OPEC July Production Data

All data below is based on the latest OPEC Monthly Oil Market Report.

All data is through July 2017 and is in thousand barrels per day.

The above chart does not include the 14th member of OPEC that was just added, Equatorial Guinea. I do not have historical data for Equatorial Guinea so I may not add them at all. It doesn’t really matter since they are only a very minor producer. Also they are in steep decline, dropping at about 10% per year.

The huge June OPEC production increased was due to a revision, explained below.

May OPEC production was revised upward by 18,000 bpd and June OPEC production was revised upward by 109,000 bpd. Counting the June revision July production was up about 280,000 barrels per day over what was reported last month.

Not much is happening in Algeria. They peaked almost 10 years ago and have been in slow decline ever since.

Angola peaked in 2010 but have been holding pretty steady since.

Ecuador peaked in 2015.

Any change in Gabon crude oil production is too small to make much difference.

Iran’s June production was revised upward by 27,000 barrels per day.

Iraq is holding steady since their December peak.

Kuwait is down 165,000 bpd from their November peak. That is about 5.75%.

Libya is now producing just over 1,000,000 barrels per day. If this trend continues, and it just might, then they should be at their maximum possible production of about 1,400,000 barrels per day by the end of the year.

Peace seems to be breaking out in Nigeria as well as Libya. This is the worst possible scenario for oil prices.

Qatar has been in decline since 2008. Her decline will continue albeit at a very slow pace.

Saudi June production was revised upward by 85,000 barrels per day. That means they have increased production by 169,000 barrels per day over the last two months.

The UAE is down almost 185,000 bpd since December. This is the largest percentage cut in OPEC. I don’t think it is all voluntary.

The production trend in Venezuela is obvious. It could get a lot worse as Venezuela is now on the cusp of becoming a failed state. If that happens it’s anyone’s guess as to what will happen to their oil production.

This chart has an error in the Y axis. It has Jun 17 twice. The last one should be Jul 17. At any rate World total liquids continues to rise. Yet oil prices continue to rise also. WTI is near $50 and Brent is just over $53. I have no idea what is happening here but something is just not right.

 

 

This entry was posted in Uncategorized and tagged , , , , , , , , , , . Bookmark the permalink.

282 Responses to OPEC July Production Data

  1. Javier
    Ignored
    says:

    I thought it was the case that oil prices correlate better with inventory data than with production data. That’s what Art Berman shows:

    http://www.artberman.com/u-s-inventory-reductions-probably-not-sustainable/

  2. Watcher
    Ignored
    says:

    Not too happy with perpetual demonization of pretty much anywhere by the western media. OTOH Ron reports the numbers as they exist (from OPEC), and odds are those numbers are pretty damn close to right.

    But other things don’t make sense for Venezuela, specifically:

    http://www.countrymeters.info/en/Venezuela/
    https://en.wikipedia.org/wiki/Demographics_of_Venezuela

    Relentless population growth doesn’t really mesh well with starvation stories and life is horrible this and that.

    Update on their Sino-Russo-Goldman funded Puerto La Cruz heavy oil refinery and money flow in general:

    Lemme first offer up a truth: If someone doesn’t borrow from US banks, it denies the prospective US lender business. Think about that for a moment. Loans are how the bank is supposed to make money (when the Fed doesn’t just give them return on excess reserves). Refuse to borrow from them and it comes right off banking executives’ bonuses.

    Ven’s sovereign debt/gdp ratio is https://tradingeconomics.com/venezuela/government-debt-to-gdp FALLING. And that’s even with the denominator falling (contrast with US debt/GDP). US banks have zero reason to like this, and plenty of reason to want regime change and a govt that will borrow and fund the populace (who might also borrow).

    A few weeks old: https://www.forbes.com/sites/kenrapoza/2017/06/13/venezuela-defaults-on-russia-is-goldman-sachs-next/#2f6ff9602bae

    Operative phrase in the article:
    Some bondholders in London immediately questioned whether or not the missed Russia payment constituted a default, the Financial Times reported. The International Swaps and Derivatives Association said it did not.

    Don’t let your eyes glaze over, because this next part is critical to oil.

    The ISDA, sportsfans, is the organization (comprised of and funded by . . . banks) who are given legal right to declare “credit events”. A credit event is a default. When there’s a default of one bond by a borrower, instantly all the borrower’s bonds are declared in default with repayment immediately required in full for them all. ISDA are the bozos that “carefully examined” the Troika’s loan arrangements for Greece (forced conversion of loans outstanding to much longer maturity and a different interest rate) and declared them to be right and pure and NO WAY IN HELL a total default (because of global systemic risk that would extrapolate). This was after an initial declaration of default for appearances sake. It got undone. And so we see now ISDA decided missing a payment on a Russia bond was not a default by Venezuela (likely because their bank members had some outstanding bonds from Ven).

    Rosneft and Goldman are essentially the funding sources for Ven. Useful to understand that Forbes and others call these loans . . . “money for Venezuela”, but they are actually money for the state owned oil company, and a goodly chunk of those bonds is for the new refinery expansion (puerto la cruz) coming online next year that can process Orinoco Heavy. This will deny business to US Gulf Coast refineries that presently do that work. More reason for they (and their banks) to be unhappy.

    Oh, one last item of complexity. JP Morgan has an index product of emerging market debt. Venezuela bonds are IN THE INDEX. Investors parking money in that EM Debt index are lending money to Venezuela, propping up the regime, angering the US gubmint.

    • Boomer II
      Ignored
      says:

      I posted this at the end of the last oil post, but I will repost it here. Seems relevant.

      “Yet markets’ dependence on central-bank largesse appears largely unabated. The decline of volatility readings and the rise of valuations in all asset classes seem to presume any market shock or economic downturn can be handily contained. Perhaps some lessons are easier learned than others.”

      https://www.wsj.com/articles/aug-9-2007-the-day-the-mortgage-crisis-went-global-1502271004?=e2fb&mod=e2fb

    • Hightrekker
      Ignored
      says:

      Anyone trying to assess what is happening in Venezuela with MSM news from the US or the UK is just being throughly brain washed.
      It is a race against time, with China and GS betting that things will work out.
      Don’t know if iI would bet against them.

