Bakken Flat but the EIA Predicts Decline

The North Dakota Industrial Commission has published the July production data for The Bakken and for all North Dakota.


Bakken production was down 5,430 barrels per day while all North Dakota was down 9,410 bpd.

Bakken Amplified

Here is a more amplified view of what has happened during the last 12 months.

Bakken BPD Per Well

Bakken barrels per day per well has been falling faster than for all North Dakota. This is because a lot of very low producing conventional wells are being shut down.

North Dakota BPD

This is chart reflects the monthly change in North Dakota barrels per day of production. It is quite noisy but the 12 month trailing average reflects a steady decline since December of 2014.

From the Director’s Cut, bold mine.

June Sweet Crude Price1 = $47.73/barrel
July Sweet Crude Price = $39.41/barrel
Aug Sweet Crude Price = $29.52/barrel
Today’s Sweet Crude Price = $30.25/barrel
(low-point since Bakken play began was $22.00 in Dec 2008)

(all-time high was $136.29 7/3/2008)

Comments: The drilling rig count dropped 5 from June to July, increased 1 from July to August, and dropped 5 this month. Operators are now committed to running fewer rigs than their planned 2015 minimum as drill times and efficiencies continue to improve and oil prices continue to fall. This has resulted in a current active drilling rig count of 10 to 15 rigs below what operators indicated would be their 2015 average if oil price remained below $65/barrel. The number of well completions fell from 149(final) in June to 119(preliminary) in July. Oil price weakness now anticipated to last well into next year is the main reason for the continued slow-down. There was one significant precipitation event in the Dickinson area, 12 days with wind speeds in excess of 35 mph (too high for completion work), and no days with temperatures below -10F.

Over 98% of drilling now targets the Bakken and Three Forks formations. At the end of July there were an estimated 914 wells waiting on completion services, 70 more than at the end of June.

Rig count in the Williston Basin had stabilized, but the drop in oil price associated with anticipation of lifting sanctions on Iran and a weaker economy in China is leading to further cuts. Utilization rate for rigs capable of 20,000+ feet is about 45% and for shallow well rigs (7,000 feet or less) about 25%.

Drilling permit activity increased from June to July but fell sharply from July to August as operators positioned themselves for low 2016 price scenarios. Operators already have a significant permit inventory should a return to the drilling price point occur in the next 12 months.

The number of wells producing in the Bakken in July was 10,038, an increase of 127. In all north Dakota the number of producing wells was 12,577, an increase of 107. That means at least 20 conventional wells were shut down. This begs the question of how Bakken wells could increase by 127 when wells completed were only 119 while at least 20 wells were shut down.

And this from the NDIC: County Break-Even Price

County Break Even

The EIA has released their Drilling Productivity Report came out Monday also. The chart below is their prediction of Bakken production through October

Bakken DPR 2

Below are their production predictions for the four major shale producing areas through October.

Bakken DPR


Eagle Ford DPR

Niobrara DPR

Permian DPR

The Permian does not have nearly the decline rate as the rest of the shale patches because the Permian is about 50% conventional wells.

Total Shale

Here is the EIA’s Drilling Productivity Report projection for US total shale production through October.


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532 Responses to Bakken Flat but the EIA Predicts Decline

  1. I guess the magic isn’t happening, after all.

    (Waves ‘technology’ at fuel supply problem over and over.)

    It looks like we will have to learn how to do without (by getting rid of the damned cars as a useful first step).

    NO! We are going to fight to the death for the cars, we will destroy everything else. We know which side our bread is buttered on, convenience! We love our status symbols, even more than we love life itself.

    • old farmer mac says:

      If BAU survives a lot of new status symbols are going to be about the size of an old model MG midget. A Geo Metro will be a mid size car.

      A subcompact will be thirty six inches wide and forty eight inches tall and have two telescoping seats fore and aft so old fat guys and girls can get in and out. If the seat fails to rise, the rescue squad will have to be called to get us antique wide bottom models out of our status symbols..

      If battery tech progresses as expected, there will be some large cars on the road.

      Otherwise populist politics will result in rich folks oversized rides being outlawed- or failing that, populist rebellion will result in such rides being bombarded with large rocks from overpasses.

      Rich people will be allowed to buy an extra ration of gasoline or diesel fuel in exchange for paying for some charging stations for electric vehicles and making contributions to pv farms so the little folks can drive their electrified golf carts.

      Raggededy old Leafs with worn out batteries that will make them go only forty miles will sell for as much as a nice conventional ice car, because the owner of such a Leaf and a conventional car can save his gasoline ration for the occasional longer trip in the ice car.

      Maybe. Yogi sez predicting is hard.

    • Jeffrey J. Brown says:

      Interesting WSJ article which notes that advanced-economy central banks have been unable to sustain interest rate increases since 2008:

      WSJ: Lesson for Fed: Higher Interest Rates Haven’t Been Sticking
      Advanced-economy central banks that raised rates recently have all had to backtrack and start cutting

      In the seven years since the world’s central banks responded to the financial crisis by slashing interest rates, more than a dozen banks in the advanced world have tried to raise them again. All have been forced to retreat.

      That looms as a threat as Federal Reserve officials contemplate raising interest rates for the first time in nearly a decade at a policy meeting later this week.

      Whether they move this week or later, Fed officials say they expect to move rates up gradually. Recent history suggests gradual in the Fed’s eyes might still not be gradual enough. The economy might not cooperate and rates could remain exceptionally low for a long time.

      Central banks in the eurozone, Sweden, Israel, Canada, South Korea, Australia, Chile and beyond have tried to raise rates in recent years, only to reduce them again as their economies stumbled. . . .

      Various factors are holding rates down now, many of them out of the control of central banks. Slowdowns in developing economies, particularly China, have weakened demand for commodities and pushed down prices. Banks in advanced economies have been slow to heal from the 2007-09 crisis, squeezing private-sector credit. Aging populations in advanced economies and low productivity growth have sapped the ability of economies to sustain the higher rates central banks sought. And governments focused on fiscal restraint have left it to central banks to provide stimulus.

      • Nick G says:

        governments focused on fiscal restraint have left it to central banks to provide stimulus.

        That’s important. If governments were using a sensible balance of fiscal and monetary stimulus, interest rates wouldn’t have to be as low. Instead, government spending is being held back by those who want to throttle and cripple government, and replace taxation with borrowing (which is far more lucrative for the wealthy).

        • clueless says:

          Nick says: “government spending is being held back by those who want to throttle and cripple government”
          Do we live on the same planet??
          Total US public debt on 12/31/2008 = $10,699,805,000,000
          Total US public debt on 08/31/2015 = $18,151,150,000,000
          Difference = $7,451,345,000,000
          So for the past 80 months, US has spent more than it took in by over $3 billion per day; or over $93 billion per month; or over $1.1 trillion per year.
          On your planet WTF is “sensible” [i.e., higher in your world] government spending?

          • Nick G says:

            First of all, more government spending doesn’t necessarily mean more borrowing: it may mean more spending combined with more taxation. This would be a very good idea when aggregate (overall) spending is too low: private consumption is too low (and private saving is too high), so public consumption needs to take up the slack. Ideally, it would be spent on useful things like renewable energy and rail infrastructure, but almost anything is better than nothing.

            2nd, recessions automatically cause budgets to be in deficit. The question is how to respond to that.

            The whole point of stimulus spending is that the economy responds dynamically: the result is not a simple formula of additional spending means more borrowing, because the additional spending causes additional rounds of spending as recipients turn around and spend their new income. Each round of spending generates new tax revenue. It’s very likely that additional stimulus spending will actually reduce borrowing in the long run compared to “austerity”. Conversely “austerity” is likely to make debt worse, not better than it would have been otherwise. In other words, there are no perfect choices here, but stimulus spending is much less bad.

            Conservatives deny the logic of Keynesian spending because…they don’t like government, and so they don’t like government spending. On the other hand, they like tax cuts and government debt: it just means additional t-bills in their portfolios, generating income in perpetuity. They think that’s much better than paying taxes.

            • ChiefEngineer says:

              Hi Nick,

              It’s always a pleasure to read your comments because your someone who gets it. I was over at Gail Tverberg’s the last couple of days under a hand full of different screen names pointing out the ignorance. Someone made a comment that they thought I was Nick. I’m guessing they thought I was you.

              Most people don’t understand economics and not one conservative understands Keynesian spending, except the ones in power that only pretend to be conservatives to get elected. The Republicans have been holding the economy hostage since the day Obama took office. If the Republicans ever get in power again. They will stop talking about the debt that day. Just like the Bush years. Your analysis is right on. You don’t see that here or any blog very often, so I had to say something. Thank you

              Clueless is clueless

              • Caelan MacIntyre says:

                We can’t seem to get large-scale centralized coercive state governance to work. And why should it/we?
                Aside from being corrupt to its legal core, it is this complex manifestation that collapses under its own weight, crushing much underneath and leading to general civilizational/social decay/collapse. Or have we not been paying attention?

                Republican? Democrat? Who gives a shit? It’s just part of the same jury- rigged game. QE? Another acro’ for ‘taking the general population hostage’.

              • JustTheFacts says:

                “Federal Reserve Chair Janet Yellen on Thursday called on Congress to fund the government, warning that a government shutdown would jeopardize the country’s economic health.”

                “I believe it is the responsibility of Congress to pass a budget, to fund the government, to deal with the debt ceiling so that America pays its bills,” Yellen said


                Ted Cruz Plots Government Shutdown Fight Over Planned Parenthood

                “The Republicans have been holding the economy hostage since the day Obama took office.”

          • Dennis Coyne says:

            Hi clueless,

            The question is what is worse, higher public debt or higher unemployment rates? It is a choice. Herbert Hoover thought higher debt was a bad idea. Archie Bunker thought we needed a man like Herbert Hoover again, but that was supposed to be a spoof on the uninformed.

            Have you read The General Theory of Employment, Interest, and Money by John Maynard Keynes? It is a pretty short book and can probably be found at your local library, if you haven’t already read it.

            • Nick G says:

              The question is what is worse, higher public debt or higher unemployment rates? It is a choice.

              Sometimes fiscal stimulus will leave you with lower public debt and lower unemployment, and austerity will leave you with higher public debt and higher unemployment.

              If stimulus is very effective in pump-priming the economy, you may be better off all around.

              • Glenn Stehle says:

                Nick G said:

                If stimulus is very effective in pump-priming the economy, you may be better off all around.

                Ah ha! There’s that “if” word. Maybe you’re not as much of a true believer as I thought you were.

                The current situation is very different from that which existed in the 1930s, when Roosevelt did his Keynesian pump priming, and the US was floating on a sea of cheap to extract oil.

                Here’s how Nicholas George Malvais describes the situaiton back in the 1930s in Bless the Pure & Humble:

                Spectacular new discoveries in Texas, Oklahoma, California, and New Mexico between 1920 and 1930 transformed the problem of petroleum from one of scarcity to abundance. Prolific production led to a chronic imbalance between supply and demand. As stocks increased, the price of crude oil declined from a per-barrel high of $3.50 in 1920 sto $1.25 in 1930….

                The situation had been further aggravated by the surge of drilling and production activity that followed in the wake of Columbus M. “Dad” Joiner’s discovery of oil on the Bradford farm near Kilgore, in East Texas, on October 3, 1930. Joiner had unwittingly opened a Pandora’s box. East Texas’ yellow pine forests were instantaneously transformed into thickets of wooden oil derricks towering above a 140,000-acre oil reservoir that stretched 45 miles north and 12 miles east to west. Estimated to contain approximately 5.5 billion barrels of crude oil, the East Texas field was the world’s largest known petroleum reservoir at the time, and accounted for a third of the nation’s total oil production….

                Overproduction soon glutted an already saturated crude oil market. Crude selling for $1.10 a barrel in October, 1930, plummeted to 25 cents in early 1931….

                By the summer of 1931…Texas’ production…reached a million barrels a day and crude oil prices plummeted to 10 cents a barrel.

                The cheap oil prices would last 40 years, until the 1970s.

                Again, the key word in Gail’s argument is cheap — less than $20 per barrel in today’s dollars.

                • ChiefEngineer says:

                  I would prefer to live in 2015 at $100 oil, as appose to 1932.

                  The worst part of living in 2015 is cheap computing and how it allows ignorance like “cheap oil Tverberg economics” to go unchecked.

                  • Glenn Stehle says:

                    Gail builds a pretty solid case for her theory.

                    It may be possible to punch some holes in it, but I think it’s going to take a little bit more than ad hominems to do so.

                  • ChiefEngineer says:

                    Gail has been calling for financial collapse any moment now for over 5 years and has been wrong the whole time. The financial system has only gotten stronger since 2008. Gail whole economic belief is based on the law of diminishing returns which has been the same economic factor since the beginning of man and yet here we are today at record technology and output .

                    Her posts are like Taco Bell menu and it’s 3 ingredients. It’s all the same food with different names. She is trapped in the Republican conservative religious southern bubble. She just keeps doubling down.

                  • Glenn Stehle says:


                    I am fully aware that the financial economy has done fabulously well since 2008. It is the real economy, however, that concerns me.

                    The Census data show that from 2013–2014, median household income for non-elderly households (those with a head of household younger than 65 years old) decreased 1.3 percent from $61,252 to $60,462. This decrease unfortunately exacerbates the trend of losses incurred during the Great Recession and the losses that prevailed in the prior business cycle from 2000–2007. Median household income for non-elderly households in 2014 ($60,462) was 9.2 percent, or $6,113, below its level in 2007. The disappointing trends of the Great Recession and its aftermath come on the heels of the weak labor market from 2000–2007, during which the median income of non-elderly households fell significantly from $68,941 to $66,575, the first time in the post-war period that incomes failed to grow over a business cycle. Altogether, from 2000–2014, the median income for non-elderly households fell from $68,941 to $60,462, a decline of $8,479, or 12.3 percent….

                    Since 1973, the median man working full-time, full-year has seen no sustained growth, dropping from $53,291 in 1973 to $51,902 in 2002 and falling further over the 2002-07 recovery and the recession to $50,383 in 2014.

                  • Nick G says:

                    I am fully aware that the financial economy has done fabulously well since 2008. It is the real economy, however, that concerns me.

                    But that’s not what the analysis you presented is all about. The economy has grown since 2013, and it’s grown since 2008. The problem is not the real productive capacity of the economy.

                    The problem is inequality of distribution of income. That’s why median incomes are stagnating (or even dropping), even while the overall economy is growing.

          • Dennis Coyne says:

            Hi Clueless,

            The total net worth of US households in 2014 was about $80 trillion, so the public debt is roughly 25% of that. Acoording to the article linked below total US assets (financial and real) are at least $200 trillion in 2013 (this may be understated by as much as 50%).


            Total US debt (public and private debt)was about $60 trillion in 2014 or about 30% of 2013 assets.


            A 30% debt load is not really a huge problem. Sometimes people mistakenly assume there is no equity, that is a false assumption.

            If you own a home with no mortgage (liability is zero), the zero equity assumption would mean your home is worth zero. Does not seem correct to me.

            • Glenn Stehle says:


              I think the more accepted metric is debt to GDP, since a nation’s productive capacity is typically considered to be a better measure of its true “wealth.” “Wealth” based on market values, after all, is a very ephemeral thing.

              And if we look at debt to GDP, it’s not nearly as benign a picture as what you paint.

              • Glenn Stehle says:

                This is not to argue, I should add, that GDP is some fool-proof metric. It too, as wiseindian notes in his comments below, is very prone to manipulation by government technocrats.

                Nevertheless, I think GDP is a far less slippery metric than “total net worth of US households.”

                wiseindian says:

                India is not growing at 7%, that’s pure hokum from the new govt which has come up with a new scheme to measure GDP…..

                ….our govt has learned a thing or two from western countries.

              • Dennis Coyne says:

                Hi Glenn,

                The private debt is not really a huge problem, and if it is it is headed down based on your chart. When a bank loans money it looks at net worth. Even though “market values” are not fixed.

                It is certainly true that GDP is not a perfect measure at it fails to measure non-market activity. Growth in GDP can occur in less developed countries as people move from rural to urban areas. In more developed economies there was growth in GDP as more women joined the workforce full time. Their output as a stay at home Mom (running a household full time) was not a part of GDP, with two adults working their are more meals out, more prepared food from the grocery store, more hiring of cleaning services. lawn services, day care services, etc. It may be that nobody is better off (and perhaps worse off) even though GDP rises in this scenario.

                I do not think that debt cannot be too high, but for a household it is measured in terms of assets, for a nation it should be the same in my view. I do not always take the conventional view.

                • Glenn Stehle says:

                  Dennis Coyne says:

                  The private debt is not really a huge problem, and if it is it is headed down based on your chart.

                  Dennis, that place where the private debt headed down is what is known as the Great Financial Crisis.

                  Have you already forgotten what happened when the economy was deleveraging from that private debt? Falling GDP? The plunging stock market? Falling housing prices? The bottom dropping out of the price of oil? Millions of people losing their homes to reposession? Tens of millions of people losing their jobs and 10% unemployment rates?

                  And do you remember what the federal government did to stop the deleveraging, how the federal government intervened, moving heaven and earth to stop the blood letting? ZIRP? QE? TARP?

                  The government succeeded in stopping the deleveraging, but that massive private debt is still there, tied around the real economy’s ankle like a huge leaden weight. And as the real economy tries to swim it can’t. It’s all it can do just to tread water. And as it treads water the majority of US households take on water, slowly sinking, weighted down by this enormous mountain of private debt.

                  And then, with a straight face, you can tell me that “the private debt is not really a huge problem”?

                  • Dennis Coyne says:

                    Hi Glenn,

                    I agree that things could be better. You should show what private debt levels are currently. Wages have been stagnant at the median level and income inequality has become worse. At some point, when things get worse, people will wake up to the fact that the US tax code favors the rich, hopefully that will change.

                    Household debt has fallen see


                    Also total credit growth has slowed in US over time.


                  • Glenn Stehle says:

                    Dennis Coyne says:

                    You should show what private debt levels are currently.

                    I stated in my comment above what private debt levels are currently doing when I said: “The government succeeded in stopping the deleveraging, but that massive private debt is still there, tied around the real economy’s ankle like a huge leaden weight.”

                    For your edification, here is a graph that shows what is currently happening with private debt levels:

            • Stan says:

              Per Dennis, “A 30% debt load is not really a huge problem. Sometimes people mistakenly assume there is no equity, that is a false assumption.”

              And, the debt is largely owed to ourselves anyhow.

              • Glenn Stehle says:

                Well you gotta give Paul Krugman one thing, he operates in a fine tradition.

                Richarcd Nixon, Ronald Reagan, and now the Nobel laureate. It doesn’t get much more illustrious than that. 😃

                Here’s how Krugman puts it:

                People think of debt’s role in the economy as if it were the same as what debt means for an individual: there’s a lot of money you have to pay to someone else. But that’s all wrong; the debt we create is basically money we owe to ourselves, and the burnden it imposes does not involve a real transfer of resources.

                I wish Krugman would convince my banker of that, so he will stop trying to reposess my oil well and will loan me the money to drill my next one. When I couldn’t repay my last loan, I told the banker this was “money we owe to ourselves,” but somehow that argument didn’t sink in.😩

                • ChiefEngineer says:

                  “the debt we create is basically money we owe to ourselves”

                  “I wish Krugman would convince my banker of that, so he will stop trying to reposess my oil well”

                  Do you understand the difference between “we” and “I” ? We includes you and the bank. “I” doesn’t include the bank or anyone else. As long as you owe money on the oil well, it’s really not all yours. The bank has an interest.

                  You sound like someone who doesn’t want to take personal responsibility.

                  • Glenn Stehle says:

                    Chief Engineer,

                    Did you see the smily face?

                    It’s Krugman who doesn’t believe in personal responsibility, or who thinks that such a thing doesn’t exist.

                    Reagan, Krugman, all these modern prophets of profligacy are the same. They give moral and intellectual sanction to the empire of consumption.

                    They’ve added to America’s civic religion two crucial beliefs: Credit has no limits, and the bills never come due.

                    Balance the books, pay as you go, save for a rainy day — their abrogation of these ancient bits of folk wisdom did more to recast America’s moral constitution than all the changes brought about by the culture wars combined.

                  • ChiefEngineer says:

                    Clearly Glenn you don’t follow your own advise.

                    “Credit has no limits, and the bills never come due”

                    “Balance the books, pay as you go, save for a rainy day”

                    Your the one who’s Banker is demanding to be paid. Save your smiley face for him.

                  • Glenn Stehle says:


                    Lighten up man, it was a joke, poking fun at Krugman and the unreality he inhabits.

                    Trust me, I have absolutely no debt and have not had any for many a moon.

                    Don’t you know the significance of those smily faces?

                    The point is this: just try using Krugman’s argument with a banker and see how far it gets you.

                  • ChiefEngineer says:

                    Glenn Says – “Krugman and the unreality he inhabits”

                    The joke is the fact you think when it comes to economics your the scholar. If your going to poke fun of people. You should be prepared to receive the same.

                    Your posts shows the lack of personal responsibility.

                    I hope this makes you feel better :)

                  • Glenn Stehle says:


                    I’m just trying to imagine how things work in Krugman’s make-believe world:

                    Debtor: Hey banker. You know that $1 million I borrowed from you to participate in my latest drilling program? Well, because the price of oil has dropped from $100 to $40 I can’t afford to pay you back.

                    Banker: Well that’s not good.

                    Debtor: But if you will loand me another $1 million for

                  • Glenn Stehle says:


                    I’m just trying to imagine how things work in Krugman’s make-believe world:

                    Debtor: Hey banker. You know that $1 million I borrowed from you last year to participate in my last drilling program? Well, because the price of oil has dropped from $100 to $40, and because the wells aren’t producing as much as I thought they would, I can’t afford to make my payments on that loan.

                    Banker: That’s not good.

                    Debtor: But if you will loan me another $1 million, I’m sure the next round of wells will be more prolific than the last round. And I’m sure the price of oil will recover soon.

                    Banker: We only loan against good collateral, based on current evaluations.

                    Debtor: But that’s all wrong; the debt we create is basically money we owe to ourselves, and the burden it imposes does not involve a real transfer of resources.

                    Banker: That sounds reasonable to me. I’ll have the loan documents drafted up immediately, and after you sign them the $1 million will be transferred to your account immediately. Good luck with your new drilling ventures. I hope they’re more successful than the last ones were.

                  • ChiefEngineer says:

                    Get an education and take an economics course

                  • Stan says:

                    Us, ourselves or we includes both the banker and you. You are talking about distributional affects. They do affect who owns the goods and services. They don’t directly effect the total amount of goods and services available. Yes, the wells could be lousy investments and in fact make us poorer but the oil is real nonetheless.

                  • Nick G says:

                    It’s Krugman who doesn’t believe in personal responsibility

                    That’s a misrepresentation. He’s talking about government spending, not personal spending. They’re very, very different.

                  • Ken Barrows says:

                    I can only assume that ChiefEngineer thinks total debt can expand faster than GDP growth forever. Big assumption.

            • Stan says:

              Not only did Congress not prime the pump, they took air out of the economy. They required one of the largest U.S. employers to prefund its employees retirement in 10 years:

        • Glenn Stehle says:

          Nick G says:

          ,,,,government spending is being held back by those who want to throttle and cripple government, and replace taxation with borrowing (which is far more lucrative for the wealthy)….

          Conservatives deny the logic of Keynesian spending because…they don’t like government, and so they don’t like government spending. On the other hand, they like tax cuts and government debt: it just means additional t-bills in their portfolios, generating income in perpetuity. They think that’s much better than paying taxes.

          If only life were so simple.

          Gail Tverberg, in her article published in OilPrice yesterday, offers a very different cause for our economic malaise.

          Today’s left — armed with its perverse and vitiated Keynesianism — all too often operates under the assumption that all that is necessary is to create demand, and the supply will automatically, by magic, materialize out of nowhere.

          This is almost as great a departure from reality as Say’s Law — the first commandment of the supply-side faithful — which holds that all you have to do is create the supply, and the demand will magically materialize out of nowhere.

          • Nick G says:


            Is there any question that there is an adequate supply of oil at the moment? If cheap oil is the only important thing in the world, why isn’t the world economy accelerating quickly?

            Gail’s theories will lead you badly astray. Let’s examine just a couple:

            “Oil is necessary to economic growth”. and “Cheap energy is necessary to economic growth”. If these were true, why was US economic growth stronger in the 19th century than in the 20th, when oil wasn’t central to the economy, and energy was much more expensive?

            • Glenn Stehle says:

              °°°°Nick G said:

              Is there any question that there is an adequate supply of oil at the moment?

              That really isn’t Gail’s argument though, is it?

              Her argument is that there is an inadquate supply of cheap oil, which she defines as less than $20 per barrel in today’s dollars.

              °°°°Nick G said:

              …why was US economic growth stronger in the 19th century than in the 20th when oil wasn’t central to the economy, and energy was much more expensive?

              Economic growth was stronger in the 19th century than the 20th?

              Where do you come up with this stuff, Nick?

              • ChiefEngineer says:

                Gail’s argument of not enough cheap oil is just stupidity. That argument holds true for pretty much for everything. Gail lives in a fantasy world.

              • Nick G says:

                First, US growth was faster before 1945, using moderately expensive, non-oil energy:

                1800-1900: 4.13%
                1900-1945: 3.53%
                1945-2000: 3.17%

                “real GDP” at

                Both the US and other developed countries got that way with “moderately expensive” energy, not cheap energy. Oil and electricity have been cheap in the US in the post-WWII period, but energy was rather higher in years before that: coal and electricity cost much more, adjusted for inflation. The US, and other countries, succeeded quite well in growing strongly even when energy was much more expensive, whether it was coal or oil.

                Wind power is quite affordable (if perhaps not quite as dirt cheap as US post-WWII oil and electricity prices), scalable, high-E-ROI, etc, etc. So are nuclear, and solar even if they aren’t quite as cheap at the moment (coal is also plentiful and cheap, unfortunately), so I see no reason to expect energy to ever be more than “moderately expensive”.

                The fact that energy pre-WWII was a much higher portion of GDP means that it was a much heavier burden on the economy. Even if wind and solar were a little more expensive, that means that the wind/solar sector would have to be a little larger than otherwise to power the rest of the economy. This analysis suggests that this is not a big deal: that sector would still be a much smaller portion of the economy than pre-WWII..

                Second, fossil fuels aren’t nearly as cheap as they seem. Pollution is an unrecognized, external cost. So are the military costs we’re seeing currently of roughly $500B per year. Those pollution costs aren’t sustainable (especially CO2), but unfortunately the military costs probably are (in fact, many corporate interests are quite comfortable with them…). Moving away from oil and other fossil fuels will actually be much cheaper in the long-run than BAU.

                Finally, let’s assume that Business As Usual involved spending about 5% of our economic activity (perhaps measured by GDP) acquiring energy. Let’s take a worst case scenario where the cost of acquiring energy doubles. We’d have to dedicate another 5% to that activity. GDP might go down by 5% quickly, in case we’d have a deep recession. Or, it might happen over time – if it took 10 years, then we’d see a reduction in economic growth of .5% per year, for 10 years. After that transition was complete, economic growth would continue. So, a reduction in “net energy” would have a significant impact, but it wouldn’t be TEOTWAWKI.

                Oil is a bit more convenient – for instance, Churchill converted the British navy from coal to oil because they could “steam” just a little faster than the competition – but civilization would have been just fine without it. Rail would have kept it’s central role for freight and passenger traffic, cars and planes would have been less numerous and shorter range, and used batteries and ethanol, etc.

                • Glenn Stehle says:

                  Nick G,

                  I prefer to break the timeframe down so that it mirrors Gail’s analysis. And if we do that, here’s what I get using the reference you cited.

                  Real GDP growth per capita:

                  1800-1920 (the coal age) 1.28%
                  1920-1970 (the cheap oil and gas age) 2.42%
                  1970-2014 (the moderately expensive oil age) 2.22%
                  2000-2014 (the very expensive oil age) .84%

                  I don’t see anything in these figures which debunks Gail’s theory.

                  • Dennis Coyne says:

                    Hi Glenn,

                    Gail’s breakdown is very artificial.

                    A better breakdown would be to ignore 1929 to 1950 due to the great depression and World War 2 don’t you think?

                    An alternative explanation for varying growth rates is the labor force participation rate, especially for 25-54 year olds (as retirement and college attendance can change over time for the 16-24 group and for 55-65 age group.


                  • Nick G says:

                    Per capita is not appropriate.

                    We’re analyzing the overall productive capacity of the economy, and the ability of extrasomatic energy to support that. Overall growth was higher during the coal era.

                • Glenn Stehle says:


                  This economic machine has many interlocking gears. I suspect an analysis of GDP growth would have to, at the very minimum, take into account:

                  1) Growth in private debt
                  2) Growth in public debt
                  3) Oil prices

                  Even though Nixon was the president who began the era of deficitry and debtcraft, declaring “we are all Keynesians now,” it was Reagan who would give it moral sanction and run it through the goal posts.

                  And when Reagan began his borrow and spend policies, it was still at a time when we got quite a bit of bang (GDP growth) for the buck (of newly created debt).

                  I’ll bet Keynes is rolling over in his grave with what has been done in his name.

              • Dennis Coyne says:

                The higher growth rate from 1960 to 1980 might be due to low oil prices (though from 1975 to 1980 oil prices were pretty high relative to before 1970), a better explanation is increased labor force participation rates from 1962 to 1990.



                • The higher growth rate from 1960 to 1980 might be due to low oil prices (though from 1975 to 1980 oil prices were pretty high relative to before 1970), a better explanation is increased labor force participation rates from 1962 to 1990.

                  Dennis, a higher participation labor in the labor force is a result not a cause. Likewise the decline in labor force participation since 2000 is also a result. It makes no sense to say that millions of people, in mass, just decide to leave or join the labor force. But that is exactly what you are implying.

                  Low oil prices could very well stimulate the economy, creating more jobs, allowing more people to join the labor force. But there are other possible causes as well, which I favor over the oil price theory.

                  The decline of the middle class has caused more housewives to go to work. That increased the labor force. Of course the cause could very well be both. But my point is the increase in the labor force was caused, it did not just happen willy-nilly.

                  • Dennis Coyne says:

                    Hi Ron,

                    Everything has multiple causes, to reduce everything that happens in the economy to the price of oil is a mistake in my opinion.

                    Remember when we look at labor force participation there are many different things to consider, the age structure (which has changed due to the baby boom), college attendance which takes a lot of 17-24 year olds out of the labor force for most of the year. These have changed from 1945 to 2015 wouldn’t you agree?

                    A better chart is the 25-54 year old labor participation rate. Note that labor participation rates increased from 1950 to 1988 for this age group as women entered the work force, over much of this period the economy was doing well (especially 1950 to 1973). See


                    The cause of this change is not simply the oil price, there was a cultural shift in attitudes towards women working.

                  • Everything has multiple causes, to reduce everything that happens in the economy to the price of oil is a mistake in my opinion.

                    Dennis, apparently you did not even bother to read my post beyond the first paragraph. Let us now examine just the second paragraph. I wrote:

                    Low oil prices could very well stimulate the economy, creating more jobs, allowing more people to join the labor force. But there are other possible causes as well, which I favor over the oil price theory.

                    But then I qualify that statement in third statement implying that it is likely a combination of the declining middle class and low oil prices. And there are likely even more causes. The economy is very complex, and many things affect the labor force.

                    But my point is there are always more jobs wanted than jobs filled. Therefore the labor force is a function of the state of the economy. It is always a result of the state of the economy.

                    I am outta here for the rest of the day. I have some very important business to attend to. If the Texas RRC data comes in today, and I do expect it, I will have a post on it tomorrow.

                  • Nick G says:

                    Therefore the labor force is a function of the state of the economy. It is always a result of the state of the economy.

                    Increased participation by women wasn’t possible before WWII because childbearing was too much work. After WWII labor-saving devices in the home allowed women to work.

                    That’s what changed.

                • Glenn Stehle says:


                  The labor participation rate has been falling.

                  I doubt seriously that everyone who is leaving the labor force is doing so voluntarily. Many are being forced out.

                  In addition, many of those the BLS considers to be “in” the labor force are under-employed, work part-time, or are “self-employed.”

                  Employed persons

                  Employed persons consist of: persons who did any work for pay or profit during the survey reference week; persons who did at least 15 hours of unpaid work in a family-operated enterprise; and persons who were temporarily absent from their regular jobs because of illness, vacation, bad weather, industrial dispute, or various personal reasons.

                  The hit the under-employed, part-time and self-employed workers have taken to their income is reflected in the drop in household incomes.

                  And even those fortunate enough to be working full-time find themselves sucking hind teat:

                  Since 1973, the median man working full-time, full-year has seen no sustained growth, dropping from $53,291 in 1973 to $51,902 in 2002 and falling further over the 2002-07 recovery and the recession to $50,383 in 2014.


                • Glenn Stehle says:

                  Dennis, I know that Say’s Law is the second commandment of neoclassical economics.

                  But I’m not buying it.

                  • Dennis Coyne says:

                    Hi Glenn,

                    There are different flavors of neoclassical economics, the market fundamentalist position that you conflate with neoclassical economics is not the majority position in the field. Those who think a synthesis of Keynesian and neoclassical theory works best, do not think Say’s Law applies unless there is full employment.

                    As the age structure of the labor force has changed and there is a higher proportion of 55 to 65 year olds than at any time in history due to the baby boom and health care advances we see a drop in labor force participation rate due to the great recession forcing early retirement on many 55-65 year olds that got let go and could not find work. If you look at labor force participation of 25-54 year olds, there has not been much drop (84% to 81% from 2000 to 2014). Nobody is assuming full employment, at least not me.

