2014 March 14

The Master Resource Report 2014-03-14

Quick look at the Bakken data just released

The North Dakota Dept. of Mineral Resources released the January production data yesterday. So here is a quick look at what it shows. Next week’s report will look at it in more detail.

The graphs below illustrate what happens when the new well additions slip. In December only 48 net new producing wells were added and in January the number only climbed back up to 92 net new wells in the Bakken. State wide the preliminary data shows a net gain of only 59 wells so the number of producing outside the Bakken declined. Production was impacted by the drop in wells and for sure by issues related to the extreme weather the state experienced. But the key point illustrated here is how vulnerable the production is to any dip in new well additions. Mother Nature has provided a glimpse of what will happen if net new well additions were to remain depressed for any period of time. It doesn’t matter whether that is caused by cold weather or a cold economy depressing capital expenditures by the companies.

Total North Dakota state wide production in January remains below the all-time high set back in November (976,453 b/d) at 933,128 b/d. This drop of 43,325 b/d or 4.5% puts the state of its anticipated pace of achieving its goal of reaching 1 million barrels per day. It will likely make the one million barrel milestone this year. However, it will require a major ramp up in net new well additions to get back on the same growth trend seen in place prior to when the weather intervened.

The first graph illustrates the number of producing wells (green) and daily oil production (red) beginning in January 2010. The second graph narrows the time period to beginning in January 2012.

North Dakota Bakken  wells-production 2014-01

Click image for larger view.



2014 March 7

The Master Resource Report 2014-03-07

Walmart’s new super truck

Walmart unveiled its latest effort to keep the goods flowing to their thousands of stores as fuel price climb. The video below shows off the new Walmart Advanced Vehicle Experience truck.

The new concept (that means it may never actually make it to the road)  Walmart Advanced Vehicle Experience truck will be 20 percent more aerodynamic than our current trucks and have a micro-turbine hybrid powertrain that can run on diesel, natural gas, biodiesel and probably other fuels still to be developed.

Art Berman interview

Oilprice.com: Almost on a daily basis we have figures thrown at us to demonstrate how the shale boom is only getting started. Mostly recently, there are statements to the effect that Texas shale formations will produce up to one-third of the global oil supply over the next 10 years. Is there another story behind these figures?

Arthur Berman: First, we have to distinguish between shale gas and liquids plays. On the gas side, all shale gas plays except the Marcellus are in decline or flat. The growth of US supply rests solely on the Marcellus and it is unlikely that its growth can continue at present rates. On the oil side, the Bakken has a considerable commercial area that is perhaps only one-third developed so we see Bakken production continuing for several years before peaking. The Eagle Ford also has significant commercial area but is showing signs that production may be flattening. Nevertheless, we see 5 or so more years of continuing Eagle Ford production activity before peaking. The EIA has is about right for the liquids plays–slower increases until later in the decade, and then decline.

The idea that Texas shales will produce one-third of global oil supply is preposterous. The Eagle Ford and the Bakken comprise 80% of all the US liquids growth. The Permian basin has notable oil reserves left but mostly from very small accumulations and low-rate wells. EOG CEO Bill Thomas said the same thing about 10 days ago on EOG’s earnings call. There have been some truly outrageous claims made by some executives about the Permian basin in recent months that I suspect have their general counsels looking for a defibrillator.



Note: Currently clients and advisors at Ravenna Capital Management do not hold positions in Walmart.


2014 February 28

The Master Resource Report 2014-02-28

Oil prices continue to converge

The price of three major benchmarks for US crude oil continued to converge this week with Louisiana Light (LLS) at parity to Brent. Both were reported by the EIA as being at $108 per barrel. Meanwhile West Texas Intermediate (WTI) narrowed its discount to Brent down to less than $6 per barrel.

It looks like US consumers will have to wait a little longer for the US oil boom to bring lower crude oil prices.