    • Boomer II
      Ignored
      says:

      Senators urge Trump to avoid blockade of Venezuela oil shipments

      “We believe it is critical to consider the role the U.S. energy industry and refining sector play in our economic and national security interest,” the senators wrote. “Blockading imports could inflict great harm on this industry and burden U.S. taxpayers with the cost.”

      https://www.reuters.com/article/us-venezuela-politics-usa-idUSKBN1AR00Z

    • Nathanael
      Ignored
      says:

      If you want to understand Venezuela’s current situation, read this:
      https://www.ricknevin.com/

      The childhood lead poisoning – violence link PREDICTED the current violence in Venezuela. It was predicted years in advance and the timing was predicted.

      Venezuela had exceptionally large amounts of leaded gasoline burning until a very late date.

    • Nathanael
      Ignored
      says:

      “. Useful to understand that Forbes and others call these loans . . . “money for Venezuela”, but they are actually money for the state owned oil company, and a goodly chunk of those bonds is for the new refinery expansion (puerto la cruz) coming online next year that can process Orinoco Heavy. ”

      Wow. More banks setting fire to money for, I don’t know, personal entertainment? We’re going into a world oil glut, and they’re borrowing money building a refinery expansion to process oil which is relatively expensive to extract. Probably to produce worthless gasoline or diesel; I doubt they’re smart enough to build a petrochem-only refinery.

      The banks seem about as sane as the KLF…
      https://www.google.com/search?q=burn+a+million+quid&ie=utf-8&oe=utf-8

  3. Glenn E Stehle
    Ignored
    says:

    Here is perhaps the most important bit of information contained in the entire OPEC report.

    • Watcher
      Ignored
      says:

      Oh, heavens no. The most important information in the OPEC report is Libya output spiking. They’ve added 800K bpd in less than a year. The US will take years and years and years, if ever, to add another 800K bpd, given Alaskan declines.

      That Libyan flow is high diesel liquid going right to Europe.

    • Boomer II
      Ignored
      says:

      Also, that suggests that if shale declines in the US, we better make plans for a future with less oil. If geology doesn’t cooperate, or funding is cut off, things start to fall apart.

      I suspect the companies cutting back on projects already see that. Get the money out of the company while you still can.

      • Glenn E Stehle
        Ignored
        says:

        If OPEC had won its price war against US shale, the United States would be in a world of hurt, as would all oil consumers of the world.

        • Boomer II
          Ignored
          says:

          At some point they likely will unless you think the US will out produce OPEC and continue to do so.

      • Nathanael
        Ignored
        says:

        Boomer II: I’d be particularly interested to see an analysis of which companies are cutting back on or halting expansion (I believe Suncor, right?) vs. which ones are continuing to throw their money down holes in the ground. Might give us a better sense of who will survive the shakeout.

      • Nathanael
        Ignored
        says:

        “Get the money out of the company while you still can.”

        Rex Tillerson seems to be the true master of this, having engineered an excuse to sell out his entire holdings in oil companies, including huge amounts of restricted stock which he wasn’t really supposed to be allowed to sell for 10 years. Incredibly slick move.

  4. Doug
    Ignored
    says:

    Libya has had zero oil rigs since the end of July 2015. Production has been on an increase over the last 10 months or so. I calculate they produced about 208 Million barrels of crude in the last 10 months. I wonder how long Libya can maintain 1 MM BBLS day assuming there are no more war related disruptions let alone reach 1.4 MM BBLS day with zero rigs running.

    What are the decline rates in Libya like? Is there any water or gas injection necessary to maintain pressure and production. Does starting and stopping production damage the reservoirs? Are they producing oil to maintain EUR’s or are they producing flat out? What about repairs and maintenance? What else?

    Any insight would be appreciated.

    • Watcher
      Ignored
      says:

      Good questions all.

      This is not shale oil. Libyan oil is like Ghawar. A well can flow big numbers for decades and decades.

      Arguments in shale unfold about 400K or 700K total ultimate recovery for a well over what, 7 yrs?

      Libyan wells will be talking about 73 MILLION barrels total ultimate recovery over maybe 20 years.

      The point being that decline rates can be pretty damn small. 10,000 bpd day 1 and declines 100 bpd per year or something absurd like that. That’s what proper oil wells do.

      Libya reserves 50-70 billion barrels, some of it shale. Most of it right and proper oil.

    • George Kaplan
      Ignored
      says:

      I think they are mostly water flood. I remember something suggesting that a prolonged shut down for them wouldn’t be good. Before the war there were (maybe still are) a few western countries there: Eni, Wintershall, Marathon, maybe Shell(?). There were reports of high depletion rates, shortages of injection water and looking at EOR, water-alternating-gas (WAG) injection and ESPs. They are the sort of things that go with extra mature fields. I doubt if anyone can tell you if they have maintained voidage replacement in some of the fields that have been on and off a lot, it might take a long time and a lot of seismic and flow tests to find out what things are going on.

      • Watcher
        Ignored
        says:

        Oddly enough, Suncor owned some Libyan wells. Maybe have sold them.

        • Watcher
          Ignored
          says:

          Libya’s largest oil field is El Sharara.

          Mind boggling middle distillate yield.
          Product %wt
          C1 to C4 2.65
          Naphtha 25.42
          Kerosene 18.87
          Gas Oil 28.33
          Atmospheric Residue 24.73

          • Watcher
            Ignored
            says:

            Hmm needs revisiting. Thats by weight.

            • Watcher
              Ignored
              says:

              Revisited. Mind boggling is real. That stuff is LOADED with Kerosene and Diesel.

              Looks like about twice what shale oil has.

              • Nathanael
                Ignored
                says:

                Wow. My long-term projections say that gasoline demand will decline sharply, diesel demand will decline sharply, and kerosene demand (for aircraft) won’t. This puts Libya in the catbird’s seat, doesn’t it? They’re set up to have one of the highest kerosene contents per barrel (with very little refinery tweaking). The napthas will have to be cracked to NG, but there’s a huge demand for NG in Europe too, particularly with the desire to stop depending Russian supply.

