Outrun Change

We need to learn quickly to keep up with the massive change around us so we don't get run over. We need to outrun change.

More info from 12/14 Director’s Cut – Indicators for near term

For follow-up to my previous post on October oil production data in North Dakota, check out the Dickinson Press’ discussion of comments from Mr. Lynn Helms:  Prices could plateau production: Hems says 2015 could be tough for oil.

Here are a few tidbits that help me understand what is going on around us:

Mr. Helms, who is director of the ND Department of Mineral Resources, didn’t think oil prices would drop this far.

Article says that on Friday sweet crude prices were $41.75 a barrel in North Dakota and $57.81 on the New York Mercantile.

Graphic at the Bakken Magazine says on Friday the Brent price was $62.05 and Cushing was $57.99. I’m slowly catching on (but you already knew that), so that graphic tells me that the Cushing price is also called the West Texas Intermediate index.

Rig count

He said that a number of drillers are going to let their contracts to rent drilling rigs expire over the next several months. He is aware of plans to release 30 rigs in the first six months of 2015.

He says this is the second time drilling in Bakken has slowed. Previous time had a peak of 93 in November of 2008 (recall that was the middle of the Great Recession). The count fell to 34 and didn’t recover to 93 until February 2010. If I infer correctly, the bottom was May 2009.

He sees a drop of 50 rigs by the middle of 2015. My guess is that will put the rig count at around 130 to 150 next summer or fall.

He thinks a large number of the 600 wells waiting completion will be left in that condition until prices recover. I learned that wells can be left for up to a year before completion.

Flaring

The Commission’s goal for October was to capture 74% of natural gas. That means flaring of only 26%. Goal for January 2015 is 23%.

In October, only 22% of gas was flared. My notes show since April, the flared gas has been:  30%, 28%, 28%, 26%, 28%, 24%, and 22%. That is a steady improvement and shows the statewide target was cleared by 4%.

He says only 8 of 68 operators in the state are not in compliance. He said 4 of those 8 will be instructed to cut back production.

Another aha! for me. That means all the gas flares I saw when flying out of Williston in October were only 22% of the total gas brought out of the ground. Roughly four times more gas is captured and sold than I saw being burned off. That’s a huge amount of captured gas.

Other thoughts

Processing oil to strip out natural gas liquids will be a drain on production in the next several months as drillers install the needed equipment.

Deadline is April 1, 2015 for crude to hit the 13.7 psi vapor pressure limit.

First deadline for the gas capture requirement was October 1, so this is the first set of production data reflecting that factor.

Bruce Oksol has good summary of the December Director’s Cut info at Million Dollar WayDirector’s Cut Is Out — New Production Record Missed By About 0.3%; One-Third Of October Too Windy Too Complete Wells — December 12, 2014; Gas Flared Down To 22%; Bakken Crude Oil Spot At $42/Bbl

The Bakken Magazine also reports on Mr. Helms’ comments and the October data:  North Dakota oil production declines for first time in a year. That article covers most of the information in the Dickinson Press article that I highlighted above. Hmm. Guess that was a phone presentation with media listening in. If I had time, I’d try to find out how to participate.

Pricing differentials

Since I’m an accountant, and now have four data points of oil price indicators, and want to figure stuff out, I just had to draw a chart of the various prices listed above to see the differentials:

 Brent  WTI  NY Merc.  N.D.
    62.05     57.99         57.81      41.75
Brent     62.05           –      (4.06)         (4.24)    (20.30)
Cushing/ WTI      57.99       4.06           –         (0.18)    (16.24)
NY Mercantile      57.81       4.24        0.18               –    (16.06)
North Dakota      41.75     20.30      16.24          16.06           –

I didn’t realize there was that much of a spread for North Dakota oil.

As you chuckle at me saying aha! at that chart, remember my goal in this blog is to pick up some learnin’ about this fantastic, wonderful world around us. I hope you can follow along and learn with me.

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