Saturday, August 25, 2018

Natural Gas Inventories "Dangerously Low" -- Contributor Over At Oilprice -- August 25, 2018

Updates

September 4, 2018: so much for CO2 and global warming. The Brits are going to use a lot of coal this winter. Natural gas getting too expensive; coal is cheap. Link at Platts (beware: lots of jargon):
Bullish NBP spot and winter contract gas prices have focused the power market's attention on the UK's coal-fired power plants, which have recently become more economical to run in the summer as well as in the winter.
The gap between prompt NBP gas and the coal switching channel indicates that, if and when needed, thermal generation is going to be predominantly coal-fired this winter, with higher gas prices opening the way for increased coal-fired generation, despite a strong hike in carbon prices.
Data show 35% efficient coal-fired plants are competing with 45% gas-fired plants.
The UK month-ahead coal-switching price for 45% efficiency was 68.43 pence/therm on Monday, slightly lower than the NBP day-ahead contract assessment of 69.70 p/th.
However, UK month-ahead CSP for 50% efficiency was 78.19 p/th. Platts CSPI is the theoretical threshold at which gas is more competitive than coal in power generation.
When the gas price is higher than the CSPI, CCGTs are more expensive to run than coal-fired plants.
"Despite the gains in carbon over recent months, coal generation has been supported this week by particular strength in the gas market," according to S&P Global Platts Analytics.
"We forecast gas to lose ground this winter too, with the Q1-19 Clean Dark Spread above the Clean Spark Spread. As a result we expect coal generation to be stable year-on-year this winter, despite the closure of 2GW of capacity, while gas generation is forecast to fall more than 3 GW vs Winter-17."
August 26, 2018: Europe's natural gas prices surge to record for summer season.
Europe’s natural gas market is the most bullish it has been in years, as higher-than-expected summer demand and a tighter market drive natural gas price futures to levels last seen during this past winter’s supply crunch and to the highest for a summer season.
Natural gas prices are expected to stay strong and may still have room to rally, ahead of the next winter heating season in Europe that begins in October. 
Contrary to the typical summer lull in Europe’s gas prices, this year the front-month gas price in the UK—Europe’s biggest gas market—for example, is nearing the winter price from December 2017 when a deadly explosion in Austria’s gas hub at Baumgarten squeezed supplies throughout Europe. Immediately after the explosion, the price of gas for immediate delivery in the UK reached its highest level since 2013.
August 26, 2018: natural gas production in the US --
Gulf of Mexico Fact Sheet, EIA: Gulf of Mexico federal offshore oil production accouts for 17% of total US crude oil production and federal offshore natural gas production in the Gulf accounts for 5% of total US dry production. Comment: I believe the EIA data is for the entire US, including Alaska. RBN Energy often limits their NG production discussions to the "lower-48."
US natural gas production: EIA update, December 4, 2017.

From the EIA:
Drilling wells in the Appalachia region has become very productive.
The average monthly natural gas production per rig for new wells in the Appalachia region increased by 10.8 million cubic feet per day since January 2012.
EIA attributes this increase to efficiency improvements in horizontal drilling and hydraulic fracturing in the region, which include faster drilling, longer laterals, advancements in technology, and better targeting of wells.
For example, in West Virginia, the average lateral length per well has increased from about 2,500 feet in 2007 to more than 7,000 feet in 2016. Some operators have recorded lateral lengths as long as 15,000 feet in the Marcellus and 19,000 feet in the Utica. Along with longer horizontal drilling, the days it takes for completion have decreased from about 30 days in 2011 to 7 days in 2015.
Comment: For comparison, lateral lengths in the oily Bakken are around 9,000 to 10,000 feet, and take about 10 days to reach TD, but the range can be quite wide, some still taking as long as 30 days (of course, that is not continuous drilling).
Note: in the EIA graph above, the Appalachia region was producing about 20 billion cf/d as of 2017. The chart below suggests about 25 billion cf/d during 2017. But notice the current rate of production in the Marcellus, nearing 30 billion cf/d in September, 2018. Maybe that's why folks are not concerned about that widening gap in the "natural gas fill rate" as noted in the original post.

Current Appalachia production, ycharts:




Original Post

The following was previously posted, just a few days ago.

NG fill rate, link here. I still think this is going to be the most interesting metric to follow this winter. If it's a cold winter, and if storage rates fall outside the historic minimum going into November, and if the US shale natural gas operators can meet natural gas demand this winter, it means tracking natural gas fill rate is almost meaningless:

Update: I think this is one of the most fascinating stories currently being followed.

If this is a cold winter, it will be interesting to see if the natural gas sector can respond. It it is a cold winter and the natural gas sector responds "without missing a beat," it will suggest to me that the tracking of this metric is absolutely unnecessary.