  5. George Kaplan
    Ignored
    says:

    EIA twip shows crude stock declines still continuing at the quite high rate seen over the last couple of months – down 6.4 mmbbls (about 1.4%) – but gasoline was up 3.4 and distillate down 1.7

  6. Ron Patterson
    Ignored
    says:

    Trump just said, on national TV, that the US is now an exporter of oil and gas. Sure we export some oil products but we are a net importer of oil and gas. We import approximately twice as much oil as we export. Our net petroleum imports average just under five million barrels per day. That does not make us an oil exporter. Trump and every one that supports him are goddamn idiots.

    • Boomer II
      Ignored
      says:

      Also, politically if prices rise locally, voters could come back and ask why we are exporting it.

    • dclonghorn
      Ignored
      says:

      Ron Trump has lots of alternative facts that he hasn’t used yet. Its really all pretty laughable until you consider the consequences of having new alternative facts 24/7.

    • texas tea
      Ignored
      says:

      count me as a god damn idiot and freaking proud of it🇺🇸

      • HuntingtonBeach
        Ignored
        says:

        Already done, most here aren’t idiots

        • texas tea
          Ignored
          says:

          I would agree Huntington most here are not idiots… time/life wasting ignorant socialists yes…idiots no. I am glad to be the latter as productive member of our society who contributes in many ways to the quality of life my fellow country men enjoy. ON the other hand, just like roaches and rats we need to keep the time/life wasting ignorant socialist scope and influence to a minimum, as they will surely destroy the quality of life the productive “god dam idiots” produce in pursuit of their imaginary utopia.

          • Fred Magyar
            Ignored
            says:

            I am glad to be the latter as productive member of our society who contributes in many ways to the quality of life my fellow country men enjoy.

            You Sound a lot like Col. Jessep…

            You Can’t Handle the Truth! – A Few Good Men
            https://www.youtube.com/watch?v=9FnO3igOkOk

          • HuntingtonBeach
            Ignored
            says:

            If HuntingtonBeach were running POB and not Ron and Dennis. I would ban “god dam idiots” until they paid an annual fee of $100. Because “god dam idiots” can’t appreciate something unless they pay for it in a capitalist system. Plus Ron and Dennis deserve compensation for running this “social utopia” site. Which also makes texas tea is a hypocrite cashing in on free social media (food stamps) “just like roaches and rats”.

            Now man up to your words and send Dennis a check freeloader. And by the way, clean air isn’t free either. So if your business is polluting the lungs of others and your not paying them for it. Your a freeloader and not counting the social costs of doing business. So starting tomorrow lets make the oil industry pay for all asthma inhalers and related doctor visits needed.

            • Hightrekker
              Ignored
              says:

              A Day in the Life of a True Conservative[edit]
              Joe Conservative wakes up in the morning and goes to the bathroom. He flushes his toilet and brushes his teeth, mindful that each flush & brush costs him about 43 cents to his privatized water provider. His wacky, liberal neighbor keeps badgering the company to disclose how clean and safe their water is, but no one ever finds out. Just to be safe, Joe Conservative boils his drinking water.

              Joe steps outside and coughs–the pollution is especially bad today, but the smokiest cars are the cheapest ones, so everyone buys ‘em. Joe Conservative checks to make sure he has enough toll money for the 3 different private roads he must drive to work. There is no public transportation, so traffic is backed up and his 10 mile commute takes an hour.

              On the way, he drops his 12 year old daughter off at the clothing factory she works at. Paying for kids to go to private school until they’re 18 is a luxury, and Joe needs the extra income coming in. Times are hard and there’re no social safety nets.

              He gets to work 5 minutes late and misses the call for Christian prayer, and is immediately docked by his employer. He is not feeling well today, but has no health insurance, since neither his employer nor his government provide it, and paying for it himself is really expensive, since he has a precondition. He just hopes for the best.

              Joe’s workday is 12 hours long, because there is no regulation over working hours, and Joe will lose his job if he complains or unionizes. Today is an especially bad day. Joe’s manager demands that he work until midnight, a 16 hour day. Joe does, knowing that he’ll lose his job if he does not.

              Finally, after midnight, Joe gets to pick up his daughter and go home. His daughter shows him the deep cut she got on the industrial sewing machine today. Joe is outraged and asks why she doesn’t have metal mesh gloves or other protection. She says the company will not provide it and she’ll have to pay for it out of her own pocket. Joe looks at the wound and decides they’ll use an over the counter disinfectant and bandages until it heals. She’ll have a scar, but getting stitches at the emergency room is expensive.

              His daughter also complains that the manager made suggestive overtures towards her. Joe counsels her to be a “good girl” and not rock the boat, or she’ll get fired and they’ll be out the income.

              His daughter says she can’t wait until she’s 18 so she can vote for change or go to the Iraq War.

              They get home and there’s a message from his elderly father who can’t afford to pay his medical or heating bills. Joe can hear him coughing and shivering.

              Joe turns on the radio and the top story is a proposal in Congress to raise the voting age to 25. A rare liberal opinionator states that it’s an attempt to keep power out of the hands of working class Americans. The conservative host immediately quashes him, calling him “a utopian idealist,” and agreeing that people aren’t mature enough to make good choices until they’re at least 25.

              Joe chuckles at the wine-swilling, cheese eating liberal egghead and thinks, “Thank God I live in America where I have freedom!”

            • islandboy
              Ignored
              says:

              6.5% of global GDP still subsidizing fossil fuels, study finds

              The report’s authors work at the International Monetary Fund (IMF) and specialize in quantifying accuracy when it comes to subsidy payments that are often hidden from plain view.

              The cost analysis looked beyond typical payments normally considered a direct subsidy, and examined also the other social and environmental costs that the world must bear in order to keep fossil fuels viable.

              The authors stated that they looked at “not only supply costs but also (most importantly) environmental costs like global warming trends and deaths from air pollution and taxes applied to consumer goods in general”. According to the authors of the report, such a broader view is justified and accurate because it “reflects the gap between consumer prices and economically efficient prices”.