Natural gas in Storage

Natural gas in storage in the US now sits over 40% below year ago levels and over 34% below the trailing five year average (2009-2013). It is even more striking when compared to the spring of 2012 when all the talks was about US natural gas being below $2 per million Btu and how the US would never see higher natural gas prices again. Natural gas in storage as illustrated below is now over 46% (1,165 Bcf) below the storage levels see just 2 years ago. Many forecasters clearly confused the magic of fracking with the realities of weather.

natural gas in storage comparison 2014-02-28

Click image for larger view.




2014 February 21

The Master Resource Report 2014-02-21

Could natural gas storage really fall below 1,000 Bcf?

According to the EIA gas storage report last week ended with 1,443 billion cubic feet (Bcf) of natural gas in underground storage. This is the lowest level at this time of year in a decade. Could storage levels fall below 1,000 Bcf?

One way to look at this is to consider how much gas was drawn from storage over the remaining period to the end of March during the record storage level year of 2012. During that five week period in 2012 483 Bcf of gas was drawn from storage (there was one week during the period with a fill) which would take current levels to 961 Bcf. Clearly this is not an impossible scenario. Stay tuned to see if the magic of the shale gas boom will come to the rescue.

So what does a former BP geochemist have to say about Peak Oil?

Steve Andrews had another great interview for the Peak Oil Review published by ASPO-USA on Monday, January 17th.

Q: Andrews:  BP has recently said definitively that “peak oil is dead.”  How does an oil super-major reach such a conclusion, at least for purposes of public policy dialogue?

Dr. Richard Miller: I can’t shed any light on why they’re saying that today because it hasn’t been their consistent position in the past.  A CEO like Lord John Browne clearly at least kept his options open on the idea; and he was the one who started to steer the company into alternative energy.  The one who really didn’t have any sympathy with peak oil was Tony Hayward; it was really sad to see him bring the company’s investments in photovoltaics and other non-conventional energy almost to a screeching halt, deciding that the company was going to become a pure hydrocarbons company.  That did seem very short-sighted.  What’s odd of course is that he’s a geologist, and a very good geologist.  You would think that someone like that could at least see that peak oil is not only coming, it’s quite probably here, in terms of conventional oil.

Steve Kopits video

Global Oil Market Forecasting: Main Approaches & Key Drivers

Steven Kopits, Managing Director, Douglas-Westwood

Tuesday, February 11, 2014   Columbia University


2014 February 14

The Master Resource Report 2014-02-14

NYT: Is the Keystone Worth the Fight?

The New York Times held an interesting online debate between critics and supporters of the Keystone XL pipeline project. This is a hot item since the U.S. State Department released its report that found the pipeline would not make the carbon emissions worse. But like most emotionally charged debates both sides of the argument quickly can become bogged down in ideology rather than data. A modified version of one of my favorite quotes explains it best. “It’s difficult to get a man to understand something if his ideology depends on him not understanding it.”—Upton Sinclair

I would like to point out that my friend David Hughes was asked to be one of the debaters. Being a Canadian geoscientist he has more than passing knowledge.

So here is your challenge. Set your ideology and preconceived ideas aside and see if you can give both sides an honest chance at convincing you in the debate. It will be both hard and fun.

Global SUV Sales

The Wall Street Journal reported that Ford Motor has forecast that sport-utility vehicle sales outside the US will jump by 40% over the next four years far out distancing growth in other segments. “Globally, industry sales of SUVs grew 17% in 2013, while Ford’s own sales of such vehicles grew 37%…”

The article went on to report that the top models exported from the US were the Edge and Explorer models.

Ford reported that January sales in China jumped 53% year-over-year. Sales for the month totaled 94,466 which is an annualized rate of well over one million vehicles. For 2013 sales jumped 49% over 2012 bringing last year’s total to 935,813 vehicles for Ford and its joint venture partners in China.

When you hear about how the developing countries will move rapidly to higher mileage vehicles or skip the auto culture it might be worth some second thoughts. It doesn’t sound like a world with less oil demand is ahead based on this news.

Note: Currently clients and advisors at Ravenna Capital Management do not hold positions in Ford.