          • ChiefEngineer says:

            Glen says “Keynesianism — all too often operates under the assumption that all that is necessary is to create demand, and the supply will automatically, by magic, materialize out of nowhere.”

            It’s time to ask yourself why you are losing you ass on your oil well. Oh, that’s right. Supply is out pacing demand for oil. The Federal Reserve and Federal Government have the power if they wish to increase demand by fiscal and monetary policy. This is simple fact. These are the moments when Keynesian policy is used to stimulate the economy until the private sector recovers.

            Gail Tverberg is a senseless Koch brothers tool used in Republican disinformation politics.

            • Glenn Stehle says:

              ChiefEngineer says:

              Gail Tverberg is a senseless Koch brothers tool used in Republican disinformation politics.

              So is that why she gets invited to give university seminars in China and Cuba?

              I think you’ve got Gail confused with somebody else, maybe the anti-Dilma organizers in Brazil?

              “Koch Brothers’ Funds Support Anti-Dilma Protests in Brazil”

              • Nick G says:

                So is that why she gets invited to give university seminars in China and Cuba?

                Misinformation can fool a lot of people.

                • Glenn Stehle says:

                  And what misinformation would that be?

                  Can you point me to any specific examples in Gail’s work where she makes factual claims that are false?

                  • Nick G says:

                    I don’t have the time to look right now, but factual errors probably aren’t the most important thing.

                    After all, the statement “Evolution isn’t proved” isn’t exactly a factual error, is it? And, yet, you’d agree that as a practical matter it’s misinformation, right?

                • Caelan MacIntyre says:

                  “I’d say… [Ivan Illich is]… greatly overestimating the importance of energy… Tainter is just… irrelevant… I disagree with Heinberg about depleting resources, and with Graeber about the value of managers…” ~ Nick G

                  “Looks like a pattern.” ~ Caelan MacIntyre

                  “Yes, indeed – when people don’t make sense, I think it’s helpful to say so.” ~ Nick G

                  “I wouldn’t rely on Nicole Foss (aka Stoneleigh) – she makes very unrealistic basic assumptions about energy. Her theories don’t seem to allow good predictions.” ~ Nick G

                  “Yes, thanks for quoting that. Nicole is another good example of someone who’s theories are guided by unrealistic assumptions about energy.” ~ Nick G

                  “Yes, indeed – when people don’t make sense, I think it’s helpful to say so.” ~ Nick G

                  “With the exception being Nick G?” ~ Caelan MacIntyre

                  “Probably best not to reply to him [Nick] Ghung.
                  Gail ignores him. He attacks her at every opportunity as she refutes everything he denies.
                  For the last six years he’s been saying things are getting better and we need to ‘just buy a Prius’.”

                  “I have a reputation for patience, but I have little patience with people who persistently miscontrue what I have written and misrepresent my position.” ~ Stoneleigh/Nicole Foss

                  “I believe wind turbines pay back their overall energy investment in 3-4 months, for a E-ROI of about 80:1. Can’t beat that.” ~ Nick

                  “Wind has a net energy about 50:1” ~ Nick G

                  “Well, we seem to be having trouble communicating, so let’s break this down into smalls steps.
                  1st, do you agree that wind’s EROEI is around the 19:1 shown above?” ~ Nick G

              • ChiefEngineer says:

                Gail would be the laughing stock in the classroom in a first year college economics course here in the states. Actually, she doesn’t believe in economist economic theory. She has said so many times. I know exactly who she is or isn’t from OurFiniteWorld.

                China and Cuba, enough said.

                • Glenn Stehle says:

                  Well again, I fail to see where ad hominem is an effective form of argumentation.

                  • Nick G says:

                    The point is that you’re presenting her as an authority. ChiefEngineer is arguing that she’s not an accepted authority.

                    I’d argue that she’s deeply unrealistic.

                    In any case, rather than simply pointing to her article, I’d suggest that you make your own arguments.

                  • Caelan MacIntyre says:

                    Glenn, since we’re on about Gail, you might find the exchange between Nick and others and with Gail in this thread here interesting, insightful if you might be unaware of it.

                    “I have stopped reading your posts. I suspect many others have too. A stuck record.” ~ RalphW

                    “Well, that’s too bad. You’re missing a chance to either learn something, or teach something new.” ~ Nick

                    “The humility!” ~ bruce from chicago

                    “Sure. If I’m wrong, or missing something then that would be his chance to ‘teach something new’. ” ~ Nick

                    “Except you don’t seem to be interested in ‘learning’, only ‘teaching’.” ~ augjohnson

            • Boomer II says:

              I quit reading her posts months ago. I’m not sure who she is a tool for, but she is so convinced about global collapse that there isn’t much point in reading her.

              Now if someone wants to use her theories to tell everyone they might as well quit working and enjoy their last days on Earth, maybe she serves some value.

              Of course, I suppose if you are wealthy, you can use her theories to justify crushing and imprisoning the masses so they don’t riot against you.

      • SRSrocco says:


        By the way… great interview on Peak Prosperity. Got to love the notion, “If you don’t want to know the answer, don’t ask the question.” LOL.

        If Central Banks started to increase interest rates, then the entire Derivatives Interest Rate Swap market, which is 95% of all Bank held Derivatives, would implode. Banks have been swapping variable rate products from the market and giving lower and lower fixed interest rate products.

        So, now if rates were to rise, the banks would be sitting on huge losses. The more the interest rates rise, the larger the losses. And if the world’s total quadrillion Dollars worth of Derivatives starts to unravel… well, you can just imagine the carnage.

        This is what the BOZOS on Wall Street fail to realize or input into their silly models.


        • Glenn Stehle says:

          So “the BOZOS on Wall Street” have all the private jets, helicopters, yachts, penthouses along Central Park, condos in Vail, art works that sell for $50 million a pop, and so on? And they acquire all this by presiding over the destruction of the productive economy of the United States?

          It looks to me like we’re the BOZOS.

          • SRSrocco says:

            Glenn Stehle,

            I wasn’t just referring to the upper 5% of Wall Street. Yes, they may have some extra goodies… so what. I was talking about all the other Wall Street Slobs who appear on CNBC and Bloomberg… you know, the analysts and other assorted office minions who just make salary.

            Just like the 25% of Deutsche Bank employees who got a pink slip today. I think that was something like 23,000 more financial slobs out on the street.

            Get my drift Glenn?


            • clueless says:

              Banks lend variable. If a customer (borrower) wants a fixed rate, i.e. enter into a swap with the bank, the bank will only do it if they have put in place an offsetting source of funds at a fixed rate, such as selling fixed rate bonds. SWAPS are a zero sum deal. Nobody loses, they just get what they contracted for.
              If you gas up your car today, and tomorrow the price drops by $.10 gallon, you have not lost $.10 gallon, nor has the service station made an extra $.10 gallon from you. You paid a fixed price, and the service station bought from a supplier at a fixed price.

              • SRSrocco says:


                Pardon my French, but are you that Fricken stoopid? Who in the living hell has the other side of $950 trillion in Derivative Interest Rate Swaps??

                This is not like taking the other side of a bet when we have a LONG and a SHORT in the commodity market. This is a market that has no one to take the other side of the bet.


                • clueless says:

                  If no one is “there,” who are they swapping with? Can you have a wife swapping with yourself?

            • Glenn Stehle says:


              No, I don’t “get your drift.”

              You really think those economists who create those “silly models” don’t know exactly what they are doing?

              It’s called “lying in politics.”

              Perhaps you think the economists are self-deluded, and believe their own lies? Well maybe so, but at least they get handsomely rewarded for it, and win Nobel Prizes in economics.

              The public which believes all the lies are the real BOZOS. When all those “silly models” really don’t make risk magically disappear, and when the TBTF banks suffer losses which threaten their survival, just who do you believe it is who steps in to bail them out?

              TARP was only about the 12th time the TBTF banks have had to be bailed out over the past 30 years. After that many times, you’d think the economists and the lords of capital they work for would finally get the message that their “silly models” don’t work. But it never sinks in. Why do you believe that is?

              And those low interest rates have had a devastating effect on old people who rely on interest income from their life savings to live on.

              I don’t know, rocco, but it looks to me like cooking up those “silly models” is pretty good work, if you can get it.

        • BC says:

          SRSrocco, correct.

          The Fed is not going to raise rates under the conditions above, as well as with the shale and emerging market junk debt markets imploding and the US industrial sector decelerating to, or below, “stall speed”.

          QE “All In II” is more likely than a rate hike later this year or early next year.

      • Jimmy says:

        Hi Jeffrey J. Brown,
        Great interview I heard you on at Peak Prosperity. I’m a big fan of your ELM. Perhaps you could consider an annual update on the ELM with the most current annual data sets. Perhaps Ron would let you do a guest post for the annual update on his awesome blog?!

    • wimbi says:

      the ICE car is doomed. How do I know? Simple, Porsche is making an electric car, meaning all the new fast splash and dash will be electric, so why not Joe Sixpack too, to get a little splash-dash on the cheap? Only a matter of time, in my gut feeling, a mighty short time. Like film to digital, an eyeblink.

      As an old IC guy, I find it ludicrous to compare the guts of a IC porsche to an electric motor with same or more get up and go. Close to 100/1 part count ratio.

      • BC says:

        US electricity consumption per capita is at the level of the late 1990s to early 2000s. Growth of wind and solar in absolute terms and as a share of energy output has likely peaked and the YoY and cyclical growth rates are heading to 0% or contraction in the years ahead, as occurred during the 1990s.

        EV sales are declining significantly with the recessionary crash in the price of oil and gasoline. Apart from vanity sales of high-end EVs to the top 0.001-1% to 2-3%, along with the peak of renewable energy production, EV sales have likely also peaked for the cycle.

        • Don Wharton says:

          BC The cost effectiveness of wind and solar is likely to accelerate and within 5 years get below the cost of fossil fuels for most of the world. This will mean that even rock hard supporters of the fossil fuel industry will be putting solar on their roofs and demanding that utilities include wind energy in their supply portfolios to reduce charges to the customer. The SunShot Initiative goal of $1.50 per peak watt on residential roofs will be compelling for anyone with good sun exposure.

          • Caelan MacIntyre says:

            From what is understood, collapse of civilizations is the rule rather than the exception. You have guys like Nick G writing that it’s not a technical problem, but a political one– here and apparently over at the hiatusing The Oil Drum I noticed yesterday– and yet they turn around and look to the problem for the solution in the way of Government As Usual/BAU.
            What the hell is with some of you anyway? Is your G/BAU teet so succulent? We’re paying for it through the nose you know. Through the urethra.

            Some of our thinking or consideration seems to stop short at a glass ceiling of ‘pluralist anarchy’, but that’s where we appear to need to go. Somehow. So, if so, let’s smash through our intellectual glass ceilings and see where it takes us.

            Grown men do not need leaders, and the so-called and self-appointed leaders don’t really know how to do so and they inevitably shoot themselves in the feet in helping to collapse yet more civilizations with the clueless coalitions of the willing.

            I imagine our Easter Island counterparts were having the same sorts of discussions before the island was left for dead.

            If Jay Hanson is right about his Overshoot Loop, it looks like it will be yet another crash, rinse and repeat, only this time possibly without the repeat.

            • Grown men do not need leaders, as Ed Abbey has written and as I’ve quoted before,…

              To say that we do not need leaders, or governments, is the ultimate fantasy. It has never been done before in the history of the world. Even when we had some small tribes with an egalitarian society, they were in constant conflict with neighboring tribes.

              Society simply needs rules and laws. Of course some people could live very well without rules and laws. These people would not be the problem. The problem would be those that would not behave in a civilized manner. And they are an awful lot of such people. And how do you handle such people without the authority of governments and leaders?

              My dad used to say “Wouldn’t it be a wonderful world if everyone was honest.” Yes it would. And those who advocate anarchy thinks such a world could possibly exist. But… there are a lot fewer anarchist believers in this world than dishonest people. And it is not very hard to figure out why.

              • Caelan MacIntyre says:

                Not all tribes were the same and even if all had some form of ‘leadership’– whatever that means and however it was manifest– not all of it was the same. It is even more of a stretch to compare tribal leadership to a large-scale coercive nation-state leadership structure.

                When you ask how we ‘handle such people’, you automatically work yourself into a ‘paradox’ with the resultant question of how do we handle such people that wend their way into the structure of government and/or so-called authority that handles such people.
                Another resultant issue from this arises where the structure creates, or can create, the very problems it is tasked with addressing, which of course makes it look more like a racket.
                I don’t even touch here on a system’s legal structure, which has its own dubious history and modus operandi.

                I once briefly looked up the question of statistics on police violence, incidentally, and it turns out that they are few and far between…

                “Data on police violence, whether in Canada or elsewhere, are scarce. Information on violent practices short of deadly force consists largely of idiographic studies conducted by the media. In the main, no organizations or individuals, public or private, gather comprehensive data on police violence in Canada…”
                ~ Jeffrey Ian Ross, Ted Robert Gurr, ‘Violence in Canada: Sociopolitical Perspectives’

                The point is that if you want to prove your system, then you had better do so, and properly, transparently and with integrity, etc.. Otherwise, you are just kicking around your own fantasies of what you think ought to be.

              • Cae says:

                Ron, my reply to your comment here is not getting through.

              • cytochrome C says:

                Actually, the Ukraine functioned quite well in a anarchist situation during the revolution, for millions of people.

                And also Catalonia.

                “It was the first time I had ever been in a town where the working class was in the saddle. Practically every building of any size had been seized by the workers and was draped with red flags or with the red and black flag of the Anarchists; every wall was scrawled with the hammer and sickle and with the initials of the revolutionary parties; almost every church had been gutted and its images burnt. Churches here and there were being systematically demolished by gangs of workmen. Every shop and café had an inscription saying that it had been collectivised; even the bootblacks had been collectivised and their boxes painted red and black. Waiters and shop-walkers looked you in the face and treated you as an equal.”
                — George Orwell, Homage to Catalonia

                I”f you didn’t want to join the collective you were given some land but only as much as you could work yourself. You were not allowed to employ workers. Not only production was affected, distribution was on the basis of what people needed. In many areas money was abolished. People come to the collective store (often churches which had been turned into warehouses) and got what was available. If there were shortages rationing would be introduced to ensure that everyone got their fair share. But it was usually the case that increased production under the new system eliminated shortages.

                In agricultural terms the revolution occurred at a good time. Harvests that were gathered in and being sold off to make big profits for a few landowners were instead distributed to those in need. Doctors, bakers, barbers, etc. were given what they needed in return for their services. Where money was not abolished a ‘family wage’ was introduced so that payment was on the basis of need and not the number of hours worked.

                Production greatly increased. Technicians and agronomists helped the peasants to make better use of the land. Modern scientific methods were introduced and in some areas yields increased by as much as 50%. There was enough to feed the collectivists and the militias in their areas. Often there was enough for exchange with other collectives in the cities for machinery. In addition food was handed over to the supply committees who looked after distribution in the urban areas”

                • AlexS says:

                  “Actually, the Ukraine functioned quite well in a anarchist situation during the revolution, for millions of people.”

                  Complete bullshit. Millions of people died during the civil war in 1918-1920. The so called anarchists were nothing more than bandits.
                  Don’t write about something you don’t know

                  • cytochrome C says:

                    The Free Territory (Ukrainian: Вільна територія vilna terytoriya; Russian: свободная территория svobodnaya territoriya) or Makhnovia (Махновщина Makhnovshchyna) was an attempt to form a stateless anarchist[1] society during the Ukrainian Revolution. It existed from 1918 to 1921, during which time “free soviets” and libertarian communes[2] operated under the protection of Nestor Makhno’s Revolutionary Insurrectionary Army. The population of the area was around seven million.[3]

                    The territory was occupied by White Russian forces under Anton Denikin and a temporary government of Southern Russia formed, but, by 1920, Denikin’s forces had been driven out of the area by the Red Army in cooperation with Makhno’s forces, whose units were conducting guerrilla warfare behind Denikin’s lines.

                    As the Free Territory was organized along anarchist lines, references to “control” and “government” are highly contentious. For example, the Makhnovists, often cited as a form of government (with Nestor Makhno being their leader), played a purely military role, with Makhno himself being little more than a military strategist and advisor–

                    From November 1918 to June 1919, the Makhnovists established an anarchist society run by peasants and workers in Ukraine. The territory under their control stretched approximately between Berdyansk, Donetsk, Alexandrovsk (later known as Zaporizhia), and Yekaterinoslav, (Sicheslav, later Dnipropetrovsk). According to Makhno, “The agricultural majority of these villages was composed of peasants, one would understand at the same time both peasants and workers. They were founded first of all on equality and solidarity of its members. Everyone, men and women, worked together with a perfect conscience that they should work on fields or that they should be used in housework…

                  • AlexS says:

                    I know very well the Russian and Ukrainian history. And I had an opportunity to speak with people who survived those tragic events.
                    There was a lot of violence from all sides: the “Whites”, the Reds, getman Skoropadskiy, Petlyura, Makhno and others. There were hundreds of of armed gangs, with or without ideological cover, who robbed and killed people. Makhno’s “army” was just the biggest of them, and they used anarchist rhetoric.

                  • Dave Ranning says:

                    I know a bit myself.
                    I did a thesis on Russian Anarchism (UCSB)

                  • Caelan MacIntyre says:

                    Concepts are mangled intentionally and unintentionally, which is nothing new. Just raise rolling Orwell from the grave and ask him. Anarchy is not immune. Real anarchy is likely closest to something we’ve had for the longest periods in our history in terms of our tribal/band roots– essentially who we are. Anarchy is not about no rules, no authority or no leadership, either, but, rather, about those which are legitimate.

                    As a species we do not belong in the bloated over-complex large-scale centralized coercive illegitimate state structure with its various forms of structural violence; we seem fundamentally anarchic and small scale by nature.

                    State– ‘inverse/internal anarchy’– bubbles have burst and will burst and might shower the rest of the the populations with anarchy suds.

                    By the way– and this is also important– when some of us here seem to ‘look to government’ with regard to taxation, such as for EV and PV subsidies and various other tricks with people’s stolen money (AKA taxation), some may do well to realize and/or consider that the kind of government they are referring to is a kind of ‘machine’ that runs on oil and a lot of low entropy energy to get work done; that in responding to energy crises, it may attempt to become more complex and energy-inefficient; and it will need to shrink itself, which may be difficult with internal vested interests aplenty.

          • BC says:

            For much of the US, roof-top solar is costly and impractical. The YoY and cyclical change rates of growth of wind and solar imply that build-out and production as a share of total energy production have peaked.

            I know that sounds scandalous, but the data are what they are. Advocates are not paying attention to growth rates, which Al Bartlett would have recognized whereas most of us do not.

            • Stan says:

              September 11, 2015, “According to GTM Research’s latest report, PV Balance of Systems 2015: Technology Trends and Markets in the U.S. and Abroad, average global PV system installed costs will fall from $2.16 per watt in 2014 to $1.24 per watt by 2020, a 40 percent decline. Costs will continue to vary by region and market segment, but a combination of balance-of-system innovations will drive cost reductions across the board and ultimately fuel the global solar market to move well past 100 gigawatts by 2020.”

              July 2, 2015, “According to Austin Energy’s projections, contract prices will likely rise for 18 months if the federal Investment Tax Credit (ITC) expires at the end of 2016. But then prices will drop back down to today’s levels — or lower. With that scenario in mind, the utility may only sign one-third of expected contracts as it plans through 2020.”

              “‘The prices of equipment and installations are going down so fast that if you were to issue another RFP post-2016, you would wipe out that difference, which is very, very small — in the order of single digits,’ said Shalabi. ‘In other words, the ITC is not a driver for us making a decision today. We don’t have to gobble up all 600 megawatts because of the ITC.'”

              March 12, 2015, “The cost of operating a wind farm in breezy states like Iowa and South Dakota dropped by more than a third to $45 a megawatt-hour in 2013 from $71 in 2008. Costs will continue declining as tower heights increase by as much as 50 percent to 150 meters and capture more energy.”

        • Nick G says:

          US electricity consumption per capita is at the level of the late 1990s to early 2000s.

          That means that utilities are dying for new demand, and have lots of capacity to handle it. Utilities love EVs.

          EV sales are declining significantly with the recessionary crash in the price of oil and gasoline.

          Leaf and Volt sales stagnated recently due to reaching the end of their current product cycle: few people want to buy just before new models are introduced.

          • Caelan MacIntyre says:

            “Utilities love EVs.” ~ Nick G

            Over here, they have these portable construction-site-type of toilet cubicles near the city’s park, the brand name of which is called ‘Honey Huts’. The slogan on the side of them is, ‘Pooh loves honey’.

            Utilities love EV’s; Pooh loves honey.

          • ```` says:

            “US electricity consumption per capita is at the level of the late 1990s to early 2000s.”

            It also clearly demonstrates the dramatic improvements in the efficiency of electrical appliances and machinery of all sorts. Electricity is a gift that keeps on giving more and more – on a per kWh hour basis.

            We have twice as many electric toys and servants at our house today as we had twenty five years ago.

            I wish I could by a raggedy ass ratted out old Leaf or Volt auto but by the time they are REALLY cheap I may be too old to drive.

            • BC says:

              YCDB, quite, but novelty and convenience does not necessarily translate into increasing productivity and real GDP growth per capita, especially if labor share remains at the current record low.

              Cheap way-cool gadgets and convenience can instead mean time-wasting distractions rather than increasing productivity, capital formation and accumulation, and productive wealth.

              • Dennis Coyne says:

                Hi BC,

                On the other hand, computers, dishwashers, vacuum cleaners, washing machines, electric stoves and ovens, and refridgerators have likely increased productivity.

                In a large sense the problem is that workers don’t get their fair share, some of that might be addressed with free education and better tax policy (more like pre-1965 rates in the US adjusted for inflation). National Healthcare, or at least a government option (similar to what federal government employees are offered) should be open to all.

                It will take an economic crisis (maybe Great Depression levels of crisis) before such changes are considered in the US.

                On a World level we need to get women educated and give them free access to family planning services, that will help to get population under control, ideally to the UN low variant case or lower.

                • Old Farmer Mac says:

                  There is some reason to believe the steam is building up to a level in the American domestic pressure cooker to the point that real political change just might be in the offing.

                  Note that both the left and the right wing in this country are giddy about dark horse candidates.

                  Democrats seem to be eager as hell for anybody other than Hillary, and republicans for anybody other than the usual front runners.

                  The fact that Sanders and Trump have come out of nowhere to first place indicates an electorate THOROUGHLY fed up with politics as usual both left and right.

                  I am not hopeful for dramatic change in the short term but the odds of such change now seem to me to be vastly improved compared to a few years back.

                • Caelan MacIntyre says:

                  “In a large sense the problem is that workers don’t get their fair share, some of that might be addressed with free education and better tax policy (more like pre-1965 rates in the US adjusted for inflation). National Healthcare, or at least a government option (similar to what federal government employees are offered) should be open to all.” ~ Dennis Coyne

                  So-called ‘workers’ don’t get their fair share in large part because of the government legal structure, no? But again, you and others seem to be looking to government to ‘step in’… or should that be, ‘step on’?

                  In any case, please read my previous post/concern (last paragraph) about relying on bloated, corrupt, overcomplex, inefficient, high-energy-draining machines we call state-governments (joined at the hip to BAU) to address complex peak-oil/etc.-related issues. That may be a major bug in your wetware.

                  • Dennis Coyne says:

                    Hi Caelan,

                    Part of the problem is the break up of unions, but the issue is complex. Low cost university education as in Europe would help, better health care access would help, and better tax policy would also help.

                    There is no perfect government, the claim that no government would be better I do not agree with.

                  • Caelan MacIntyre says:

                    Dennis, it’s not just a matter of ‘no government’, but of your apparent take with regard to looking to it and its structures or other complex structures/institutions to solve, as you write, ‘complex issues’ with it in the face of rising entropy; in the face of what it has already done so far (often made issues worse not better) and in the face of what is happening (refugee crisis, ISIL). I wrote an elaboration for you last night, but POB’s spam filter seems to have snagged it. Here is part of what it contained:

                    Social entropy is a macrosociological systems theory. It is a measure of the natural decay within a social system. It can refer to the decomposition of social structure or of the disappearance of social distinctions. Much of the energy consumed by a social organization is spent to maintain its structure, counteracting social entropy, e.g., through legal institutions, education and even the promotion of television viewing… Social entropy implies the tendency of social networks and society in general to break down over time, moving from cooperation and advancement towards conflict and chaos… What Hall showed is that the real cutoff is well above that, estimated to be 3:1 to sustain the essential overhead energy costs of a modern society. Part of the mental equation is that the EROEI of our generally preferred energy source, oil, has fallen in the past century from 100:1 to the range of 10:1 with clear evidence that the natural depletion curves all are downward decay curves. An EROEI of more than ~3, then, is what appears necessary to provide the energy for societally important tasks, such as maintaining government, legal and financial institutions, a transportation infrastructure, manufacturing, building construction and maintenance and the life styles of the rich and poor that a society depends on.” ~ Wikipedia

                    Ron, if you’re reading this, if you could release my comment-in-question– the one that has ‘puffy government’ in it– it would be appreciated. Thanks!

                  • Caelan MacIntyre says:

                    Dennis, don’t forget Tainter, either, with regard to complexity.
                    You write it, yourself, that the issue is complex; so are the systems you seem to often be looking to to address those very issues. And these systems increasingly rely on increasingly-unconventional oil and increasing depletion (both of which probably contain exponential and self-reinforcing feedback patterns and Jeffrey Brown often speaks of ‘accelerations’) to keep them running.

                  • Caelan, I cannot find your post anywhere in the spam file. Please post it again and I will check again. I get about 100 or more spam posts a day and it is easy to lose one in there that is not spam.

                  • Caelan MacIntyre says:

                    That’s ok, Ron, I don’t have it, and imagine you’re busy enough as it is, but thanks for looking just the same.

                  • Dennis Coyne says:

                    Hi Caelan,

                    Why did social systems that are different from the small scale “tribal”, “anarchist” social systems that you prefer come into being. Were they imposed by aliens?

                    Humans developed these social arrangements over time, probably with good reason. Are they perfect, no? Better than what came before? Very likely.

                  • Caelan MacIntyre says:

                    “Hi Caelan…” ~ Dennis Coyne

                    Hi Dennis,

                    “Why did social systems that are different from the small scale ‘tribal’, ‘anarchist’ social systems that you prefer come into being. Were they imposed by aliens?” ~ Dennis Coyne

                    I notice that you did not use ‘government’ this time, but, rather, ‘social systems’ and ‘social arrangements’…

                    Nevertheless, it does not stand to reason that they would necessarily be better over time than what preceded them and might even be worse, precisely because of time, opportunity, complexity, and corruption. (I am also reminded of the ‘myth of progress’.)

                    In any case, even if we did live in a relative Coyne-U-Copia, there’re still the issues surrounding increasing social entropy and complexity which small-scale, relatively-simple bands and tribes seem to suffer much less from and which high-social entropy ostensibly favors.

                  • Dennis Coyne says:

                    Hi Caelan,

                    I predict a peak of all fossil fuels by 2030, the antithesis of a cornucopian view.

                    The myth of progress is the opposite side of the myth of an idealized return to nature.

                    I have repeatedly said that existing social structures are by no means perfect.

                    It is far from clear how a World with 7 billion people will peacefully coexist in small tribes, which seems to be what you are suggesting.

          • BC says:

            Nick, you’re apparently ignoring that EV sales are just 0.7% of total US vehicle sales (0.5% for global sales?), and sales have decelerated to 5%/year since 2013 and negative YoY.

            I suspect you are going to be surprised when EV sales further contract YoY for years to come coincident with oil in the $20s-$30s, and global deflation and little or no growth of real GDP per capita.

            • Dennis Coyne says:

              Hi BC,

              Yes if your predictions are correct there will be a lot of people surprised, including me. Oil might hit $30/b for a day or two, years below $30/b? Not likely until after Armageddon.

              • Caelan MacIntyre says:

                $30/b and $100/b looks to be a rock and a hard place.

                Maybe prices will walk the $65/b tight-rope by collusion and decree in the face of climate change, increased price volatility, oil-relocalization (keeping it at home) and foreign competition (more for them, less for you), etc..

                Or let the refugees eat cake. If they can get it.

      • ```` says:

        And the parts on the “one”end of that ratio go round and round instead of up and down. Hardly any precision machining and hardly any super high strength high temperature tolerant metal needed in the electric motor such as the rocker arms and push rods and valves in a piston ic. No intricate casting with a row or two rows of bearing seats and cylinder bores that must align to within a few ten thousandth’s, no intricate cast in coolant and lubricant passages.

        It is quite common for an electric motor to run for decades on end, all day, day after day, without any repairs or maintenance work whatsoever.

        Virtually all mechanical problems in a battery electric car, once the bugs are worked out of a new model, will be confined to the battery. And going by what I read so far, the batteries are going to give excellent service- although they ARE very expensive for now and will remain expensive for a few more years.

        Something tells me GM could strip the ICE out of the Volt and sell it for five thousand less. You can’t buy a”power unit” , a hundred horsepower ICE engine on a skid with all the necessary accessories for it to run and connect it to a load such as a generator or feed mill, for five thousand bucks.Probably not for less than ten thousand- not one with a good name and warranty and guaranteed parts availability etc.

        That is five to ten grand less right off the top that can go into battery capacity. Still not enough of course but given time….. batteries will get to be quite economical compared to all the stuff it takes to make an ice engine go.

        The art and science of manufacturing large rechargeable batteries is probably at about the same point relatively speaking as the manufacture of gasoline fueled ice engines sixty or seventy years ago.

        You were damned lucky if an early fifties auto engine went a hundred thousand miles without an overhaul job.

        Elon Musk’s gigafactory will be using some already outmoded machinery to manufacture battery components and assemble batteries within five years. I am not talking about the BATTERY ITSELF but rather refinements in the process of manufacturing the battery.

        He will still be able to sell his batteries at a profit almost for sure. His older equipment will be paid for or nearly paid for and his crew will work like a smooth well oiled machine by then. It will take the competition using new and better equipment some time to force him to upgrade his own operation.

        I was working on cars off and on full time when the Japanese imports first made a big showing in the domestic market. They were so much better built, in terms of parts and labor than domestic cars in those days that you could perform some typical repairs in an hour or two that took all day on a domestic model.

        It took Detroit ten more years to catch up. People in the industry at that time said Detroit could not AFFORD to scrap the equipment and designs in current use at that time any sooner. Eventually Ford and GM got to the point you could change out parts on a domestic model as easily and quickly as on a Japanese model.

        • Wake says:

          I had the same intuition on engine cost as did you but I belive the engine in the volt is under 2k. I will try to check that, it is a memory from a few years back

  2. MarbleZeppelin says:

    The barrels per day per well in the Bakken tells the story. The effort is fading and the Red Queen is catching up. As we come into the cold season there may even be a greater rate of decline, exacerbated by continuing low price problems.

    This also hits the railroads as both coal, oil and fracking materials shipments drop off. I know I have not seen any Marcellus fracking materials move up the nearby railroad this summer.

    • Dennis Coyne says:

      Hi Marblezepplin,

      There have been fewer new wells completed per month for the past 6 months (about 150 new wells per month) compared to the 2014 period when about 180 new wells per month were added. It has only been the last 3 months when the wells added per month fell under 130 new wells per month that output started to fall slightly. The fall in output per well reflects the falling well completion rate, if the well completion rate had remained at 180 new wells per month (the 2014 rate) output would have continued to rise. The Red Queen scenario originally laid out by Rune Likvern at the Oil Drum didn’t envision the well completion rate ever rising to 2014 levels.

      My original post on the Bakken (heavily influenced by Rune Likvern and Webhubbletelescope) was fairly close for Jan 2015 (Posted in Oct 2012).

      • Dennis Coyne says:

        Chart from Oct 2012 Blog post (link in comment above).

        Note that after Jan 2015 the almost 3 year old guess at well completion rates is too high (about 180 new wells per month), where for the last 6 months the well completion rate has averaged 150 new wells per month. Through Jan 2015 the model slightly underestimated output and overestimated the actual number of total wells added.
        A lucky first guess on my part.

        • Dennis Coyne says:

          An updated North Dakota Bakken/Three Forks scenario. The underlying average well profile from 2008 to 2015 is based on data provided graciously by Enno Peters. Thank you. The basic model was intitially developed by Rune Likvern in his famous Red Queen analysis at The Oil Drum and Fractional Flow blogs.

          Errors are mine alone.

          The future wells added start at 120 wells in July 2015 and increase by 2 wells each month until reaching 170 new wells per month (120, 122, … ,168, 170). Then the new wells added each month are assumed to remain at 170 new wells per month until Nov 2025 and no further wells are completed. Oil prices are as shown on the right axis from Jan 2016.

          OPEX starts at $6/bo when the well starts producing and is assumed to increase at a 7% annual rate so when the well is 20 years old OPEX is $23/b, it is assumed the well is abandoned at 9 b/d of output.

          Well cost(in 2015$) is assumed to increase from $8.5 million in Dec 2015 at a 3% annual rate until reaching $9.75 million in Aug 2020 and remains at that cost until Dec 2025 (when new well completions cease).

          Other economic assumptions:

          6 other cost $/barrel
          26.5% royaly+tax on wellhead revenue(refinery gate -transport)
          14 transport $/barrel
          7.00% real discount rate

          The scenario has an economically recoverable resource (ERR) of 8.2 Gb through 2040. Note that year end 2013 proved reserves in the ND Bakken Three Forks were about 5.1 Gb and cumulative production was about 0.8 Gb for a total of 5.9 Gb. Proved plus probable (2P) reserves will be about 40% higher than proved reserves or about 7 Gb and with cumulative production the total would be 7.8 Gb. Very modest discoveries and reserve growth since Dec 2013 of 5% would get us to this conservative ERR total.

