EOG Waiting Out Oil Prices

May 14, 2015 Elizabeth Alford

EOG Resources will continue to hold off on Bakken well completions until crude prices stabilize.

Pulling back, slowing down and waiting it out is the preferred strategy for oil producers looking for strategies during the current pricing crisis.

During an earnings call, EOG says that they are benefiting greatly from the pull-back in activity and progress is being made to lowering cost in each phase of their operations. The company announced a first quarter loss net loss of $169.7 million.

Bakken Activity

The slowdown in activity has allowed EOG to focus on three things in its Bakken operations

Operational efficiencies and lowering well cost. Currently, a typical 10,000 foot lateral is now drilled in just over 10 days.
Using new technical data from our integrated completion process to further adjust and tailor high density completion designs to specific formation properties. These modifications are leading to improved results.
Maintain a more stable production base with minimal downtime

“William Thomas, chairman and CEO commented that “the company has no interest in accelerating oil production at the bottom of the commodity cycle. “We continue to adjust to the lower oil price environment by reducing well costs and operating expenses and by making significant well productivity improvements through technology advancements.”

Other Bakken Highlights

Well costs are currently 14% less than the 2014 well cost.
2015 well costs will be as much as 20% below 2014 levels with a target of $7.4 million.
Began production on eight wells in two 500 foot space patterns in the partial area.
Initial per well production rates from a five-well pattern averaged 1,235 barrels of oil per day and a three-well pattern averaged 1,345 barrels of oil per day.
Focused activity on its Parshall Core acreage in the North Dakota Bakken where 500-foot spacing results were very encouraging. Operational improvements continue to generate efficiency gains and lower well costs. Average well costs in the first quarter were down 14 percent from 2014 levels.

“Billy Helms - EVP, Exploration & Production said that “For the Bakken, as we continue to experiment with our completion designs we’re seeing different areas of the field have different rock properties and we’re tailoring those completion designs to match those rock properties.”

Has the Bakken Peaked?

May 13, 2015 Elizabeth Alford

The Energy Information Administration ( EIA) is predicting that oil production in the Bakken will begin to decline in June.

Shale producers have been reducing rigs, cutting budgets and laying off workers for months to compensate for low crude prices. Over the past year, the Bakken rig count has dropped by more than half, but until now production has remained at record levels, with the EIA reported 1.2 million barrels a day in February.

Related: Record Production for Bakken

In the EIA’s monthly productivity report for May, the agency reports that oil and gas production has probably peaked and they expect a 31,000 Mbbl/d drop in oil and 30,000 MMcf/d f drop for natural gas throughout June.

The Bakken had 80 oil rigs running last week zero gas rigs. WTI oil prices continued to climb trading at $59.39/bbl on Friday afternoon, a $.63 increase from the previous week and gas futures trading increased to $2.88/mmbtu.

Bakken Man Camps Center of Ponzi-Type Scheme

May 12, 2015 Elizabeth Alford

$62 million dollars intended to go towards Bakken man camps were raised illegally, according to a complaint filed by The Securities and Exchange Commission.

The SEC has frozen the assets of North Dakota Developments, LLC ("NDD") and its principles, claiming they defrauded over 980 investors from 66 different countries. Court documents accuse Robert L. Gavin and Daniel J. Hogan of raising the money to build Bakken housing projects that were never finished. The pair lured investors with promises of up to 42 percent returns in the first year. They also claimed that the NDD would jointly manage all of the units of the short-term housing facility with hotel-like amenities and that many would be operational within months.

“The SEC alleges that, “despite the lack of profits, the Defendants made Ponzi-style payments to certain early investors by paying their “guaranteed” returns using funds provided by later investors. The SEC also alleges that instead of developing the projects as promised, the Defendants have misappropriated over $25 million of investor funds to pay undisclosed commissions to sales agents, make payments to Gavin and Hogan, make investments in unrelated Bakken area projects for Gavin’s and Hogan’s personal benefit, and to make the Ponzi-like payments.”

