Bakken Head Fake and the June Fracking Frenzy

One great advantage of writing an investment letter and moderating several investment discussion forums is I get ideas and research via email from my readers to consider.  Some give me permission to publish what they send me and use their names and others ask me to keep their contributions anonymous. 

This commentary is from a long-time reader and newsletter subscriber, who has been a friend and contributor way back to my  "Personal Finance and Investing" days at Suite101 back in the early 2000s.   Trekkies will get a chuckle from his signature.

On 4/17/2015 5:33 AM, John Stolberg wrote:

Dear Kirk,

Well completions in North Dakota have been delayed by both the drop in oil price and state limits on natural gas flaring.

Drillers have completed wells in the Bakken faster than they can get them connected to natural gas pipelines.  The state is trying to bring flaring of the unconnected natural gas under control.  In January, the requirements for natural gas capture rose from 74% to 78%.   Some well completions have been delayed while the collection pipelines get built out.  

• http://thebakken.com/articles/933/north-dakota-oil-production-declines-for-first-time-in-a-year

Secondly, most of the oil from shale wells comes in the first year, so oil companies have been delaying well completions until oil prices rise.  Well completions can be delayed by up to 12 months because state regulations give oil companies up to one year to complete their drilling.

Both factors have built a backlog of uncompleted wells in North Dakota that is now near 1,000.  All those uncompleted wells have resulted in a drop in North Dakota oil production in recent months.  But that list of wells drilled but not fracked, (the so-called "fracklog") may diminish in June.

That's because North Dakota's oil extraction tax has a low price trigger.  If the monthly average West Texas Intermediate oil price drops below $55.09 for five consecutive months, the 6.5% state extraction tax is suspended.  Oil prices in January, February and March were below the $55.09 trigger.  April's average so far is also below the threshold.  If May prices also hold below $55.09, expect a fracking frenzy in June.  

• http://blogs.platts.com/2015/03/20/tax-time-bakken-oil-summer/

Q_out

(aka John Stolberg)

Thanks John!

PS During our Suite101 days I signed my posts with "Kirk out"
PSS John sent me this on 4/17/15 but I only now (7/9/15) had time to publish it.  Click John Stolberg to read his most recent article.