          Chart below.

          • AlexS says:


            The new estimate of the Bakken TRR by the EIA (AEO 2015) is 22.7 Gb

            • AlexS says:

              Potential number of new wells in the Bakken alone (excluding Three Forks: 42,345 (I have initially posted a wrong number)

              • Dennis Coyne says:

                Hi AlexS,

                Thanks. Generally the EIA estimates are not very well done on things such as the TRR, often they take investor presentations and swallow the hype. I trust the USGS estimates much more. The USGS mean TRR estimate for the North Dakota Bakken/Three Forks is about 11 Gb if we assume 2P reserves are 40% higher than 1P reserves at the end of 2012 (just before the most recent USGS Assessment in April 2013.

                It is possible that the USGS will revise this estimate higher in the future, the high end (F5) USGS estimate for the North Dakota Bakken/Three Forks is about 14 Gb.

                I usually get plenty of flak for a TRR of 11 Gb (with an ERR of 8 to 9 GB depending upon oil price and other assumptions), but think that estimate is quite conservative if oil prices do not remain low long term.

                An alternative scenario with well cost held fixed at $8.5 million (2015$) and lower oil prices (shown on right axis) results in only 5.6 Gb for the North Dakota Bakken/Three Forks. These oil prices are very roughly near the EIA’s low price scenario in the 2015 AEO (maybe somewhat higher). All other economic assumptions the same as before.

                Again thanks go to Enno Peters (for NDIC well data) and Rune Likvern(for his continuing original insights into the Bakken/Three Forks).

                • Doug Leighton says:

                  A technically recoverable resource is the volume of a resource (i.e. oil) which is recoverable using current exploration and production technology WITHOUT REGARD TO COST.

                  • AlexS says:

                    Yes, we know it very well

                  • I never do it without regard to cost. What we have done is assume a very aggressive development with very positive reservoir outcomes in a high price environment. Because there are no real rules I felt we should use something we could draw up.

                • Dennis Coyne says:

                  Hi Doug,

                  Thank you for the reminder. For those that know this less well than Doug…(don’t bother to read this Doug as I know that you know way more about this than me)

                  Note that I start with the TRR (USGS mean estimate of 11 Gb for the North Dakota Bakken/Three Forks) and depending on my assumptions about the future rate of well additions, the total number of wells drilled, when the EUR per well starts to decrease (due to sweet spot saturation) and how quickly it reaches some maximum annual rate of decrease, I choose a maximum annual rate of EUR decrease for the average well that results in a TRR close to the USGS mean estimate. Then I go back and apply economic assumptions to see when the wells become unprofitable (the net present value of future net revenue is less than the capital cost of the well.) That is why I often state my economic assumptions. No further wells are drilled when the internal rate of return falls below a nominal annual rate of 10%. For the models above you will note that the economically recoverable resource (ERR) is 8.2 Gb in the higher oil price case and 5.6 Gb in the lower oil price case, which is 3 Gb and 5 Gb less than the TRR.

              • AlexS says:


                the EIA’s previous estimate was very much in line with the USGS. In the new estimate they have increased EUR estimates and well spacing (now between 2.0 and 3.2 well per sq. mile, previously – 2.0 for all subplays)
                These numbers are for bakken alone. excluding Three Forks:

                • Dennis Coyne says:

                  Hi AlexS,

                  The three wells per square mile in the core areas makes sense, but outside those areas it will be less.

                  David Hughes estimate of between 31,000 and 36,000 wells seems more reasonable, though I believe Hughes misses the fact that the USGS estimate is for undiscovered TRR and in his report says his estimate roughly matches the USGS mean TRR estimate of 7.4 Gb. I have made the same mistake myself back in 2013, but an article by Robert Rapier alerted me to my mistake. The mean TRR estimate for all of the Bakken/Three Forks is about 13 Gb with about 2 Gb in Montana and the majority in North Dakota (11 Gb).

                  The ERR will be less (by 2 to 3 Gb) unless oil prices are similar to the AEO High Price scenario.

            • Dennis Coyne says:

              Hi AlexS,

              I think they are overestimating the TRR in the areas outside the North Dakota Bakken/Three Forks. There are not a lot of proved reserves in Montana relative t0 North Dakota and the USGS estimate has about 78% of the undiscovered Bakken/Three Forks resources in North Dakota. I couldn’t find the TRR data in the AEO 2015, do you have a page number or a link. Many of these resource estimates are done by outside firms, remember the Monterrey Shale estimate? This may be wishful thinking by the EIA.

              • AlexS says:

                Their TRR estimate for Montana is 1235,5 mbbls
                I also note that their average EUR estimates are still very conservative, even for the best subplays, and much lower than in operator’s presentations.
                3 best are:
                Bakken Eastern Transitional (Mountrail) 374
                Bakken Nesson-Little Knife (McKenzie) 344
                Bakken Nesson-Little Knife (Mountrail) 323

                • Dennis Coyne says:

                  Hi AlexS,

                  So far based on the actual well data from the NDIC the average North Dakota Bakken/Three Forks well will have an EUR around 350 kb. Most of the wells that have been drilled so far are in the high EUR areas. Outside those areas, the EUR is much lower, 175 kb to 200 kb is probably the right range, but only if the well spacing is 2/sq mi or less. At very high oil prices ($148/b) these low EUR (as low as 155 kb) are barely profitable, this assumes level oil prices of $148/b over the life of the well and a well cost of $9.75 million (oil price and well cost in 2015$) and my other usual economic assumptions.

                  The investor presentations are usually in boe, my estimates are oil only, 20% of the boe is natural gas an NGL we could get a 14 Gboe TRR for the ND Bakken/Three Forks and perhaps 2.5 Gboe for Montana Bakken/TF for 16.5 Gboe. The USGS F5 estimate is also oil only and for the US Bakken/TF would be about 17 Gb, again assuming this is 80% of the boe we would get 21 Gboe which gets us close to the EIA estimate. I prefer to focus on the oil and the F5 estimate is probably too high.

                  What are the total wells drilled to get the 22 Gb and the proportion in North Dakota vs Montana?

                  • AlexS says:

                    Montana: 10880 wells

                    The EIA has very low EURs for many peripheral zones of the Bakken. I agree that at current prices and even at $60-80/bbl these parts of the
                    Bakken will not be developed. Some parts will not be developed even at $100.

                    My conclusion: EIA’s EUR and TRR estimates are realistic, but ERR are much lower

                  • Dennis Coyne says:

                    Hi AlexS,

                    I suppose technically 154,000 wells could be drilled , but to me that stretches the term technically a little too far, a more reasonable estimate would cut the three Forks wells in half to 2 wells/ sq mi for a TRR of 16 Gb which at least is roughly in line with the USGS F5 estimate.

                    We definitely agree that the ERR will be considerably lower than 22 Gb, we might see an ERR of 11 or 12 Gb with very high oil prices ($200/b in 2015$), but it is not clear that the World economy could sustain such a price before 2040.

                  • gwalke says:

                    Just to note the difference between an EUR of between 200-350kb and the stated EURs from investor presentations. CLR expects their average well this year to have EUR of 800kboe. This is based on improving initial production rates and assuming that lifts the curve across the board.

                    We have just done a statistical analysis of the relationship between IP and EUR. Bottom line – the higher the IP, the weaker the relationship with cumulative production, likely because companies are juicing their IPs.

                  • AlexS says:


                    So you think more conservative EUR estimates from the EIA are more realistic than what companies state in their presentations?

                  • gwalke says:

                    AlexS: absolutely

              • AlexS says:

                Total US tight oil TRR estimate was increased from 59.2 Gb to 78.2 Gb.
                We may be sceptical about EIA estimates, but they proved to be too conservative in their past LTO production estimates.
                Monterey was a big mistake, but it was maid by an obscure third-party firm (INTEK). Now the EIA AEO estimates are made by their own team

                • Dennis Coyne says:

                  Hi AlexS,

                  Thank you for the information. I wonder about the expertise of the EIA team. You are correct that past estimates (at least before 2013) were too conservative and it is certainly possible that the USGS estimate from 2013 was too conservative as well, but sometimes the USGS overestimates as well, so I will stick with the mean estimate.

                  You are correct that the EUR estimates may seem a little low, but that is because they are using the entire area of the prospective area and many wells drilled in those area will be poor performers.

                  The main area where the EIA estimate is off is in the Three Forks where they estimate 14.2 Gb for the TRR, the USGS mean estimate for undiscovered TRR in 2013 was 3.7 Gb, adding 2P reserves and assuming one third of 2P reserves were Three Forks reserves would make the TRR 5.4 Gb. For all of the Bakken it is about 12.5 Gb (I mistakenly thought 1P reserves were 5.1 Gb in 2012, they were 3.2 Gb, 2P reserves were 4.5 Gb and cumulative output was 0.6 Gb.) So about 7.1 Gb Bakken only and 5.4 Gb Three Forks only (assumes 2/3 of reserves and output from Bakken). Using the F5 USGS estimate we get 8.5 Gb for the Three Forks only and 8.1 Gb for the Bakken only, for a 16.6 Gb TRR. It is not clear how this would be split between North Dakota and Montana, it might be different from the mean estimate. If the split was the same for F5 vs F50, then for the North Dakota Bakken/Three Forks we would have about 14 Gb for the F5 estimate and 2.6 Gb for the Montana Bakken/Three Forks.

                  The EIA estimate also suggests more than 154,000 wells will be drilled, with 112,000 wells in the Three Forks, this is 5 times more wells than David Hughes estimate and more than double the NDIC estimate (Sept 2015) of between 25,000(P90) and 60,000(P50) wells.

                  See county by county outlook at link below:


          • nNgass says:

            Mr. Coyne: What big event at 2026 takes place that oil is falling off a cliff? Perhaps oil is nor needed in this quantities due some new technical inventions we always say it will happen just in time when the world gets in a tight squeeze? That seems to be the case here since the oil price drops from $230 to $100. You must be a claire voyant to see that far in the future, Respect!

            • Dennis Coyne says:

              Hi nNgass,

              The oil price in my first scenario remains at $140/b, I think you confused the monthly output in kb/d (labelled as model and read on left vertical axis) with the oil price on the right hand vertical scale in darker blue.

              In 2026 new wells are no longer profitable and I dropped the wells added per month to zero, not very realistic I agree they would probably ramp down over a couple of years maybe by 10 wells per month from 2024 to 2026, it does not change things by much for ERR but the decline rate would look more like my second scenario. Many people think oil prices cannot rise above $140/b without an economic crash, I think by 2030 we might be able to go to $200/b, but nobody knows.

        • I don’t think it was a lucky guess on your part. As you put in the work you will reap the dividends.

  3. AlexS says:

    Thanks for the post, Ron

    Here is a chart comparing Bakken area oil production statistics from the NDIC, the EIA and the EIA DPR team. As we all remember, a few months ago there were big discrepancies between the DPR numbers and statistics from other sources. Now they are more in line with each other, but there are still some differencies.

  4. AlexS says:

    A new article by Arthur Berman:

    The Shale Delusion: Why The Party’s Over For U.S. Tight Oil

    • gwalke says:

      We were already doing some work on his statement that IPs are meaningless. Bottom line – the higher the IP, the weaker the relationship between IP and cumulative production.

  5. Watcher says:

    Yo Ron, I think there are lots of results available on refrack and they weren’t good. I suppose one can ignore ongoing maintenance like salt encrustation flush events every few months, but in general what would we expect from the EIA legacy decline quote if a well was refracked or major rework is done?

    Would they just include the new output from a refracked old well and show a decreased legacy decline rate?

    • Watcher, I have no idea. But I think they just use some kind of algorithm to figure the legacy decline rate. I don’t believe it is an actual measurement of any kind.

    • Blaine says:

      As I understand it, yes. It appears to be calculated from reported IPs, production, rig count, and new wells per rig data, so I don’t think they’d notice a refrack wasn’t just a randomly more productive old well.

  6. Longtimber says:

    WSJ this am. Google: Oil Patch Braces for Financial Reckoning
    “Though the financial pain likely will be concentrated among some of the smaller and more debt-laden companies, it could ultimately have big effects on the global oil markets.”
    Best of the Comments:
    “The oil patch has been tremendously leveraged. When banks begin taking away the punch bowl, it could get really messy.”

  7. Longtimber says:

    From Same Article:
    “Wells Fargo analyst David Tameron said the healthiest thing for the oil patch would be for industry to go through “one final flush” where the price of crude falls to $40 a barrel and stays there for the next six months. Such a decline would force a number of companies out of business. “Get rid of the dead wood,” he said. “The worst thing possible, in my opinion, is if oil goes higher from here and everybody lives to fight another day.””

    • Tameron is wrong. Over aggressive company managers are either driving their companies into bankruptcy or learning a lesson as they maneuver to save what they can. The ongoing chemotherapy dose will weed out the crazies. And this includes company managers as well as lenders.

      Furthermore, it wouldn’t surprise me if Texas, North Dakota, et al start controlling the pace using flaring and transportation regulations. It’s important to understand that state agency, lender, and company moves are ordered by people who have some sort of oil price forecast, and I’m willing to bet the bulk of forecasts being used are a hell of a lot lower than 18 months ago.

      So what happens if oil prices go higher from here? It depends on how much higher they go. But the key is to remember that even if they hit $100 per barrel the crazies will either be weeded out or they will have learned not to be so crazy. Or do you think they’ll find lots of bankers willing to lend at the same pace and terms they got 18 months ago? Or investors willing to gamble and get into the mess we see today?

  8. Blaine says:

    Dunn County was up a bit, everywhere else down a bit. “Wells Capable of Producing” minus “Wells Actually Producing” for McKenzie County was up again to 449, and much higher than comparable numbers for any other county. Maybe a lot of shut-ins awaiting gas connections?

    The production decline is smaller than EIA predictions which are based on rig count. Based on other sets of numbers here, the “High Grading” return to core wells not needed for Held by Production status appears to have improved well quality by around 20%, and does not appear to yet be fully represented in EIA estimates. Also, EIA estimates appear to assume too short of a lag between rig decline and well completion rate decline.

  9. Rune Likvern says:

    First, thanks to Ron for his time and efforts to put up these posts.

    I will continue to also focus on the financial dynamics of the Bakken LTO extraction.
    The chart below shows estimates of monthly net free cash flow (NCF, black columns, lh scale) and cumulative external funding since January 2009 and as of July 2015 (red area, rh scale) for all Bakken (ND).
    For the period Jan – 15 to Jul – 15 around $5 Billion more than estimated NCF was used collectively by the companies operating in Bakken(ND).

    This external funding is from equity/asset sales, bond issues and credit lines.

    This level of external funding was also estimated to have happened during the summer of 2012.
    For August 2015 the estimates/forecasts now show a new high in leverage (expressed as the ratio of total debt/credit to Net Free Cash Flow).

    • AlexS says:

      Rune, thanks for your analysis.
      I guess it is based on the actual SEC fillings by the companies operating in the Bakken?
      (If so, it should be January to June).
      How many companies have you included in your calculations?

      • Rune Likvern says:

        The estimates are aggregate for Bakken(ND). Number of wells started by month (as per NDIC data) has been used.

        It is hard to break out the debt by company as some of these are major integrated and/or operates in several shale plays (both oil and gas) and/or conventional developments.

        The estimates excludes effects from hedges, area acquisition and are now believed to be conservative (in the low end).

        • AlexS says:

          It would be interesting to compare your estimates with actual financials reported by the companies. But no doubt your chart truly reflects the general trend.

    • Watcher says:

      You did or did not consider the increasing interest rate these folks have to pay for their high yield debt issuance?

    • Did you reduce per well capex as per the current market conditions?

  10. Guy Minton, CPA says:

    Not quite sure where the idiots who keep saying the Permian area are mostly verticals get their information, but, obviously, they missed the fact that the increase in the Permian since 2010 is a result of what some refer to as the “cline” shale. It is subject to decline in the same fashion as the Eagle Ford or Bakken. You can kind a clue to that if you look at the horizontals being drilled in the Permian. You don’t use horizontal drilling rigs to drill vertical holes.

    We are getting close to the edge for Texas drilling, overall. The following is a reflection each month in Texas from the RRC site:

    Month/ Completed/ YTD Completions /2014 Completions to date
    Jan 1450/ 1450/ 3131
    Feb 1377/ 2691/ 5899
    Mar 1436/ 4127/ 8437
    Apr 1758/ 5885/ 9398
    May 1211/ 7096/ 11,359
    June 1299/ 8395/ 12,990
    July 1380/ 9775/ 14,816
    Aug 1027/ 10,802/ 16,857

    More telling is the permits (add “oil” plus “oil and gas” permits, some companies are different):

    Month/ Permits/ YTD Permits/ 2014 YTD Permits
    Jan 951/ 951/ 1086
    Feb 831/ 1782/ 3140
    Mar 795/ 2577/ 4811
    Apr 748/ 3325/ 6539
    May 805/ 4130/ 8742
    June 727/ 4857/ 10,726
    July 829/ 5686/ 12,909
    Aug 740/ 6426/ 15,099

    Completions seem to be dropping down closer to permits, which indicates that a lot of the old 2014 permits are close to being finished, and we may be mainly working on the 2015 permits. If they were planning on having them drilled in 2015, they probably would have been permitted, by now.

    • Toolpush says:


      I am in no way disputing your numbers, but just to clear up one point.

      “You don’t use horizontal drilling rigs to drill vertical holes.”

      There is no difference from a 1500hp vertical drilling rig to a 1500hp horizontal drilling rig. To drill a horizontal hole, in comparison to a vertical hole, all that is required is a “Bottom hole assembly” BHA capable of changing the direction of the well bore. These are specialized tubulars supplied by Schlumberger, Haliburton or Baker Hughes, and have nothing to do with the drilling contractor or rig.
      The reason I mentioned a specfic horse power for the rig, is that, horizontal wells tend to be a greater measured depth, and therefore require a more powerful drilling rig, eg a vertical well in the Bakken, would only need to drill to 10,000ft. Whereas a horizontal well, with a 10,000ft lateral, would be required to be capable to drill to 20,000ft measured depth, even though the vertical depth would still only be 10,000ft.

      • John S says:


        I think the Cline or the Wolfcamp D is pretty much out of favor these days.

        I could be wrong as I no longer participate in drilling wells but for the last 2 years or so, as I understand it, most folks in Midland refer to “Cline” prospect submittals as the “De-Cline” as in I don’t want to review it.

        Fire wheel Energy absolutely immolated itself on the Cline.

        • shallow sand says:

          JohnS. From my reading the Cline Shale is deep and wells are more expensive.

          Seems that among the better horizontal zones are the Sprayberry (sp?) and Wolfcamp on the Eastern side of the Permian and Bone Spring on the West side.

          I am not from Permian, so stand to be corrected.

          I cannot get a handle on decline in the Permian. I have browsed RRC PDQ and it seems like things are all over the map.

          Ultimately, as Permian is very large in area and has many productive zones, it would not surprise me if it ends up with the most oil recovered through horizontal wells in the lower 48.

          In many instances, however, the horizontal wells are producing from zones that have been productive from vertical wells for many years. I think either Scott Sheffield or his son was quoted as saying something to the effect that we are many times producing from the same zones, we are just getting the oil out faster. Drilling one horizontal than many verticals.

          Again, would welcome more knowledge on horizontal Permian. MBP or others could fill us in I bet.

          • John S says:


            These days my contacts are primarily in a few pubcos HQ’d in the Permian and 1 or 2 service companies who generally know what is going on every where in the Permian Basin and then independent geoscientists, and engineers. I am 2nd generation oil field with brothers who are geoscientists and engineers in the business as well.

            I have very limited experience in the CO2 business and one brother
            Most of the good wells that I hear about are in the
            Bone Springs and the vertical Wolf Camp.

            • Dennis Coyne says:

              Hi JohnS,

              Any idea what the EUR of the average well is in those plays?

              • John S says:


                I’m running my traps this morning.

                Not sure these guys want identities associated with these numbers. So

                If I get anything, I may have to send it to you via Ron.

                • John S says:


                  I heard back from a retired Apache geoscientist (may still hear from others). He left about 9 months ago.

                  EURs vary by location and actual objective. If he had to give a number its north of 500k BOE. The exceptional location will be over 1,000,000 BOE.

                  He said the problem is horizontal drilling and in Apaches case it’s done poorly, most wells are drilled for AFE + 20-150%.
                  He thinks Concho and EOG are seeing the same thing but their drilling depts are a whole lot better.

                  • Dennis Coyne says:

                    Hi JohnS,

                    Thank you. Any idea of the average % of oil in those boe, in the Bakken its usually about 80%, in the Eagle Ford it is lower, probably 65 to 70%.

            • AlexS says:


              Here are estimates of average EUR and unproved technically recoverable tight/shale oil and gas resources for the Permian basin plays.
              Source: EIA Annual Energy Outlook 2015, Oil and gas supply module

              • Dennis Coyne says:

                Hi AlexS,

                Thank you. I think the well spacing for the Spraberry is pretty optimistic, that should probably be about half that well density over such a large area, so a reasonablr TRR would be about 5 Gb rather than 10 Gb. So a TRR of 16 Gb (likely a 10 Gb ERR) would be more reasonable for the Permian basin and maybe 30 Gb for all of the US LTO (mostly Bakken/Three Forks, Eagle Ford, and Permian basin.)

        • MBP says:

          Thus far, the Wolfcamp A, B (minor) and C seem to have the most potential in the Midland Basin while the 2nd and 3rd Bone Spring and possibly the Avalon in the Delaware Basin look the best.

          • Dennis Coyne says:

            Hi MBP,

            What do you think of those EIA TRR estimates for the Permian, does 10 Gb from the Spraberry seem reasonable?

            • MBP says:

              Eh it possible, but I’m not quite sure what their definition of “Spraberry” is. Is it she Spraberry proper or does it include some of the Wolfcamp that it is often comingled with?

      • Wake says:

        Do you happen to know the hp of a typical rig drilling horizontal then, and vertical ?

        Or new and older generations? Is 1500 hp the total for the rig or just a component?

        • Toolpush says:


          The horse power refers to the power of the drawworks, the main winch for pulling the pipe from the hole. This would normally be provided by two or electic motors. DC or more often these days AC. H&P is one of the main US land rig contractors, and have designed rigs especially for the shale market

          AC Drive FlexRigs
          Location Rig Nominal Depth (Feet) Rig Type Hook Capacity (lbs.)
          Texas 212 22,000 AC (FlexRig3) 750,000

          These rigs would be 1500hp. Just to put things in perspective, offshore the smallest rig I have been on has been a 2000hp with 1,000,000lb hook load. The largest is 2,600,000lb, and 5000hp. Meanwhile 1500hp is considered fairly large on land!

        • Depends on the well depth, hole sizes, mud program and pressures expected, directional plan…

          The hole size depends on the zones the well will penetrate, their pressure, stability, and of course the well completion.

          I’ve seen straight holes drilled with 3000 hp rigs, and horizontals drilled with 1500 hp rigs. So I guess we can say it depends.

  11. Rune Likvern says:

    Before we conclude about any causes for improvements of well productivities in 2015, it may be useful to try to understand other explanations.
    The chart below shows developments in average wells by vintage operated by Oasis.
    Note the improvement so far for the 2015 vintage, but also at the steep declines. The average well (so far) declined around 70% during the first 6 months of flow.
    Actual NDIC data for Oasis showed a significant increase in the Gas to Oil Ratio (GOR) in 2015 together with LTO flows.
    This is a behavior that has been observed for wells being produced at max to generate as high as possible cash flows.

    • Guy Minton, CPA says:

      Not sure about the Bakken, but it is probably like the Eagle Ford, as it depends on a large part on where the well is drilled. Most of the Western part of the Eagle Ford is subject to very high decline rates. If a company uses a half choke in this area (most of the Eagle Ford), what they get in the first year is about half of the expected. Then, too, there are some sweet spots in the West, too. Just not as much, or as big as the Karnes/Gonzalez area Noticed that the plugging of wells in Texas has increased from about 400 a month to about 800 a month.

    • old farmer mac says:

      Hi Rune,

      Your chart does seem to give some credence to the cheerleaders who are endlessly hacking about yankee ingenuity and improving technology.

      But as I understand this issue, the EXPECTATION is that these new wells are probably going to continue to decline at rates very similar to all older vintage wells once they reach an average age of about seven or eight months.

      Is there any reason to think they will show higher average production as they age past the first eight months or so than older wells?

      Is there any reason to think this company is not typical of other companies operating in the same area?

      Is there for instance any reason to think a typical Permian tight oil well might display a noticeably different decline rate than a typical Bakken tight oil well?

      • MBP says:

        % carbonate

      • Glenn Stehle says:

        old farmer mac,

        They recently drilled a couple of horizontal shale wells near a property of mine in the Permian Basin. They seem to be performing considerably better than the average Oasis Petroleum well in the Bakken.

        They were drilled on an old unitized property that has been producing since the 1950s and infill drilled during 2000-2014, so there is a baseline production of about 70,000 bo per month. The graph reflects crude only, and does not include any allowance for associated natural gas produced along with the oil.

        As you can see, it looks like the month the first well came on production it produced about 50,000 barrels of oil. Then when the second well came on it looks like it produced about the same, since production from the two wells combined looks to be about 90,000 barrels of oil (160,000 less the baseline of 70,000).

        After five months, in July production from the two wells looks to be about 40,000 barrels of oil, or 20,000 bo each.

        If you wanted to allow something for associated natural gas production, you could bump these figures up about 15 or 20% to get total boe.

        Like I have noted before, there is about a 4,000′ shale column in this area and there are at least seven different shale intervals which various operators have completed wells in nearby. It’s like having seven Bakkens stacked on top of each other. Not all these zones perform the same, however, and I don’t know what interval these two wells were completed in.

        • old farmer mac says:


          ”After five months, in July production from the two wells looks to be about 40,000 barrels of oil, or 20,000 bo each”

          That is not very encouraging news for the REST OF US , end users of oil. I suppose it looks like money in the bank to the owners of such wells, once prices go back up.

          It may be that with the price a hundred bucks a month or better in current money that maybe the Permian can produce enough oil to allow the USA to hobble along maintaining something approaching business as usual for a quite a while.

          Do you have any firm opinion as to how much oil the Permian can produce, and for how long, using current technology at a hundred dollars a barrel or more?

          My own opinion is that while expensive oil is a very heavy economic burden, adaptation will allow us to pay a hundred fifty bucks or more in current day money for oil within ten to fifteen years- assuming something else doesn’t lay business as usual low for good within that time frame.

          Just about every body I know has reduced their oil consumption habit to a substantial degree in relation to their income in the last twenty years. I can’t see any reason why this trend will not continue for a long time yet. People with the necessary income will fly and drive large vehicles , the rest of us will stay home and drive smaller vehicles that are more efficient.

          If I ever buy another four by four truck it will get twice the gas mileage the one I own now gets. If I ever buy another car, it will probably get at least fifty percent better mileage than my current car.

          We still use from fifty to a hundred gallons of heating oil in a high efficiency furnace as our back up heat source but pretty soon our primary heat source- firewood- will be relegated to second place with a heat pump in this house being our primary source and the oil furnace dropping to third place and programmed to run only in the wee hours when the heat pump reverts to straight resistance heat and the fire is burned out.

          We got double glazed windows twenty years ago and as soon as I am reasonably expecting to be free to work on them a couple of weeks, I will install triple glazed windows.

          Now as I see things, except for the firewood and owning OLD cars and trucks , I am not doing things much differently than other working and middle class people..

          In an information based society, word gets around fast. Landlords who own apartments that are energy hogs are already facing the choice of discounting rents when new nearby competition exists- or refurbishing their properties.

          Of course none of what I am rambling about makes a noticeable difference from one year to the next, but over a period of ten years the difference is HUGE.

          Some people will insist that oil cannot be relatively cheap inside the USA in a world short of oil, a world without much oil moving in international markets.

          The importing of oil may be a necessity for now but depletion virtually guarantees that we will eventually import little or maybe none.

          The exportation , or not , of oil is a political decision. Once peak oil bites most of the fat ass off of business as usual, American voters may decide American oil, however much or little is available, will be exclusively for Americans with perhaps a little traded with close allies for other essential goods. This last paragraph is pure unadulterated speculation but history teaches us that voters and politicians do stranger things than forbid the export of given resources.

          • Nick G says:


            What kind of heat pump did you buy (air? brand?)?

            Have you considered adding laminated glass layers to your double glazed windows? We did that, and now we don’t have to turn on the heat until it’s below freezing.

            • ```` says:

              Hi Nick,

              Lets take this over to the still open non oil thread from a few days back. See you there.

          • Glenn Stehle says:

            old farmer mac,

            Pioneer Natural Resources is still touting 75 billion barrels of total shale reserves for the Midland Basin in their September 2015 Investor Presentation.

            That’s only part of the entire Permian Basin, however.


            I’m sure that’s calculated using a future oil price of around $100 to $150 per barrel, and even then that figure might be based more on salesmanship than engineering.

            • ```` says:

              Thanks Glenn,

              Since I have no actual oil investments and no money to invest in oil in any case,I am not willing to spend a lot of time researching individual oil companies and oil fields.

              All that really matters to me is the total production and the price of it, with these two estimates in hand , I can think for myself.

              A real current money price of one fifty some years down the road seems very reasonable to me.

              Depletion never sleeps and the average overall price of production is inevitably going to creep up over time.

              Lifestyle adaptations and increasing efficiency will allow us to collectively pay the one fifty unless the economy rolls over and dies for other reasons.

          • MBP says:

            At $100 oil, the Permian Basin has at least 30 BBO remaining recoverable reserves.

            • Dennis Coyne says:

              Hi MBP,

              Wow, thanks, I didn’t see any smiley face so I am assuming you are serious. When you say at least, I am thinking P90, what would your P50 guess be with oil at $100/b or higher?

              • MBP says:

                Remember, this is still a conventional basin, and my number takes into account reserves from conventional fields as well (they also benefit from $100 oil). From the conventional side, there were about 100 BB OOIP, and we’ve produces roughly 33 BBO so farI’d say 20 BBO would be a good P50 number.

        • John S says:


          How do you pick, in a 4,000 foot thick shale, the spot/or target where you deviate and go horizontal for a 5,000 ft lateral?

          Can you see anything on seismic? Or is it picked on sub surface well data? Can you pick any stratigraphic changes or is there a fossil record or geochem marker in a section that thick?

          • Glenn Stehle says:

            Shoot, John, don’t get me to lying.

            You’re going to have to ask somebody like MBP who is active in the play and has some experience in it.

            I moved away from Midland 30 years ago. It’s hard for me to even imagine some of the drilling technologies they use now. The stuff they’re doing now would be unthinkable back when I was working in the oil patch.

          • Glenn Stehle says:


            You got me curious.

            I found this paper which argues that:

            Recent studies have indicated that seismic interpretation is useful for defining production sweet spots within organic shale plays.


            I’d be interested in hearing from somebody like MBP with experience in the play as to whether he (or she) thinks seismic interpretation can improve the odds of finding a sweet spot.

            • It would require a sweet spot at least 30 ft thick, and very sweet indeed. If the rock is shot to hell with natural micro fractures which happen to be full of light hydrocarbons it could change the seismic reflection frequencies. But I was taught not to trust anything claiming to locate thin zones. The 30 ft lower limit seems to be valid, may be optimistic.

          • Toolpush says:


            At some stage the area will have been cored, and the sample tested for VOC, volatile organic carbon, Vitrinite Reflectance, Temp Max, porosity and permeability. The prospective horizons will be noted.
            For the first few horizontal wells will be drilled vertical through the prospective zone, and correlated by wireline. The well is plugged back, and the kicked off to allow the prospective zone to be drilled horizontally.
            Once the operators are comfortable with the area, the vertical, and plug back can be dispensed with, and future wells can be drilled in one go. The depth of the prospective formation needs to be know very accurately, as once the drill bit approaches 90 degs, you need to drill along way to reach the formation, if you were originally aiming too high.
            The wireline companies do offer a specialized suite of tools for shale these days.

          • John, the well has to be kicked off above the point where it has to go horizontal. This point depends on factors such as the horizontal length, the type of rocks being drilled, artificial lift plans….

            My suggested approach would be to get all the existing well data, look at the rocks, pick the target zone. Correlate wells to seismic, then use both wells and seismic to estimate the point where the well will intersect the target zone.

            When one looks at well data the better flavor Rock has to have high pressure, and be brittle. This implies it has to have a high Calcium or Magnesium carbonate content (carbonate rocks). And of course it has to have a light oil or gas condensate.

            This whole issue is a pain in the behind if one is targeting a thin zone. But as more wells are drilled the incoming data helps refine what’s going on. In the end, if the well misses the bit is pulled back and the well gets sidetracked and re drilled. I’ve seen wells with as many as three sidetracks.

            One of my last consulting jobs involved a field where the operator completed a horizontal well in a mix of good and bad rock. They were so green they couldn’t use a gamma ray log to figure out the well wasn’t about to produce the full length of that horizontal leg. This was an experimental well, they spent a huge amount of money on it, but they sure had a bit of a Mickey Mouse approach to making sure they had it in the right zone.

          • MBP says:

            Core and logs. Seismic helps, but a good NMR through the entire Wolfcamp will give you a pretty good idea of the mobile oil saturations in each productive interval. There are strat changes, and changes in % carbonate, which helps with initial production.

          • coffeeguyzz says:

            John S

            In addition to the excellent responses given, you may want to check out both the presentation and transcript from yesterday’s UBS-Busless Tour gig wherein Billy Helms – EOG’s VP for production/exploration – describes just what you asked.
            Slide #10 shows how their petrophysical models (all highly proprietary) are evaluated for precise targeting of the laterals.

