberX drivers with a passenger in their cars. The anecdotal evidence of taxi inefficiency I observe almost every day in DC is now confirmed more formally in a new NBER research paper by Judd Cramer and Alan B. Krueger titled “Disruptive Change in the Taxi Business: The Case of Uber,” -- the abstract is at the link.

Original Post

 

You know we've reached the stage of silliness when we see this headline: Uber is the top threat to oil. Gartman said that. LOL. Over at Finance!Yahoo:

Oil watchers are eyeing a potential freeze by producers as the next catalyst for the commodity, but one oil bear says crude's (New York Mercantile Exchange: @CL.1) biggest obstacle is already here. 

"I think Uber is a threat to oil for the simple reason that millennials have embraced it dramatically," Dennis Gartman, editor of The Gartman Letter, told CNBC's " Fast Money " traders on Monday. "The millennials are saying 'I really don't need an automobile.'"

Since the founding of Uber in 2009, the ride-hailing company has launched in more than 400 cities and taken passengers on more than 1 billion rides, according to the company's website. And it's the simplicity and convenience of the service itself that Gartman said has converted many would-be personal vehicle owners into Uber-dependent passengers. Oil has fallen more than 40 percent since Uber's inception. 

The millennials say "I really don't need an automobile" and then they take more than 1 billion rides in automobiles. During this same period, automobile sales in the US are setting new records.  For someone to suggest that Uber has contributed to the fall in crude oil price borders on the insane. Scratch that. It is insane.

My son-in-law owns three cars and he has no teenage drivers. He loves Uber. He takes Uber to the airport. Uber has nothing to do with whether one "needs" an automobile. 

Do people really feel good about subscribing to The Gartman Letter?

I probably wouldn't have even posted that but it will be nice for the archives. It sort of fits in there with the Kennedy clan saying their grandchildren will never see snow again.

Moving on.

Forbes has an article: why green energy means no energy. Another article for the archives. Forbes is speaking to the choir, as they say. The article begins with several facts/observations with some basic facts about energy and human well-being.

• There are 7 billion people in the world who need cheap, plentiful, reliable energy to flourish. 
• Some three billion have virtually no energy by our standards. Over a billion have no electricity whatsoever.
• In the history of energy technology, only three methods of energy have proven able to produce cheap, plentiful, reliable energy on any significant scale. These are hydrocarbon (fossil fuel), nuclear and hydroelectric power—with hydrocarbon being the most scalable and versatile (e.g., it provides virtually all our liquid transportation fuel).
• Two of those methods—nuclear and hydro are not carbon-based and therefore are the obvious choices to champion to the extent you are concerned with reducing CO2 emissions.
• The biggest opponent by far of both of these technologies is the green movement—the movement that claims to care the most deeply about reducing CO2 emissions.
• That movement keeps insisting, against all evidence, that their anti-fossil, anti-nuclear, anti-hydro stance is not a problem because solar and wind, unreliable, parasitical sources of energy that increase costs wherever they are significantly deployed, will somehow save the day.

The article goes on from there. I'm posting it simply for the archives.

As long as we're dumping on solar energy, we might as well add one more from Forbes (this one is actually better than the linked article above: the myth of wind and solar capacity (we've discussed it at the blog before) but this article has a great graph. The author begins:

When you hear that wind has the most increased capacity, you are supposed to think that it has the most increased ability to provide electricity in the way we need it–affordably and reliably.

But for the kinds of energy I call “unreliables”–solar and wind, whose fuel sources are intermittent, unpredictable, and most of the time unavailable, the term “capacity” is inherently misleading.

A wind farm may operate near maximum capacity at brief, unpredictable moments and produce little to nothing the rest of the time. Those unreliable bursts might add up to 20-30% its supposed capacity.

A set of solar panels may operate near capacity in the middle of the summer in the middle of the day when there are no clouds, but most of the time it has far less ability, when clouds (or non-summer seasons) come that ability can disappear, and at night the panels obviously have no electrical generation ability.

For the purposes of providing individuals the cheap, plentiful, on-demand electricity they need, this is useless.