A court hearing has been scheduled for May 18, 2015, on the SEC's motion for a preliminary injunction.

N.D. Legislative Session Ends

May 11, 2015 Elizabeth Alford

When the North Dakota Legislative Assembly convened in January, lawmakers faced an uncertain climate caused by falling oil prices. By all accounts the session was a success, with one local news source saying it was a "solid performance by legislators".

Legislators basically had to start over by pulling apart Gov. Jack Dalrymple’s proposed budget. They were forced to make some difficult decisions regarding spending cuts, while finding the money to fund important projects.

The first order of business was the passage of the 'surge' bill that supplies $1.1 billion for state infrastructure projects. This money will go to improve highways, airport improvement projects, school districts, law enforcement agencies and emergency medical services.

Another huge item on the session's agenda was adjusting the state's oil tax formula. House Bill 1476 lowers the state’s 6.5 percent oil extraction tax to 5 percent effective Jan. 1, 2016, a decision that got mixed reviews from both sides of the aisle.

“I guess if you had to boil it down it would be squandered opportunities and misplaced priorities. That really is what marked the session. Cutting the oil extraction tax by 23 percent,” says Sen. Mac Schneider. But Sen. Rich Wardner (R) disagreed, saying “I think it’s going to be big for North Dakota. I think we’re going to get the industry to put more investment into the state now that they know it’s stable and steady.”

Highlights of North Dakota’s 64th Legislative Assembly:

A record $14.4 billion budget for the 2015-17 biennium, up from $13.7 billion for 2013-15
$397.2 million in tax cuts were approved
A record K-12 budget was passed including $3 million for expanding pre-K programs
Approved $3.4 million for additional staff at the Department of Mineral Resources (DMR)
Passage of House Bill 1358 that authorizes the NDIC to develop new rules involving the construction and operation of gathering pipelines

Bakken Oil Train Derails

May 7, 2015 Elizabeth Alford

The tiny town of Heimdal, North Dakota, was evacuated early Wednesday morning after a BNSF Railway train derailed and burst into flames. No one was injured and fire crews from three nearby towns were called in to handle the blaze, which was extinguished by Wednesday evening.

BNSF confirmed that 107 of the train cars carried crude oil and the eight that derailed were the unjacketed CPC-1232 models that the federal government would like phased out by 2020 due to safety concerns.

This accident came just a few days after the Department of Transportation issued an emergency order that will require certain crude by rail trains to slow down in high threat areas.

“The Federal Railroad Administration issued a statement saying, “Today’s incident is yet another reminder of why we issued a significant, comprehensive rule aimed at improving the safe transport of high hazard flammable liquids. The FRA will continue to look at all options available to us to improve safety and mitigate risks.”

In April, the NTSB sent a 10 page letter to the Pipeline and Hazardous Materials Safety Administration, urging that new regulations be adopted to improve the safety of crude by rail. Their recommendations include:

All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with thermal protection systems that meet or exceed the thermal performance standards
All new and existing tank cars used to transport all Class 3 flammable liquids be equipped with appropriately sized pressure relief devices that allow the release of pressure under fire conditions and that minimizes the likelihood of energetic thermal ruptures
An aggressive, intermediate progress milestone schedule, such as a 20 percent yearly completion metric over a 5-year implementation period, for the replacement or retrofitting of legacy DOT-111 and CPC-1232 tank cars to appropriate tank car performance standards
Establishment of a publicly available reporting mechanism that reports at least annually

Since 2008, crude by rail transport has increased by 1700% and accidents have risen nearly tenfold, including these since the first of the year:

2/17/15: WV derailment carries Bakken crude in more
2/14/15 Train carrying crude oil derails in Canada more
3/6/15: Oil train carrying Bakken crude explodes in Illinois more
3/7/15 Train carrying crude oil derails in Canada more
3/8/15: Train carrying crude oil derails in northern Ontario more
5/6/15: Train carrying Bakken crude derails near Heimdal, North Dakota