The oil market is broken, America’s oil champion, Continental Resources says, and that has prompted a buyback program that has already mopped up $92 million dollars worth of its own undervalued shares — 2.4 million of them so far.
The program, Chairman and CEO Harold Hamm said, will continue into 2020, even if commodity prices are trending lower than the company’s $60 WTI benchmark.
Obviously, a lower price scenario would mean less free cash flow for the buyback, company officials acknowledged in later questioning. But the company’s debt metrics will still trend lower per barrel even at lower commodity prices. To the extent that is true, the company can and will lean toward repurchasing shares over debt reduction.
It’s an aggressive strategy, but one that Hamm suggested is fully warranted by Continental’s performance in the shale fields of America. In Continental’s second quarter earnings call, Hamm not only announced higher than expected production, but lower than expected costs.
“I’m proud that our teams can exceed production estimates with lower rig activity,” he said. “That is operating and capital efficiency at its best.”
A Bank of America analyst asked Hamm about its buyback program, and suggested there is something broken in oil markets today.
In October of last year, the company was valued between $26 to $27 billion dollars, but today its value is less than half that at $12.7 billion.
“What is the value of Continental being a public company?” the analyst wondered.
Hamm was blunt.
“You know, we don’t see a lot of value in it, just to tell you like we see it today,” he said. “But we can’t control the market. We can control what we are dealing with on a daily basis, and that is what we are doing.”
Continental’s buyback isn’t an attempt to go private, either, Hamm added.
“We think as long as value is not reflected in the stock, we gotta be buying it back,” he said. “That is what we are doing. And that’s what we will continue to do.”
The Bakken, meanwhile, was a significant player in Continental’s favorable rise in production guidance, according to Continental President Jack Stark. The Bakken posted production gains of 23 percent year over year.
Continental drilled 35 wells in the Bakken, which flowed an average of 2,300 barrels of oil equivalent per day.
One of the wells, located in Dunn County, achieved an initial rate of 4,870 barrels of oil equivalent per day.
Contributing to that increase are three step-outs that the company announced previously in Billings, Mountrail, and Richland, Montana counties. They are outperforming legacy wells by as much as 145 percent, and are delivering returns of up to 85 percent.
Continental will continue to capitalize on its favorable margins in the Bakken with a new, high-impact oil project in Williams County, Stark added.
The 10-square-mile Long Creek Bakken Unit is in Williams County. Lessons learned in the company’s Springboard project in Oklahoma, where larger pads are allowing cost reductions of 10 to 15 percent, will be applied to the Bakken project.
Continental will operate two rigs in the Long Creek unit, adding 56 new wells to the existing five parent wells. That new production is expected to begin in the third quarter of 2020, and peak in the second half of 2021.
Long Creek is ultimately expected to add up to 20,000 net barrels of oil per day to production, which will be gathered and distributed by pipelines to centralized facilities.
Bakken rigs as a whole are going to remain steady at six, Stark said.
Efficiencies are being gained in the Bakken, which includes a 20 to 40 percent increase in the stage per day count for well completions.
Meanwhile, in Oklahoma, new efficiencies will allow the company to release seven of the 19 rigs it had there, while still meeting or exceeding production guidance.
The savings to capital expenditures will be used to purchase additional favorable assets, all without exceeding or lowering guidance for capital expenditures in 2019.
Gas gathering constraints in the Bakken has hurt some companies — contributing, for example, to Whiting’s layoff of at least 100 employees in the Bakken and 254 company-wide. Continental has been able to avoid such issues Hamm said.
“We have a very large footprint that allows us to work within certain areas,” he said. “We are able to work around it.
The company is capturing between 88 to 89 percent of its gas, meeting state targets.
Hamm added that a number of new facilities and pipelines are coming in the second half of the year, which will allow Continental to continue increasing its Bakken production.
“We have led the industry up there in gas capture and we still do,” he said. “We have been working ahead of it.”
When it comes to fires and saltwater disposal tanks, it’s not what the tank is made of, a Minot tank manufacturer says. It’s what’s inside the tank, and how it’s handled.
Shane Kunnanz, with Fiberglass Specialities in Minot, said he was prompted to research the matter more thoroughly after media articles reported questions about fiber glass tanks and their susceptibility to fires and lightning strikes.
McKenzie County has had four to five fires at saltwater disposals this year, all involving fiberglass tanks, according to McKenzie County Emergency Management Director Karolin Jappe. She has been pressing state officials to look into the management of saltwater tanks, which state regulators have said are likely to double or triple in the Bakken during the next decade.
Kunnanz has been making fiberglass tanks for the Oil Patch since 2008.
“Once a steel tank is coated to prevent corrosion (from salt water), they are the same as a fiberglass tank electrically,” Kunnanz said. “Both will have static electricity to deal with.”
He’s been working with Lightning Masters, a firm out of Florida that specializes in lightning and static electricity solutions for industrial facilities.
Why produced water is such a problem
Produced water in the Bakken is about 13 times saltier than the sea, and thus highly corrosive.
Steel tanks that are going to hold such material are generally coated to resist corrosion. But the coatings wear out and can fail, leading to spills. Many companies thus choose fiberglass. Not just because it is cheaper than a steel tank, but also because it doesn’t rust.
Produced water isn’t just salty, of course. It came up from the ground with oil and gas production, so also contains flammable materials. Inside a tank, the volatile chemicals in the brine vaporize, filling any available air space in the tank with flammable fumes.
When a truck driver comes to take some of the brine to a disposal well, the drawdown introduces air into the tank. This is adding oxygen into a flammable mixture.
During a drawdown, static electricity also begins to build up inside the tank. If this is not safely dissipated, it can generate a spark.
