Starting to Fight Declines, in the Bakken

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Model Portfolio: Up +8.59% Since Inception

The TerraJoule.us model portfolio, at mid month, is currently up +8.59% since inception (April 1, 2013). This is a decline of about 250 basis points since the March high. Cash heavy coming into May after greatly reducing exposure in April, we increased the core position in the solar ETF, TAN, on May 1. Currently, just as we did last summer, we will use the coming seasonal weakness to slowly build back positions, favoring oil and gas. As a reminder, the TerraJoule.us model portfolio is playing not for an all-renewable world by 2025, but rather, a re-weighting of the global energy mix from oil to the powergrid.

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Mid-Month Data Update

The Drilling Productivity Report from EIA in Washington is a relatively new product, and despite some discrepancies between how the EIA defines “The Bakken” and the State of North Dakota defines The Bakken, there are some useful metrics contained therein.

As detailed in the current issue of TerraJoule.us, Here Comes Oil, we have begun to undertake a running tally of the age of wells in The Bakken. The reason: wells age quickly in this shale region; and they age predictably, losing (on average) over 50% of their initial production rate by the third year. In the current issue of TerraJoule.us, we laid out the age progression already underway, and estimated that sometime later this year, or early next year, more than 50% of Bakken wells will turn three or more years old.

The IEA helpfully keeps an account of the effects of this aging well population, and as of April of this year, the decline from legacy wells was averaging 67,596 barrels per day. | see: Monthly Decline from Existing Bakken Wells in bpd 2008-2014

Monthly Decline from Existing Bakken Wells bpd 2008-2014

Let’s make a simple observation here: in a resource that is presently producing roughly 1 million barrels a day, a decline rate from existing wells is pushing towards 70 thousand barrels a day, and will absolutely reach 100 thousand barrels a day. It’s inevitable therefore that in order to fight these declines, the industry is going to have to significantly step up their game. Adding 1800 new wells per year in the Bakken is not going to be sufficient, as it was the past two years. And given that the industry only added 403 new wells in the first three months of 2014 further adds support to this theme.

Next Issue of TerraJoule.us

The next issue of TerraJoule.us will be published Sunday June 1, 2014 and will address the emerging issue of carbon risk as the global resource extraction industry runs into serious profitability challenges.

Thanks so much for reading TerraJoule.us, and we hope to see you again next month.

Gregor


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Gregor Macdonald
Editor, of TerraJoule.us Monthly ebook
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