              Direct, measurable subsidies for fossil fuels – grouped in the report as ‘pre-tax’ – amounted to 0.7% of global GDP in 2013, but when the wider view is taken – ie, applying the authors’ broader understanding of what constitutes a subsidy – then that figure rose to 6.5% global GDP in 2013 and has remained there until 2015 (latest data available).

              By fuel type, petroleum and coal were the largest recipients of subsidies, the report found, with the China ($1.8 trillion in subsidies), the U.S. ($0.6 trillion) and Russia ($0.3 trillion) the three top subsidizers by nation. According to the authors’ reading of the data, the European Union (EU) collectively subsidizes less than half the amount that the U.S. does.

              I guess the tentacles of the deep state how now captured the IMF too!

      • Glenn E Stehle
        Ignored
        says:

        texas tea,

        Just like Richard Rainwater, I used to be quite the fan of peak oil theorizing. But then the facts changed, so I changed my mind.

        The most hardcore peak oil enthusiasts, and that’s just about all that’s left on the peak oil sites these days, don’t have much use for Trump’s pragmatism, as described here by Newt Gingrich:

        Trump is a pragmatist more than he is a philosophical anything. Pragmatism, remember, William James described as the only real American contribution to philosophy. You start with a very simple model which is you take the facts and then you figure out a philosophy. You don’t take a philosophy and then figure out the facts.

        In his brilliant work on the Soviet destruction of human beings, Robert Conquest writes at one point, no matter how good your intentions are, if you coerce reality to fit your philosophy you almost certainly can’t get a positive outcome….

        Are you prepared to look at reality and then try to figure out what it means philosophically, or do you have to have a philosophy book in your hand and only look at those parts of reality that fit your philosophy?

        Part 1, Minute 42:35
        http://www.heritage.org/UnderstandingTrumpism

      • @whut
        Ignored
        says:

        If you don’t believe that crude oil is a finite and a non-renewable resource, you’re opinion doesn’t count. That includes Glenne.

        The math that we do here to describe oil depletion is appreciated by many of the commenters on this board. That does not include Glenn.

        What do we conclude by this? (1) Glenne believes in infinite oil and (2) is a neo-Luddite when it comes to technical modeling analysis. Like Trump, he is set in his ways and won’t learn anything new. Instead, he will find whatever marketing data supports his views and grinds on that … over and over.

      • Dennis Coyne
        Ignored
        says:

        Hi Texas Tea,

        So you believe that the US is a net exporter of oil and natural gas in barrels of oil equivalent?

        Aren’t you embarrassed to have a president that does not get his facts straight?

        The rest of the World and the majority of US citizens just roll their eyes or shake their heads when they hear the crap that Trump spews.

        • Glenn E Stehle
          Ignored
          says:

          Dennis,

          If Trump said that “the US is now an exporter of oil and gas,” that is a empirical claim that is true.

          And while the importance of this factually true statement (that the US is now an exporter of oil) may be lost on you, it is certainly not lost on those with skin in the game, like Harold Hamm, texas tea and myself.

          US refineries are not set up to refine a great deal of LTO, which is a light, sweet crude that is similar in quality to WTI. That’s why exporting LTO/WTI to countries whose refineries are set up to refine light sweet crude is important. Exporting sufficient LTO/WTI to eliminate the current domestic glut of light sweet crude will eliminate the current discount that WTI trades at in comparison to Brent ($3.31 per barrel at yesterday’s closing).

          Hamm spoke briefly about this on Wednesday:

          Hamm also said he sees the U.S. West Texas Intermediate (WTI) crude oil contract regaining price “dominance” over Brent, the global benchmark. He cited rising U.S. crude exports and refiners’ increasing ability to process the type of crude produced from shale.

          WTI has traded at a slight discount to Brent for years, but if that dynamic were to flip, it would be a boon for Continental and its peers.

          http://www.rigzone.com/news/article.asp?a_id=151354

          Here’s the transcript of Hamm’s conference call:

          [T]he market is in the process of correcting as is the disparity between WTI and Brent. The new light oil refining capacity comes online and increased export shipment of light crude take place, this differential will be eradicated to return to dort norms of WTI dominance over Brent.

          https://seekingalpha.com/article/4097204-continental-resources-clr-ceo-harold-hamm-q2-2017-results-earnings-call-transcript

          • Glenn E Stehle
            Ignored
            says:

            .

          • Dennis Coyne
            Ignored
            says:

            Hi Glenn,

            Yes it is true the US exports oil products and some crude.

            It is also a fact that the US imports more crude plus products than it exports.

            Now if one is then going to claim the US is “oil independent”, the claim would be false.

            You are correct that moving light oil to where it can be refined more efficiently makes sense.

            Trump was implying that the US was a net exporter of oil and natural gas.

            Most US citizens are unaware of the distinction between net exports and exports.

            Bottom line, the US produces far less oil than it uses and is highly dependent on oil imports. That is a fact.

          • Dennis Coyne
            Ignored
            says:

            Hi Glenn,

            And here are crude imports for the US. The net crude imports (my chart below minus your chart above for the most recent month is about 7 million barrels per day. Also a fact.

          • Dennis Coyne
            Ignored
            says:

            Hi Glenn,

            Net imports of crude oil from the EIA.

          • Greenbub
            Ignored
            says:

            I wonder what that spike was in 1958? (US exports graph)

    • Guy M
      Ignored
      says:

      By support, do you mean those people who prefer him over the leader of North Korea, or terrorists? Isn’t idiots and politics the same thing?
      Everyone who supports him is supposed to be anyone who is patriotic. Although, if the shoe fits, call a cow paddie a cow paddie.

      • Ron Patterson
        Ignored
        says:

        You actually think that our only choice is between being a Trump supporter or supporting the leader of North Korea? Good gravy! Like I said earlier:

        “Trump and every one that supports him are goddamn idiots.”

        • Guy M
          Ignored
          says:

          No. I don’t care if he is a Democrat, Republican, Independent, or whatever; he is President of the US. No matter how stupid. I didn’t bother to become a veteran, to ignore our system. If you don’t like it, you are entitled to complain. Got pelted by complainers when I got back from duty. I had to finally realize I did it for them, too. I may be an idiot, but I am proud to be a US citizen, and proud to have served.