            Just to demonstrate how dynamic all this stuff is, Helms – and CEO Bill Thomas earlier in the 2Q Conference Call – emphasized how they are still learning, and drawing upon the ever enlarging base of data, as they continue to improve and adapt their processes.
            Slide #7 depicts state-of-the-art frac’ing today.
            Riverview 102-32H just produced over 85,000 barrels its first full month online, a new Bakken record and the lateral being only 4,300′ long. These guys definitely know what they are doing.

            Yesterday’s presentation is available from EOG’s website, and the transcript is viewable via Seeking Alpha.

        • shallow sand says:

          I do not understand how one gets an EUR per well of 700K- 1.2 million BOE out of wells like those.

          If you go to the investor presentations for Permian operators, you will read claimed EUR of 700-1.2 million BOE for Wolfcamp, etc.

          Is there not the steep decline that is seen with most EFS, Bakken, etc. horizontal wells? Are they producing mostly gas?

          • Blaine says:

            If you read the graph numbers, they’re always at around 1/3 of EUR produced at 4-5 years. A b=0.5 hyperbolic decline function (or whatever else they used) fits the data reasonably well, at leads to the stated EURs. Still, it’s a hell of an extrapolation from having observed 1/3 of EUR over 4-5 years to assuming full EUR eventually. Yes, there is a theoretical basis for those EURs, but all forward-looking statements are BS.

          • Blaine says:

            Just read the numbers on the graph. They’re always around 1/3 of EUR at 4-5 years. Take best fit to the decline curve, usually to a b=0.5 hyperbolic decline theoretically valid for unconfined planar diffusion, and you get the stated EUR. Well, at least you get the stated EUR after you cut it off with an exponential decline after around 30 years or so, because otherwise it goes to infinity with infinite time.

            Yes, that’s a hell of extrapolation. All forward-looking statements are BS anyhow.

        • Blaine says:

          So long as we’re on the subject of outliers and decline curves, I present ND #16059, USA 2D-3-1H (set formation to “Three Forks” and it’s 4th from the top). Unfracked, completed, 10/9/2006, apparently into “Sanish sandstone”, technically in Three Forks. Lateral 3157′, IP 729 barrels/day and 785 mcf/day. Cumulative production as of 7/1/15 1.52 million barrels of oil and 2.32 Bcf gas. Average production 477 barrels/day oil and 721 mcf/day gas. For almost 9 years.

          What’s odd about this well? It’s very, very early for a well into the Three Forks, and it’s into a high permeability layer not normally drilled.

          Anyhow, when the LTO companies tell you, “Don’t worry, we can estimate EURs just fine from the first few wells into a formation,” or “Don’t worry, the oil never travels more 300′, so 600′ lateral spacing shouldn’t affect EURs,” you’d be well advised to remember this well.

          • shallow sand says:

            Blaine. One thing that gets to me is, with all of this core, high grading, break even talk, we are still talking about a risky venture when an oil and/or gas well is drilled.

            So easy to come up with a cost and an EUR. But the range for each varies so much, even in resource plays.

            I’m pretty conservative, but the investor presentations I read don’t seem overly exciting, especially when they are presenting close to the best case scenario anyway.

            I am sure there are still wells being completed that for one reason or another disappoint. I see those on the ND website. Also, I am sure there are wells that have issues that end up costing more than advertised.

            So, given the risks involved, it surprises me companies are eager to return rigs if prices hit $55-60 WTI. Seems like you would need problem free projects always for that to work.

            I’m not a math person, at least past the grade school level, but I can see what happens if a $7.7 million Bakken well produces 115K gross barrels of oil in the first 60 months, or the well ends up costing $8.7 million. Kinda of messes up the investor presentation.

            • Blaine says:

              The random variation you don’t have to worry about so much, if you’re going to drill a bunch of wells. What you have to worry about is the systematic variation. It’s estimating the average cost or EUR wrong that’ll really get you, not the variation between wells. So yes, these are still the correct terms in which to discuss profitability, even in the presence of uncertainty.

              If we look at what these newer wells are going to be producing after more then 5 years at current spacings, there’s very little in the way of data. And the reservoir thickness is far from the infinite value assumed in the theoretical model which gives you b=0.5 hyperbolic decline, so it really ought to start declining faster later on, when the diffusion boundary reaches the reservoir edge. So I think I would look for at least all in break-even with no capital share return at around 5-6 years, realizing that with steep decline curves this gives you most of your money back quite quickly. There will be additional production to give a profitability share to capital, it’s just not clear how much.

              In good areas without extreme downsizing, this is currently working out to low 50s realized, or around $70 WTI. Worse areas or more downsized core or Eagle Ford (particularly at current ng prices) is higher. In the Permian it’s probably a bit lower in spots, but replicability is poor, and sweet spots tend to be quite small, so it tends to be harder to estimate.

              There still seems to be this desire on the part of companies to get back to the previous drilling peak at ~$60 WTI and I don’t think it’s justified.

              I do kind of wonder what would have happened if OPEC had pegged the price at ~$70 WTI, and basically said, “Oh, you can produce oil profitably at $70 WTI, can you? Go right ahead. We’ll watch you try.”

              Probably there would have been continued large drilling increases, along with ever-mounting losses. At least then OPEC wouldn’t have to worry about these same areas being profitable at $50 in 10-20 years after technological improvements.

              • shallow sand says:

                I wish that would have been the OPEC strategy. Would have saved us a lot of stress. We would have likely complained, since we are professional complainers anyway. But compared to high 30s – low 40s in the field, $60-70 would have been great.

                I think you could be right. Continued drilling here, there and everywhere, maybe a lot more lower volume wells, not the cost cuts we have seen.

      • Rune Likvern says:

        Hi OFM,
        I will try to answer your questions with one chart for how the average well by vintage operated by Continental Resources develops in Bakken (ND).

        The 2015 vintage totals follows so far very much a trajectory like the average for all (about) 1,140 wells started since Jan-08 and as per Jul-15.
        There are some differences in the first months flow for the 2015 vintage and as of now (I have not looked into the GOR developments for Continental’s wells, this takes an hour or so) I consider this statistical noise until the time series with data becomes expanded.

        With regard to Permian there are some geological differences and there may be people on this list who are better informed/qualified than me that may throw more lights on this.

        • old farmer mac says:

          Thank you.

          I am not willing to dismiss out of hand the claims of some Permian boosters that the Permian may eventually be thought of as a super giant. The Bakken has after all surprised the hell out of a lot of folks.

          Hopefully there will soon be enough data available to people like you to allow us amateurs to gain some insight into future domestic oil supplies.

          A good bit of my long term planning revolves on how long oil will remain at least moderately affordable.

      • Blaine says:

        The last few points of the tail have poor statistics and don’t mean much, as they represent only a few wells.

        Oasis is currently drilling exclusively in Indian Hills (western McKenzie County). It’s a deep, high pressure core area. Their newer wells are pretty much guaranteed to high IP, high decline, high gas/oil ratio, and expensive. Yes, they’re still probably significantly better financially than their old wells, but we can discount some of the IP improvement as we know they’ll be high decline rate and expensive.

    • Toolpush says:


      That 2015 production line looks like a wide open choke to me. It will be interesting in the next few months, whether the production levels off, and parallels previous years, or if it continues below previous years, which it looks like doing.

    • Watcher says:

      Repeating from before. Stage count increase.

      • Dennis Coyne says:

        Hi Watcher,

        The stage count increase was mainly a factor around 2009 to 2010, since then any increases in stage count have not improved output by much as shown by the 2015 wells in Rune Likvern’s excellent charts.

  12. BC says:

    We’re seeing US Peak Oil II (but with oil production per capita down 45% since 1970 and down 25% since 1985) coincident with what is likely to be a global recession that began late last year or earlier this year.

    US oil production of 5-6Mbd, consumption down 2-3Mbd, and WTI in the $20s-$30s in the next few years is not inconceivable.

    • Nick G says:

      with oil production per capita down 45% since 1970 and down 25% since 1985

      That’s a very, very good thing, mostly due to CAFE regs. Without that, we would have peaked far earlier.

      • BC says:

        We did peak in the 1970s-80s in terms of real wages and purchasing power for the bottom 90%+. The US has been deindustrializing for nearly half a century and financializing since, including offshoring goods-producing capacity and employment and increasing debt to wages and GDP as a substitute for increasing real wages for the bottom 90%+.

        Now we have a situation in which total annual net flows to the financial sector equal total annual GDP output, meaning that there can be no growth of real GDP per capita after net debt service and financial flows.

        Moreover, the imputed cumulative compounding interest to total credit market debt to average term now equals 100% of GDP in perpetuity.

        With the resulting unprecedented debt to wages and GDP, US real GDP per capita is constrained at the levels of ~2005-08, not coincidentally at the onset of Peak Oil per capita and the Global Financial Crisis and the (ongoing) Great Recession.

        Therefore, at Peak Oil per capita and hyper-financialization of the economy, we cannot grow real GDP per capita AND continue to build out the RE infrastructure to necessary scale AND maintain indefinitely the fossil fuel infrastructure. Something has to give and it will be growth of real GDP per capita and the further build-out of RE.

        Wind and solar have already peaked and are well into a cyclical/secular deceleration, heading to 0% and negative YoY growth, only RE advocates don’t know it because they are not focusing on change rates and exponential growth factors/constraints.

        The same applies to EV sales, which have decelerated to an annual growth rate of 5%/year since 2013 and negative YoY. Again, advocates aren’t paying attention to the cyclical change rates of growth in the context of an incipient global deflationary recession, the oil/commodities cycle rolling over, Peak Oil, overshoot, LTG, and EOG.

        Thus, RE and EV advocates will be surprised, if not shocked, when growth of RE build-out and production and EVs turns negative in the years ahead and global real GDP per capita stalls and eventually contracts. Rather than attribute the decline to Peak Oil and LTG/EOG, they will be inclined to blame gov’t policy, Big Oil, OPEC, etc.

        • Nick G says:

          The US has been deindustrializing for nearly half a century

          Standard statistics tell us that US industrial output is 50% higher than it was in 1979. What’s your source for this?

    • The world economy is growing. I believe India crossed over with China and is growing at 7 %.

      • BC says:

        China is not growing at 7%. Private surveys show production contracting YoY. Fixed investment less depreciation is barely growing, if at all. The aggregate of the growth of wages and retail sales is contributing no more than 3% to GDP growth. Exports are subtracting 2-3% from GDP. That leaves gov’t contributing no more than ~1% to GDP.

        Therefore, China is growing no faster than 4% nominal. Pick a deflator out of the air and perhaps real GDP is at ~3% and per capita is in the 2% range.

        However, the labor force has contracted three years running and wages and production imply real productivity of no faster than 1%.

        Thus, China’s potential real GDP per capita is closer to 0%, which is the trend rate since 2007-08 for the US, EZ, and Japan.

        India imports 100% of oil consumption with global net oil exports continuing to decline since Peak Oil in 2005, with the US and China consuming a majority share of net oil exports. India is 40-45 to 80+ years too late to industrialization and the successive transition to a post-industrial high-tech, high-entropy service economy.

        The world economy is at stall speed, if not having already rolled over into recession since Q4 2014 or Q1 2015, which is what the crash in commodities prices has already signaled.

        • Caelan MacIntyre says:

          I am inclined to appreciate what appears to be your ‘statistical holism’, BC…
          I mean, it would seem that if one properly and selectively plugged in freely-available statistical data, and with a little bit of judiciousness and know-how, a fairly representative picture would emerge of, and/or one could make reasonable inferences/extrapolations about, what’s really going on, yes?

          One question, though: Should it instead be low entropy, rather than high (since does not high entropy mean more dissipated/less concentrated energy?) , for India’s too-late hypothetical industrial high-tech service economy?

          (I wonder where India currently is along that path.)

          • However, India is growing. So is most of the world. Maybe India will prove to be a longer lasting tiger? Democracy and the rule law sure work better in India than China.

            • Caelan MacIntyre says:

              Is India growing on draw-down dynamics? If so, then is it really growing?

              But, ya, I hear what you’re saying.

        • Dennis Coyne says:

          Hi BC,

          China may not be growing at 7% today, but from 2010 to 2014 the average GDP growth rate in constant local currency units (lcu) was 8%/year based on World Bank data.

      • wiseindian says:

        India is not growing at 7%, that’s pure hokum from the new govt which has come up with a new scheme to measure GDP.

        Last two quarters corporate earnings growth was abysmal and we constantly have demands to lower interest rates. You don’t see that with 7% growth rate. Slowdown has hit India as well

        The only good thing about India is that we are mainly driven by savings not debt and majority of people live outside the formal economy so they are not bothered by pesky things like GDP and interest rates.

        • I guess you know better. I was quoting this type of source

          But they use trends. I also read the rice crop is down?

          • wiseindian says:

            Well they take data published by the govt and our govt has learned a thing or two from western countries.

            “I also read the rice crop is down ?”

            Could be…there has been some rainfall shortage this year. It’s not a problem though, granaries are overflowing and rice is rotting from last 2-3 years of bounty.

        • Dennis Coyne says:

          Hi WiseIndian,

          The IMF has India growing pretty rapidly from 2010 to 2014 with a real rate of growth of GDP (constant prices) of 6.4% over that period. The growth rate was 7% in 2014 and is forecast to be 7.5% in 2015. The nominal growth rate from 2010 to 2014 (not adjusted for inflation) was 13% for GDP measured in Ruppees.

          You may not trust the IMF data, the World bank also has the real rate of GDP growth (in local currency unit) of 6.5% from 2010 to 2014 and 7.5% in 2014.

          It is difficult to measure this accurately because much of this “growth” may simply be migration to urban areas and people moving from the “informal” economy (subsistence farming for example where goods go directly fromfarm to family and never enter “the market”) to wage labor which is measured to a greater extent.

          Your point may be that this “growth” is not real, and you are likely correct.

          I noticed that the World Bank also uses a GNI per capita (gross national income per capita) measure which increased by 5.7%/year over the 2010 to 2014 period.

          By the GNI per capita measure China grew at 14.4% over the 2010 to 2014 period, which does not seem believable.

          Using the GDP in constant local currency(inflation adjusted) for China we get an annual growth rate of 8.1% over the 2010 to 2014 period (World Bank data) which seems more reasonable.

          China’s GDP per capita grew by 7.5% per year from 2010 to 2014
          India’s GDP per capita grew by 5.2% per year from 2010 to 2014
          US GDP per capita grew by 1.4% per year from 2010 to 2014

          All of the above 3 GDP per capita calculations use World Bank Data in constant local currency unit (LCU).

          • wiseindian says:

            We can all debate about the data but the simple fact is that corporate earnings in India are at levels not seen since 2008. That simple fact negates everything that the govt or IMF have been saying.

            Add to that the misery in real estate and agriculture and things don’t look so good at all, of course it’s much better than Brazil, Russia or China because we aren’t an export oriented or commodities based economy.

            “It is difficult to measure this accurately because much of this “growth” may simply be migration to urban areas and people moving from the “informal” economy (subsistence farming for example where goods go directly fromfarm to family and never enter “the market”) to wage labor which is measured to a greater extent”

            Let me tell you, gone are those days of subsistence farming, pretty much every farmer sells his stuff in the market, there is very little subsistence agriculture practiced nowadays and it doesn’t make much sense anyways given that it’s all western style mono-culture with GM seeds and fertilizers. For major crops like rice, wheat etc govt decides the floor price and buys the stuff even if no one wants to touch it.
            So govt has a very good idea about agricultural output and issues in this country, even if they don’t fix them.

            Yes there is growth and there will always be because we are coming from such a low base but my point is that it doesn’t feel like 2013 or 2014(comparable growth rates)

            • Dennis Coyne says:

              Hi WiseIndian,

              You clearly know what is happening better than me. I only have data through 2014, projections by international agencies are often wrong. What is causing the slow down, since things were going pretty well from 2010 to 2014?

  13. Longtimber says:
    “unless an exporting country cuts their domestic oil consumption at the same rate as the rate of decline in production, or at a faster rate, it’s a mathematical certainty that the net export decline rate, what they actually ship out to consumers will exceed the rate of decline in production. And, furthermore, it accelerates. ”
    So fun to explain ELM. sexy graphs may help to explain to carbon based units. – when the few get it, you can tell by the Oooh shits . Barbie hates math more than anything.

    • Greenbub says:

      Wow, there sure are a lot of dumb comments over on Zerohedge.

      • old farmer mac says:

        You can say that again. I have read a lot of links to ZH articles but this is the first time I ever read the comments. The typical person who comments there knows about as much about the realities of oil as a backwoods Baptist preacher knows about astronomy.ALMOST but not quite NOTHING.

      • longtimber says:

        Comments on ZH every bit as good as MAD Magazine… No😀

    • Jeffrey J. Brown says:

      Here are the mathematical facts of life regarding net exports:

      Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.

      In addition, while we are currently seeing signs of weak demand in China, given an ongoing, and inevitable, decline in GNE*, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.

      For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).

      And a massively under-appreciated aspect of what I call “Net Export Math” is that the rate of depletion in the remaining cumulative volume of net oil exports, after a net export peak, tends to be enormous. Saudi Arabia is showing a year over year increase in production and net exports, but based on available annual data through 2014, Saudi Arabia’s net exports fell from 9.5 MMBPD in 2005 to 8.4 MMBPD in 2014 (total petroleum liquids + other liquids), and I estimate that Saudi Arabia may have already shipped close to half of their total post-2005 supply of cumulative net exports of oil.

      *Global Net Exports of oil, combined net exports from the (2005) Top 33 net exporters

      Cornucopians confront Net Export Math:

    • Jeffrey J. Brown says:

      Re: Math

      Jim Kunstler always fusses at me for using too much math. An excerpt of an email from Jim this morning (he forwarded on an excerpt of an email he received saying that the interview was interesting, but that it had too much math):

      You gotta find a way to put your point across in words.

      In any case, I’ve begun to conclude that even most people who understand the mathematical certainties about “Net Export Math” are in some stage of denial, including of course, yours truly.

      • Ves says:

        Both, math and words, are perfectly fine. The thing is it is not the eyes (ears) that do the seeing-nature, but the mind. It is mindfulness that will allow you that. Here is the old story that explains:

        “Ánanda, if the person without the use of his eyes who sees only darkness were suddenly to regain his sight and see all kinds of forms, and you say it is his eyes which see, then when a person in a dark room who sees only darkness suddenly sees all kinds of forms because a lamp is lit, you should say it is the lamp which sees.
        “If the lamp did the seeing, it would be endowed with sight. But then we would not call it a lamp anymore. Besides, if the lamp were to do the seeing, what would that have to do with you?
        “Therefore you should know that while the lamp can reveal forms, the eyes, not the lamp, do the seeing. And while the eyes can reveal forms, the seeing-nature comes from the mind, not the eye”

        • Glenn Stehle says:

          Have you seen any of the studies which undermine attempts to use “sense data” as the building blocks of epistemology, due to cultural difference in the recognition of colors and the fact that Euclidean idealizations of spatial relations have proved to be more relevant and intelligible for people in some kinds of cultures than others?

  14. old farmer mac says:

    I am going to post some links relating to renewables and environment etc on the non oil open topic thread until it closes, at the bottom. Anybody interested, please comment there. If I don’t get any comments I will presume nobody is reading them.

    • Dennis Coyne says:

      Hi old farmer mac,

      I don’t think Ron likes the non-oil thread idea, maybe just go to the bottom of the previous post or put them in this post. Or you could email Ron and ask him directly what he would prefer.

      My guess is that most people won’t go back and look at old posts.

      • ezrydermike says:

        FWIW. I like the non-oil thread. It would be OK by me if a new one was started every 350-400 comments..

        I read all threads.

      • TechGuy says:

        Hi DC & Ron,

        It would be better if there was non-Oil threads in my opinion. Perhaps just create short non-oil topics (regarding current events, renewable, climate, economics). For instance, Create a new topic on the Fed keeping rates unchanged since there are a ton of people discussing this. For recommended example topics, see Peak Prosperty’s Daily digest.

        In my opinion the non-oil discussed become a huge distraction from the Oil topics.

  15. AlexS says:

    North Dakota may let more oil wells be temporarily idled

    Mon Sep 14, 2015

    (Reuters) – North Dakota’s oil regulators said on Monday they may allow more wells to be temporarily abandoned, a step that would permit producers to delay fracking beyond the typical one-year window and prevent even more crude from flooding onto global markets.
    The change would fuel massive savings for oil producers in the state who have amassed a backlog of almost 1,000 wells that have been drilled but not completed with processes needed to get the oil flowing. The delays are designed solely to ride out the roughly 50 percent drop in crude prices since last year.
    While no decision has been reached, the North Dakota Department of Mineral Resources (DMR) is “leaning toward” sharply increasing the number of requests to temporarily abandon wells, director Lynn Helms told reporters on a conference call.
    “It’s just going to be a whole lot better for everyone if we store the oil in the shale formation instead of in Cushing, Oklahoma,” Helms said.
    Producers currently have one year to frack and start producing oil from a well. If that window passes, the DMR warns producers they have six months to plug the well or start producing oil. It then moves to confiscate the well if nothing has been done by the end of that six-month window.
    The number of North Dakota wells waiting to be completed rose by 70 to 914 in July, and most of them have one-year windows that expire in December, Helms said.
    Any decision to allow a well to be temporarily abandoned would be on a case-by-case basis, he said.
    “It’s a delicate balancing act because royalty owners expect to get royalties from those wells,” Helms said.
    The one-year window has loomed over corporate budget planning, with many producers hoping to wait as long as possible to bring new wells online.
    For example, EOG Resources Inc, which has one of the largest number of North Dakota wells waiting to be fracked, told investors last week it would spend most of its capital budget in early 2016 on fracking new wells.
    The rule change could abrogate the need for EOG and peers to start fracking come January.
    “This sends a signal to the global markets that the state is not going to force even more oil out there,” Helms said.

    • Frugal says:

      The delays are designed solely to ride out the roughly 50 percent drop in crude prices since last year.

      This statement shoots a hole into the notion that shale oil has become much cheaper to extract because of new technology.

      The question remains if anyone is drilling at the moment without the intention of fracking right away?

    • Wow. They are learning to manage the oil industry. Some of those wells may sit as is for as long as 36 months.

  16. ```` says:

    “This statement shoots a hole into the notion that shale oil has become much cheaper to extract because of new technology.”

    Not so.

    The reasoning is that prices will likely go up and waiting a year for higher prices is expected to be good business sense.

    If prices at the well go from say thirty five to fifty , over a year, a well delayed for a year will bring in a hell of a lot more money than one completed now.

    But the price may not go up within a year. In that case delaying completion will not help the well owner.

    • Ves says:

      “is expected to be good business sense.” — business sense??!!!

      more likely that reality is hitting them with big stick in the head.

      • ```` says:

        Sometimes reality has to take a big stick to a businessman’s head- or a whole industry’s worth of businessmen.

        Yogi sez predictin’ is hard, ‘specially the future.

        But so far as my own opinion is concerned, it absolutely good business sense to delay producing an oil well for a year right now- if the owner can manage this trick- in hope of higher prices a year from now.

        Unless all the people -ALL of them – who are looking into the costs of producing oil are wrong, a hell of a lot of producers are now deep in the red and will be shutting in a lot of production starting yesterday. The odds appear to be excellent that the price will be going up within a year- how much is anybody’s guess of course.

        Past mistakes are past. There is no way to put Humpty Dumpty together again, the price crash is history and reality.

        The only real question is not whether the price will go up, but when, assuming the entire economy doesn’t just roll over and DIE.

        Produce a tight oil well now, and lose your ass on it FOR SURE. Produce it a year from now, maybe you make a little money, or at least a lot smaller loss. Getting out of bed is a gamble, so is staying in bed. Preacher sez the past is history, the future is mystery, there is only now which is why we call it “the present”- a gift from God.

    • Frugal says:

      The reasoning is that prices will likely go up and waiting a year for higher prices is expected to be good business sense.

      Not sure if humans really act this way in real life. Most people that I know will go for short term benefits at the expense of the long term. And I don’t know anyone who’s willing pay to work. Are oil company execs any different than average humans?

      • Oil companies tend to be a bit more sophisticated. They also have consultants telling them to hold off completions at least until they have squeezed contractors to the edge of death and got cheaper transport to a refinery (it’s a dog eat dog environment).

    • AlexS says:

      Drilling a well and then postponing its completion for more than a year means frozen money.
      If shale companies don’t want to complete the wells as long as oil prices remain low, why they are drilling?
      If they are required to drill, but are not required to complete the wells, that’s also illogical

      • Toolpush says:


        Good point why are the shale companies still drilling? The only 3 reasons I see are.

        1/Rigs under long term contract, and too expensive to pay out the cancellation fee. I suspect many of the contract were for 12 months, though Mike did indicate some were for longer. In the case of the 12 month contracts, many rigs were started in the second half of 2014. I suspect many of these contract will be ending very shortly.

        2/shale companies being as they are, want to HBP as many leases as they can, while they can, even if it sends them broke doing it. I believe their eyes are too big for their stomach.

        3/The only other reason, would be drilling multi well pads in the core of the core, and supposedly make some money. At these prices, I would feel are the wells they want to delay?

        None of them seem to be a way out of the mess they have got themselves into.

        • John S says:

          If you don’t complete a well, then you have no cash flow to pay off debt……makes perfect sense to me. Really?

          • Ves says:

            But it is according to ever fact accurate Reuters “The change would fuel massive savings for oil producers”! John, it is fueling massive savings :)
            It is just new and creative way of doing business. You get a loan, spent half of the money by drilling it, and then you implement massive saving technique not completing the well but by sitting on your hands and checking WTI price all day long. These are new management philosophies that you learn only at the top business schools.

            • Blaine says:

              You can get the drilling done cheaply, so it would make sense in the case of a drilling company with cheap extra cash, which basically narrows it down to a few of the majors. Except, if you actually are an oil company still sitting on cash, you’d probably be be much better of buying some acreage at one of the pre-bankrutpcy fire sales.

              • AlexS says:

                No one E&P company producing LTO has free cash these days. I have checked 1Q and 2Q SEC reports of several largest shale operators and all of them were cash-negative so far in 2015. And the vast majority of them were cash negative when oil price was $100.

                • Blaine says:

                  That would be why I specified “majors” as in, say, XOM. Also, there are a few vulture companies tied to investment banks which actually do have cash, but not on an ongoing cash flow basis. Otherwise we’re talking about a theoretical situation of whether deferring completion would be a good idea if you could actually afford it.

                  Of course this answer depends strongly on how long before prices go back up, and how much they go up, but I still think we’re looking at a strong price rebound in early 2017.

              • Ves says:

                “You can get the drilling done cheaply, so it would make sense in the case of a drilling company with cheap extra cash”

                No it does not make a sense. Drilling but not completing a well, just because rig services are cheaper than year ago is like buying 20th pair of shoes to sit in closet because they are on sale while your income is just reduced by your employer.

            • John S says:


              I’m running my traps this morning.

              Not sure these guys want identities associated with these numbers. So

              If I get anything, I may have to send it to you via Ron.

            • John S says:

              Ohhhh! I get it now! Thanks. I need to go to Bidness School

        • AlexS says:


          Thanks for you reply.
          I was also considering those reasons to drill. But I still think it makes no sense to drill more wells than you intend to complete.
          Anyway, as oil prices are likely to stay low for longer, and as long-term drilling contracts expire, I would expect further declines in oil rig counts.

          • Heinrich Leopold says:


            One explanation could also be that companies can book drilling as capital expenditure, which increases the value of reserves. They can do so with fresh capital. Well completion on the other side is an operating expense, which has to be paid from operating cash. In metal mining this is a very common practice as some companies just drill for new reserves yet do not produce for years and still, the value of the company increases.

        • Early in 2015 I loaded a spreadsheet and concluded it made sense to defer completing a well. It gets a bit complicated, but the numbers are pretty clear.

  17. Ronald Walter says:

    Evening musings:

    Disruptions of oil supplies cause price increases. Increased production fills in the gaps, supply disruptions are compromised, oil price falls, crashes, the oil industry has a hissy fit, gnashing of teeth, the losses mount, everybody loses sleep, bank accounts look bleak, the consumer is complacent, led into a false sense of security then gets blindsided with another unexpected turn of events and more consequences to suffer, takes all in stride since it’s an endless cycle, agony, the ecstasy, it is a confounding state of affairs, no way out, ready, steady supply, steady pace of consumption, no deflections, steady price low enough to generate adequate economic activity.

    In other words, 7.2 billion humans all get along fairly well and the party continues.

    A few think it is important to mobilize, but that never changes. Peace trumps all. If it is going to be a war of all against all, peace will prevail.

    Just ramblin’, driftin’ along with the breeze, driftin’ along with the tumblin’ tumblin’ weed.

  18. Dean says:

    OT (but hopefully interesting). For history lovers:

    “In preparation for an eastern war, Valens initiated an ambitious recruitment program designed to fill those gaps. It was thus not unwelcome news when Valens learned that the Gothic tribes had been displaced from their homeland by an invasion of Huns in 375 and were seeking asylum from him. In 376, the Visigoths advanced to the far shores of the lower Danube and sent an ambassador to Valens who had set up his capital in Antioch. The Goths requested shelter and land in Illyria. An estimated 200,000 Gothic Warriors and altogether 1,000,000 Gothic persons were along the Danube in Moesia and the ancient land of Dacia.
    As Valens’ advisers were quick to point out, these Goths could supply troops who would at once swell Valens’ ranks and decrease his dependence on provincial troop levies — thereby increasing revenues from the recruitment tax.” …
    ” What started out as a controlled resettlement mushroomed into a massive influx. And the situation grew worse. When the generals present began abusing the Visigoths under their charge, they revolted in early 377 and defeated the Roman units in Thrace outside of Marcianople” …
    “After joining forces with the Ostrogoths and eventually the Huns and Alans, the combined barbarian group marched widely before facing an advance force of imperial soldiers sent from both east and west. In a battle at Ad Salices, the Goths were once again victorious, winning free run of Thrace south of the Haemus. By 378, Valens himself was able to march west from his eastern base in Antioch. … After a brief stay aimed at building his troop strength and gaining a toehold in Thrace, Valens moved out to Adrianople. From there, he marched against the confederated barbarian army on 9 August 378 in what would become known as the Battle of Adrianople.” …
    “When the battle was over, two-thirds of the [Roman] eastern army lay dead. Many of their best officers had also perished. What was left of the army of Valens was led from the field under the cover of night by Comes Richomer and General Victor.
    J.B. Bury, a noted historian of the period, provides specific interpretation on the significance the battle: it was “a disaster and disgrace that need not have occurred.”
    For Rome, the battle incapacitated the government. Emperor Gratian, nineteen years old, was overcome by the debacle, and until he appointed Theodosius I, unable to deal with the catastrophe which spread out of control.” …
    ” Valens, … was [also] killed in the Battle of Adrianople, which marked the beginning of the collapse of the decaying Western Roman Empire.”

    From Valens [Roman Emperor] – Wikipedia

    • Dean says:

      history doesn’t repeat itself but it does rhyme…

      • ```` says:

        It moves faster these days too. The collapse of an empire used to be a long drawn out process most of the time.

        Modern empires rise and fall in decades rather than centuries, most of them at least.

        Hopefully our Yankee empire will decline slowly and with information being so readily available these days, maybe enough people will eventually realize what is going on to save at least part of the home core.

      • Glenn Stehle says:

        Dean says:

        history doesn’t repeat itself but it does rhyme…

        I wholeheartedly agree.

    • Glenn Stehle says:

      “Who controls the past,” run the Party slogan, “controls the future: who controls the present controls the past.”

      So reads the famous passage from George Orwell’s 1984.

      And for that reason history takes its side along economics and evolutionary theory as one of the fields of inquiry which has been abused and misused to no end for purposes of politics and economic gain, either by the individual or by a particular group.

      But there has emerged, beginning in the 1970s, an alternative interpretation of the fall of Rome which flies in the face of the view put forth by Gibbons and Robertson in the 18th century, the 18th-century view of history having gained such prominence and stature that it was seen as being self-evident and beyond dispute.

      Peter Brown published in 1971 The World of Late Antiquity. In it he defined a new period, “Late Antiquity,” beginning in around AD 200 and lasting right up to the eighth century, characterized, not by the dissolution of half of the Roman empire, but by a vibrant religious and cultural debate. As Brown himself consequently wrote, he was able in his book to narrate the history of these centuries “without invoking an intervening catastrophe and without pausing, for a moment, to pay lip service to the widespread notion of decay.” “Decay was banished, and replaced by a “religious and cultural revolution,” beginning under the late empire and continuing long after it.

      A recent Guide to Late Antiquity, published by Harvard University Press, asks us “to treat the period of history around 250 and 800 as a distinctive and quite decisive period of history that stands on its own,” rather than as “the story of the unravelling of a once glorious and ‘higher’ state of civilization.” This is a bold challenge to the conventional view of darkening skies and gathering gloom as the empire dissolved.

      • Glenn Stehle says:

        The orthodox view is that of glorious city on the hill sacked and pillaged by the ravenous hordes of a savage and uncivilized barbarian culture.

        The dissident view, on the other hand, is a very different narrative, one of a Roman Empire beset by a moral crisis.

        The set of values developed by the early Romans called mos maiorum, Peter Turchin explains in War and Peace and War, was gradually replaced by one of personal greed and pursuit of self-interest.

        “Probably the most important value was virtus (virtue), which derived from the word vir (man) and embodied all the qualities of a true man as a member of society,” explains Turchin. ”

        Virtus included the ability to distinguish between good and evil and to act in ways that promoted good, and especially the common good. Unlike Greeks, Romans did not stress individual prowess, as exhibited by Homeric heroes or Olympic champions. The ideal of hero was one whose courage, wisdom, and self-sacrifice saved his country in time of peril,” Turchin adds.

