Friday, July 27, 2012

Weekly Update on the Bakken Boom, It Just Keeps Getting Better and Better All the Time

Bruce Oskol of the Million Dollar Way blog sends along these recent updates on the impressive Bakken boom: 

1. Diversified energy company ONEOK (NYSE: OKE, currently trading at an all-time high of $45.21 per share, and 26% above a year ago) announced $1 billion of new investments in energy projects, including a fourth (and unplanned) 100 million cubic feet natural gas processing facility in the Bakken. This is huge. 

2. Bentek Energy predicts a natural gas boom for the Bakken. Remember, the Bakken field is an oil field; the natural gas is a by-product in the Bakken. 

3. Natural gas was estimated to add 3 - 5 percent of economic value to the Bakken; original estimates were that $3 to $4 billion will be required to develop the natural gas in Bakken; that estimate has now been moved up to $15 billion based on the Bentek Energy study suggesting a natural gas boom is pending in the Bakken. 

4. There are now reports that North Dakota is producing up to 800,000 bbls. of oil per day. I think that's a stretch; most recent official figures are 639,000 bbls., but huge increases are projected for this summer due to additional well completion crews being sent to Williams County, where activity has shifted. (McKenzie County activity also growing.) 

5. Occidental (a $72 billion market cap company) reported that it increased worldwide oil production in Q2 of 2012, and much of the increase was due to the Bakken. 

6. Whiting, a Bakken-centric oil company, had a stellar second quarter, especially in light of how the majors (XOM, CVX, and COP) did. 

7. The Bentek Energy study suggests oil production in the Bakken could go from current 639,000 bopd, to a peak of 2 million bopd by 2025, the highest estimate yet. 

8. The Bakken has moved from exploratory to development stage. More and more leases are held by production and urgency to drill will lessen. 

9. There is a flurry of activity at state level to issue permits for the Fort Berthold Indian Reservation, in the Heart Butte oil field. Native Americans are becoming huge beneficiaries of the Bakken boom.

7 Comments:

At 7/27/2012 2:49 PM, Blogger Breaker Morant said...

http://www.milliondollarwayblog.com/2012/07/xom-32000-boepd-from-bakken.html

MDW also had a recent post about Exxon highlighting their activities in the Bakken.

 
At 7/27/2012 3:44 PM, Blogger JakeW said...

Waiting for VangeIV to show up and talk about how these companies will be bankrupt in a couple years. . .

 
At 7/27/2012 4:31 PM, Blogger Breaker Morant said...

And don't forget-he has to tell us the Petroleum Engineers across the industry are wrong.-(Suspect EUR's)

 
At 7/27/2012 10:12 PM, Blogger VangelV said...

1. Diversified energy company ONEOK (NYSE: OKE, currently trading at an all-time high of $45.21 per share, and 26% above a year ago) announced $1 billion of new investments in energy projects, including a fourth (and unplanned) 100 million cubic feet natural gas processing facility in the Bakken. This is huge.

This is a company that gathers and transports gas. It isn't a producer of gas. The producers can't generate positive cash flows and tend to pay little to nothing in dividends.

2. Bentek Energy predicts a natural gas boom for the Bakken. Remember, the Bakken field is an oil field; the natural gas is a by-product in the Bakken.

The problem remains the same; the shale gas hype has led to massive losses for the producers who are not running from being labelled as gas producers and are trying to claim to be 'shale liquids' plays instead. While shale gas production was great for users of gas it was a massive screw-up for investors.

3. Natural gas was estimated to add 3 - 5 percent of economic value to the Bakken; original estimates were that $3 to $4 billion will be required to develop the natural gas in Bakken; that estimate has now been moved up to $15 billion based on the Bentek Energy study suggesting a natural gas boom is pending in the Bakken.

Yes, and oil shale upgrading and production has been 'pending' for half a century now but is nowhere to be seen.

4. There are now reports that North Dakota is producing up to 800,000 bbls. of oil per day. I think that's a stretch; most recent official figures are 639,000 bbls., but huge increases are projected for this summer due to additional well completion crews being sent to Williams County, where activity has shifted. (McKenzie County activity also growing.)

All that drilling and the average production is still less than 100 bpd even though abandoned wells are being removed from the denominator and dry wells are never added to it. Not exactly a good sign for investors.

 
At 7/27/2012 10:20 PM, Blogger VangelV said...

5. Occidental (a $72 billion market cap company) reported that it increased worldwide oil production in Q2 of 2012, and much of the increase was due to the Bakken.

The problem is that the Bakken oil is much more expensive to produce and the conventional reserves are in trouble.

Whiting, a Bakken-centric oil company, had a stellar second quarter, especially in light of how the majors (XOM, CVX, and COP) did.

The company borrowed half a billion dollars last year and has not shown that it is capable of financing operations out of cash flows. You can claim all kinds of great earnings simply by increasing the EUR and using a lower depreciation cost. But that only works for a while before the write-downs have to be made. (See Nortel's 1990 annual reports to see how this game is played.)

7. The Bentek Energy study suggests oil production in the Bakken could go from current 639,000 bopd, to a peak of 2 million bopd by 2025, the highest estimate yet.

No chance of that happening unless you flood the state with investment and are willing to take huge losses. Studies, models, and projections are only opinion. The facts are to be found in the actual filings.

8. The Bakken has moved from exploratory to development stage. More and more leases are held by production and urgency to drill will lessen.

This is not true. With a depletion rate that runs more than 65% per year you are looking at a great urgency to drill if you want the 2 mbpd projection to be true.

9. There is a flurry of activity at state level to issue permits for the Fort Berthold Indian Reservation, in the Heart Butte oil field. Native Americans are becoming huge beneficiaries of the Bakken boom.

That is true. But investors have yet to see positive cash flows from production or much in the way of dividends even for companies that have been in the area for nearly a decade and have been active for a number of years.

 
At 7/28/2012 8:35 PM, Blogger Bakken1515 said...

Vangle you are wrong the urgency to drill is going down because more and more leases are now held be drilling that is the main reason rig count is going down slightly producers are releasing old rigs that had been utilized to drill single hole pads to hold leases. Now even with those same producers releasing old rigs they are picking up or adding skid packages to rigs and drilling multiple hole pads

 
At 7/28/2012 8:53 PM, Blogger VangelV said...

Vangle you are wrong the urgency to drill is going down because more and more leases are now held be drilling that is the main reason rig count is going down slightly producers are releasing old rigs that had been utilized to drill single hole pads to hold leases. Now even with those same producers releasing old rigs they are picking up or adding skid packages to rigs and drilling multiple hole pads

If you need $7.50 gas to break even because that is what your all-in costs are you do not drill to sell your gas for $3.50.

 

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