          • Watcher
            Ignored
            says:

            The most profound election data item I watched election night was the inability of polling experts to grasp the key fact.

            Populations of Michigan, Wisconsin and Pennsylvania are falling. They spent the whole night comparing Trump performance to Romney and Hillary to Obama in various counties of those states, and the population is less than it was. The comparison could not make sense, but they percolated along talking about it.

            BTW, that key fact has a corollary. The people leaving aren’t leaving multi-generation family farms. They are leaving ghetto cities. That ain’t gonna reverse by 2020 and reapportionment of electoral college votes from the 2020 census won’t be in place by November because the census won’t be done.

            • Nathanael
              Ignored
              says:

              Watcher, you simply haven’t checked the demographics. The cities themselves are still actually growing, in Pennsylvania and Wisconsin. (Michigan is a special case.) The people leaving ARE, in actual fact, leaving the farms.

              Sorry to spoil your theory, but you have to adapt it to the evidence. The rural-to-urban population move continues unabated.

          • Hickory
            Ignored
            says:

            A Nazi tolerating asshole will never be my President, never be my Commander in Chief, and will never be welcome in my community.

        • Fred Magyar
          Ignored
          says:

          https://www.scientificamerican.com/article/richard-dawkins-offers-advice-for-donald-trump-and-other-wisdom/

          BEHAVIOR & SOCIETY
          Richard Dawkins Offers Advice for Donald Trump, and Other Wisdom
          The biologist and atheist, whose latest book was released this week, talks about the reliability of science, artificial intelligence, religion and the president

          A question posed to Richard Dawkins By John Horgan on August 10, 2017

          …In your new book’s introduction you allude to Donald Trump’s election, and say that now “more than ever, reason needs to take center stage.” What would you say to Trump if you had his ear? Do you think you could reason with him?

          Mr. Trump, you appear to be laboring under the delusion that you have the necessary qualifications to be president. The manifest failure of almost everything you have attempted during your first six months, coupled with the anarchic chaos that pervades your White House, should give you pause—or would give pause to any person of normal sensitivity.

          What advice would I give? Get your news, not from FOX but from all the sources available to a president, many of them not available to the rest of us. Announce your decisions after due consideration and consultation, not impulsively on Twitter. Cultivate common good manners when dealing with people. Do not be misled by the crowds that cheer your boorish rudeness: they are a minority of the American people.

          Listen to experts better qualified than you are. Especially scientists. Be guided by evidence and reason, not gut feeling. By far the best way to assess evidence is the scientific method. Indeed, it is the only way if we interpret “scientific” broadly. In particular—since the matter is so urgent and it may already be too late—listen to scientists when they tell you about the looming catastrophe of climate change.

          No I don’t think I could reason with Trump. Why would I succeed where so many have failed?

          • Hightrekker
            Ignored
            says:

            But he is so angry!
            When it becomes obvious that there is not a rational response to Dawkins.
            Liberals are especially good at the “angry” meme.
            Dawkins has the equanimity of “a saint”.
            Sorry Cabbages For Christ.

    • Glenn E Stehle
      Ignored
      says:

      Ron Patterson

      …we are a net importer of oil and gas.

      Oil for sure. But when it comes to natural gas, not any more.

      • Dennis Coyne
        Ignored
        says:

        Hi Glenn,

        It was pretty clear that Ron was talking about the sum of oil and natural gas net exports in barrels of oil equivalent.

        If we look at total petroleum (oil and natural gas) net exports for the US in barrels of oil equivalent, the number is negative, well over 10 million barrels per day.

        • Dennis Coyne
          Ignored
          says:

          Hi Glenn,

          The “well over 10 million barrels per day” statement is wrong. I did not double check the data and remembered incorrectly. Net exports of crude oil is about 7.5 Mb/d for the US for the most recent monthly data reported by the EIA.

          • OFM
            Ignored
            says:

            “Net exports of crude oil is about 7.5 Mb/d for the US for the most recent monthly data reported by the EIA.”

            BIG typo I’m thinking.

  7. Evolv
    Ignored
    says:

    Could someone in the know comment on the most recent shale profile.com update for the Permian? It shows a considerable decline. Just wondering thoughts. Will this be revised? Are some companies not reporting? Active areas not covered? Etc

    Thanks much appreciated

    • Guy M
      Ignored
      says:

      What in the Permian is in decline? The old vertical wells are declining? Or as some wags suggest, are they drilling too many wells and demolishing the Permian? Probably, six months ago, I suggested it may happen to the conventional. EIA seems to forget there is a conventional Permian, and a horizontal Permian. Treats them both the same. Pretty stupid huh?
      Then again, reality is not what the press or EIA is really concerned with.
      http://www.rrc.state.tx.us/all-news/081017a/

      • clueless
        Ignored
        says:

        Many people criticize the EIA for their accuracy [or lack there of]. So, why would you want them to report more?

        • Guy M
          Ignored
          says:

          ???I would not want that. Merely pointing out that completions in Texas are 60% of what they were last year, and by this point last year, overall production started to decline. So, if some point, we see declines in Texas, it’s not a complete surprise.
          The previous hype about the Permian increasing Texas production by the EIA and the press is pure BS. There may be a lot of extra DUCs, but they do not PRODUCE! They are also limited to future increases by the dearth of frac crews. In addition, Permian conventional continues to decline. The EIA projection of US production reaching 9.9 million barrels a day by the end of 2018 makes “Jack and the Beanstalk” look highly rrealistic. The oil companies started this with their profitable $40 oil junk.

          • Guy M
            Ignored
            says:

            EOG has managed to show a very slight profit by drilling 90% in their sweet spots. They have the biggest portion of sweet spots. $40 to 55 oil price will never get us to 9.9 million barrels. As gun shy as the upstream companies are about oil prices, a quick upshot in oil price, won’t make much of a difference.

          • clueless
            Ignored
            says:

            “EIA seems to forget there is a conventional Permian, and a horizontal Permian. Treats them both the same. Pretty stupid huh?”