        “Who with the prospect of death, envy, and punishment staring him in the face, does not hesitate to defend the Republic, he truly can be rekoned vir,” says Cicero.

        And as Turchin goes on to explain:

        Unlike the selfish elites of the later periods, the aristocracy of the ealry Republic did not spare its blood or treasure in the service of the common interest. When 50,000 Romans, a staggering one fifth of Rome’s total manpower, perished in the battle of Cannae, as mentioned previously, the senate lost almost one third of its membership. This suggests that the senatorial aritstocracy was more likely to be killed in wars than the average citizen….

        The wealthy classes were also the first to volunteer extra taxes when they were needed… A graduated scale was used in which the senators paid the most, followed by the knights, and then other citizens. In addition, officers and centurions (but not common soldiers!) served without pay, saving the state 20 percent of the legion’s payroll….

        [T]he richest 1 percent of the Romans during the early Republic was only 10 to 20 times as wealthy as an average Roman citizen.

        Now compare that to the siutation in Late Antiquity when

        an average Roman noble of senatorial class had property valued in the neighborhood of 20,000 Roman pounds of gold. There was no “middle class” comparable to the small landholders of the third century B.C.; the huge majority of the population was made up of landless peasants working land that belonged to nobles. These peasants had hardly any property at all, but if we estimate it (very genrerously) at one tenth of a pound of gold, the wealth differential would be 200,000! Inequality grew both as a result of the rich getting richer (late imperial senators were 100 times wealthier than their Republican predecessors) and those of the middling wealth becoming poor.

        • Paulo says:

          Thanks Glenn,

          Fantastic example of today’s situation. I plan to send this on to a few friends.

        • wimbi says:

          “then out spake brave Horatius, Captan of the gate
          To every man upon this earth, death cometh soon or late,
          And how can man die better, than, facing fearful odds,
          For the ashes of his fathers. and the temples of his gods.”

          Just think of what we could do if we acted together for the good of all -a band of brothers.

          There are examples, it ain’t just pollyanna.

          First, as always, kill all the lawyers. Then, recycle the oil people. Then, sit down and relax, have a beer, and think up the next step,

      • Glenn Stehle says:

        Bryan Ward-Perkins picks up the dissident narrative in The Fall of Rome and the End of Civilization. He described Roman armies no longer made up and led by the nobles, but of conscripts, slaves and mercenaries who the nobles tried to defraud and cheat out of their pay:

        In April 406 the western government urgently needed more soldiers in order to oppose the incursion into Italy of Germanic tribesmen led by Radagaisus, and it issued a call for new recruits. Each was offered a bounty of ten gold solidi on joining up, but the payment of seven of these was delayed until ‘things have been brought to a conclusion’… At the same time, a highly unusual but even cheaper option was attempted — the levying of slaves, who were to be paid with a mere two solidi… ‘Things’ in the West were never satisfactorily ‘brought to a conclusion,’ and the recruits of 406 may never have received their seven owed solidi

        The Roman Empire of Late Antiquity was one torn by slave uprisings and civil unrest. As Ward-Perkins goes on to explain:

        [T]he ruler of the West during the years of crisis that followed the Gothic entry into Italy in 401 and the great crossing of the Rhine in 406 was the young Honorius, who came to the throne only through the chance of blood and succession, and who never earned any esteem as a military or political leader.

        Ward-Perkins includes an illustraiton of Honorius with the following caption:

        The emperor Honorius tring to look like a military leader, on an ivory plaque of AD 406. In elaborate armour, he holds an orb surmounted by a Victory, and a standard with the words ‘In the name of Christ, may you always be victorious.’ Reality was less glorious — Honorius himself never took the field; and his armies triumphed over very few enemies other than usurpers.

      • cytochrome C says:

        On this date:
        1917 — Aldous Huxley, 23, is hired as a schoolmaster at Eton, where he counts among his unruly pupils Eric Arthur Blair (George Orwell).

        Huxley wrote Brave New World, warning of a mindless, materialistic existence a modernized society could produce. In the ‘Foreword’ of the 1946 edition, he said he believed that only through radical decentralization & a politics that was “Kropotkinesque & cooperative” could the dangers of modern society be escaped.

    • Is this an indirect reference to the ongoing invasion of Europe by Middle East invaders? I’m not sure it’s linked to peak oil?

      • YCDB says:

        Oh Fernando, there is more to the story if you investigate-

        In 409 AD the daughter of Honorius escaped Rome during the battle of Hons and fled to what is now known as Prussia. There she married into a into a rich family of the Tro’s. Where her children got the best education and became Geo Engineers of that time. This tradition continued until after WWI. When the communist party chased the Tro’s out of Russia. In the Tro’s escape for there life’s crossing Europe. They came across the Cas party. Who were also being persecuted for stealing land from Spain. The Tro’s and the Cas’s were cornered on the beach of Newhaven. There they found a large tree log and a oil slick. They than rode the tree trunk on the peak oil slick down the back side of the curve until they found a tiny island in the Caribbean and lived happily ever after once they removed all the capitalist from the island.

  19. Ronald Walter says:

    If the world is consuming 90 million bopd and the Bakken produces 1.1 million of them, it is more than 1/90th of the total, greater than one percent. 1.1 million barrels all for sale for about thirty bucks a barrel today, a fire sale if there ever was one. Price wars continue.

    I was doing some arithmetic and used some of those Bakken numbers.

    Oil in barrels, 1,146,977 per day! 10,038 wells! All in July!

    Times 30 days of production is 34,409,310 barrels of oil! Who in the world is using all that oil?

    In June, it was 1,152,407 bopd, times 30 days of production, you’ll have produced 34,572,210 bopd.

    In June, there were 9912 wells producing oil, in July, 10,038, so with an additional 127 wells, production during a 30 day period decreased by some 160,000 barrels.

    Depletion and decline. Little by little, bit by bit until the giant barrel of oil is gone.

    • BC says:

      “Who in the world is using all that oil?”

      Care to take a guess as to what the percent of total US oil production since 2012 is being consumed by the shale and energy-related transport sectors to produce and transport the oil?

      The share is so high that the marginal production ex consumption by the shale and energy-related sectors is modest at best, and unprofitable at that.

      When US oil production finally rolls over, it will crash and with it a large decline in US oil consumption.

      • Toolpush says:


        US diesel production has already taken a dive, due to the 1,000+ drilling rigs and frac spreads not working. we did a few rough calcs on here a few weeks ago, and found way more than half of the drop in diesel consumption in the last 12 months, can be attributed to these rigs and spreads.

        We didn’t calculate the usage of the transport trucks and trains.

  20. ```` says:

    This question is primarily for Nick, Dennis, Glenn, and anybody else who knows a good bit about banking and economics.

    The concentration of wealth in the hands of the one percent does bother me enormously.
    But except for the air travel and ludicrous prices the one per centers pay for oversized houses and cars etc , they do not actually CONSUME a hell of a lot personally, compared to any body in the middle of the so called middle class. You can eat only so much, drink only so much, indulge in only so much mindless shopping. And while a hundred pairs of shoes in the ladies closet, or a dozen sets of hand made golf clubs in his are wasteful extravagances, in the end this sort of thing is no more wasteful- and most likely LESS harmful – than ”pop”aka soft drinks. The makers of the shoes and clubs get a living out of their work just as surely as the driver of the soft drink truck.

    So – I fail to see any clear and convincing evidence that concentrated ownership of wealth in and of itself is NECESSARILY a bad thing for the overall economy. Evidence is plentiful that wealthy people do use their wealth as a weapon at times to keep poor people poor- but otoh there is plentiful evidence that concentrated wealth can and does result in great things happening. Bill Gates spends more on public health initiatives personally than the entire bottom ten percent of American citizens combined- probably more than the bottom twenty percent.

    Can it be PROVEN that concentrated wealth is bad? As opposed to simply demonstrating it?

    Concentrated wealth no doubt has a lot to do with us being in the current fossil fuel mess we are in up to our noses but concentrated wealth also appears to be the likeliest route out of the mess. People with money to spend on research and development and commercialization of renewable energy would appear to be our best possible hope.

    Government is necessary and good in many contexts, but when it comes to speed and agility, government sucks big time and is mostly incapable of decisive action in the face of deeply entrenched special interests that OWN numerous legislators and control regulatory agencies via legislators and the revolving door.

    The OBUMBLER is not taken all around a bad prez, or an especially good one in my estimation. But by way of illustration, his administration has so many Gold in Sacks revolving door people in key positions that we might as well rename a bunch of buildings after that banking octopus, just as we name sports stadiums and race tracks after advertisers. This not to say the next incoming administration won’t be worse, or that the last one previous was any better. This is just reality.

    If renewables save our collective ass, it will be because entrepreneurs manage the job, with with NEGATIVE net assistance from government, compared to the fossil fuel bau element. BAU fossil fuels get the REALLY big subsidy – off the books trash disposal into the environment. Without concentrated wealth renewables are simply not going to happen on the grand scale.

    So – can it be PROVEN that concentrated wealth is and of itself bad for the economy in general?

    • Wealth/power concentrationleads to oligarchy, which eventually restrains freedom and entrepreneurship (oligarchs are greedy).

      The problem compounds itself because the inheritors are likely to be less competent, this in turn means they make less efficient business and political decisions.

      A good example of oligarchs in control is Guatemala. Another is Cuba. Neither is known to be a good place to live.

    • Glenn Stehle says:

      ““ says:

      But except for the air travel and ludicrous prices the one per centers pay for oversized houses and cars etc , they do not actually CONSUME a hell of a lot personally, compared to any body in the middle of the so called middle class.

      Empirically speaking, at least regarding energy consumption, I believe that claim hits pretty close to reality.

      If you want to see some empirical information, you might try:

      “An Income-based Analysis of Historical US Energy Consumption”

    • Glenn Stehle says:

      ““ says:

      So – I fail to see any clear and convincing evidence that concentrated ownership of wealth in and of itself is NECESSARILY a bad thing for the overall economy….

      Can it be PROVEN that concentrated wealth is bad? As opposed to simply demonstrating it?

      Cyclical theories of history view inordinate inequality as a symptom of cultural, moral and social decadence.

      Great and ever-increasing inequality is also one of the main causes of the eventual disentigration and/or conquest of the society by less dysfunctional societies. Here’s how Peter Turchin explains it:

      The critical assumption in my argument is that cooperation provides the basis for imperial power. This assumption is at odds with the fundamental postulates of the dominant theories in social and biological sciences: the rational choice in economics and the selfish gene in evolutionary theory….

      Secular cycles are one of the most pervasive rhythms of history. They affect practically all facets of social life, from homicide rates to the sytles of architecture. The phase of the secular cycle also determines the trend in social and economic inequality — whether it increases or decreases. This aspect is of particular interest because of the corrosive effect tht glaring inequality has on the willingness of people to cooperate, which in turn underlies the capacity of societies for collective action.

      Turchin goes on to demonstrate that a hallmark of all once-great empires in their twlight years is vast economic and social inequality.

      “Inequality and social solidarity are deeply incompatible,” concludes Turchin. “When the leaders do not hide behind rank and shoulder their share of the common burden, the common people are much more likely to fall in line.”

      • Old Farmer Mac says:

        Thanks, there is no doubt in my mind that too much concentration of wealth is a bad thing and that we have passed the point at which it becomes a bad thing.

        And I have read a great deal of history – for a layman. No doubt the evidence is overwhelming. But correlation is not necessarily the same thing as causation. I was thinking more of theoretical proof.

        • Dennis Coyne says:

          Hi Old Farmer Mac,

          In social science and history mothing can ever be proved. From an economics perspective consider this thought experiment. Would a democratic society be likely to survive if 99% of income was concentrated in the hands of the top 0.1% of the population? It would seem that at some point the 99.9% of the population that receive 1% of the GDP as income would recognize that income was not being shared in a fair manner. In addition, growth would be very slow because eventually the 0.1% receiving most of the income would not be demanding enough goods and services. They might spend only 30% of their income and save the rest. Some economic theories (classical economics) posit that money saved automatically is invested, though Keynes questioned this axiom. Why would the 0.1% choose to invest? There is no demand for more output because most people (the 99.9%) are spending all of their income and the rest are spending all that they choose to spend. What we would have is a serious lack of aggregate demand which would lead to rising levels of unemployment. When things get to 25% to 30% unemployment rates, the very wealthy may start to get nervous about their safety and social changes might be implemented as during the New Deal.

          So at least to me there are clear theoretical reasons from an economics perspective where in the absence of a severe social change, that a society would collapse in the face of very severe income disparities.

          • Glenn Stehle says:

            Dennis Coyne said:

            It would seem that at some point the 99.9% of the population that receive 1% of the GDP as income would recognize that income was not being shared in a fair manner.

            I wonder, though, how much of the willingness on the part of the lower orders of our global society to accept great economic and social inequality is cultural and how much is hard-wired?

            The upper orders of our global society go to great lengths to lend intellectual and moral justification to inequality, to the inordinate privileges which they enjoy. Here’s how Reinhold Niebuhr put it in Moral Man & Immoral Society:

            The moral attitudes of dominant and privileged groups are characterized by universal decepton and hypocrisy… Since inequalities of privilege are greater than could possibly be defended rationally, the intelligence of privileged groups [this is where economists, historians and evolutionary scientists enter the picture] is ususally applied to the task of inventing specious proofs for the theory that universal values spring from, and that general interests are served by, the special privileges which they hold.

            Niebuhr then singles out the hallowed American middle-class as an example:

            The middle classes were proud that their property, unlike that of the inheritances of the leisured classes, sprang from character, industry, continence and thrift; and they were therefore quite certain that any one endowed with similar virtues could equal the competence which they enjoyed. Failure to achieve such a competence was in itself proof of a lack of virtue. This middle-class creed sprang so naturally from the circumstances of middle-class life that it ought perhpas, to be regarded as an illusion rather than a pretension. But when it is maintained in defiance of all the facts of an industrial civilization, which reveal how insignificant are the facts of virtuous thrift and industry beside the factor of the disproportion in economic power in the creation of economic inequality, the element of honest illusion is transmuted into dishonest pretension.

          • Glenn Stehle says:

            Dennis Coyne said:

            Some economic theories (classical economics) posit that money saved automatically is invested, though Keynes questioned this axiom. Why would the 0.1% choose to invest?

            When they can make more money investing their money in productive activities rather than in speculation or clipping coupons?

            What are the necessary conditions for this to be the case?

            Brazil offers the perfect example of a failed attempt to create the necessary conditions to encourage and insure productive investment:

            Encouraging Investors

            In August 2011 the Brazilian Central Bank’s monetary policy committee opted to lower the interest rate from 12.5 to 12% — a surprising about-face given its decision to raise the rate in its previous meeting. The committee maintained a downward course from there, dropping it to 7.25% by October 2012, where it stayed until the following April.

            At the same time interest rates were falling, the government also began devaluing the country’s exchange rate. Beginning in 2011, the government changed foreign-exchange regulations, imposed new reserve requirements, and raised the tax rates on some financial transactions….

            These simultaneous moves by the Brazilian state were intended to stimulate investment by undoing two longstanding aspects of orthodox economic policy in the country: extraordinarily high interest rates and an overvalued exchange rate.

            For policymakers, the logic was simple — by reducing the cost of capital and by extension the return on financial investments (by lowering interest rates), and improving the competitiveness of national production in foreign markets (by devaluing the real), they could encourage investors to transfer capital to productive activities and thus spur growth.

            Economic policy shifts were not restricted to macroeconomic policy. The Brazilian government also attempted to improve the competitiveness of the economy by making it cheaper for firms to operate within the country.

            To this end policymakers pushed through a number of changes, including renegotiating the rate of return on public infrastructure contracts, reducing the cost of energy, cutting payroll taxes, and trimming the interest rates charged by public banks in order to impose competitive pressure on private financial institutions. These policies — in combination with the macroeconomic policies — were in part designed to allow for more equitable growth, limiting the profits appropriated by big, concentrated industries.

            But these efforts did not bear the expected fruits — output growth and investment remained stagnant. Recent revisions to the national accounts data show that the investment rate, after increasing from 17.3 to 20.6% of GDP between 2006 and 2010, stagnated in the three following years and then fell almost one percentage point last year (see graph below).

            Sluggish investment brings down economic growth: the average GDP growth rate almost halved — from 4.05 to 2.14% — between the first two PT governments (2003–2010) and Rousseff’s first term.

            Part of the failure stems from declining demand for Brazilian exports, which is most easily demonstrated by looking at the trajectory of the Brazilian economy’s terms of trade (the ratio of export prices to import prices). Between 2004 and 2011, this ratio grew more than 4% annually, on average, demonstrating increased global demand for Brazilian goods and explaining, in part, the output growth acceleration observed in that period.

            However, the terms of trade peaked in September 2011 and in the subsequent three years fell at an average annual rate of nearly 4%. This price inversion was caused by a drop in the international prices of several primary products exported by Brazil (a consequence of the Chinese economy’s deceleration).

            Brazil’s worsening terms of trade, and the reduction of aggregate demand it indicated, were bad news for the government’s developmentalist policies. Firms that, on the one hand, saw their costs being reduced, watched, on the other, as their stocks piled up. Lacking expectations that demand would recover, Brazilian firms had little incentive to increase productive investment.

            Insufficient demand was not exclusively the result of international factors however. Other changes in government policy also played a role, creating obstacles for the developmentalist turn. For example, policies designed to reduce systemic risk adopted from late 2010 on led to a contraction in consumer credit.

            There was also a shift in fiscal policy: the government promoted a substantial fiscal contraction in 2011 and when it moved back to fiscal expansion, in 2012, it prioritized tax reduction instead of public investment. These changes reinforced the downward pressure on aggregate demand caused by the falling terms of trade.

            “Austerity Reaches Brazil”

            The Jacobin writer goes on to make the argument that Brazil’s failure was because the Brazilian capitalist class was entirely too enamored of speculation and clipping coupons to ever go back to productive activities, so instead of investing in productive activities it invested all its energies into regime change.

            Well maybe so, but could there be other causes, such as that argued by Gail Tverberg in her article published in OilPrice yesterday? Brazil’s great oil wealth, after all, is mostly of the expensive-to-produce type.

            Here’s Gail’s introduction to her article in OilPrice yesterday:

            I come to the conclusion that what we are doing now is building debt to unsustainably high levels, thanks to today’s high cost of producing energy products. I doubt that this can be turned around. To do so would require immediate production of huge quantities of incredibly cheap energy products–that is oil at less than $20 per barrel in 2014$, and other energy products with comparably cheap cost structures.

            Our goal would need to be to get back to the energy cost levels that we had, prior to the run-up in costs in the 1970s. Growth in energy use would probably need to rise back to pre-1975 levels as well. Of course, such a low-price, high-growth scenario isn’t really sustainable in a finite world either. It would have adverse follow-on effects, too, including climate change.


        • Glenn Stehle says:

          If we compare US energy consumption to that of other countries, however, instead of comparing that of rich vs. poor within the United States, the differences in energy usage become much more pronounced.

          This is one of the reasons why gaining the cooperation of poorer countries in cutting CO2 emissions in a “community of nations” is very difficult, because the US invariably wants the poorer nations to do most of the cutting, when the US is the elephant in the room.

          As President George Bush announced prior to the 1992 Earth Summit held in Rio, “The American way of life is not up for negotiations. Period.”

          The US is masterful at playing the-sins-of-others game.

          It is easy to see the faults of others, but difficult to see one’s own faults. One shows the faults of others like chaff winnowed in the wind, but one conceals one’s own faults as a cunning gambler conceals his dice.


    • Blaine says:

      You need a certain amount of capital accumulation in order provide capital for efficient production. There are several ways this can be achieved, but at a relatively primitive industrial technological level, this tends to be most commonly accomplished through income inequality. The rich banker already has all the food and prostitutes he wants, so he accumulates capital, which he uses to make workers more productive.

      The reduction in required labor initially causes a sharp increase of income inequality. Workers are initially worse off. At a relatively static technological level, eventually increased production catches up with the productivity increase, wages rise, income inequality falls, and everyone is better off.

      Barriers to entry and market concentration tend to be quite low at this level of technology. Anyone can build a competitive textile plant, provided only that they are rich, and a the actual number of rich people is quite high, even if the rich fraction of the population is not. Textiles are a commodity and not a specialty good. Producers have a strong incentive to keep their plants running even in the event of an aggregate demand decline, which strongly reduces the capital share output, increasing labor share in downturns. And the poor tend to spend any money they get very quickly. This results in an economy with output which is strongly stable over the medium term.

      When you have more of the economy in high market-share concentration industries with much higher barriers to entry, such as large scale automobile assembly or massive scale metals refining in the 1920s, or tech today, more of the decline in aggregate demand is pushed onto workers with a high marginal propensity to spend. This makes recessions deeper, with smaller price movements, but larger output movements.

      And of course, when the fraction of economic output going to capital is very large, more of it is going to people who don’t have anything useful to spend it on. In order to keep up aggregate demand in a wealthy society with large income inequality, you perpetually need a Dot-Com bubble, a housing bubble, or ZIRP + QE.

      • Dennis Coyne says:

        Hi Blaine,

        Nice summary. Tax policy can alleviate some of the wealth disparity with both high marginal income tax rates (pre-1965 rates), the elimination of tax shelters and loopholes, and higher estate taxes. Note that ZIRP+QE does very little to affect the very wealthy, they simply move their money into stocks. Also a wealthy diversified investor would have been little affected by the or housing bubble as they could have easily weathered the storm and simply held on to their investments.

        • Puffalar (Your Five-Alarm Puff) says:

          OMG, puffy government!? Ewwwww, that is just SO wrong on so many levels!

    • clueless says:

      People can spend foolishly, but they cannot waste money. To illustrate: If I accidentally drop my car keys and I pay you $100 to pick them up for me – (a) I have foolishly spent $100; (b) But, you now have the $100 and you might give it to a worthy charity, or spend it wisely.
      The only way to really waste money is to destroy it (burn it, flush it down the toilet, etc). Then it is gone.
      Getting many new things into the mainstream economy requires the rich to spend foolishly. Like when a flat panel 36″ plasma TV cost $30,000. The rich bought them, which gradually made mass production possible, along with new materials [LCD and LED] and they are now $400. Some people have to have enough money to get the first ones sold into the market, which then makes everything else possible.
      The rich were the only passengers on earlier pleasure ships. Now millions cruise every year.

      • Stan says:

        Burning currency does not destroy “money” in the way you are using the term. Burning currency only reduces the rate of inflation. Currency is a claim on available services or goods (“money”). Increasing the amount of services or goods an economy produces is the only way to “make” money. Printing currency simply increases the claims on whatever amount of goods and services exist. So long as the amount of money printed/burned (or otherwise taken out of circulation) equals the amount of new goods and services available, there is no inflation. You can easily waste money. The classic example is breaking windows. Broken windows are real goods made worthless. Breaking and repairing windows creates economic activity, but the effect is to reduce the amount of goods and services available for other uses. Economic activity is occurring but the economy is contracting. In your terms, money is being destroyed.

      • Cracker says:

        Is oil, like money, wasted by burning it?

        It occurs to me that your destruction argument applies there, as well.


        • Stan says:

          Does eating food waste it? If it serves a purpose, it serves a purpose. The assumption is that somebody actually gets utility from burning oil. However, you certainly can waste money by burning oil. Driving a 10,000 pound truck to the store to get bread is a fairly clear waste of “money”? It literally burns it. But go figure, people do it anyhow.

    • Nick G says:


      Keep in mind that government has been essential to the progress of renewables, including:

      CAFE regs
      Agencies like NREL, and others that pushed forward wind and solar research in the 1980’s and forward
      The Partnership for a New Generation of Vehicles that resulted in the Prius and the Volt
      CARB regs
      EPA pollution and CO2 regs
      The German renewable program

      and many, many more.

      Government is the only vehicle to internalize various external costs like pollution, security of supply, etc. That, of course, is why the Kochs hate government, and do their best to throttle and cripple it.

  21. Jeffrey J. Brown says:

    Good article by John Kemp on global decline rates:

    Kemp: Decline Rates Will Ensure Oil Output Falls in 2016

    My comment:

    And as I have frequently noted, it’s very likely that actual global crude oil production* has been flat to down since 2005, despite trillions of dollars in upstream capex. Therefore, given cuts in upstream capex, it’s reasonable to expect a decline in global liquids production to be most pronounced in regard to actual crude oil production–the quantity of the stuff that corresponds to the global oil price indexes.

    Link to comment with some graphs:

    *Most commonly defined as 45 API gravity and lower crude oil

  22. Doug Leighton says:


    “There is great remorse on all sides. Companies are realizing when business was good they got greedy and tried to grow faster than cash flow permitted, and used debt instead of equity to lever shareholder returns. Lenders are realizing they loaned money to management teams which talked a good story but in the end didn’t have the business model or know-how to manage the company through a serious and prolonged slump.”

  23. Watcher says:

    Concerning gov’t intervention above in NoDak.

    “It’s just going to be a whole lot better for everyone if we store the oil in the shale formation instead of in Cushing, Oklahoma,” Helms said.

    Reminiscent of the mark to market change (elimination) of 2009. “It’s in no one’s best interests to value these mortgage backed securities at a price dictated by the market.” And so they were valued at a price the owner of the MBS decided they should be (or that he wanted them to be).

    Saves them a lot of money? Of course not. One does wonder what they will conclude if oil goes to $35 and stays there a year or so. “If you had drilled and fracked those wells, you would have made an extra $10/b!!! Idiots!!” The reply to the shareholders looking for heads to roll? “But no one could have predicted $35/barrel! Everyone said $70!”

    As if being wrong with the crowd is noble.

    BTW folks, I hope you all see this for what it is. A regulatory bailout.

  24. AlexS says:

    Investors Brace for Defaults as Distressed Debt Swamps Market

    September 15, 2015

    Oil and gas drillers issued $213 billion of junk-rated bonds the past four years, increasing the share of energy-company debt in a Bank of America Merrill Lynch index of junk bonds to 13 percent this year from 9.4 percent in 2005.
    With oil now at around $44 a barrel, or about 60 percent below its 2014 peak, investors are demanding more yield to own debt of commodity-related companies. That’s pushed the share of the speculative-grade bond market that’s considered distressed to 15.5 percent, the highest since 2011, S&P analysts led by Diane Vazza wrote in a report Aug. 27.

    High-Yield Energy Debt vs. Broader High-Yield Market

  25. Jeffrey J. Brown says:

    CNBC reports that US special forces are on the ground in Syria, advising Kurdish forces

    At the same time, Russia is reportedly moving ground forces into Syria:

    The talking heads on CNBC were speculating about what if ISIS starts systematically targeting oil production facilities in the Middle East.

  26. FreddyW says:


    I have some new graphs showing gas to oil ratio and water cut by year and over time. But first a graph showing the oil production profile. Confidential months are not included as they do not show water and gas production. Yes it´s really hard to read with so many curves that are similar. But it´s just to compare with my next graphs.

    • FreddyW says:

      Here is the gas to oil ratio graph. I found this on the PetroWiki:

      “Solution GOR can range from 0 to approximately 2000 scf / bbl. For most purposes, the solution GOR at the bubblepoint is the value of interest. Past the bubblepoint, the gas begins to come out of solution and form free gas, and the oil is said to be undersaturated.”

      The graph shows mcf/barrels. So a value of 2 is really high. Notice how the GOR increases over the years. GOR both increases over time for wells in production and new wells have higher GOR than old wells. Most importantly of all, notice how the angle has increased from 2013 and onwards. The wells from the first 3 months of 2015 have the highest GOR so far and also a very steep angle.

      • FreddyW says:

        You may also notice that the angle has increased a bit at the tail of some of the curves of the older wells. This may be because they has started to use less choke even for older wells, which has been discussed here.

      • Okay, the gas to oil ratio is increasing rather dramatically. Now someone tell me what this means?

        • Watcher says:

          How about . . . an artifact of NoDak’s campaign to increase gas capture and reduce flaring?

          • FreddyW says:

            Its gas produced, not sold. So no I don´t think it has anything to do with it.

            • Watcher says:

              Understood. Maybe gas flared is as measured as produced. But . . . they don’t have an incentive to do so. They don’t want to report big flare numbers to NoDak, but if captured, they get to sell it and do have such an incentive.

              But maybe not.

        • For light oil reservoirs:

          GOR increases as the reservoir fluid pressure drops and gas bubbles coalesce and begin to migrate towards the fractures and the wellbore.

          The well creates a pressure transient (think of it as a pressure pulse migrating away from the propped fractures). The pressure close to the fractures is very low, away from the fractures is higher. This means the fluids close to the fracture plane may be below the bubble point, and above the bubble point further away.

          But the region below the bubble point grows over time. And as it grows more of the reservoir fluid will be two phase.

          In a two phase regime gas will eventually gain the upper hand and flow preferentially. The gas has much higher compressibility, has more energy per mole, this leads to faster pressure depletion as the GOR increases.

          The low recovery factor seen in these rocks is caused by the depletion process which allows gas to exit faster. Eventually GOR can go above 5000 scf per bsto. At that point the pressure is so low the well barely produces.

          I ignored water in what I mentioned above, water is a hassle because it hinders artificial lift and has to be disposed of. Water could enhance recovery a teensy bit but overall I think it’s a minus.

          Don’t take the above as gospel, I used shortcuts and reservoirs tend to be heterogeneous, which leads to different types of performance.

          • FreddyW says:

            If the GOR is very high for a well, could you choke it more to build up pressure which would then set the fluids above the bubble point so that the well start to produce more oil again?

    • FreddyW says:

      And finally the water cut graph. It looks similar to the GOR graph. But water cut has not increased as much the last few years. The biggest increases came up until 2012.

    • Dennis Coyne says:

      Hi FreddyW,

      Could you put the charts on the web with links? Your charts are very interesting but a little fuzzy, I would love to be able to see them better, others may feel the same.

      Thanks. Great charts!

  27. Jeffrey J. Brown says:

    My other three letter contribution to the Peak Oil discussion is ELP, which stands for Economize, Localize, Produce:

    A recent article which touches on similar topics:

    Why Guys with Less Stuff Are Happier
    The secret to life isn’t getting more things, it’s learning how to let go

    “It’s not about the money, it’s about how you decide to live your life day by day.”

    And Divine* is not alone in this philosophy. A surprising number of people have been taking this doctrine to its reasonable conclusion in recent years, opting against the comforts and trappings of home-living in an effort to remain unencumbered and independent. 

    And lest you assume that I mean that they’re eschewing home-ownership, allow me to clarify: they are eschewing homes. 

    I’m not talking about victims of our incessantly lethargic economy, nor free-spirit libertarians seeking asylum from “the grid.” I’m talking about gainfully employed middle class, or upper middle class, people who have decided that they just do not want to deal with the obligations that come with four walls and a ceiling and have instead moved themselves into their cars.

    Likely the most prominent example of this lifestyle choice is 22-year-old Detroit Tigers starting pitcher Daniel Norris who has become as well known for his choice to spend the off season living in a 1978 Volkswagen Westfalia van, nicknamed “Shaggy,” as he has for his 95 mph fastball. 

    This is a baseball player with a huge future and a $2 million signing bonus in the bank. “I’m actually more comfortable being kind of poor,” Norris told ESPN’s Eli Saslow in a recent interview, which is presumably why he opts to live off the $800 his high-end financial advisors deposit into his checking account every month. 

    Unconventional as it may be, it’s a way of living that works for him, and for others like him. But surely, there must be some way to walk the middle path between toxic consumption and voluntary pauperhood. Would my wife and I find any way to exist in peaceful contentment without selling everything and moving into our Mazda 3?

    “One word: non-attachment,” Divine suggests.

    Divine counsels his clients to start thinking of their possessions only as utilitarian tools, stripping away the sense of ownership or sentimental value.

    *Mark Divine, former Navy SEAL commander, lifestyle coach and bestselling author of The Unbeatable Mind


    • Jeffrey J. Brown says:

      A conventional wisdom counterpoint to this view would be a magazine article that I posted on the Oil Drum years ago. The writer was discussing the new vehicle that he and his wife were contemplating getting.

      They had one child, with another one on the way, and they decided that they needed a new SUV. In reality, he admitted that their small Lexus SUV would be fine for two children and two adults; the problem was that they had the smallest SUV in their peer group.

      While evaluating options, he suggested a three row Buick Enclave, and noted that Ross Perot drove a Buick. His wife replied that Ross Perot could drive whatever he wanted to, because he was a billionaire. In the final analysis, the writer concluded that they weren’t rich enough to drive a Buick, so they bought a high end three row Lexus SUV.

    • Ves says:

      Jeff, here is another old story.

      There is an old story about famous rabbi living in Europe who was visited by a man who had traveled by ship from New York to see him. The man came to the great rabbi’s dwelling, a large house on a street in a European city, and was directed to the rabbi’s room, which was in the attic. He entered to find the master living in a room with a bed, a chair, and a few books. The man had had expected much more. After greetings, he asked, “Rabbi, where are your things?” The rabbi asked in return, “Well, where are yours?” His visitor replied, “But, Rabbi, I’m only passing through,” and the master answered,
      ” So am I, so am I.”

      • Jeffrey J. Brown says:

        Yesterday, I tried to post a counterpoint story, but something in the spam filter didn’t like my comment and it vanished into the ether.

        In any case, the gist of it was a magazine article I read years ago about a couple discussing what kind of new SUV to buy. They had one small child, with another one on the way, and they had decided they needed a larger SUV, to replace the small SUV they were driving. The writer admitted that in reality the small one was fine, but they had the smallest SUV in their peer group.