The actual ability of wind and solar is essentially zero. Witness the celebrated electric grid of Germany.

Is this really what you want your electric company's grid to look like?

Forbes also has an article: Lessons From The Aluminum Industry: The Hidden Cost Of China's Cheap Solar.

The glut of cheap solar panels manufactured in China has largely been considered to be a boon for the solar industry in North America. Who wouldn’t want hugely subsidized solar panels? But, if the chaos derailing the global aluminum industry is any indication, the long-term consequences of China’s solar manufacturing overcapacity are likely to be far less palatable than the short term consequences.

In 2000, China produced only about 11% of the world’s primary aluminum. Now, it produces more than half. This historically unprecedented expansion of production capacity resulted from government policies rather than process improvements or lower input costs. In fact, of the 50 highest-cost aluminum smelters in the world, 37 are located in China.

China’s government has been subsidizing aluminum smelters through direct grants, interest free loans and other “incentive” mechanisms. Absent this massive support scheme, a significant number of the smelters in China would have been forced to declare bankruptcy. Ironically, Chinese smelters often have above average operating costs compared to smelters located outside of China, primarily because of high energy costs.

Energy is the largest component of production costs and accounts for roughly 40% of total costs. The Chinese government has bankrolled its aluminum industry by subsidizing energy, which has kept high-cost smelters in business despite falling aluminum prices.

It's been my impression that countries that countries that subsidize energy at far below its costs will live to rue that decision. I think the same holds for China. China, like Saudi Arabia, cannot afford to subsidize energy forever. 

Regardless of how the aluminum story plays out, I still maintain that the 21st century will be the century in which fossil fuel and fresh water will be the top resource stories, and North America will be the center of both stories. By the end of the 21st century, perhaps by 2050, and perhaps even within my lifetime, Saudi Arabia will be a net importer of energy.

Oil And Gas Industry Keeps Percolating Along -- March 29, 2016

From SeekingAlpha:

• The Chevron Phillips petrochemical joint venture says it will expand capacity at its Cedar Bayou plant in Baytown, Tex., to produce low-viscosity polyalphaolefins by 10K metric tons/year, or by ~20%.
• The JV between Chevron and ConocoPhillips says it is attempting to meet increased demand for performance lubricants used in the auto and other industries to help boost energy efficiency.
• The company does not release cost figures, but it already has expanded its petrochemical presence in the Houston area by ~$6B.

Pricing -- Part III

At the sidebar at the right, near the top, I have a link to the slump in oil prices, 2014 - 2016. From that link, one can see "Pricing - Part I" and then "Pricing - Part II" but it's time for an update. The update will be "Pricing - Part III." The OPEC meeting scheduled for April 17, 2016, will provide much of the basis for Part III.

Updates

June 27, 2016: OPEC has lost a huge amount of revenue in the past year (2015). 

June 26, 2016: has Saudi Arabia just made a huge change in strategy on oil? The tea leaves suggest that Saudi Arabia is making a huge bet taking a new tack. [The third definition of "tack":

change course by turning a boat's head into and through the wind.]

March 29, 2016: The trillion-dollar mistake worsens for Saudi Arabia.

*****************************

From a reader, received March 29, 2015: What will cause oil prices to rise?

Current Status

1. OPEC and Russia are basically producing at maximum rate to get as much revenue as possible to meet their national budget requirements. OPEC countries get 85% plus of their income from oil/gas. They need at least $80 per barrel oil price to meet their minimum financial needs.

2. The United States (and Canada) has surplus production which can be put on the world market. Only 3% of the United States gross national product comes from oil/gas. Only the oil companies, royalty owners and tax revenues suffer from low oil prices. The overall U.S. economy enjoys the benefits of low oil and gas prices.

What Scenarios Are Likely In The Next Two To Three Years?

Scenario #1: the US is the swing producer.