            Excuse me! I thought that you were wanting the EIA to separate their projections of future oil production from the Permian into a conventional projection and a horizontal projection. Unless they do, it is impossible to determine that they are overstating/understating one or the other.

    • Dennis Coyne
      Ignored
      says:

      Hi Evolve,

      The “decline” is due to incomplete production data from the Texas RRC. It takes about 6 to 12 months for all the production data to get reported.

      The EIA’s LTO estimate for the Permian Basin is in the chart below. This estimate is different from Enno Peter’s estimate because it includes LTO output from both vertical and horizontal LTO oil wells.

      Enno’s estimates include horizontal wells only and leaves out about 7% of wells where estimates are difficult due to multi-well leases with horizontal and vertical wells. Texas reports at the lease level so estimating well profiles is a challenge on leases with multiple wells that start production on many different dates.

      • Krisvis
        Ignored
        says:

        Dennis: where do you think US production will end up this year and next year. You had a post earlier where you showed Permian will grow by 154000 barrels/day/year. What is your new estimate?

        • Dennis Coyne
          Ignored
          says:

          Hi Krisvis,

          There are a lot of moving parts to such an estimate.

          There is the Gulf of Mexico, Alaska, all US LTO plays and onshore conventional.

          Let’s say GOM output remains flat at May 2017 levels (EIA expects a 300 kb/d increase by Dec 2018). We could also assume LTO besides the Permian will remain flat (slight increase in Bakken and slight decrease in Eagle Ford balance out). Assume onshore conventional and Alaska output decline at about 5% per year. That is about 3200 kb/d of onshore conventional plus Alaska with about 160 kb/d of decline each year.

          Based on the 12 month trend of Permian output I expect about a 360 kb/d annual increase in output (difference in yearly average for 2016 and 2017).

          So subtracting the conventional decline from Permian increase I expect about a 200 kb/d increase each year for the next two years.

          A critical assumption is that oil prices remain $60/b or less over this period.

          A spike in oil prices might lead to higher output than this very rough guess.

          So 2016 output was 8850 kb/d and I expect 2017 output to be 9050 kb/d and 2018 output to be 9250 kb/d, if oil prices remain under $60/b (2017$) until Dec 2018.

          Higher oil prices ($100/b) might result in the US surpassing the previous peak in annual output (9637 kb/d in 1970), perhaps by 2020. If this occurs it will be short lived and US output is likely to decline fairly sharply (4%/year or more) by 2025 even if oil prices are high (over $120/b in 2017$).

          This is mostly because the sharp rise in LTO output is likely to be followed by a sharp fall in output between 2025 and 2030.

          This is clearly speculation on my part. Future changes in technology, wars, economic crises and so forth will make these guesses incorrect no doubt.

  8. MASTERMIND
    Ignored
    says:

    A Saudi singer was arrested after dabbing during a concert

    http://stepfeed.com/a-saudi-singer-was-jailed-after-dabbing-during-a-concert-3732

  9. Jeff
    Ignored
    says:

    IEA OMR Aug: https://www.iea.org/oilmarketreport/omrpublic/

    Historic demand has been overstated, demand this year looks strong, global stocks are down (US is falling of a cliff).

    Assuming demand remains healthy, all eyes are now on Libya and Venezuela.

    “New data for non-OECD countries for 2015 reduces global oil demand by an average 330 kb/d in 2015-2018. For 2017, growth has been revised up to 1.5 mb/d, with demand reaching 97.6 mb/d.”

    “OECD industry stocks fell in June by 19.3 mb to 3 021 mb on strong refinery runs and oil product exports, but are still 219 mb above the five-year average. In 2Q17, global oil stocks drew by 0.5 mb/d, including 0.2 mb/d in the OECD. Provisional data shows further falls in July, including the largest monthly US crude stock draw for more than three years.”

    “Producers should find encouragement from demand, which is growing year-on-year more strongly than first thought. Our growth estimate for 2017 has been increased to 1.5 mb/d, including very strong data for 2Q17 when demand increased by 1.8 mb/d.”

    • Nathanael
      Ignored
      says:

      I’ve stopped paying attention to small fluctuations in the demand numbers since I figured out that China’s strategic reserve increases show up as “demand” and their strategic reserve releases show up as “reduced demand”. They don’t disclose their stocks.

      Makes a mess of the global numbers.

  10. texas tea
    Ignored
    says:

    total world oil/liquids consumption for 2018 forecasted to be 100 million bd… 1.6 million bd higher than 2017.

    https://www.eia.gov/outlooks/steo/marketreview/crude.cfm

    sure glad some of us goddamn idiots are out there trying to find the stuff instead of spending their life on earth telling others what idiots we are for doing so😉

  11. George Kaplan
    Ignored
    says:

    Some service companies maybe running out of room to keep cutting prices to try and stay in business, I think anything heavily into deepwater is especially getting clobbered).

    OIL SERVICE FIRMS SEE FEWER, BUT BIGGER, BANKRUPTCY FILINGS IN 2017:

    http://uk.reuters.com/article/us-oil-bankruptcy-idUKKBN1AQ2IC

    Deepwater drilling contractor Ocean Rig USW Inc listed debts of about $3.7 billion in its March bankruptcy filing, the largest since Haynes and Boone began tracking energy bankruptcies in 2015. Geophysical services provider CGG (US) Holding Inc was the second-largest filing, owing creditors $3.4 billion, when it declared bankruptcy in June.

    “Many of the larger companies were able to do some out-of-court restructurings to weather the storm, but as depressed commodity prices continued, the market drove them into bankruptcy,” said Stephen Pezanosky, a restructuring partner with Haynes and Boone in Dallas.

    • Nathanael
      Ignored
      says:

      This is terribly interesting. I would not have guessed that the first move in the collapse of the industry would be for the oilfield services companies to get sequeezed on price and declare bankruptcy, but I guess it makes sense.

      It makes me wonder what the next domino to fall will be. Standalone refinery companies? Gas stations? Gasoline distributors? Perhaps someone with a better sense of the internal details of the oil supply chain can help me out here.