Having said that, look at this article today from "Ag Metal Miner" over at oilprice.com:
Futures markets are suggesting the currently benign level of natural gas price volatility may not remain through the winter months.
According to the Financial Times, market volatility this year has been the lowest on record despite inventory levels falling 19.5 percent below average and by the time winter starts are set to be at their lowest in more than a decade.
The Financial Times puts this down to investors being lulled into complacency by a seemingly unstoppable wave of new supply from the shale market rising inexorably to meet rising demand.
The government last week forecast 81.1 billion cubic feet per day in dry gas production for 2018 — a record high — and up by 7.5 billion cu ft/d from 2017.
But is the market safe to assume shale gas will supply regardless of demand?
Natural gas producers are systematically hedging their sales throughout next year, often a sign they plan to continue an aggressive policy of drilling and expansion.
That activity has contributed to a dipping of forward prices, as there are more sellers in the futures market than buyers.
But inventory levels are low — some would suggest dangerously low — after a high summer demand due to hot weather increasing demand for air conditioning. Natural gas “power burn” surged to a record 37.7 billion cubic feet per day during July, the Financial Times reports.
So, we'll see.

The FT story is behind a paywall. I could not get to it "thru" oilprice.com but I was able to google and get to it "thru" a Yahoo link.

From the FT article:
When US natural gas futures passed a milestone this month, they did so quietly: volatility fell to the lowest levels since the market’s debut nearly 30 years ago. 
The event seemed improbable. Volatility usually fades when commodity stocks are ample. Yet US gas stocks are 19.5 per cent below average. 
When the winter starts they are set to be at their lowest in more than a decade. This situation is the latest example of how the world’s largest gas market has been transformed by shale drilling. While demand for gas is galloping, it has been met by waves of supply that show no sign of abating. Conditions that put traders on edge a decade ago get shrugs.
And that's way I think it will be fascinating to watch this play out this winter. Especially if it's a cold winter.

Wow, I love to blog.

Investment Update On Three Operators In The Bakken -- SeekingAlpha -- August 25, 2018

Disclaimer: this is not an investment site.

This is a few weeks old, but some folks may be interested.

From SeekingAlpha: US shale -- NAV analysis of Williston Basin E&Ps -- 1Q18 update -- NOG, OAS, OAS.

Contributor: Andre Kovensky.

Some data points:
  • Whiting Petroleum is undervalued, on July 2, 2018: $50.41
  • Oasis Petroleum is about fairly valued, on July 2, 2018: $12.64
  • Northern Oil and Gas is about fairly valued, on July 2, 2018: $3.11
Additional data points, since the contributor's last report:

OAS sale of non-strategic acreage:
65,000 acres for $283 million. Production from this acreage is 4,400 BOE per day. Applying a market metric of $40,000 per BOE of daily production, $176 million of the sale price can be attributed to the current production. Thus, OAS received $1,646 per acre for whatever future drilling locations are on the acreage. My model assigned zero value to this acreage since I assumed it would not be drilled.
NOG: NOG's net debt / 2018E EBITDA is now in line with WLL and OAS.

The group:
The group has benefitted from a market sentiment change away from Permian Basin E&Ps toward Eagle Ford shale and Williston Basin E&Ps. Permian E&Ps are receiving large price discounts for their oil due to pipeline takeaway congestion, where Eagle Ford and Williston E&Ps do not face this issue. Also, from a technical standpoint, WLL and OAS are two of the highest weighted E&Ps in the XOP ETF, which I believe has created material incremental demand for the shares. NOG’s management changes and balance sheet restructuring have enabled the market to look at its assets and profitability through a clearer lens, removing any bankruptcy fears. Also, NOG was recently added to the Russell 2000 which creates material incremental demand for the shares.
EBITDA:
Williston Basin production is heavily weighted to oil. Also, needed Williston Basin pipeline capacity finally came online in 2017 leading to reductions in basis differentials. Together, these factors have made Williston Basin E&Ps very profitable. NOG is now generating some of the highest EBITDA per BOE among all the US shale E&Ps I follow. NOG’s EBITDA per BOE increased by about $6 in 2018 Q1 versus 2017 Q4. OAS also generates very high EBITDA per BOE, increasing $2 in 2018 Q1 versus 2017 Q4. WLL’s profitability is behind NOG’s and OAS’s primarily because of WLL’s Niobrara shale production (which WLL wants to divest).
Natural gas:
Nat gas realizations are not material to profitability. But, for those of you interested, WLL had weak price realizations at a $1.20 discount to the benchmark Henry Hub price.
******************************************* 
The Trauma Page

I do not know the backstory, but apparently while the family was at a soccer game, Corky sustained a head injury that required an ice pack.