        The husband, the writer of the article, suggested a Buick Enclave, a large three row SUV, and note that Ross Perot drove a Buick. His wife replied that Ross Perot was a billionaire, and he could drive whatever he wanted to. So, the husband concluded that they were not rich enough to drive a Buick, so they bought a large three row Lexus SUV.

    • wimbi says:

      Here’s how to do some limits to growth, something all should try– to me from my son, the software manager.

      1) Use this link to download openmodelica:

      Versions for Microsoft Windows, Apple OS and linux are available at the link
      above. This software is free.

      2) Once the software is installed, open OMEdit.

      3) Load the most recent (2004) Limits To Growth model in OMEdit by selecting
      the “File” pull-down menu, then choosing “System Libraries”. From the long
      list of libraries, choose “System Dynamics”. The System Dynamics library icon
      will appear in the library menu on the left side of the OMEdit screen.

      4) Click on the “+” sign to the left of the “System Dynamics” icon, then
      similarly select “World Dynamics” and then “World3”. World3 is the Limits To
      Growth model. Under the “World3” icon you will see 11 scenarios listed.
      Scenario 1 and Scenario 2 are closest to the current trajectory of the global
      economy. Double-Click on a scenario icon to load that scenario, then click
      the green right arrow icon below the menu bar to run that scenario.

  28. Old Farmer Mac says:

    While the amount of battery capacity that can be deployed any time soon for the purposes of shaving the peaks off of peak demand is too small to significantly cut into fossil fuel consumption, it may be high enough to enable utilities to economically avoid building more peaker plants- especially in places where gas is not readily available. Building owners are installing battery back up so as to avoid very high peak demand prices in some places already.

    The real significance of this use of batteries in the short term is that it provides the battery manufacturers a real boost in sales- and increasing sales are the key to falling manufacturing costs. The more batteries are sold, the cheaper they will get to be.

    A 2015 model high performance engine can be had in some fairly cheap cars that sell for under twenty thousand bucks, engine and all. These are not only high performance engines, they are dependable and come with long warranties.

    Twenty or thirty years ago you could not buy as good and as powerful an engine per liter of displacement at ANY price. You could have gotten as much power per liter from a purpose built racing engine that would have cost fifty thousand dollars or more – IF the manufacturer would sell you one.It might have lasted a few thousand miles if operated at half the usual speed but a few hundred was more likely. Usually the only people who could get them were racing organizations with tight connections to the manufacturers. If you wanted a particular make Formula One engine at any time, tough shit if you weren’t tight with the manufacturer.

    Now you can get as powerful an engine, as light and compact, for peanuts, car included, right off a dealer lot in an hour if you have the money or credit. For less than about twenty cents on the dollar after adjusting for inflation.

    This amazing reduction in cost is not due nearly so much to advancing ENGINE technology as it is to ADVANCED and SCALED UP manufacturing technology.

    Why should we expect the battery industry to be any different, long term?

    • Because a battery is a simpler device with real physical limits. What you are wishing for is pie in the sky. However, it’s fine to dream. What’s not ok is to start shutting down power plants based on what ifs and bullshit.

      • Blaine says:

        What really makes battery grid storage costly are the battery lifetime issues. There are not set by physical limits, but dramatically increasing them would require significant technological breakthroughs. So, yes, cheap battery grid storage is probably coming… eventually.

        What I don’t understand is why the grid storage debate always seems to move immediately to batteries as the only acceptable alternative. Connecting and re-purposing current dams for pumped storage is currently much cheaper, and combined with a national very high voltage DC transmission system, could solve the problem nationally. But it would require a lot of regulatory approvals, so the process never gets started.

        • Dave Ranning says:

          And the Second Law would really kick your butt.

        • Connecting and re-purposing current dams for pumped storage is currently much cheaper,…

          Oh good grief! Of course that would likely be much cheaper. But we are talking scale here. How much uphill pumping potential do you really have? Not likely one one-hundredth the required amount. The US currently gets about 7% of its electrical power from hydroelectric dams. So you could pump perhaps 1% of that back upstream during sunshine times. So now you have 1% of storage via hydro pumping back upstream.

          Now what are you going to do about the other 99%?

          If you are going to propose an alternative to batteries, you must do a lot better than pumping water back up over the dam.

          Give me a break!

          • oldfarmermac says:

            The argument involving pumping water upstream is based on using the same turbines and generators used to GENERATE power to run in reverse mode and pump water back upstream during off peak hours using any off peak generation capacity available- hopefully sun wind or nuclear but if these are not available , then off peak gas and as a last resort off peak coal capacity.

            This does mean that the turbines and generators have to be located downstream from the upstream reservoir, thus requiring the high pressure water to be transported down to the generators in large pipes,usually buried concrete.

            If there is a large enough stream or river down stream, the water coming down can be released into it, and the water pumped back up can be with drawn from it, thus eliminating the need for a down stream reservoir.

            There is a large pumped hydro facility near my home that does the upstream pumping with off peak nuclear power that costs almost nothing.

            • Mac, let’s get real here. Upstream pumping is a non-issue. Again, we are talking scale here. Pumping upstream would provide only a very tiny fraction of the storage capacity required, far less than 1%. If you are discussing electrical storage, then you should not even mention pumping water back over the dam.

              The person who proposes upstream pumping as a real solution to the electrical storage problem just exposes that person as one who has not a fucking clue as to what the hell they are talking about.

              • oldfarmermac says:

                With all due respect I suggest you read this wikipedia article about the pumped storage system near my home.


                It is true that there are not very many places available to build large pumped storage systems due to the land already being developed or in a park system or due to nimby.

                It is also true that existing hydroelectric reservoirs would have to have the turbines and generators removed to downstream location and very large water pipes built to carry the water down to the turbine installation so it can also be used in reverse as a pumping station.

                The pumping capacity at the Bath County system near my home is almost ninety percent of the generating capacity.

                The power to run the generators as motors during off peak hours is or was generated virtually one hundred percent at North Anna One and North Anna Two at the time I worked there some years ago.

                • Mac, 7% of us electrical energy is generated by hydroelectric power. What percent of that 7% can be captured by pumping the water back upstream. That is, exactly what percent of that 7% is pumped back up stream. 20%? 20% of 7% is 1.4%. Not bloody likely, that is one hell of a lot of water. Perhaps in your neighborhood but not in the Tennessee Valley where more hydroelectric power is generated than anywhere else in the nation.

                  But what percent are you talking about? How much hydroelectric power are you talking about?

                  Mac, for god’s sake, get real. When you are talking percentage of storage required, you are talking peanuts. I submit far less than 1%. If you disagree then give me the numbers.

                  It is a non issue. The percentage is far too small to even argue about. But if you disagree then give me the figures, give me your data.

                  Oh, and I read your link. Very impressive but in the grand scheme of things, too small to even be discussed.

                  • Old Farmer Mac says:

                    Back atcha Ron,

                    In terms of the BIG PICTURE, you are dead on that there is a near zero chance we will ever build enough pumped hydro capacity to solve the electrical energy storage problem so as to allow business as usual to be conducted using only intermittent wind and solar power to do the upstream pumping.

                    It just won’t ever happen because the scale of the problem is too big and the time frame we have left to get the job done, before overshoot and resource depletion put us flat on our butts is WAY TOO SHORT.

                    Most of us old geezers will live out our unnaturally long lives but before this century is out, the odds are pretty damned good that the world wide population will shrink dramatically.

                    But in the meantime pumped storage is one more tool in the tool box. It’s a tool that is going to see a lot of use in my opinion. Every little bit helps delay the inevitable and in my case a ten to twenty year delay is plenty.

                  • Every little bit helps delay the inevitable…

                    Mac, I hear Lake Powell is drying up. Not enough rain or snow. If you are ever out that way, piss in it. Every little bit helps.

                  • Stan says:

                    Pumped storage isn’t limited solely to above ground lakes and streams. Below grade reservoirs also work. However, pumped storage isn’t the only other storage option. For instance, flexible demand is likely to be cheaper yet.

                    If the cost of solar and wind are low enough, you can also overbuild them quite a bit to meet demand. At a projected 2 cents a kWh, you can overbuild by a third for total cost of 3 cents a kWh you are still under half the cost of paid off coal. And, the cheap “extra” power doesn’t have to be wasted. It can be utilized for other purposes like creating methane (to run turbines at night or during lulls), fertilizer, etc.

                    There is no reason to rely solely on wind and solar for energy supply anyhow. There are other options: geothermal, biomass, run of river, tidal power, etc. And, the other options don’t have to be particularly cheap if they are only needed for extremely limited usage.

                  • Dennis Coyne says:

                    There are many solutions to storage, one is to overbuild wind and solar so that there are very few times when adequate power is unavailable.

                    The excess power beyond what is needed for charging backup batteries can simply be sent to ground if it is not needed, it will still be cheaper overall than batteries vehicle to grid or fuel cells. The 1% of the load hours that need to be covered by batteries or fuel cells (whichever is cheaper in the future) will be a small part of overall system cost. Pumped hydro could also be a part of this mix. At present wind is cheaper and that should be built out first, over time solar costs will decrease to the point where a combination of wind and solar can provide most of the energy mix (I am talking 50 to 70 years into the future). The transition will be gradual as costs come down for wind and solar and as fossil fuel prices rise with depletion (with a peak in all fossil fuel output expected around 2025 oil, coal, and then a gas peak around 2030).

            • MarbleZeppelin says:

              Old Farmer
              Pumped storage is 70% to 80% efficient round trip with a few doing better than that. Basically the suggestion is to turn hydroelectric dams into hybrid pumped storage facilities. Seems to be just as efficient or better than most storage systems and a good way to store excess energy from wind and PV.

              Of course the better way is to cut off or reduce the flow at the hydroelectric facility when other sources are providing excess power.

              • oldfarmermac says:

                Making good use of surplus off peak nuclear juice that costs almost nothing to generate AT THE MARGIN , just the fuel costs, since the nukes are already there is a DYNAMITE good deal for EVERYBODY.

                The owners of hotels at the nearest beach are DAMNED glad to get fifty bucks a night for rooms during the off season that would otherwise be empty- rooms that are three hundred or more a night from June till September.

                The same calculus will apply to any wind and solar power that can be used to refill the upstream reservoir so as to meet peak loads without burning expensive coal and natural gas. Both coal and gas are cheap NOW of course but anybody who understands overshoot also understands that coal and gas will not STAY cheap.

                Using off peak wind solar and nuclear power can and in most cases will greatly increase the total amount of power that can be generated at most hydro installations because most of them do NOT have enough water coming into the reservoir to run full tilt very long or very often except during exceptionally rainy weather.

                The hours at which this power can be generated can also be matched to peak loads thus reducing the necessity of building more peaker plants that run only a few hours a day and not even every day.

                For all practical purposes , pumped storage power is pollution free , once the system is built, if it is replenished with wind, solar or nuclear juice. The amount of nuclear waste will be increased by a small amount because the nuke will run at a higher capacity factor while supplying power for upstream pumping.

                Pumped hydro is a super good deal for the people and the country and the world as a whole, compared to the alternatives- other than the alternative of doing without a steady supply of electricity at times of peak demand.

                Of course the best solution to high demand is conservation, load shifting and just plain doing with less- but this solution is not politically feasible.

              • Dave Ranning says:

                The best Dam is one that is removed.

                • Old Farmer Mac says:

                  Idealism will get your children dead of food poisoning when the refrigerator quits running.

                  I am as green as the next person, even in a meeting of environmentalists, but reality dictates that we will be using MORE rather than less hydro electricity as a percent of the total as time passes.

                  But taking out old small dams that cannot be used effectively to generate electricity is very good thing to do.

                  • cytochrome C says:

                    Dams are ecosystem killers.

                    More dams simply make one less biologically robust and resilient.

                • Are you a nihilist?

                • Caelan MacIntyre says:

                  Nice pic, Dave, and agreed. Add to that especially, nuclear power.

              • Old Farmer Mac says:

                New pumped storage will get ninety percent or very close net efficiency on the turnaround. Legacy systems, especially really old ones, may net only fifty percent.

                • Are you saying you can feed 1 unit of electricity to an electric motor driving a centrifugal pump and get 0.9 worth of energy at the top? What type of system you are imagining?

                  • TechGuy says:

                    “Are you saying you can feed 1 unit of electricity to an electric motor driving a centrifugal pump and get 0.9 worth of energy at the top?”

                    No way its near 90%. A turbine is at best 90%. Pumping water up to a reservoir of a few hundred feet will at best be about 60% efficient. The motor may operate at 95% efficient, but there will be losses due to friction in piping.
                    My guess is overall efficient would only be about 50% efficient.

          • Blaine says:

            I’m not sure how you’re getting your factor of 7.

            The point is, once you’re pumping water between lakes, you’re no longer limited to something close to the natural flow. For example, were we to water from Lake Sakakawea to Fort Peck at 2M cfs (about equivalent to the Mississippi when it’s up), that would generate around 110 gigawatts before losses from this project alone, and the lakes are big enough to keep this up for around 3.5 days continuously. Compare with average national generation of around 400-600 gigawatts, depending on the month.

            I would assume we would be also doing some wind baseload and demand shifting and initially fossil fuel backup as well.

        • Spain uses hydro to complement wind and solar, has some pumped storage. The downstream reservoir permit takes 7 to 10 years, and the land loss is usually unacceptable.

          I drove a bit last week, and counted the wind turbines in several wind parks on two different days (outbound and inbound). Roughly, about 10 % were stopped. It’s not a good statistic, but what was even more interesting was the lack of activity to put them back on line. I didn’t see a single piece of equipment on site, nor a person. Maybe they were shut down due to excess output.

          From what I’ve seen pumped storage does look better. But pumped storage may have to be located very far from windy areas. For example, in Argentina the wind blows in Patagonia. But pumped storage sites would have to be located in the Andes, which is fine but adds to the cost.

          • Old Farmer Mac says:

            One highly pertinent fact that most of us debating such issues as electricity storage tend to overlook is that virtually everything we do, in terms of the big picture, is a stop gap.

            We are not going to run out of oil and gas and most certainly not out of coal over the period of a year, or even a decade, although the possibility of a huge price spikes exists in every case.

            Whatever we can do in the way of pumped hydro is as Ron points out pretty much FUTILE in terms of the big long term picture .

            But then just about every thing we do is futile in those terms. The best we can do is kick the can on down the road and hope for the best from one year to the next and hope that when the eventual crash comes we are personally prepared.

            Pumped hydro in combination with other storage tech can and will soften the landing to some extent.

            When the shit starts flying in earnest, those of us who have a few batteries capable of at least keeping a refrigerator running will be perfectly happy with the cost benefit ratio involved. Batteries used to keep that fridge running if the grid is down for a couple of days are going to be a hell of a lot cheaper than throwing out your perishable food a couple of times a year at first- and then five or six times – and then who knows.

            One thing is for damned sure. The arguments about suitable sites for pumped hydro in the USA made against it on the basis of sacrificing the land for reservoirs will go out with the trash as soon as the grid starts going down a couple of times a year for reasons other than a storm.

            Eminent domain is THERE , and our politicians are perfectly ready to throw their own children under the bus in order to stay in office if the public once ever gets the bit firmly in its teeth and runs away.

            We have ample farmland for our own needs for another century at least and ample water supplies in most of the places where pumped storage can be built at an affordable cost. Places where water for agricultural use is in short supply are not generally suitable for pumped hydro anyway.

            Opponents who insist on white as snow purity on environmental grounds REALLY need to stop and consider the indisputable fact that the risk of political backlash is very real and might result in the election of people to office who will dismantle such useful environmental laws as are on the books.

            • Dennis Coyne says:

              Hi OldFarmerMac,

              The basic idea is that there is no silver bullet. Pumped hydro should be used where it makes economic sense to do so considering all costs including environmental costs. Appropriate cost benefit analysis that attempts to assess all social costs and benefits is probably the best we can do.

              We will use wind, solar, geothermal, hydro, and nuclear hopefully in ways that do proper cost benefit analyses of the projects. Solar in the Pacific Northwest probably doesn’t make sense, but in Massachusetts it may. Wind Power on the Great Plains makes sense, there are other places where the wind resource is far less. Put a tax on carbon and let the market work, it is really a Republican framework and maybe it could be sold on a national security angle to Republicans. Just looking for ideas that everyone(or most) can get behind. Note that income taxes could be reduced dollar for dollar for every dollar of carbon tax collected so that it could be revenue neutral for those that wish to “starve the beast.” And for anyone who likes to favor the rich, the tax will be regressive as well. For those who are more progressive, the tax break on income tax could apply only to taxes on the first $75,000 of household income, for those in poverty we could have fuel stamps or make it part of TANF.

              • Nick G says:

                Probably the simplest way to make a fuel/carbon tax more progressive would be to funnel the income to the Social Security trust fund, and reduce FICA taxes dollar for dollar.

                • TechGuy says:

                  Nick wrote:
                  “Probably the simplest way to make a fuel/carbon tax more progressive would be to funnel the income to the Social Security trust fund, and reduce FICA taxes dollar for dollar.”

                  There is no SS trust fund. Any excess money collected for SS, goes into the general fund which is immediately spent. Politicians like to spend money on projects to help win re-elections.

                  • Nick G says:

                    Sure there is. You’re talking about the fact that SS revenues are included in the overall revenue accounting, which is a different problem.

                    And, it doesn’t really affect my suggestion.

        • Old Farmer Mac says:

          This link consists of an interview with the CEO of LG Chem, a company that has currently signed up more auto manufacturers as customers than any other.

          It has less of the flavor of bullshit and pr and more of the flavor of honest discussion than just about any interview of a CEO I can remember reading.

          This man is talking mostly about how the process of manufacturing large rechargeable batteries can be simplified and thus made more economical. He says seven or eight years to cut the price per kWh hour in half.

          Now he does not shy away from talking about LG having a big advantage in that the company is deep into the MATERIALS business where as most companies in batteries these days are new comers without the institutional expertise in materials processing and manufacturing possessed by LG. So far as I am concerned, that IS a very powerful argument but I am not trying to promote the company.

          LG probably IS better situated in terms of resources to make incremental improvements all thru the manufacturing process than most of the other companies which are lightweights compared to LG when it comes to heavy industrial expertise.

      • oldfarmermac says:

        The manufacturing of the equipment used to make the component parts of large rechargeable batteries is not a simple process- nor is the manufacture of the machinery used to assemble such batteries .

        This is where the savings will come from- scaling up and automating the manufacturing and assembly process from materials processing right thru to boxing up batteries for shipping them to end users.

        • longtimber says:

          18650 .. 18 x 65 mm .. The largest battery sans permit to ship. aka. NDG “non dangerous goods” as per UN regs. Ddozens or reasons this cell powers a Ludicrous Tesla. Can you say GigaFactory?

      • oldfarmermac says:

        The manufacturing of the equipment used to make the component parts of large rechargeable batteries is not a simple process- nor is the manufacture of the machinery used to assemble such batteries .

        This is where the savings will come from- scaling up and automating the manufacturing and assembly process from materials processing right thru to boxing up batteries for shipping them to end users.

        Nobody except the techno optimists are proposing that batteries serve to do any really heavy duty load shifting on a daily basis right now, except maybe at the residential level where a householder can generate his own juice basically for nothing once to charge his battery once his pv system is paid for.

        The CURRENT HOT topic , double pun intended, is to use batteries to shave a little off the peak loads a utility must handle. A relatively modest battery system that some building owners can afford today can save the owner enough in peak pricing expenses to make the batteries and controls a profitable investment with the utility avoiding the necessity of building more peaker plant capacity that is needed only a few hours here and there.

        • Doug Leighton says:

          Interesting: I set up a wind/solar system for my daughter/son-in-law about seven years ago (just for the hell of it) and batteries (or rather battery life) were the weak link. Of course, these new systems will consume enormous quantities of (possibly toxic) raw materials.

          • Fred Magyar says:

            Of course, these new systems will consume enormous quantities of (possibly toxic) raw materials.

            Agreed! Which is why I like this concept from Aquion Energy who do not use as many toxic components in their battery packs.


            What’s so special about the Aquion Energy Aqueous Hybrid Ion battery? Unlike virtually every other storage battery in the world, it is built from components that are 100% safe for the environment both in the manufacturing process and when the product reaches the end of its useful service life. It uses a salt water electrolyte, carbon composite anode, manganese oxide cathode, and synthetic cotton separator.

            • This will make the Tesla battery factory obsolete, Elon Musk is toast. 😐

              • Nick G says:

                That would be nice.

                Oddly enough, I think Musk would agree. He’s said all along that his primary goal isn’t to make money, it’s to push the transition to EVs.

                Many of his investors understand that, but some don’t…

              • TechGuy says:

                Still has problems with anode disintegration. and probably outgasses chlorine gas and hydrogen during charging (uses liquid electrolyte). Likely also has a considerable slower recharge time to keep the number of recharge cycles high.



                FWIW: Need to find a new direction in batteries that does not create/break bonds with the electrodes. As long as their is a chemical reaction with the electrodes, the battery will degrade over time and eventually fail.


                High voltage super caps would be useful for grid applications to alleviate short duration intermittent power drops, but probably not practical for long duration storage (ie overcast, nightfall, etc). Supercaps could also be used to extend the life of batteries by alleviate stresses cause by sudden load increases or short intermittent power source drops (ie passing clouds over PV array). Supercaps have virtually unlimited cycles. They only degrade when the electrolyte drys up.

  29. Old Farmer Mac says:

    This link has some statistics and illustrations that will be of interest to anybody interested in the actuality and potential of pumped hydro electricity storage.

  30. shallow sand says:

    Just skimming through the July North Dakota production info.

    Sure seems that most of the wells produce under 5000 barrels per month and many are under 2000 or even 1000 per month.

    Do any of the posters here, who I appreciate greatly, have the ability to break down number of wells in Bakken and Three Forks that produced under 1,000, under 2.000 etc for, let’s say, July 2015?

    Might be interesting if it doesn’t take a lot of work.

    • shallow sand says:

      For example, I picked out one field really quick just to show what I am trying to illustrate.

      Siverston. McKenzie Co.

      Operators are Continental Resources, Hess, Newfield, Oasis, SM Energy and XTO (XOM).

      July, 2015 194 wells produced 730,309 barrels of oil, or 121.43 per well per day, which is above the July, 2015 average for all of Bakken in ND. The average for all wells was 114.

      I ignored the one confidential well, although including it would enhance my point, as over 25000 bbl were sold in July, 2015, from it.

      Lets look at a breakdown of the wells by barrels of oil produced in July:

      0-1000 bbl. 23
      1000-2000 bbl. 34
      2000-3000 bbl. 44
      3000-4000 bbl. 36
      4000-5000 bbl. 16
      5000-6000 bbl. 13
      6000-7000 bbl. 5
      7000-8000 bbl. 3
      8000-9000 bbl. 4
      9000-10000 bbl. 4
      10000-11000 bbl 3
      11000-12000 bbl 3
      12000-13000 bbl 1
      13000-14000 bbl 4
      20000-21000 bbl 1

      101 of 194 wells are under 100 bbl. per day.
      166 of 194 wells are under 200 bbl per day.
      28 wells are over 200 bbl per day.

      I understand I am ignoring completion dates, cumulative production, remaining drilling locations and a host of other things.

      However, a cardinal rule of both buyers of oil production, and their bankers, is to make sure that there are not just a few wells carrying the rest.

      When I look at Bakken fields on the NDIC production publication, that is what I see.

      Just think it is interesting, maybe another angle to look at.

      Note, I did my review and math quickly on this example, so forgive me if I made an error. Don’t think I made a material one though.

      • Dennis Coyne says:

        Hi Shallow Sand,

        So for your data the median well is about 90 b/d and the average well is 124 b/d, there will always be a few very good wells that skew the distribution, that is pretty typical in the oil patch, the distribution is typically lognormal (so you take the log of output and bin those, in most cases the median and mean will be closer in that case).

      • Glenn Stehle says:

        shallow sand said:

        However, a cardinal rule of both buyers of oil production, and their bankers, is to make sure that there are not just a few wells carrying the rest.

        I wonder, however, if that is the thinking, or if these guys think more like a casino owner or insurance actuary and rely more on a Gaussian distribution.

        But while that may fit most forms of reality, it sure to hell doesn’t fit the reality of markets, and that may be these guys’ undoing.

  31. Blaine says:

    Good God, I hate US business news:

    Headline: Oil prices stable after U.S. stockdraw.

    Actual Summary: Us petroleum stocks up 8.5 million barrels, week/week on net imports 0.6 million barrels per day below the year to date average.

    • The article has at least one factual error or typo: “400”.

    • Actual Summary: Us petroleum stocks up 8.5 million barrels,…

      I don’t know where you got that figure but the Weekly Petroleum Status Report showed a draw of 2.1 million barrels.

      Anyway, your link now has an entirely different headline and article.
      Oil slips as Japan data outweighs U.S. stock draw

      • Enno Peters says:

        Blaine is correct, crude oil was down, but the total of petroleum products was up by 8.5 mb.

        • Toolpush says:

          U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum
          Reserve) decreased by 2.1 million barrels from the previous week. At 455.9 million
          barrels, U.S. crude oil inventories remain near levels not seen for this time of year in at
          least the last 80 years. Total motor gasoline inventories increased by 2.8 million barrels
          last week, and are in the upper half of the average range. Finished gasoline inventories
          decreased while blending components inventories increased last week. Distillate fuel
          inventories increased by 3.1 million barrels last week but are in the middle of the average
          range for this time of year. Propane/propylene inventories rose 1.1 million barrels last
          week and are well above the upper limit of the average range. Total commercial
          petroleum inventories increased by 8.5 million barrels last week.

    • Toolpush says:

      And US lower 48 production is down another 38,000bopd for the week.

  32. AlexS says:

    KKR’s Samson Resources Files Bankruptcy as Shale Bet Sours

    • KKR took over Samson in $7.2 billion leveraged buyout in 2011

    Oil and gas driller Samson Resources Corp. filed for bankruptcy in Delaware Wednesday night, undone by a collapse in energy prices and billions in debt that KKR & Co. and other investors piled on to fund a 2011 takeover.
    Samson’s filing is among the biggest energy bankruptcies in the U.S. this year, but it probably won’t be the last.
    Samson has said it will use the Chapter 11 process to try to shrink its $4.2 billion debt load. Second-lien lenders would own “substantially all of the equity” of the company if the plan goes through, according to a statement last month.
    The plan has support from more than 68 percent of second-lien lenders, Samson said Wednesday. That backing could help speed the company through reorganization. Samson said it has as many as 10,000 creditors and that it will keep operating while in bankruptcy.
    Samson tried to save itself by selling assets, before telling investors in March that bankruptcy might be the fastest solution. By that time, its bonds traded for about 22 cents on the dollar.

    • shallow sand says:

      How much does KKR lose on this BK? Thought I read this was primarily to flush some of its lenders. I would assume KKR fiancée this about 100%, and is merely walking away, with secured creditors being left with the assets and unsecured creditors getting $0?

      • shallow sand says:


      • AlexS says:

        shallow sand,

        Please open the link and read the full article. You may find it interesting.
        In particular, it says:
        “KKR’s investment may be almost worthless if the experience of buyout partner Itochu Corp. is any measure. In June, the Japanese company got $1 for its 25 percent stake in Samson — for which it originally paid $1.04 billion.”

        • shallow sand says:

          AlexS, I just wish there was some mention of what KKR, itself, actually risked in this particular venture.

          I would be buying oil leases all day long right now if I were allowed to pay no money down, use other people’s money to finance the whole deal, unsecured other than by the acquired leases themselves, and walk away with no liability if the deal went south, while being able to share in the wealth if oil and gas prices rebound.

          I miss things easily at times, does the article say what KKR is losing, or is it just those that lent the money, put in equity, that are losing out? I assume KKR collected some hefty fees somehow or another on this deal, so they probably did not do as bad as their co-investors. Again, speculation on my part, I am either too dense to see it, or have not been able to find reported what actual skin KKR had in this deal, or what fees they earned up front.

          I am glad for the Samson sellers who sold to KKR and KKR’s partners/co-investors and, therefore, who sold at the top. From what I have read they ran a good company for many years and were able to weather the bad times in the industry. I think clueless made some mention of this earlier.

          • Glenn Stehle says:

            shallow sand,

            Now you’re opening your eyes to what America is all about these days.

            There is indeed an OPM club, and you ain’t in it.

            St. Ronnie is their patron saint, and Paul Krugman is the high priest who presides over the holy temple.

            Personally, I would wear the fact that I am not in this group as a badge of honor.

            There is no honor in counting the number of politicans one has in one’s pocket, or in showing total callousness and indifference to the innocent people one hurts.

          • Blaine says:

            I saw someone on Bloomberg claiming that their total direct company exposure in both this and their other big energy bankruptcy is $700M. They didn’t break it out between the two. The Samson deal also had $2B in equity from a KKR investment fund that seems to be generally listed in news reports as being a “KKR” loss, except it isn’t a loss to KKR as such. Similar numbers I suppose for the other one.

            Some important Samson 1Q2015 financial numbers:

            Book Assets $5.085B
            Revenues $206M
            Cash Flow $20M
            General And Administrative Expenses $58.8M (>1% of assets quarterly, almost 3x cash flow, 29% of revenue)
            Additional Quarterly Fee to KKR: $5.8M
            Capex $203M. Hey, down 24% from last year. Solid cost cutting?

            The additional fee to KKR is listed as growing at 5% annually, I would assume forever.

            Note that this is the 1Q 2015 report. Fees paid to KKR at deal closing not included.

            This deal is less levered than I would have expected. Total paid in capital $4.3B, essentially all wiped out.

            Management was not idle. I did find signs of preparation for bankruptcy. In 3Q 2014, they authorized $125M for a “Officer Retention Agreements and Officer Voluntary Severance Plan “, to pay officers extra to stay if they wanted to stay or… pay them extra if they wanted to leave, I guess. Sounds like some real enhancement of shareholder value there. Plus “Accelerated Vesting Benefit” so they can collect their pay more quickly, presumably before and not after bankruptcy.

            • shallow sand says:

              Googled KKR Samson and found an article that referenced that KKR earned approximately $100 million in fees. Pretty round number IMO.

              Thing I question is conflict of interest. KKR puts together a deal and supposedly invests in it, solicits other investors, who have various debt/equity investments with differing priorities in the event of default, manages the company, earns fees of all sorts, and then makes the decision to file BK, which seems to cause certain of the investors to lose all of their investment, others to lose some. Assume KKR also took and active part in finding the new investors like Cerberus, Anschutz, etc.

              Just seems like they are on too many sides of a deal like this. Seems like there are no conflict of interest rules when it comes to private equity, investment banks.

              Heck, attorneys can get into serious trouble if they try to represent a buyer and seller in a transaction involving a $5,000 vacant lot or both sides in a no asset, uncontested divorce case.

              I do note I only know the generalities of the KKR deal, but sure seems like a messy thing to me, with conflict of interest issues.

  33. Enno Peters says:

    In the September investor presentation of Continental Resources, they claim that they would need to spend in 2016 about $1.8 billion (mid-point) maintenance capex to keep production flat, at a mid-point of 207.5 kboepd. That means that just the maintenance capex per boe is $24. If we would assign all the maintenance capex to oil production (which provides > 85% of revenue), that would mean $34 per barrel of oil produced. This is just maintenance capex, and excludes taxes, transport costs, lifting costs, G&A, interest, profits, etc. This is after all the cost cutting that has so often been mentioned.
    This is still probably one of the better shale companies, and it shows the dire position they are in.

    • wimbi says:

      And just to make their finance cost report complete, they should all be required to add a footnote in big bold letters:

      “In all of this we are ignoring the cost of ff’s to the biosphere, which is so great that it drowns all the other costs we mention, making them irrelevant, and so that’s why we don’t mention it.”

    • AlexS says:

      Interestingly, what is a definition of maintenance capex for LTO producers?
      Most of these $1.6-2.0 billion will be spent on drilling and completing new wells. For conventional operators, this kind of spending is viewed as development capex, rather than maintenance.
      But shale companies have to drill a lot of new wells just to keep production flat. So they call it maintenance capex.

      BTW, CLR’s capex guidance for 2015 was $2.7bn, but they recently have cut it by $300-350, to $2.35-2.4bn. I interprete what they said about 2016 maintenance capex as a hint that they will likely to reduce total capex from this year’s levels.
      They intend to spend within cashflow, but at $45-50 WTI even with lower capex CLR will likely remain cash-negative.

      • Enno Peters says:

        Exactly, the naming is strange, it’s the capex needed to keep the same volume. Reported DDA figures are typically much lower than this “maintenance capex”, which is why I belief the accounting in LTO has issues.

        I think CLR needs in current conditions about $60 to be cash-flow neutral.

        It looks as if CLR and others already got confirmation from their banks that the credit facilities will be unchanged? The banks probably realize that it is too late to be tough on these companies, otherwise there is no way they can raise the cash needed.

        • AlexS says:

          This article says that CLR has already utilized 49% of its revolving credit facility, the highest percentage among the large cap US E&Ps.

          Fall 2015 oil and gas capital markets outlook
          September 1, 2015

          • Blaine says:

            Actually, revolving credit facility usage percentage seems to be surprisingly useful as an indicator of short-term financial distress.

            It’s usually their cheapest capital source, so I might have thought that companies with a strong balance sheet would deliberately carry balances there, but that doesn’t seem to happen much. The loan covenants are generally based on short-term ratios, so if they haven’t had to renegotiate them already pretty much no one is all that far from violating them now, with prices where they are. So they tend to try rather hard to have as little as possible used of the revolver balance.

  34. Old Farmer Mac says:

    “The Global Wind Energy Council forecast that wind power installation capacity worldwide will increase by 60 GW by 2018 with the Indian market a major factor as it achieves steady growth during the period.”