      We know that the profits on oil are shrinking, because demand for the major products is flat-to-shrinking (over the several year horizon) while the cost of extraction from the ground and the cost of refining is increasing. The question is, *which segment* of the industry gets its profit margin squeezed to zero next? Eventually it’ll be nearly every segment, but they’re going to go down one at a time.

  12. Glenn E Stehle
    Ignored
    says:

    Kemp: Oil Market Marches On Towards Backwardation
    http://www.rigzone.com/news/oil_gas/a/151360/Kemp_Oil_Market_Marches_On_Towards_Backwardation

    Oil traders are increasingly convinced the market will rebalance over the next year with a major drawdown in crude and products stocks.

    • Glenn E Stehle
      Ignored
      says:

      Harold Hamm is also bullish about the long-term prospects for the price of oil:

      Continental Resources CEO: Absolutely No New Debt
      http://www.rigzone.com/news/article.asp?a_id=151354

      “Absolutely no new debt. That’s part of our plan, the strategic plan going forward to knock our debt down,” Hamm said on a conference call with investors.

      The company will forgo some growth opportunities as it curtails spending and spends only as much as it takes in, Hamm said. The announcement came the day after Continental cut its 2017 capital spending plans and raised its production estimate, essentially promising it could do more with less….

      “In the meantime, we believe that the long-term oil supply cannot be sustained at $50 WTI. There simply won’t be adequate capital investment long term at this price to adequately supply market demand growth,” Hamm said.

      • Eulenspiegel
        Ignored
        says:

        Yes, and the longer it stays at this level, the harder it will spike.

        You can’t even crank up fracking oil fast when most service teams are fired, no piplines are build to transport the stuff away.

        No deepwater projects financed, old fields running dry and no enhanced recovery installations planned. When the decline starts kicking in, it will take years before the new production can kick in in acceptable numbers. These deep sea platforms, CO2 injection installations and pipeline networks for increased fracking don’t build themselves overnight.

        High oil price over several months (investors are burned enough) first -> investing plans -> getting financing -> project planning, political troubles -> build the things while all service companies have shut down their services to minimum -> testing -> more oil.

        At the moment we are still in the pipeline of projects financed in the “good years” with 90$ oil and buffered by fracking the middle of the sweetspots and the unlikely recovery of both Lybia and Nigera (together more than the LTO recovery 2016/17).

        • Nathanael
          Ignored
          says:

          If there is a price spike, it should be good fun. It will simply cause increased substitition.

          High oil price over several months (investors are burned enough) first -> investing plans -> getting financing -> project planning, political troubles -> build the things while all service companies have shut down their services to minimum -> testing -> more oil.

          Now, consider the other sort of investing plans which happens in response to a high oil price. Investing in electric car and truck factories.

          This is historically a slow process, but once a first factory for a given model is up and running, I’d daresay it’ll take about a year to clone it. It’ll be pumping out cars before the oil company’s hole in the ground is actually producing any oil.

    • Boomer II
      Ignored
      says:

      Glenn, sometimes you post about how low oil prices are great for Americans and how we’re screwing OPEC in the process. Now you are posting about how oil prices will rise.

      Your positions are all over the place. The only consistency is that you like oil and the Permian.

      • Dennis Coyne
        Ignored
        says:

        Hi Boomer II,

        Glenn’s position is that we don’t know what the future oil price will be. There are those that argue that it will climb higher and others who argue that oil prices will remain low.

        If that is his position, I agree that nobody knows for sure. My guess is that between now and 2020 oil prices will rise, but cannot predict the path that oil prices will follow from now until then.

        • Nathanael
          Ignored
          says:

          My position is that from now to 2025, oil prices will definitely fall (in inflation-adjusted terms). However, I have two working scenarios: one involves a steady decline with plateaus, while the other involves a gigantic price spike followed by a monumental crash.

          I honestly can’t say which is more likely. It’s an unstable system and it depends on the exact timing of a number of things relative to each other.

  13. Watcher
    Ignored
    says:

    Reminder to the gentle decline people.

    You don’t have to have a production peak to get global nuclear war derived from inadequate supply. You just have to have, precisely that, inadequate supply. That comes from demand that exceeds consumption.

    If you want more than you can have, if you need more than you can have, you will take it from someone else by force.

    • Eulenspiegel
      Ignored
      says:

      Another thought: developing India / Africa / Middle/South America to a higher level would take more oil than even the most optimistic experts expect to produce. We would speek about more than 200 million barrels + / day.

      So worldwide poverty is given with clinging to fossil fuel age – we have to break out here.

      • Boomer II
        Ignored
        says:

        I think poverty is a given if driven by fossil fuels because I don’t see there will be a sufficient market for what those countries have to sell to get the money to buy the fossil fuels. If global trade slows down, developing countries don’t have a source of income.

        I am more optimistic with clean energy technology because fuel supplies won’t be an on-going expense, which will give countries more economic autonomy. Plus, for countries like China and India, becoming a supplier of energy technology gives them something to sell which might be purchased by more affluent countries.

        I’m looking at economic strategies and what might provide a better chance for economic survival in the future.

    • Dennis Coyne
      Ignored
      says:

      Hi Watcher,

      The gentle decline assumes no nuclear war and no severe recession. Either assumption and perhaps both assumptions may prove incorrect. Hopefully nuclear war will be averted, I doubt that a severe recession will be averted between 2030 and 2040 so gentle decline (2%/year or less) might only occur until the severe recession begins. A Great depression would lead to sharp decline in global oil demand, low oil prices and falling suppy (probably at least 4%/year).

      • Nathanael
        Ignored
        says:

        We’re not going to have a recession until the renewable energy boom starts hitting saturation point. That’s the lesson I take from previous technological transitions: they prevent recession until the majority of people have converted.

        At that point the market can’t support continued expansion at the same rate, so a bunch of people get laid off, boom, recession.

  14. Boomer II
    Ignored
    says:

    This won’t be news to most here.