Due to lack of drilling, world crude oil production will decline by 5 to 6% per year. In late 2016 or early 2017, daily consumption of oil will outpace production levels. Price of oil will begin to rise. The U.S. and Canada will start to bring some of their excess production online. At some point the price of oil will stabilize (or begin to fall if production increases surpass consumption levels). At this point, the United States will be in control of world oil prices unless prices go so high that OPEC and Russia can increase drilling and utilize production enhancement to add more new oil to the market. The control of world prices will then be back in OPEC’s hands.

Scenario #2: Saudi Arabia, possibly Russia, remains in control.

OPEC and/or Russia decide(s) to cut production. If Saudi Arabia cuts production by 2 million barrels per day, they would generate 70% more income. 8 million barrels times $80 per barrel = $640 million per day; 10 million bbls times $35 = $350 million/day. In addition, they will still have 2 million barrels in the tank to sell at likely higher prices down the road. I don’t think the “market share argument” holds water (or oil). In this case, the Saudis are back in control of the world oil market.

[Note: If Russia were to be the country to pull two (2) million barrels per day of the market, they would be in the driver’s seat of world oil.]

I don’t think OPEC is capable of keeping their members inline for an across-the-board cut back shared by all members. Russia and/or Saudi Arabia seem to hold the key to forcing high prices.

Additional notes:

(A scenario with the U.S. cutting production was not included due to obvious anti-trust and trade constraint concerns. In addition, increasing gasoline prices would result in cries of foul from consumers and politicians. U.S. production declining due to natural depletion or not completing uneconomic wells is considered normal business practice.)

The reader believes Scenario #2 is most likely. The reader says he/she would not be surprised if Russia is the instigator of a major cut. $70 to $90 oil would revitalize Russia's oil and gas programs. They might choose to keep prices from going too high, in the short-term, to just marginally meet OPEC budget needs. This would likely postpone Arab plans to build major gas lines to Europe and compete with Russia who has a large share of this market, especially in the Central and Eastern Europe.

The Trillion-Dollar Mistake Worsens For Saudi Arabia -- March 29, 2016

Financial Times is reporting:

Saudi Arabia lost market share in more than half of the most important countries it sold crude to in the past three years, even as the kingdom increased output to record levels.

The world’s biggest oil exporter lost ground to rivals in nine out of 15 top markets between 2013 and 2015, including China, South Africa and the US, according to an analysis of customs data.

Saudi Arabia set itself a goal in late 2014 of maintaining its crude market share amid a glut that prompted a collapse in oil prices, but the imports data compiled by FGE, an energy consultancy, suggest the country’s strategy suffered setbacks in some of its key customer countries last year.

Other data show that Saudi Arabia achieved a limited increase in global market share in 2015 compared to 2014, although last year’s figure was lower than that recorded in 2013.
“Saudi Arabia has had a very difficult time selling oil in this environment,” says Ed Morse, an analyst at Citigroup. “Its rivals are going into a very crowded market in a very aggressive way.”

Oil producers including Russia and Iraq are putting pressure on Saudi Arabia in markets it regards as strategically important trading partners.

Saudi Arabia signalled a shift in its market share strategy last month by reaching a provisional agreement with Russia and some other producers to cap output at January levels.

This deal partly reflects the damaging impact of falling oil prices on producer economies, including Saudi Arabia.

Brent crude, the international oil benchmark which plunged to a 13-year low of less than $30 a barrel in January, has dropped from a peak of $115 in mid-2014 to $39.88 in late afternoon trading on Monday.

Brent started falling in the second half of 2014 due to swelling global oil supplies led by the US shale boom.

It then plunged after the Saudi oil minister Ali al-Naimi led a landmark decision by Opec, the producers’ cartel, in November 2014 not to cut crude output to support prices.

Much more at the link.  

Now look at this, from the same article:

Saudi Aramco, the state-controlled energy company that is implementing the oil ministry’s strategy, has raised production to more than 10m barrels a day since the Opec meeting. Saudi exports have held above 7m b/d.

I see that boilerplate statement that Saudi Arabia "has raised production to more than 10 million bbls per day" since that OPEC meeting in October, 2014. In the EIA graph below, Saudi's oil production has never dropped below 11 million bbls/day, and back in 2012 appears to have hit a record 12.5 million bopd.