By the way:


Nice Jump In Production In A Chimney Butte MRO Kupper Well -- August 25, 2018

The well:
  • 16626, 289, MRO, Kupper 34-10H, Chimney Butte, t9/07; cum 331K 6/18; FracFocus: not re-fracked:
Production profile of note:
BAKKEN3-201531789083112032635222483214
BAKKEN2-201528732366592891559924942221
BAKKEN1-201510149316583271114834116
BAKKEN12-20143146584731208745473510401
BAKKEN11-201430952293175047789829003774
BAKKEN10-201431836384577308874825714800
BAKKEN9-201420545854177491772941932401
BAKKEN8-20142145474647155131649201759
BAKKEN7-201424101741054307338536122
BAKKEN6-2014760295484040855892811
BAKKEN5-20140000000
BAKKEN4-20141126540321
BAKKEN3-20142011031124106719101432
BAKKEN2-20142814921327171119088865
BAKKEN1-201431172317612441498117750
BAKKEN12-20133116721666257886644140
BAKKEN11-201330169817913311132896133
BAKKEN10-20133116461669317113299833
BAKKEN9-201328131211103131153100448

Production following initial frack:
BAKKEN6-20083029712961204278227820
BAKKEN5-20082118021637119120812080
BAKKEN4-20083029063399195226122610
BAKKEN3-2008313203301943275750
BAKKEN2-20082931233114420000
BAKKEN1-20083140394123562126012600
BAKKEN12-20073142904333569303130310
BAKKEN11-20073049114908734354935490
BAKKEN10-200731654566551018366136610
BAKKEN9-200727779274781670461846180
BAKKEN8-200713403437541114214921490

Hanover Federal Well: Jump In Production -- August 25, 2018

Hanover Federal wells tracked here.

FracFocus, not re-fracked:
  • 20387, 1,445, Oasis, Hanover Federal 5300 13-14H, Willow Creek, t10/11; cum 398K 6/18; recent data:

PoolDateDaysBBLS OilRunsBBLS WaterMCF ProdMCF SoldVent/Flare
BAKKEN6-20183056795702924219634018994
BAKKEN5-2018283805374415801984696970
BAKKEN4-2018542140215211249221200
BAKKEN3-201800004070407
BAKKEN2-20180000000
BAKKEN1-201800370000
BAKKEN12-2017255906591371981089710631133
BAKKEN11-201730101331016811133158211562833
BAKKEN10-20173113329133251591615678141281385
BAKKEN9-2017301281112766129441461885145944
BAKKEN8-20173111901119011786014214115262555
BAKKEN7-20173199309916218361132410669522
BAKKEN6-201725886789371916621904217710
BAKKEN5-20173116372164733089327997241613671
BAKKEN4-201718804978632495213408013120
BAKKEN3-20170000000
BAKKEN2-20170000000
BAKKEN1-20171763217831069166714970
BAKKEN12-201626226414021197244921890
BAKKEN11-201630214223051539366633660

Data after first frack:

BAKKEN7-201231527547332373511047070
BAKKEN6-201230718086475034811077200
BAKKEN5-201229943293615673917787740
BAKKEN4-201230973886795868955391630
BAKKEN3-201225697465853901444141160
BAKKEN2-20122615078154837455954095400
BAKKEN1-20122714935150328011592059200
BAKKEN12-201131211342103516917745674560
BAKKEN11-201120684372288728486448640
BAKKEN10-20113121233203121767013329116581671



Hanover Federal Wells

Updates

October 4, 2018: update.  New graphic -- pretty much the same area as the graphic at the original post --




Original Post

The graphic:



The wells:

  • 31987, 1,063, Oasis, Hanover Federal 5300 41-11 13TX, Willow Creek, huge well; 90K in five months; t4/18; cum 160K 5/19;
  • 30392, 2,112, Oasis, Hanover Federal 5300 13-14 7T, Willow Creek, 50 stages; 4.1 million lbs, t5/17; cum 164K 5/19;
  • 28340, 459, Oasis, Hanover Federal 5300 41-11 10B, Willow Creek, t3/18; cum 173K 5/19;
  • 28339, 853, Oasis, Hanover Federal 5300 41-11 11T, Willow Creek, t4/18; cum 158K 5/19;
  • 28309, 797, Oasis, Hanover Federal 5300 42-11 9T, Willow Creek, t4/18; cum 141K 5/19;
  • 28308, 1,185, Oasis, Hanover Federal 5300 42-11 8B, Willow Creek, t3/18; cum 141K 5/19;
  • 28307, 322, Oasis, Hanover Federal 5300 42-11 7T, Willow Creek, nice well; 25K in two months; t4/18; cum 95K 5/19;
  • 27079, 422, Oasis, Hanover Federal 5300 44-11 5T, Willow Creek, t5/17; cum 185K 5/19;
  • 27078  467, Oasis, Hanover Federal 5300 44-11 4B, Willow Creek, t5/17; cum 212K 5/19;
  • 26976  532, Oasis, Hanover Federal 5300 44-11 3T, Willow Creek, t5/17; cum 166K 5/19;
  • 26975, 856, Oasis, Hanover Federal 5300 44-11 2B, Willow Creek, 50 stages; 10.1 million lbs, t5/17; cum 238K 5/19; look how old this permit was when the well was completed;
  • 26912, PNC, Oasis, Hanover Federal 5300 13-14 9T, Willow Creek,
  • 25169, 1,088, Oasis, Hanover Federal 5300 41-11 12B, Willow Creek, t4/18; cum 172K 5/19;
  • 20387, 1,445, Oasis, Hanover Federal 5300 13-14H, Willow Creek, cased hole; 4.5 million lbs, nice jump in production; not re-fracked, t10/11; cum 428K 5/19;