One spark, however tiny, is all it takes to light a saltwater tank up. In a fire, the lids of the tanks are supposed to fly off like frisbees. That’s in lieu of the entire tank taking off like a rocket ship.
Lightning is the X factor
A lightning strike poses two types of threats to a tank.
First, a lightning strike, even if it doesn’t hit a tank directly, can cause a sudden difference in electric potential. This, generally will lead to equalization. That is an electrical arc taking place in the air. It’s similar to what happens when you touch a metallic doorknob and a spark flies, but on a much larger scale.
The second issue is that lightning is super hot. We’re talking 50,000 degrees Fahrenheit hot. That kind heat by itself can instantly ignite any flammable material.
So in addition to structural materials that keep the lightning strike away from tanks and convey the energy to the ground, Bruce Kaiser, with Lightning Masters, recommends proper venting of the tanks.
“In the case of both an arc and a direct strike the presence of a flammable gas determines if there will be an ignition,” he said. “That is why proper venting of these (tank) batteries is essential. No gas, no fire. No boom. Ideally, the tanks should be vented into a vapor recovery unit, or at least through a manifold capped with a flame arrestor, not allowing any gas to be available for ignition.”
Kaiser is meanwhile working on a fire extinguisher that would screw into a tank. If the temperature gets high, it would go off, immediately putting the fire out, inside the tank.
In the meantime, he estimates that the full range of lightning and static prevention measures costs around $1,200 per tank. The tanks themselves vary in cost, but are generally in excess of $10,000 each.
A fire at one tank often leads to a fire at the rest, since they are connected and in close proximity. A seven-tank battery is thus in excess of a $70,000 investment.
He estimates that 30,000 tanks nationwide have some type of lightning protection.
“There’s a lot more than 30,000 tanks out there,” he said. “(Protecting an expensive tank) is common sense,” he said. “Which is obviously not all too common.”
Study, rules needed
Kunnanz said he is glad the state is studying the problem and believes it is needed.
Tanks stand 20 to 30 feet high, and are generally set down on a flat prairie. That makes them tall, attractive targets should a lightning storm roll through.
“Right now, there is zero requirement for companies to install lightning protection or static drains on their facilities,” Kunnanz said. “It is completely voluntary.”
His only concern with the study is that it be well-rounded, and look at all aspects of the problem, including such things as human error.
“I feel like human error is something that is always a problem,” Kunnanz said. “We need to come up with a way to ensure that people adhere to the policies that are in place.”
John Harju, with the Energy & Environmental Research Center, told the Williston Herald that a cursory look at available industry data do not show fundamental differences between fiberglass and steel tanks when it comes to holding saltwater.
But, he added, the center will interview those familiar with what is going on, as well as reviewing available studies, to get a better handle on the issues. That is assuming that the state approves a proposed $300,000 study of the issue. The proposal, from the Oil and Gas Research Council, is set to go before the North Dakota Industrial Commission for approval on Aug. 28.
“We just need to do our due diligence, so we can design whatever follow-on study needs to be done,” Harju said. “It’s important that we find quality data. That will be our primary objective.”
The Northwest Narcotics Task Force and the Williams County Sheriff’s Office seized thousands of dollars worth of heroin and methamphetamine when serving a search warrant Thursday, Aug. 8.
Officers searched a home in the 13000 block of 49th Street Northwest, southeast of Williston, according to a news release from the Sheriff’s Office. They found 70 grams of meth, 60 grams of heroin and drug paraphernalia.
A second search warrant turned up items that had been reported stolen through both the Williams County Sheriff’s Office and the Williston Police Department.
Multiple people were arrested on charges ranging from possession of heroin with intent to distribute to drug paraphernalia charges, police said. Formal charges had not been filed as of Friday.
Investigators said they estimated the value of the methamphetamine seized at about $7,000 and that the heroin seized was worth about $30,000.
Driving under the influence of alcohol is one of the most common charges filed in the area, with more than a dozen such cases filed in Williams County Northwest District Court in July alone.
For police, though, there’s more to consider.
In some cases, a person might be pulled over and even fail a sobriety test, but a blood or breath test shows they’re below the legal limit.
In that case, officers often turn to drug recognition experts.
The Williston Herald spoke with Tarek Chase, a trooper with the North Dakota Highway Patrol and a drug recognition expert.
Here are a few things to know about how police look for drugged drivers.
Becoming a drug recognition expert is a lot of work
Chase said in order to be certified as a drug recognition expert, officers have to go through two weeks of classroom training followed by a week of real-world experience.
“It’s a very intensive training,” he said.
The classroom training includes medical knowledge about how substances affect the body and how they are metabolized. The field training took place at the Maricopa County jail in Arizona, where inmates can volunteer to be examined.
“It helps (officers) identify impairment other than alcohol,” Chase said.
How it works
When an officer suspects a driver might be under the influence of drugs, a drug recognition expert might be called in. That person will look at the results of a field sobriety test and the person’s heart rate, blood pressure and other physical signs.
From there, the drug recognition expert determines, what, if any substance, the driver might be under the influence of. That doesn’t mean picking the precise substance, though.
“If someone was under the influence of meth, I would use the category that falls under, which is a central nervous system stimulant,” Chase said.
Drugs like heroin and other opiates, on the other hand, are classified as narcotic analgesics.
Personal responsibility is key
Some people take illegal drugs and then drive, but other cases aren’t as straightforward. Some people take a prescribed medicine and don’t realize the effect it might have.
Chase suggested talking with a doctor or pharmacist about how a prescription medicine might make you feel. And, he said, follow the advice about not operating heavy machinery — like a car or truck — until you see what it does.
“Take the prescription ahead of time to see how it affects your body,” he said.