2013 March 15

The Master Resource Report  2013-03-15

Bakken production falls even with higher well count….

North Dakota released its production data yesterday and it was down from December’s all time record levels. Production declined from the record 770,111 barrels per day in December to 738,022 in January even though the producing well count climbed by 71 net new producing wells state wide. It is important to note that 71 net new producing wells are inadequate to maintain production in the state. The North Dakota Dept. of Mineral Resources has indicated it takes 90 new wells per month to maintain flat production.

The Bakken play also declined in daily production by 4.5% from its December high with daily oil per well falling 12% year-over-year. This is despite a net gain of 113 producing wells for the month in the Bakken play.

Next week’s report will look into the Bakken production data in more detail.

Natural gas – Why is this news a surprise?

It shouldn’t be a surprise that natural gas in storage is significantly below year ago levels and is approaching the 5 year average. Anyone who had not isolated themselves in the hype surrounding all the “Game Changer” shale gas would have seen this trend of lower storage developing sometime ago.

The EIA’s Weekly Natural Gas Storage Report released yesterday reported a decline of 145 Bcf, double the 5 year average decline of 74 Bcf. Total natural gas storage fell to 1.93 Tcf down 18.5% from year ago levels and just 11% over the 5 year average. Last year at this time natural gas in storage was running 51% above the five year average while on its way to being 60% over the 5 year average at the end of March last year. Last year at this time instead of declining levels storage was climbing at double digit Bcf per week.

The EIA’s comments on anticipated storage levels for the end of March in the STEO released this week are fascinating given that the storage report released yesterday has them already “just under” 2 Tcf. Gas inventories may be “just under” 2 trillion cubic feet at the end of March, according to the report. Stockpiles totaled 2.477 trillion during the same period last year.

After review a long list of articles covering the natural gas storage report and the resulting rise in the price of natural gas contracts it was striking that none of the article mentioned the supply side of the ledger. It is true that weather plays the biggest role in determining storage levels. However, the total absence of production in the discussion illustrates just how convinced everyone is that U.S. natural gas is in a permanent glut. Then again shale is a “Game Changer”.

What investors need to remember is the change isn’t over yet. The next important piece of this puzzle will be the slowly evolving production situation over the next year.