    While this is not dispatchable power this new name plate capacity will probably run at close to thirty three percent capacity, thus saving the world economy the aggregate amount of coal and gas that is equivalent to the output of about twenty new nukes. That is a WHOLE LOT of coal and gas- both of which deplete and pollute.

    Now just as a thought experiment, I wonder if somebody one of these days in times to come when dispatch able electricity is PRECIOUS will use a few nukes to enlarge a high mountain valley near the sea so as to make it into a really excellent site for an upstream pumped hydro reservoir. Hopefully this will never happen but it could be that someday such a reservoir will be EXCAVATED in a high valley rather than created by building a damned old dam which takes ungodly amounts of concrete and will inevitably fail sooner or later.

    A small dam across a valley high up could impound a HUGE amount of water if the soil and stone behind the dam is excavated by the millions of cubic meters. This could be accomplished using conventional explosives and rail roads and intermittent wind and solar power.

    Anybody who doubts it can look into the construction of the Panama Canal. I have read three or four books about the actual construction process- but years ago and cannot remember the titles. Trains and giant excavators can giterdone.

    Gravity will take care of getting the excavated material down to the lowlands, the trains will not even need an energy input, the ones going down can be rigged to generate ample power to pull the empties back up top again.

    Personally I have no trouble at all envisioning a lot of pumped hydro being built along these lines in parts of the world with mountains very near the sea coast. The rubble that cannot be put to other uses such as building the dam or as foundation for roads can be dumped at sea, in the process creating a great deal of prime sports fishing habitat. The wind and solar farms can go anywhere within a hundred miles or so, maybe a couple of hundred miles.

    Poor countries will thus be enabled to sell substantial amounts of dispatch able electricity to richer ones on large scale interconnected grids.

    If capital is not spent on useful infrastructure along these lines, it will inevitably be spent on less useful or useless stuff such as more freeways and more football stadiums.

    • Wind doesnt displace the fossil fuel equivalent to the power it generates. The power generation system has to keep some extra generation capacity burning fuel so it’s ready to take up the slack. The amount of fuel burned in this standby status is usually disregarded by wind power advocates. You’ll need to look closely at statistics to get the amount.

      • Nick G says:

        Yeah, it’s true: unimaginative utilities just add spinning reserves.

        Smart ones fine-tune their forecasting, add small amounts of batteries, use Demand Side Management, etc.

  35. Notice: Some posts are not showing up. I found the problem, they are being marked as spam and going to the spam file.

    If anyone experiences this problem please post me at DarwinianOne at I will go into the spam fie and mark them as “not spam”.

    Sorry for the inconvenience.

    • Lloyd says:


      Back from purgatory!

    • Lloyd says:


      Back from purgatory!

    • Boomer II says:

      I’ve had that problem on several occasions. There was nothing in my posts that should have triggered them being marked as spam, but they were blocked anyway.

      One thing I have noticed with my last two comments is that I am not seeing the checkbox to get comments after I have posted. I like doing that because then I get all comments as email rather than having to go to this site to read the latest comments.

  36. oldfarmermac says:

    About half the provisions have to do with efficiency upgrades.

    According to this link all the three big Califorinia electricity utilities are on board with this new law increasing renewables penetration substantially within the fairly near term.

    If these utilities can figure out a way to deal with lots of intermittent renewable electricity, so can others.

    More renewables may truly mean only kicking the can farther down the road in the last analysis, but in the last analysis, eating and working only kicks the can of our own personal demise down the road.

    Few things are more permanent than change.

    The state of New York has passed a law granting tax write off status to ground sourced heat pumps for homeowners and businesses. The market for home heating oil in New York will probably contract by half within ten years or so as old oil furnaces wear out and more economical heat pumps and gas furnaces are substituted.

    • Dennis Coyne says:

      Hi Old Farmer Mac,

      The use of oil for residential use in the US (does not include farms) was only 1.3% of all oil use in 2013(using net refiner and blender inputs for “oil”) in 1984 it was 4%. Moving away from oil and gas as they deplete is clearly a good idea, but a focus on transportation use would make sense.

      Of about 7 Gb per year total petroleum products, about 1 billion are “bottled gas” leaving about 6 Gb of finished petroleum products. In 2014 about 86.4% of finished petroleum products were gasoline(3.3 Gb), distillate(1.5 Gb), or Jet fuel(0.5 Gb). In 2013 (last data point for end use of distillate) 64% of distillate (diesel fuel) was used on highways, most gasoline is used on roads (I will guess 90%, I couldn’t find data), if exclude air travel we gat roughly 66% of petroleum in the US is on road use, by cars, trucks, buses, and motorcycles. So road transport should be the focus for peak oil when looking for solutions, heat pumps will help more with the depletion of natural gas, though if natural gas is used to generate the electricity it will only help marginally.

      If we start with 1000 kJ of energy and get 43% thermal efficiency, we are left with 430 kJ, assume 10% loss in transmission and distribution and we have 387 kJ. Now assume we get 2.5 times the energy input as heat output from the heat pump and we have 967 kJ. Many high end natural gas heating systems convert about 95% of the energy input into heat, so that case would be 950 kJ from a 1000 kJ input. So the heat pump is a 1.8% improvement over electricity from natural gas, clearly wind, solar, geothermal, or nuclear (my least favorite, but better than coal) maybe with some natural gas backup would be a better solution, this route will be taken as natural gas becomes more expensive (probably within 5 to 10 years).

      • Old Farmer Mac says:

        Hi Dennis,

        Gas is good if you can get it. Mostly you can’t except in larger cities. The grid goes virtually everywhere of course.

        I understand your numbers, the math is crystal clear that any real solution to the problem of oil depletion must be based on transportation rather than heating and cooling.

        But the fact that heat pumps can displace half or more of heating oil consumption in New York within a decade or so is indicative in general of the possibility that oil can be replaced at a rapid rate as well in transportation.

        My belief is that before too long, certainly within ten years, oil will be expensive enough, and battery electric cars cheap enough, that a LOT of people will be perfectly happy to buy a car such as a LEAF even if it has only a fifty mile range. Tens of millions of us after all already own conventional cars that will last us for DECADES instead of years if we were to use an electric for nearly all our commuting and shopping and other short trips.

        • Dennis Coyne says:

          Hi Old Farmer Mac,

          As oil prices go up, people can also switch to “bottled gas” for heating, but heat pumps would probably be cheaper for rural heating (where natural gas is not available). Higher oil prices will be the key to EVs becoming mainstream, along with cheaper batteries, more places to charge, etc.

          • Old Farmer Mac says:

            Trucking propane increases the cost of gas heat to the point it is hardly any better deal than fuel oil according to my neighbors experience but they like cooking with gas. The best deal up north would be a hybrid system than runs on the heat pump so long as it is not extremely cold, and then switches to gas or oil when the heat pump has to shut down in favor of straight resistance heating mode.

            In Virginia and points south , the heat pump is the better deal by far, due to the high initial cost of installing a hybrid system.

  37. Jeffrey J. Brown says:

    FT special report on “Sustainable Development”

    When world leaders gather this month at the UN General Assembly, they are set to endorse an ambitious package of global economic, social and environmental objectives for the coming 15 years

    On first glance, I didn’t see any reference to constrained oil supplies being a problem, although there is a discussion of climate change goals.

    I dunno, but maybe the 2002 to 2012 trend of a declining ratio of Global Net Exports of oil (GNE) to Chindia’s Net Imports (CNI), a pattern which continued in 2013 and probably in 2014, might be a problem?

    • Dennis Coyne says:

      Hi Jeff,

      India and China were growing very rapidly over the 2005 to 2012 period. To assume the rate of growth will remain at that level is probably incorrect. A gradually decreasing rate of increase in oil consumption would be more realistic. Their share of oil consumption will gradually increase and oil prices will increase, as it does it will be used more efficiently everywhere and gradually the World economy will use less as we move to smaller vehicles, more freight by rail (eventually electrified), and design more walkable cities and towns with better public transportation.

      It will be very difficult to make this transition, it will take 20 years, maybe 30. The higher oil prices go, the more quickly it will occur. Once peak oil is finally recognized by the likes of Daniel Yergin and Michael Lynch, people will realize that oil prices will generally be rising higher and higher and will move to alternatives where possible. High prices might lead to a depression and a social and economic crisis, but if we can avoid World War 3 and spend time and effort dealing with the coming energy crisis instead, it might be the kick in the pants the world needs to really get working on the problem.

      • Jeffrey J. Brown says:

        And as previously discussed, given an ongoing, and inevitable, decline in GNE (Global Net Exports of oil), unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.

        For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).

        • Heinrich Leopold says:


          Available net exports of crude oil have been in decline over the last five years, yet at least 10 mill bbl/d of crude exports have been replaced by oil product exports (mostly gasoline and destillate). The US alone had a dramatic swing of 4 mill bbl/d product imports towards 2 mill/d product exports. Yes, there is much less oil available, yet there are substantially more oil products on the world market.

          • Jeffrey J. Brown says:

            Total petroleum liquids + other liquids captures everything on the production side except for refinery gains, which I don’t include because: (1) It’s a net energy negative process and (2) It can distort production numbers. Total liquids captures everything on the consumption side, including refinery gains.

            In any case, I define net exports as: Total petroleum liquids + other liquids production less total liquids consumption.

            I’ve used the following example to illustrate the differences between gross and net exports:

            Production Land (P) has 2.0 MMBPD of production, but no refining capacity.  Refinery Land (R) has 2.0 MMBPD of refining capacity, but no production.

            Ignoring refinery gains and other minor issues, P has consumption of 1.0 MMBPD, and R has consumption of 1.0 MMBPD. 

            P’s gross exports to R are 2.0 MMBPD. R’s gross imports from P are 2.0 MMBPD. 

            R refines 2.0 MMBPD, consumes 1.0 MMBPD, and exports 1.0 MMBPD of refined product to P. 

            P’s net exports are production (2.0) less consumption (1.0) = +1.0 MMBPD. 

            R’s net exports (actually net imports) are production (zero) less consumption (1.0) = -1.0 MMBPD.

            Alternatively, you get the same answer if you define net exports as gross exports less gross imports.

            Here is a great EIA data table that shows all of the components of US liquids production and consumption (and of course “Crude oil” = C+C):


    • Glenn Stehle says:


      So just what is it you are trying to highlight? That China and India are soaking up a greater and greater share of total world oil exports?

      If so, that graph is a very obtuse way to try to communicate it.

      I don’t disagree with your conclusions, but I see a need to team up with someone who knows how to speak plain English.

      The competition is on to control the world’s oil and gas resources, first the cheap-to-extract ones, but the battle to control the costly-to-extract ones is well under way.

      • Jeffrey J. Brown says:

        As noted up the thread, Jim Kunstler has complained for a number of years that I use too much math, when trying to explain net exports. Here is an excerpt of an email I sent Jim this morning:

        In regard to net oil exports, it’s an ongoing challenge trying to explain a concept that is inherently a mathematical exercise. However, I have begun to conclude that even those who understand what I call “Net Export Math” are usually in some stage of denial, but of course, that’s true of most of us, to some degree, including yours truly.

        I constantly get what I call qualitative objections to what is an inherently quantitative model. In any case, I’m not exactly a mathematical genius, and this is not difficult math, but as Dr. Bartlett said about the greatest failing of the human race . . . .

        The problem I’ve got is that I have to explain, and relate, multiple exponential functions. I use the ratio approach, what I call the ECI Ratio for exporters (ratio of production to consumption), because one can estimate when the ECI Ratio would theoretically approach 1.0 (and thus zero net exports, when production = consumption).

        The GNE/CNI Ratio is analogous to the ECI Ratio, and what I call Available Net Exports (or GNE less CNI) would approach zero as the GNE/CNI Ratio approaches 1.0.

        Here’s my “Cowboy Integration” approach to estimating post-export peak CNE (Cumulative Net Exports), given a peak in net exports and a declining ECI Ratio. I estimate the number of years that it would take for the ECI Ratio to hit 1.0, based on the observed decline in the ECI Ratio. For example, for the Six Country Case History, based on the 1995 to 2002 rate of decline in their combined ECI Ratio, they would have hit zero net exports in 20 years, in the year 2015.

        Based on 1995 to 2002 data, estimated post-1995 CNE for the Six Countries were:

        Annual Net Exports at peak (1.0 Gb/year) X 20 years X 0.5 (area under a triangle) less 1.0 Gb = 9.0 Gb

        They actually hit zero net exports in 12 years, in the year 2007, and their post-1995 CNE were 7.3 Gb, 19% less than estimated.

        • Dennis Coyne says:

          Hi Jeffrey,

          Your basic math is correct, I am not claiming that your “GNI/CNE ratio” will not decline. I just think that your assumption about the future rate of decline is incorrect. It is based on the assumption that growth rates in China and India’s oil consumption will be the same in the future that they have been in the past. This rule has not applied in most areas of the world, generally as a nation develops their rate of growth tends to slow down over time. The rate of decline matters and you overstate the case.

          • Jeffrey J. Brown says:

            I just think that your assumption about the future rate of decline is incorrect. It is based on the assumption that growth rates in China and India’s oil consumption will be the same in the future that they have been in the past.

            Could you point out where I said that China & India’s rate of increase in oil consumption will be remain unchanged?

            • Dennis Coyne says:

              In your chart for the GNI/CNE ratio you say you extrapolate the 2002 to 2012 trend which assumes that what was happening over that period does not change.

              • Jeffrey J. Brown says:

                Actually, I extrapolated the 2005 to 2012 rate of change in the GNE/CNI Ratio, but I repeat my question:

                Could you point out where I said that China & India’s rate of increase in oil consumption will be remain unchanged?

                Note that there are four variables in the GNE/CNI Ratio:

                (2005) Top 33 exporters’ production
                (2005) Top 33 exporters’ consumption
                Chindia’s production
                Chindia’s consumption

                From 2005 to 2012 (and 2013) all four variables showed increasing values. What happens to the GNE/CNI ratio if Top 33 production declines, while the rate of increase in Chindia’s consumption slows, and what happens to the ratio when, not if, that Chindia’s production declines?

        • Fred Magyar says:

          In regard to net oil exports, it’s an ongoing challenge trying to explain a concept that is inherently a mathematical exercise.

          I believe Richard Feynman once said something to the effect that explaining a mathematical concept in plain English was basically an exercise in futility and he wasn’t going to do that, let alone would he bother apologizing to the liberal arts majors who didn’t get the math.

          Of course getting the math and being in denial about the implications is a whole nuther ball of wax…

          • Glenn Stehle says:

            Fred Magyar said:

            I believe Richard Feynman once said something to the effect that explaining a mathematical concept in plain English was basically an exercise in futility and he wasn’t going to do that, let alone would he bother apologizing to the liberal arts majors who didn’t get the math.

            Maybe that sort of arrogance and dearth of social intelligence, what Daniel Yankelovich called “the culture of technical control” — is why Yankelovich recommended “do not depend on experts to present issues” when trying to bridge the gap between experts and the public.

            Scientists and technologists, he continues, who all too frequently are in the grip of this culture of technical control,

            Often are graduates of elite colleges and universities, which indoctrinate them with a noneradicable feeling of superiority to the general public. Without questioning the depth of their attachment to democracy, in their personal lives many have adopted the outlook of a ruling social class, and though their attitudes may be benign, their life-styles create a vast social distance between themselves and average Americans.

            They assume that they have much of value to communicate to the public, without imagining that the public has much of value to impart to them….

            Being special means being different from the mass, a cut above. For some, it is wealth that confirms their special status. But the bulk of influential gatekeepers of the society — journalists and technologists and professors and writers and executives and specialists — are not ususally persons of wealth. Their status derives from their expertise. It is their prize possession, the source not only of their livelihood but their status and self-image. It distinguishes them from the majority of Americans by giving them a privileged vantage point, as befitting people who are “special.” They naturally resist when someone comes along and says to them, in effect, “You are less special than you think. The expertise you possess does not make you superior to the public.”

            –Daniel Yankelovich, Coming to Public Judgment: Making Democracy Work in a Complex World

            • Ronald Walter says:

              Recently there was a story on TV news about robots, drones doing work, sorting potted plants one after another.

              A Stanford professor was commenting about the development of robots capable of replacing humans for productive purposes, making the business less human labor intensive.

              The professor also commented about the people who would be displaced by robots replacing them, the poor, who would have to remain poor and eventually starve to death from lack of work or money and probably both.

              Such idiocy does exist in the intellectual community, those ivory towers never do get it. Such haughty arrogance infects and infests even the most competent.

              Never underestimate the ability and will to survive, come what may, always a way to eek out an existence.

              The Stanford faculty member would probably starve to death without his lofty position, but fails to notice that distinct possibility.

              Life is fragile and also hardly sacred. Mother Nature is hard at work to make it that way.

            • oldfarmermac says:

              People who are unable to understand such simple math as our JB illustrates with tables and graphs are subject to being lead around by their ignorance by other people.

              Here is a little fable in rough form that perhaps will illustrate the fast decline of exports as an exporting country experiences internal growth and consumption as well as declining production due to depletion mostly but maybe also due to lack of putting oil revenues back into production.

              I suppose I better compose it separately and copy it here, it will be a pain in the butt if I hit the wrong key and it goes POOF.

              Will post it shortly.

              • Old Farmer Mac says:

                Net Export Math for Dummies

                An old farmer explains it to the little kids.

                Once upon a time a farmer emigrated from Ireland, with the enthusiastic assistance of English troops poking him with bayonets to help him go faster, and found himself a new home in this very spot where the mountains are steep but the creek bottoms are very fertile.

                His God granted him the strength of arm to take rightful possession of a hundred acres of creek bottom from the heathen who infested it, and he built himself a cabin and girdled and burnt a million dollars worth of prime timber, but hey, timber was so plentiful in those days of yore as to be virtually worthless if located more than a mile or two from a town —-and the closest town was a couple of days away by horseback.

                Bottom land was plentiful too, once you got rid of the vermin.

                He found himself a wife, and she bore him nine kids, five of whom died of fevers, snake bite, accidents, and violence, but the other four had four kids who lived.

                But by then bottom land was no longer exactly free for the taking. The vermin were gone, but crooks with that bygone day equivalent of briefcases and suits owned all the remainder of the land, and since cash was king and the farmer had none, and his sons none, he divided his hundred acres four ways in his will, and four little farms came to be on land formerly occupied by ONE.

                Time continued to pass, and as the world continued to fill up with people, but the farmer on his twenty five acres found he could feed his family and his neighbors as well – and even have some food left for export to far away lands across the sea he had never seen.

                This came about because of the invention of tractors and fertilizers and pesticides, but these things are tales for other days.

                Eventually so many farms got to be subdivided that the remaining farmers could only sell less and less food year after year to their overseas customers- because there was less and less farmland left, and that not the best. The best all too often got subdivided.

                More and more and yet more and more neighbors wanted more and more and more corn meal – and more beef steak as well.

                The government fixed the domestic supply problem as well as it could, after the fashion of governments, by forbidding the exportation of food and buying food for local citizens who could no longer afford to feed themselves.

                The people in the far off lands across the sea may have starved by now, my children. I don’t know, it is a far piece there, and I have never been that far myself.

                Composing this little tale has taken me an hour. It will eventually get half a dozen rewrites and make it into my book- if I ever finish it.

                Oil depletes. Production must EVENTUALLY decline in every country that produces oil. Production has declined ALREADY in many countries to the point that a dozen former exporting countries are now importing oil instead of selling oil.

                In almost every country that does have oil for sale, the local population has been growing fast, and the local need for oil has been growing even FASTER as the living standard of the local people has been rising even as their numbers grow.

                After a while, a decade or two or maybe three, there will be little or no oil available for sale in international markets because almost all the countries that are currently exporting oil will inevitably see their production decline even as local consumption grows.

                Depletion never sleeps. The population of oil exporting countries continues to grow, and to grow very fast indeed, on the average.

            • Fred Magyar says:

              Maybe that sort of arrogance and dearth of social intelligence, what Daniel Yankelovich called “the culture of technical control” — is why Yankelovich recommended “do not depend on experts to present issues” when trying to bridge the gap between experts and the public.

              Have you ever watched a Feynman lecture? Feynman was neither arrogant nor did he lack social intelligence! He was however a hard nosed realist with an infinite awe of nature… Sure, he was also a physicist and the language of physics is math, not English.

      • Jeffrey J. Brown says:

        So far, the pattern has been that net oil exporting countries that subsidize petroleum consumption, e.g., Indonesia, continued to subsidize consumption, even as they become net importers, and the countries that heavily tax petroleum consumption, e.g., the UK, continued to tax consumption, even as they became net importers.

        The Net Export Math fact of life is that given an ongoing decline in production in a net oil exporting country, unless they cut their consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting net export decline rate will exceed the production decline rate, and the net export decline rate will accelerate with time.

        Incidentally, in late 2012 I was part of an ASPO-USA contingent* that met with senior EIA and DOE personnel, including the EIA director. I gave a brief presentation on net exports and I asked the following question: Is anyone in the EIA modeling future global net exports assuming a gradual production decline among the oil exporting countries and assuming a continued increase in domestic consumption in the exporting countries? The answer was no.

        *ASPO-USA group: Art Berman, Tad Patzek, Jim Baldauf, Steven Kopits, Jan Mueller and yours truly

        • Glenn Stehle says:


          I don’t disagree with anything you have to say.

          But I do think this graph, for instance, is easier to understand than yours, and punches a few buttons that make it more interesting to most people.

          Maybe it says more than the cold empirical data your graph conveys.

          But who’s interested in talking about the Higgs boson, when we can talk about the “God particle”?

          • Dennis Coyne says:

            Hi Glenn,

            Over the 2002 to 2012 period using World Bank Data in constant 2005$, China and India’s combined GDP went from 5.5% to 10.8% of World GDP, roughly doubling their share of World output. Also without the US LTO boom either net exports or oil prices would have been different and might have changed the World Allocation of Oil consumption.

            Also over this period, these two counties that represented about 8% of Global GDP were responsible for 28% of the global increase in GDP.

            It is certainly true that countries that are growing more rapidly will get a larger share of oil over time. This is why I expect oil prices will increase at some point, pinning down when this will occur is difficult at best, I would think in 2016 (but I never get oil prices right).

            • BC says:

              Trade is contracting. India imports 100% of oil consumption and growth is decelerating. China is not actually growing. Japan, Russia, and Brazil are in recession. Canada and Oz are in or near recession. US growth is decelerating to “stall speed”, led by energy, energy-related tranports, and the industrial sector, and historically recessionary less debt service and health care spending.

              Once the shale junk debt bubble implodes, US production will fall significantly along with consumption, which will have most observers scratching their heads as to why.

              The oil cycle is turning down as in the early 1960s and 1986, only this time we are in a deflationary regime, not inflationary or disinflationary, and US real GDP growth per capita was twice or more today’s rate.

              Therefore, we should not be surprised to see US oil production fall to 5-6Mbd and consumption fall 2-3Mbd or more and WTI average in the $30s in the next 2-3 to 5 years, all the while US and global real GDP per capita goes nowhere.

              • lobodomar says:

                In this scenario what do you think would happen to the dollar index?

                Would reality finally sink in that the US will have to default on someone at some point in time, making the greenback lose value in relation to other currencies, or will it continue to be considered a safe haven given the fact that it’s backed by the most powerful military in the world, which can export freedom in exchange for whatever it wants?

              • Strider says:

                In this scenario what do you think would happen to the dollar index?

                Would reality finally sink in that the US will have to default on someone at some point in time, making the greenback lose value in relation to other currencies,
                or will it continue to be considered a safe haven given the fact that it’s backed by the most powerful military in the world, which can export freedom in exchange for whatever it wants?

              • lobodomar says:

                In this scenario what do you think would happen to the dollar index?

                Would reality finally sink in that the US will have to default on someone at some point in time, making the greenback lose value in relation to other currencies, or will it continue to be considered a safe haven given the fact that it’s backed by the most powerful military in the world, which can export freedom in exchange for whatever it wants?

              • lobodomar says:

                In this scenario what do you think would happen to the dollar index?

                Would reality finally sink in that the US will have to default on someone at some point in time, making the greenback lose value in relation to other currencies,
                or will it continue to be considered a safe haven given the fact that it’s backed by the most powerful military in the world, which can export freedom in exchange for whatever it wants?

              • lobodomar says:

                In this scenario what do you think would happen to the dollar index?

                Would reality finally sink in that the US will have to default on someone at some point in time,
                making the greenback lose value in relation to other currencies, or will it continue to be considered a safe haven given the fact that it’s backed by the most powerful military in the world, which can export freedom in exchange for whatever it wants?

  38. Doug Leighton says:


    “Energy companies used nearly 250 billion gallons of water to extract shale gas and oil from hydraulically fractured wells in the US between 2005 and 2014, a new study finds. During the same period, the fracked wells generated about 210 billion gallons of wastewater. As large as those numbers seem, the study calculates that the water used in fracking makes up less than one percent of total industrial water use nationwide.”

    “The study also found that fracked oil wells generate about half of a barrel of wastewater for each barrel of oil, while conventional oil wells on land generate more than three barrels of wastewater for each barrel of oil.”

  39. Ronald Walter says:

    250 billion gallons of water is going to occupy an area of 1200 square miles one foot deep.

    120 square miles ten feet deep. 60 miles by 2 miles by ten feet deep.

    7.2 billion people drinking a quart of water each day is going to be 1.8 billion gallons each day for humans.

    140 days of water drinking by humans is a pace 25 times more than what the oil industry uses for fracking in ten years.

    invest in water.

    • MarbleZeppelin says:

      Ronald W
      That is 68 million gallons of water per day for fracking which is 272 million quarts per day, not too far from the number of people in the US.

  40. Toolpush says:

    Traders Scramble for Sweet Crude on Gulf Coast Awash with Heavy Grades

    Houston, Sept 16 (Reuters) – Oil traders are scrambling to secure quickly dwindling supplies of light, sweet crude in the U.S. Gulf Coast, signaling potential declines from shale production and propping up the U.S. market as a clear destination for foreign imports.


    The tightness in the market for sweet grades can be explained by a few short-term issues – including an unexpected outage at a major Canadian facility that produces light crude, planned pipeline work and higher prices from North Dakota’s Bakken shale play.

    Underlying the tighter market, though, may be production declines, according to analysts from Citibank, which has said that “the U.S. crude market is feeling tight even as refiners enter turnarounds.”

    I wonder where the light condensates come into the equation? Are they taking up a large amount for the current oil storage volume, or is it all heavy oil?

    Maybe Shallow convinced some more of his mates to shut in, if the refineries are starting to feel the effect of shrinking WTI oil stocks, or the shales are finally succumbing to the lower oil price?

    • AlexS says:

      There are other signs that production is really declining:

      Cargo Trends Affirm Falling Oil Production

      Posted on Tue, 15 September 2015

      Waterborne shipments of crude and condensate have been heading in one direction since the beginning of the shale revolution: up. That statement is no longer true. Nearly halfway through the month, and September loadings are more than 200,000 barrels per day lower than during the same period last year.
      According to the EIA, U.S. production peaked in April at 9.6mn bpd, which coincides with the peak in shipped volume at 1.8mn bpd. Since then, shipments have slid slowly, but the drop became precipitous this summer and is gathering momentum.
      There has also been a sharp slowdown in crude-by-rail traffic, evident in the volumes reaching the Mississippi River and the rail-to-barge terminals on the coasts. Pipeline volume is likely the most resilient, but judging by September’s waterborne numbers, is also likely to be lower.

    • Jeffrey J. Brown says:

      9/8/15 column by John Kemp:

      U.S. crude inventories might be tighter than they look: Kemp
      From Kemp’s very interesting Reuters article:

      The amount of on-site storage available at refineries has changed little and remains around 150 million barrels, compared with 156 million in 2004 and 164 million in 1994.

      But the amount of storage available at tank farms, most of which is leased either long-term or short-term to traders, has surged.

      It’s interesting that C+C storage at refineries is actually down slightly since 2004, and one can’t help but wonder if condensate makes up quite a bit of the C+C non-refinery storage, especially given the Reuters report that refiners earlier in the year were increasingly rejecting blends of heavy crude + condensate that were deficient in distillate components.

      • Toolpush says:


        RBN, had an interesting article many months ago concerning, US refineries converting from sea born oil to pipeline supply, The sea born trade has a natural built in storage component, whereas pipeline supply the oil is at your front door, if you want it or not. Therefore the refineries, were having to make arrangements to increase their storage, whether owned or contracted. This fact alone, may explain some or these record high storage numbers. In the past the oil would be sitting offshore in a ship, and not counted in any official numbers.

  41. Heinrich Leopold says:

    FOMC leaves interest policy unchanged. This is a clear sign for me that the FED has to support the US economy, which severely suffers from low oil prices and subsequent weak bond markets. A high oil price is now more important for the US economy rather than a low oil price. This is quite a sea change.

    • Watcher says:

      Double whammy. No rate increase says weak economy, which will be interpreted as low consumption of oil.

      Anddddd no increase should elevate the dollar, and we know what that means to oil.

    • Old Farmer Mac says:

      Personally I think it is altogether the other way around when it comes to low oil prices. The oil industry is hurting , and bankers who loaned to it are hurting, but low oil prices are WONDERFUL for the REMAINDER of the economy – which is many times bigger.

      • Heinrich Leopold says:

        Old Farmer Mac, Watcher

        Lower oil prices benefit any economy. However this is obviously not the case in the US now, as the benefits from lower oil prices do not compensate the disadvantage from the crashing high yield bond market. The FED has been waiting for one year to see how the fall in oil prices impacts the economy. Over the latest few months the US economy became extremely weak (save the service sector) Dallas manufactuting survey, Empire State Manufacturing and Philly FED Surveys all at depression levels. This does not look like an overheating economy. And this is just the beginning. Look out for low interest rates and a weak USD dollar. The US economy has now the ailing shale industry around its neck. As low oil prices will prevail for some years, this will last much longer than many people think.

        • Old Farmer Mac says:

          I am not a number cruncher but you are going to have to SHOW us how big that high yield bond market is in comparison to the market for home mortgages, auto loans, loans to other industries etc.

          Personally I know plenty of relatively hard up people who are spending every dime they save on gasoline for commuting on other consumer goods, rent etc.

          I agree the economy is in bad shape and probably getting WORSE but I do not believe this problem can be laid at the door of the high yield money markets.

          Low interest rates are a problem for working people only if they have money on deposit at banks hoping for interest income- and the only ones in that situation I know of are not really in a bind for money.

          Incidentally the banks have the wool pulled over their eyes to the extent that they are willing to loan to a bank at near zero rates but not to their neighbors with triple security on the farm next door at say eight percent. I know because I cannot find a soul with a hundred grand in certificates of deposit ( there are a dozen at least locally who know me and that I pay my bills lot of them not even my OWN bills, late sometimes in the last few years due to family troubles, but ALWAYS ,four funerals in five years in the immediate family and the death of a business partner made five funerals plus a senile parent at home with me taking a hell of a lot of time etc ) who offered eight percent for ten grand for five years secured by a first mortgage on a hundred thousand dollar ( tax appraisal land alone ) property – well they just look confused, as if they wonder when I took up scamming my neighbors. The offer of eight percent included paying THEIR attorney to draw the note etc.

          Of course local banks are perfectly willing to hold THEIR money at under two percent and loan it to me under the same terms at TEN percent or more.

          Watcher here is an example of markets not working for you, lol. The lady where I keep my checking account who writes loans is not allowed to use her own judgement in such matters.

          People are mostly as ignorant as fence posts and creatures of habit.

          That lady would have been allowed to write loans to tight oil people right and left. I could buy a new fifty thousand dollar pickup truck today that will depreciate faster than I can pay off the loan at a much lower interest rate than I can borrow money on income producing property worth five or ten times the desired loan amount.

          The banking industry is truly irrational.

          • Heinrich Leopold says:

            Old Farmer Mac,

            Please go to and there you can see the development of the high yield bond market. As demand for high yield bonds cools, there have been 250 bn USD of less bonds issued than last year. If this trend continues, the amount will be closer to 500bn USD less of high yield bonds issued at the end of the year. In other words, the US economy has 500 bn USD less to spend and 500bn lower economic growth. US GDP stands at 18 trn USD so that is 3 % less growth through lower bonds issues. However lower bond issues have also a multiplicator effect on other sectors (such as auto sales). US Rail traffic this week is 10% lower than last year. Auto transport down 8% year over year and oil transport down 15 % and metallic ores transport down 30%. These numbers are stunning and it looks like there is an implosion coming in industrial production for the month of September. Overall the situation is close to the situation in 1985/86 when a strong dollar brought the US economy to a halt. Fortunately, the US policy maker have always the luxury to let the dollar fall. (QE IV and steepening of the yield curve)

            • Glenn Stehle says:

              Heinrich Leopold said:

              If this trend continues, the amount will be closer to 500bn USD less of high yield bonds issued at the end of the year. In other words, the US economy has 500 bn USD less to spend and 500bn lower economic growth. US GDP stands at 18 trn USD so that is 3 % less growth through lower bonds issues. However lower bond issues have also a multiplicator effect on other sectors (such as auto sales).

              That is an empirical claim which does not hold up under scrutiny.

              For instance, as David Stockman noted:

              Q: Why are you so down on the U.S. economy?

              A: It’s become super-saturated with debt.

              Typically the private and public sectors would borrow $1.50 or $1.60 each year for every $1 of GDP growth. That was the golden constant. It had been at that ratio for 100 years save for some minor squiggles during the bottom of the Depression. By the time we got to the mid-’90s, we were borrowing $3 for every $1 of GDP growth. And by the time we got to the peak in 2006 or 2007, we were actually taking on $6 of new debt to grind out $1 of new GDP.

              More empirical data on the same phenomenon as to how we're getting less and less bang for the buck (of additional debt created) here:

              In the late 1970s an extra dollar in private debt delivered around $1.80 in GDP growth. In the period immediately prior to the Great Recession (what Australians call the global financial crisis) an extra dollar in debt was giving us around 40 cents more in GDP – not the best return on investment.

              The doctrine which holds that ever-increasing debt is the cure-all for everything that ails the economy is rapidly losing its credibility. That was a quasi-religious dogma invented by the merchants of debt, for the merchants of debt, and of the merchants of debt.

              What you seem to be talking about, however, is not increasing debt, but deleveraging. Can you cite any empirical studies which quantify the effects of deleveraging.

              It’s possible that a dollar of debt creation is not the same as a dollar of debt destruction. A dollar of debt destruction may do way more damage to the economy than a dollar of debt creation benefits it. The ride down the debt mountain may be a hell of a lot rougher than the ride up.

          • Glenn Stehle says:

            old farmer mac said:

            The banking industry is truly irrational.

            Without a doubt.

            Carroll Quigley explained it thusly in The Evolution of Civilizations:

            Once a civilization enters the stages of universal empire and decay,

            The vested interests encourage the growth of imperialist wars and irraitonality because both serve to divert the discontent of the masses away from their vested interests. Accordingly, some of the defenders of vested interests divert a certain part of their surplus to create…instruments of irrationality. Once these instruments are created and begin to become institutions…of irrationality, the chances of the institutiuon of expansion being reformed into an instrument of expansion become almost nil….

            [T]he institutuion of irrationality controls much of the intellectual life of the society.

            But these Frankensteins of irrationality, Quigley goes on to explain, have a way of turning on their creators:

            So too the Nazi party, which had been financed by some of the German monopoly capitalists as an instrument…of irrationality, took on purposes of its own and began to dominate the monopoly capitalists for its own ends.

            • Boomer II says:

              The vested interests encourage the growth of imperialist wars and irraitonality because both serve to divert the discontent of the masses away from their vested interests. Accordingly, some of the defenders of vested interests divert a certain part of their surplus to create…instruments of irrationality. Once these instruments are created and begin to become institutions…of irrationality, the chances of the institutiuon of expansion being reformed into an instrument of expansion become almost nil….

              That’s a good explanation of why we have so many politicians making idiotic statements and blaming the wrong people for society’s problems. If they get the masses mad at some groups of people, perhaps they won’t notice who is actually causing the problems.

              And that’s why I think expecting the masses to rise up against the wealthy and take what the wealthy has isn’t going to happen any time soon. The masses will likely rise up against the defenseless first.

  42. Doug Leighton says:

    Ron, if the following is a No No article based on the current oil focused posting (with which I agree) please delete. I guess it’s sort of ff related.


    “Sea ice decline is one of the most visible consequences of climate change, and has a tremendous impact on the Arctic climate. Since the 1990’s, the Arctic has been losing sea ice at a tremendous rate — about 14 percent per decade. The expectation is that with further sea ice decline, temperatures in the Arctic will continue to rise, and so will methane emissions from northern wetlands,”

    • clueless says:

      Look at the Arctic temperatures! The are not rising and have not done so for over 50 years.

      • SRSrocco says:


        Pardon my bluntness… if you believe that, you are an IDIOT.


        • Old Farmer Mac says:

          It is always easy to find proof of the fact that a person can be quite knowledgeable in one field and as utterly lost in another as a three year old in the middle of a forest.

          How anybody can look at the pictures of glaciers in popular resort areas all over the world, damned near every one of them seriously melting away over the last half century or longer, and deny warming IS a puzzle. Oh wait- the answer is that they refuse to spend a few minutes looking at the pictures.

        • clueless says:

          Here are the temperature graphs for the last 58 years as recorded by Denmark Scientists. Perhaps you can discern a temperature warming that they have been unable to find.
          Below the blue line are temperatures that will freeze arctic ice. So, no arctic ice melting there.

          • ezrydermike says:

            The global rate of temperature increase has slowed in the last decade (Kosaka and Xie 2013), but Arctic temperatures continued to increase, such that the Arctic is warming at more than twice the rate of lower latitudes, as is evident in Fig. 1.1. The rapid warming in the Arctic is known as Arctic Amplification and is due to feedbacks involving many parts of the Arctic environment: loss of sea ice and snow cover, changes in land ice and vegetation cover, and atmospheric water vapor content (Serreze and Barry 2011).

            The spatial distribution of near-surface temperatures in autumn-early winter (October-December) during recent years (2009-2014) has been warmer than the final 20 years of the 20th Century (1981-2000) in all parts of the Arctic (Fig. 1.2). These Arctic-wide positive (warm) anomalies are an indication that the early 21st Century temperature increase in the Arctic is due to global warming rather than natural regional variability (Overland 2009, Jeffries et al. 2013a).


          • Old Farmer Mac says:

            When I clicked thru the link I found it perfectly obvious just by eyeball that the red line is above the average line more than below it.

            The fact that the air temperature is below freezing does not necessarily prevent if from melting if it is floating in warmer sea water, and it does to mean that the ice itself cannot be closer to melting temperature of O C so that when the air does warm up past freezing, ice melts faster.Ice at say twenty below takes a while to warm up to zero.

            In any case the loss of ice is obvious.

    • D. Graham says:

      Yet another “peer reviewed” piece of journalism aside, you’re forgetting the FACT that not only have the people who perpetrate these claims been caught red-handed by the climategate scandal, but that AGW is NOT 100% PROVEN “scientific” fact. Not all of it is 100% factual, and you can’t say otherwise, yet here we are having allowed certain people who are “de-growthers” into our prosperity creating economic institutions in order to twist heads and make people believe.

      So anyway, how do we separate the facts from the truth? The “main” reason deals with the data NOT being in agreement with the narrative, as AGW is based on very flawed climate models, speculation, omission of facts which don’t agree with the narrative or the propaganda being pushed to advance the agenda. What am I talking about? See that the USGS climate data gathered by NOAA’S OWN climate analysis equipment, there has been NO warming for the period of 2004-2014:—-

      Reference the “U.S. Average Temperature Anomaly” graph on that page–no warming. This is the ENTIRE REASON the name was changed from “global warming” to “climate change” overnight. The data was not showing what needed to be shown so the science was changed.

      The ultimate truth was then expressed by Christiana Figueres, Secretary of the U.N.’s Intergovernmental Panel on Climate Change, who admitted the science is being used purposely and deliberately to destroy our capitalistic system:—-

      There are MANY “not funded by the government” scientists who say its a LIE as well:—-

      While the liberals always say “but we have ‘peer reviewed’ papers” as if those are “facts”? No, they’re nothing more than “best guesses” and now we have many other people who are giving their “best guesses” the other way, now don’t we? Reviewing that page in the last link may take some time, but I assure you there is MUCH in it that destroys the whole AGW argument. And remember, in light of the little we do actually know about our atmosphere, that is ALL this is–nothing more than an “argument”. Basing the complete ruination of people’s jobs and livelihoods on something devoid of facts should really make a lot of very intelligent people ashamed of yourselves. But I know, liberals seem to have no conscious about anything other than what they think is important. They need to give up already, and let the millions of unemployed men and women in this country get back to work.

      • D. Graham says:

        …Of course, if you believe everything I just wrote, you, too, would believe in the climategate scandal! 😉

        Believe you me.

        (You can fool me twice but shame on you if you fool me three times!)

      • Fred Magyar says:

        I nominate this post for the best POE awards on

      • Ronald Walter says:

        Doctrinaire is the word of the day today.

        3. merely theoretical; impractical.

        The global warming enthusiasts are lying all of the time. I know it.

        They conjure up these goofy ideas about emissions being belched into the atmosphere, use all sorts of instruments, satellites, telemetry to gather facts that point to climate change due to the burning of fossil fuels. They, those climate scientists, use facts and figures to convince the gullible Great Unwashed to believe all of the lies, propaganda, about global warming caused by people not working a job, taking 2000 mile trips to follow their favorite pro baseball team or go on a long golf tour like Barack Obama does from time to time.

        If any one person is responsible for the earth’s atmosphere containing too many particulate emissions from burning 7 billion tons of coal every 365 days, it is the President of the USA.

        Might as well scapegoat President Obama, go for the gusto, he contributes to global warming thousands of times more than the average Joe out there, he flies a 747 using 54,000 gallons of jet fuel to travel 25,000 miles. That’s 0.5 mpg, horrible mileage.

        The number one violator of over-use of fossil fuels lectures the rest of humanity on the dangers of global warming. More cognitive dissonance, it’s always there surrounding you all of the time.

        After Barack Obama, It’s those climate scientists themselves who are contributing more to global warming by doing nothing except writing scientific papers from the study of AGW. The fools know nothing, just making stuff up every time you turn around forming those facts and figures out of thin air, punning here.

        Embrace the doctrinaire and you to can be without guilt, point with pride and view with alarm like President Obama does. Another do as I say not as I do politician if there ever was one. A hypocrite, another one. What in the world is going on in this ka-razy world?

        We’re drooling idiots, everyone of us.

      • Doug Leighton says:

        “there has been NO warming for the period of 2004-2014”


        “An apparent lull in the recent rate of global warming that has been widely accepted as fact is actually an artifact arising from faulty statistical methods.”

  43. Longtimber says:

    Oil Related Post on FF efforts to NAPOM Solar. Great to know your oil money is going to noble causes.
    Import even more Oil and Coal.

  44. John S says:


    Heard back from my Apache retiree: BOE in most BS wells would be about 50% oil / 50 % gas. In the really oily part it would be 65% oil and 35% gas.

  45. ezrydermike says:

    Peak Oil is a Function of Oil Price
    By Robert Rapier on Sep 17, 2015

    “So we should really talk about peak oil as a function of oil prices. In that case, we can say with a pretty high degree of certainty “The world has passed peak $20 oil.” If we could magically freeze the price of oil at $20, we would see the sort of peak that the imminent peakers projected. That doesn’t mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly swing prices at times. It just means that $20 isn’t a sustainable price for meeting current global demand. That also means that the average price of oil in the future will be much greater than $20, which is why I downplay those predictions of very low oil prices.

    But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at $100/bbl, supplies were still rising. Now that prices are less than half that level, global production looks like it is set to fall. So maybe we have past peak $50/bbl oil.

    The peak oil story turned out to be more complex than most of us who were debating it could have imagined back in 2005. What we thought was peak oil at that time was just one more cycle in the gyrations of the oil industry. When prices are rising, oil producers spend money as fast as they can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back up to supply, which drives the price back up.

    But what we have seen in this most recent cycle is that the trough isn’t as deep as it has been in the past. This time oil didn’t drop to $10/bbl, but it did spend a lot of time at $100/bbl. That is a sign that we are using up the cheapest oil supplies. The world is highly unlikely to return to an era of $20 oil. The floor has moved higher. Peak oil has moved past the $20 threshold, and most likely the $50 threshold.”

  46. ezrydermike says:

    In support of the President’s goal to double U.S. energy productivity by 2030, Secretary Moniz unveiled a strategic plan today laying out a path businesses, state and local governments, consumers and other stakeholders can use to achieve this goal. The report, Accelerate Energy Productivity 2030: A Strategic Roadmap for American Energy Innovation, Economic Growth, and Competitiveness, identifies proven and effective strategies and actions to advance energy efficiency. Strategies include: states securing energy productivity through setting and updating vehicle and product codes and standards, and providing energy performance information to consumers; utilities and regulators designing rates and related policies that more effectively align energy efficiency with utility business models; and businesses reinvesting avoided energy costs. By doubling energy productivity, American families will be able to power their homes and vehicles using less energy, while American businesses will be able to manufacture more while spending less and cutting harmful carbon emissions.

  47. Ves says:

    I have not read better article in a long time (or ever) about what is happening particularly to shale production, cost (in)efficiencies, rig count, and inventory. Dan Doyle, should remember the name for future.

    This Is What Needs To Happen For Oil Prices To Stabilize

  48. Old Farmer Mac says:

    I am not exactly sure what is meant by “double US energy productivity by 2030” but I THINK this language is mostly political hyperbole. Personally I seem to be one of the more optimistic guys who hang out here, sometimes second in this respect only to our incurably optimistic Nick G.

    Maybe we could double our energy efficiency by 2030 if we embarked on a flat out war time economic footing with that goal in mind and managed somehow to stay the course. To me that would be honestly doubling energy productivity.

    Maybe this language means just doubling economic activity while using the same amount of energy.It may be that if business as usual survives and thrives the economy could grow substantially over the next fifteen years while actually using about the same or less energy on an on going basis. A lot of services consume only a little energy in relation to the dollar value involved.

    If anybody knows of research performed by reputable organizations involving the expected rates at which energy efficiency will improve I am eager to read it.

    It is easy to imagine a lot of cars in 2030 getting twice the mileage similar sized cars get today but imagination is free. More efficient engines in smaller lighter cars are no doubt realistic options and sixty or seventy mpg is easily doable via this route.

    But the cars being built today, most of them, are the best cars that have ever been built, in terms of long term durability and the ones BUILT THIS YEAR that are reasonably well cared for are still going to be running in 2030.Doubling the fleet average fuel economy seems to be out of the question- unless maybe electrics gain a HUGE chunk of market share. That seems unlikely too, in such a short time frame.

    Building a new house that uses half as much energy per square foot fifteen years from now will be technically simple and even mandated by building codes in a lot of locations, perhaps even nationally.

    But probably over ninety percent of the housing in the country in 2030 will be older than ten to fifteen years. The energy efficiency of the AVERAGE house thus probably cannot be improved more than a few percent within the next fifteen years.

    Any actual numbers as opposed to my guess work will be appreciated..

    • Nick G says:

      Here are a few numbers.

      50% of vehicle miles driven come from vehicles less than 6 years old.

      The US fleet average is 23MPG, for new cars it’s only 27MPG. The new Prius is 55MPG, the Volt is over 200MPG (counting only liquid fuel), the Leaf is zero GPM.

      European drivers pay around $1/liter more than US drivers, and use 18% as much fuel per capita. The difference in price is fuel taxes, which substitute for other taxes.

      It’s pure, pragmatic realism to say we could cut fuel consumption dramatically, if we chose to. And, we’d be far better off.

  49. Ronald Walter says:

    When it comes to efficient use of resources, the police department is going to choose a vehicle that will run several hours during shifts. An electric vehicle might be ideal for delivering donuts to the local precinct, however, the police will be driving to the nearest Dunkin’ Donuts with the siren blaring in their ice patrol car.

    That won’t change. har

    • Jeffrey J. Brown says:

      WSJ: Defaults Mount in Beleaguered Energy Industry
      (Do Google Search for article)
      Default rate accelerates among U.S. oil and gas companies

      The well is running dry for deeply indebted energy companies.

      Samson Resources Corp. became the latest, and largest, victim of an industry downturn, as it filed for chapter 11 protection late Wednesday. Industry experts say more oil-and-gas companies are poised to follow the Tulsa, Okla., company into bankruptcy as oil prices remain low following a steep drop that began last year.

      The default rate among U.S. energy companies has accelerated in recent months to 4.8%, the highest level since 1999 and up from 3.3% in August, according to Fitch Ratings.

      Within that group, exploration and production companies like Samson are defaulting at an even higher rate, 8.5%, Fitch said. Default volume for such companies is the highest it has been in five years, at $10.4 billion in debt.

      The broader U.S. corporate default rate is 2.9%, according to Fitch.

      Meanwhile, the yield on a basket of U.S. junk-rated energy bonds has risen to 11%, just off its highest level since July 2009 and up from 5.9% a year ago, according to Barclays PLC. The increase indicates a lack of investor confidence that the bonds will be repaid in full. Yields on debt rise as prices fall.

      • Watcher says:

        Last paragraph says . . .

        If you double the prevailing interest rate on loans for shale producers, then shale’s breakeven price of oil rises.


  50. Notice to all:

    I will be out of pocket all day. If the Texas RRC data comes in today I will have a post on it early tomorrow.


  51. William Sadler says:

    I do a lot of munging of the ndic monthly production report.

    One thing I look at is wells that show up in the latest report that are not in the previous month report. I call these new wells. Another is the wells that are in the previous month report but not in the latest report. I call these plugged wells.

    I have this data since Jan 14. For all months until the July15 report, I see new wells ~ 100-250. I see plugged wells ~10-20. For July15, new wells were 82 and plugged wells were 778. Something happened. These are not from a single producer, but the production published are generally confidential, SI, or TA. Is this something that will affect the Aug15 production?

    • Watcher says:

      You would really have an eye opening discovery if you found that among the shut in wells some had been flowing more than stripper levels of output.

      • William Sadler says:

        That is the problem. Production numbers are not published for them. This may be just another way of obvuscating what is happening with wells which have not reached the TA time limit. My question is, why has this not happened any other time in the last 18 months. How does a well in any reporting status just drop off the ndic monthly?

        • Blaine says:

          So, these 778 were predominantly wells which had been appearing without production numbers? And what’s odd is that they’ve disappeared entirely? A methodology change would explain that without requiring the publishing of inaccurate information, wouldn’t it?

          Are the entrance and exit of wells to having reported production still behaving normally?

          Producing well numbers from Lynn Helms:
          Last month: Bakken: 10113 Legacy: 2751, Total matches June preliminary total
          This month: Bakken: 10240 Legacy: 2628 Total (up 4) matches June non-preliminary total.

          This appears to be a minor methodology change as well. Perhaps we should be especially on the alert for methodology changes for the next few months.

          Wells seem to change from being legacy wells to being Bakken wells rather easily, don’t they? I suppose it’s possible to have a legacy conventional well into the Bakken, and it’s never been clear to me how such wells are being counted.

          • William Sadler says:

            The director’s cut did not mention a reporting change. The legacy wells that have production numbers are behaving normally.

            There are some wells whose well # vanished which had unpublished production (SI,TA, Confidential), some whose previous month’s production were low, and some whose production was moderate (likely not actually abandoned).

            So what is going on is unclear to me. 778 wells which were not published in July seems like more that just an unimportant change to well production publication. If a well is abandoned, that is indicated in the ndic report. Where else could they go except to being plugged? That is the question for me.

  52. Steven Rodriguez says:

    Naomi Klein announced at the Toronto launch of the Leap Manifesto, a petition calling for the overhaul of Canada’s economy “if Canadians are going to move beyond the relentless messaging that we have to choose between jobs and climate action, we’re going to need more than slogans, we’re going to need specifics. This is our attempt to do that, to lay out a nuts and bolts policy agenda”.

    Gail Tverberg says:

    September 17, 2015 at 8:39 pm

    These people are dreaming. We don’t have the cheap energy to do what they are asking. This is one paragraph about what they are asking for:

    It is a sprawling work, one which goes well beyond an ambitious call for Canada to convert to 100 per cent clean energy within 35 years. Among its 15 demands, the manifesto calls for a basic annual income to eliminate poverty; renewable-powered high-speed rail to reduce car emissions; a “localized and ecology-based agricultural system”; and retrofitting low-income housing to increase energy efficiency — an initiative HuffPost reported on last week.

    PointingOutTheNonsense says:

    September 17, 2015 at 10:24 pm

    Gail, your personal artificial vision of cheap oil is no reason to call others dreamers. You are a Doomer and need to take a hard look in the mirror.

    “renewable-powered high-speed rail to reduce”

    Your so called dreamers understand limited energy better than yourself.

    • Stilgar Wilcox says:

      Apparently Gail broaching some common sense ideas about energy ruffled some very utopian expectations. Maybe those Canadians should do a native rain dance in an attempt to magically conjure up the clean abundant cheap energy needed to achieve their goals, while chanting, “We want a basic annual income, eliminate poverty, hi-speed rail, wahhhhhhhhhhh, we want more, wahhhhhhhhhh, we want to ignore physics where it meets economics, wahhhhhhhhh. we need it all for free and we demand it now, wahhhhhhhhhhhhh!”

      • Old Farmer Mac says:

        ASK for and shoot for the sky and you may get the pent house , if you work very hard and are very lucky too. At least Canadians are in a position to survive the coming resource crunch nicely, assuming they can keep their neighbors from invading the country.

    • ChiefEngineer says:

      The Leap Manifesto: A Call for Caring for the Earth and One Another

      by Naomi Klein, David Suzuki, Leonard Cohen, Ellen Page, Donald Sutherland

      “The author’s breath and scope is impressive. She ties the environmental crisis directly to capitalism-run-wild, and to the realization by the right wing that if we really address the looming environmental threat it will change everything about how we live. The winners and losers from “greening” our economies are unpredictable. But everybody looses if we continue down our current economic path.”

      “This is an amazing book that explains a lot about the complexity of denial and why it is so difficult move forward. It solidifies why climate change is the most challenging issue of our time. A must read for anyone that is concerned about the future for themselves, their children, their grandchildren and the awe inspiring beauty and diversity of our planet that is at critical risk.”

      • Nick G says:

        She ties the environmental crisis directly to capitalism-run-wild, and to the realization by the right wing that if we really address the looming environmental threat it will change everything about how we live.

        No. She’s been fooled by right wing propaganda artists, who claimed that dealing with climate change would require socialism. It was a scare tactic, and Klein does everyone an enormous disservice by falling for it and spreading the misinformation.

        The fact is that we could transition away from fossil fuels quickly without the kind of social engineering she talks about. We don’t need a broad negative income tax, we just need a stiff carbon tax, that’s used to reduce other taxes in such a way as to mitigate the regressive nature of fuel and carbon taxes.

        We already have fuel and utility taxes – they just need to be increased.

        We already have efficiency standards and construction standards – they just need to be made tighter.

        No socialism required.

        • ezrydermike says:

          you don’t know what Klein is talking about. You have completely misinterpreted her “connection” to Heartland. Read her book.

  53. clueless says:

    There is an interesting article in the Daily Oklahoman today concerning the recent record storage numbers for crude oil as reported by the EIA. The oil industry claims that actually there is not much difference in storage. The reason is that US shale oil has backed out African and Mideast oil. US shale oil is counted in the EIA inventory when it comes out of the wellhead. The oil that was backed out spent 15 – 55 days in transit at sea, and only was counted as storage by the EIA when it cleared US customs. But, as far as the oil companies were concerned, that oil at sea was in their inventory, but not counted by EIA. They claim that EIA is not making apples to apples comparisons, and that there is not a glut of oil in the US.
    Of course Watcher has been one of those who has asked many times “where is all the excess oil?”

    • Watcher says:

      Well, as for asking questions, about that low oil price stimulates economies thing . . . . why hasn’t that worked.

      Been 9+ months now. Europe had to start QE because of weak growth about 5 mos ago. China is slowing. US macro data is weakening.

      But oil is less than half what it was.

      Another victory for economic theory, eh?

      • Caelan MacIntyre says:

        …The red queen of increasing entropy in the face of a large-scale global economic and political system that needs low entropy of vast global energy resources to do work, but even merely to stay intact and survive…

        Low prices may be just one effect to remain as stationary as possible while running faster and faster toward a horizon that’s accelerating, perhaps exponentially, into the distance…

        …Here, I am suddenly reminded of Al Bartlet and the seneca cliff…

        “The greatest shortcoming of the human race is our inability to understand the exponential function.” – Al Bartlett

      • Old Farmer Mac says:

        Even the dumbest farmer who plants corn in the spring does not expect to harvest it until fall.

        It will take some time for low oil prices to significantly impact the economy for one thing.

        And for another there are MANY things impacting the economy in a negative fashion. The net effect of good and bad influences at the moment tends toward the bad and the economy doing poorly as a result.

        Most people do not have any trouble understanding this sort of thing.

        • Watcher says:

          Except oil was north of $100 for about 3 yrs and nothing particularly bad happened economically.

          Musta been lots of other factors then, too. There are always lots of other factors involved when a theory isn’t working.

    • shallow sand says:

      clueless. Read the article and makes sense. Another thing I have read is that US storage as counted by the EIA includes liquids in pipelines. If I am not mistaken, there has been a large addition of pipeline capacity in the United States as a result of the shale boom. Seems like that might affect things also?

      There is a recent Wall Street Journal article titled something like, “Demand for Pipelines Ebbs”. Article states that from 2009 to 2014 crude oil pipeline capacity increased 26%.

      Would appreciate if someone could link the WSJ article. Would also appreciate some comment about this issue. Is the “increased pipeline storage” issue a red herring, or has it skewed comparison of current US inventories to historical?

    • Old Farmer Mac says:

      From George Mobius’s blog link:

      “The simple truth is that when you find yourself in deep resource depletion and high population no amount of financial hocus pocus or political posturing or brute force can fix anything. The Morsi government nor the military junta before and after could ever possibly satisfy the needs of the people. No government could. Nor could there be massive aid influx to ease the situation. The other nations of the world are all much poorer than they will admit. They cannot pump enough resources into the region to solve the problems. There is no scenario in which this comes out well.”

      I am repeating my remark “Don’t get caught in Egypt” often enough that I hope it will sooner or later become known as a personal trademark.

      In the end George is argueing from straight up two hundred proof Darwinian biological theory, which has never and never will be disproven.

      The fact that it has been used as a justification for aggression absolutely and in no way whatsoever disproves it.

      Two hundred proof is hard to swallow, not even the most hardened drunk can handle it in more than tiny sips.

      But reality is reality, and guys like George and Ron understand it.

      I understand it too, with the caveat that this understanding includes the probability of some small portion of us surviving, and some portion, probably rather small to be sure, of industrial civilization possibly surviving as well.

      • cytochrome C says:

        George gets it, and has the brains to offer solid analysis.

        I would go with possibly rather than probably.

    • Longtimber says:

      From the Interesting Article:

      “politicians are not miracle workers. They cannot feed the multitudes from a few loaves of bread and a couple of fish. What they have become, however, right along side their neoclassical economics allies, are fair magicians — prestidigitators. They know how to manipulate smoke and mirrors and conjure economic spells. They are nothing more than snake oil con men (and women). The irony is that they actually believe what they say and are convinced they know how to really make good stuff happen. They are a testament to the capacity of the less-than-sapient mind’s ability to double ”

      I’ll never forget one eve on the Arkansas Capital Steps the night Clinton got elected. Everyone beieived this Angel of a guy would save them. Little did we realize what a mess of things his buddy Greenspan would create by dropping Interest rates to historical lows.

    • Fred Magyar says:

      Yep! George gets it!
      I agree with him and that is exactly why it matters not one whit weather we have a right wing dictatorship in power or some ultra liberal socialist group. Anyone who is still worried about Communism or ISIS or some other such group just doesn’t understand what is happening in the world right now! OFM is correct when he says don’t get caught in Egypt…

  54. AlexS says:

    Baker Hughes rig count is out.
    Total US oil and gas rigs: – 6
    Oil rigs: -8 (down 31 in the past 4 weeks and only 16 units above end-June low)
    Gas rigs: +2
    Land rigs: -7
    Directional + 2
    Horizontal – 8
    Vertical: unchanged

    Oil rigs by basin:
    Williston: -3 (68 rigs – new 5-year low, down 65.7% from last October’s peak. Continental will reduce its operational rig count in the Bakken by 2 units by the end of the months)
    Eagle Ford: unchanged
    Permian: +2
    Niobrara: unchanged
    Mississippian: – 5
    Granite Wash: – 2
    Cana Woodford: +2
    Arkoma Woodford: +1
    Utica: +1
    Others: – 2

  55. Toolpush says:

    Baker Hughes rig count is out.

    US land down 7
    Oil down 8
    Horizontal down 8
    Mississippian down 5 to 14. Someone packed up big time and left town. 25% drop in a week.
    Eagles Ford down 2 to 88
    Granite Wash down 2 to 13
    Marcellus down 2
    Williston down 3

    Permian up 3
    Cana woodford up 2 to 40. 2 higher than 12 months ago. Something must be working there.

  56. Boomer II says:

    I am several days behind on comments so I don’t know if this has been posted already.

    Coal, Gas, Nuclear, Hydro? How Your State Generates Power : NPR

  57. Old Farmer Mac says:

    This link has some good data -well it MIGHT be good at least- about Chinese stockpiling of oil.

    While the amounts are large in and of themselves, they do not seem to me to be large enough to really have a big impact the price of oil.

    • Blaine says:

      Texas RRC District 8 +3 w/w, +6 over last three months to 23. This is mostly an Eagle Ford peripheral area.

      Granite Wash now down 80% y/y, Mississippian now down 82%.

      Northeast drilling appears to be edging away from sweet spots. Now 25% in WV, up from 17% last year, with drilling everywhere except SW, including close to VA.

      • AlexS says:

        According to Baker Hughes, both oil and gas rig count in Eagle Ford is at lowest levels since it started to decline last October (77 and 11, respectively, vs. 77 and 13 on previous week). Oil rig count is down 63% from last year’s peak.

  58. AlexS says:

    Exxon Said to Be on the Hunt for West Texas Shale Bargains

    • XTO unit executives are scouring the Permian for best assets
    • Downturn brings plenty of bargains from distressed operators

    Exxon Mobil Corp. is adjusting the way it structures shale acquisitions as the global energy giant expands in West Texas, the largest U.S. oil-producing region.
    Executives with Exxon’s shale-drilling unit, XTO Energy, are meeting with small, closely held producers in the Permian Basin to negotiate possible purchases and joint ventures, according to three people familiar with the talks. The company is expanding its use of a new strategy first deployed in the region last year that offers operators a cut of future proceeds rather than big upfront stock or cash payouts, say the people, who asked not to be named because the meetings were private.
    Stung by the 58 percent plunge in U.S. oil prices since June 2014, many drillers face stark choices: shut down rigs to conserve capital and wait out the bust, or surrender some independence to a deep-pocketed savior in exchange for a shot at a future windfall. Exxon is expanding at a time when $40-a-barrel crude is crippling more-indebted companies.
    “You’re going to see more pain,” Ted Harper, a senior fund manager who helps oversee $10 billion at Frost Investment Advisors LLC in Houston, said in a telephone interview. “Some folks are going to be scrambling for alternatives.”
    The XTO executives dispatched from the unit’s Fort Worth, Texas, headquarters have been working since last year to structure prospective deals to provide long-term returns rather than upfront riches, the people said.
    Tough Terms
    The company is offering to cover all drilling and appraisal costs on a given parcel; in exchange, Exxon promises as much as one-third of revenue from any discoveries to its partner, with Exxon keeping the rest, the people said.
    The Permian Basin is a cluster of oil fields beneath Texas and New Mexico that pumps more crude than half the nations in the Organization Of Petroleum Exporting Countries. Oil production across the region probably will rise more than 1 percent next month to 2 million barrels a day as technological advances enable drillers to extract more crude from each well, Bloomberg Intelligence analysts Vincent Piazza and Gurpal Dosanjh said in a note on Friday.
    For Exxon investors, the new deals strategy provides an added bonus: because the company isn’t using stockpiled common shares to fund the transactions, there’s zero dilution to individuals’ portfolios.
    Buyout Strategy
    After acquiring XTO in 2010 to capture that company’s shale expertise, Exxon relied on the traditional corporate-buyout strategy to expand its holdings. One month after closing the XTO deal, Exxon paid $695 million for Haynesville Shale driller Ellora Energy Inc. The following year, it paid a total of $1.69 billion for Phillips Resources Inc. and TWP Inc., closely held Marcellus Shale explorers.
    Spokespeople for XTO and Exxon’s corporate headquarters declined to comment on any possible deal talks. “We are always on the lookout for opportunities to enhance shareholder value,” said Alan Jeffers, a spokesman for Exxon.
    Doubling Output
    Chairman and Chief Executive Officer Rex Tillerson disclosed plans in March to double crude output from the Permian and other U.S. shale fields during the next three years even as crumbling energy prices gut drilling budgets across the industry.
    Exxon bought drilling rights or funded partnerships in five Permian Basin transactions during the past 20 months. As a result, Exxon now controls drilling rights to 1.5 million acres in the Permian region, more than twice the size of its holdings in Iraq or the U.K. sector of the North Sea.
    Endeavor Energy Resources LP, a Permian oil producer controlled by Texas wildcatter Autry Stephens, was one of the first to accept Exxon’s terms before the downturn even hit. In a deal announced in February 2014, Exxon pledged to fund exploration of some Endeavor properties in two Texas counties in exchange for “substantial operating equity” across a 34,000-acre tract, an area 40 times the size of New York City’s Central Park.
    Stephens wasn’t available to comment for this story, according to Endeavor spokesman Joel Castello, who declined to discuss the Exxon agreement.
    Slowing Down
    Outside the Exxon venture, Midland, Texas-based Endeavor has reduced drilling activity in response to the collapse in crude prices. The company has three rigs in operation, “way, way down” from the nine it had under contract last year, Castello said.
    The U.S. contribution to Exxon’s supply has been rising since Tillerson signaled a new focus on shale with the $35 billion acquisition of XTO. U.S. wells accounted for 22 percent of Exxon’s crude output in 2014, up from 15 percent in 2008. In addition to the Permian, Exxon is expanding activity in North Dakota and Oklahoma to lift output

  59. Boomer II says:

    In one comment someone talked about the declining push for oil pipelines or something to that effect. An article in the WSJ.

    I went looking for it. I haven’t found it yet, but I did find this.

    New Pipeline Safety Rule Pending After Increase in Accidents – ABC News

    • Boomer II says:

      Here’s that article.

      Sometimes it isn’t necessary to make a political issue out of something that will be killed by economics.

      Energy Pipeline Boom Ebbs – WSJ

      “It’s hard for us to paint a scenario where, at least for the foreseeable future, any additional long-haul pipelines are needed,” Michael Mears, chief executive of distribution operator Magellan Midstream Partners LP, recently said. The company has built and expanded oil arteries in Texas.

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