    This is what the end of shale will look like

    https://www.forbes.com/sites/ellenrwald/2017/08/11/this-is-what-the-end-of-shale-will-look-like/#51e9e6915a05

    • Glenn E Stehle
      Ignored
      says:

      Shale has been extracted in the last decade from fields in North America such as Permian Basin in Texas, Bakken in North Dakota and Eagle Ford in the northeast United Sates.

      I stopped reading right there.

    • Watcher
      Ignored
      says:

      Interesting theory. With some underpinning.

      Her position is lower costs are coming from cutting payroll expense, which is somehow aligned with oil price. The higher the price, the higher the wages. Somehow.

      Then there is her graph:
      https://blogs-images.forbes.com/ellenrwald/files/2017/08/Shale-breakeven-e1502399519233.jpg?width=960

      I remember discussion here at $105/b in 2013 challenged whether or not shale was making money. A lot of analysis said no. Shale fracking was well underway by 2011, but stock prices for, say, WLL didn’t explode from 2011 to 2014. At all.

      Even CLR only doubled. One would think a profitable activity that was drilling hundreds of new holes AND FRACKING THEM (no DUCs then) in NoDak each month should have translated into explosive profit for CLR if each well were profitable, but nope. The S&P rose something like 50% 2011 to 2014 and CLR only added another 50% to that.

      This is not the stuff of big profits at higher oil prices. So she may be right. Price won’t save shale.

  15. Watcher
    Ignored
    says:

    In the context of shale drillers getting their service providers to take less money so that “lower costs” were reported — a post or two ago I found Halliburton quarterly report text announcing increases in US shale revenue from their fracking services.

    And so, now . . . Schlumberger: They lost money 2017Q2. From the CEO:

    “North America revenue increased 18% following our rapid deployment of idle hydraulic fracturing capacity as land activity further accelerated during the second quarter, partially offset by further weakness offshore in the US Gulf of Mexico. In US land, revenue grew 42% sequentially, a rate almost double that of the 23% increase in land rig count, driven primarily by hydraulic fracturing revenue that grew 68% as completions activity intensified and pricing continued to improve. Directional drilling revenue in US land was also higher as longer laterals requiring rotary steerable systems and advanced drillbit technologies continued to drive drilling intensity. Despite the significant costs associated with reactivating equipment, all of our US land product lines were profitable in the second quarter, driven by higher pricing, market share gains, improved operational efficiency, timely resource additions, and proactive supply chain management.”

    So . . . SLB and HAL aren’t taking those hits. Who is?

    • Energy News
      Ignored
      says:

      Baker Hughes (NYSE:BHGE): Q2 EPS of -$0.11
      Calfrac Well Services (OTCPK:CFWFF): Q2 EPS of -C$0.15
      Dril-Quip (NYSE:DRQ): Q2 EPS of $0.09
      Halliburton (NYSE:HAL): Q2 EPS of $0.23
      Weatherford (NYSE:WFT): Q2 EPS of -$0.28 in-line.

      U.S. Silica (NYSE:SLCA): Q2 EPS of $0.38 in-line.

      • Watcher
        Ignored
        says:

        No, you have to get revenue. Not EPS. Did they get more money from their fracking services or not. Not earn more. Get more.

        Don’t matter if they did so profitably. The question is were they the source of lower costs for their customers.

  16. Energy News
    Ignored
    says:

    2017-08-11 North Dakota June production down -9 kb/day at 1.032 million b/day vs 1.041 million b/day in May. Producing wells rose to record 13,915 in June – NDIC.

    • Energy News
      Ignored
      says:

      North Dakota Directors Cut
      The number of well completions decreased slightly from 66(final) in May to 63 (preliminary) in June.
      Estimated wells waiting on completion is 865, up 35 from the end of May to the end of June.
      Estimated inactive well count is 1,458, down 53 from the end of May to the end of June.

  17. MASTERMIND
    Ignored
    says:

    POST PEAK MEDICINE:

    Dr Peter Gray: “Once collapse is in full swing health care will disappear almost overnight. Of all the industries in our complex world medicine has become one of the most energy-intensive, technology-dependent, and thus fragile endeavors that exists…”

    http://www.postpeakmedicine.com/PostPeakMedicineBook.pdf

  18. MASTERMIND
    Ignored
    says:

    Conventional Oil Peaked in 2006 –IEA
    http://imgur.com/a/hccu9

    New Oil discoveries by scientists have been declining since 1965 and last year was the lowest in history -IEA
    http://imgur.com/a/W60yn

    International Energy Agency Chief warns of world oil shortages by 2020 as discoveries fall to record lows
    https://www.wsj.com/articles/iea-says-global-oil-discoveries-at-record-low-in-2016-1493244000

    Saudi Aramco CEO believes world oil shortage coming despite U.S. shale boom
    http://www.foxbusiness.com/markets/2017/07/10/saudi-aramco-ceo-believes-oil-shortage-coming-despite-u-s-shale-boom.html

    UAE warns of world oil shortages ahead by 2020 due to industry spending cuts
    http://www.arabianindustry.com/oil-gas/news/2016/nov/6/more-spending-cuts-as-uae-predicts-oil-shortages-5531344/

    HSBC Global Bank warns 80% of the worlds conventional fields are declining and world oil shortages by 2020
    https://www.research.hsbc.com/R/24/vzchQwb

    UBS Global Bank warns of industry slowdown and world Oil Shortages by 2020
    http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/12136886/Oil-slowdown-to-trigger-supply-crisis-by-2020-warns-bank.html

    German Army (leaked) Peak Oil study concludes world oil shortages would collapse the world economy and world governments/democracies
    http://www.spiegel.de/international/germany/peak-oil-and-the-german-government-military-study-warns-of-a-potentially-drastic-oil-crisis-a-715138.html

    Perfect Storm: Energy, Finance and the End of Growth; Dr Tim Morgan Global Head of Research
    https://www.tullettprebon.com/Documents/strategyinsights/TPSI_009_Perfect_Storm_009.pdf

  19. MASTERMIND
    Ignored
    says:

    For every one percent of conventional oil production that declines. Shale oil would have to increase by twenty percent to cover the difference.

    -Douglas B Reynolds Professor “Oil and Energy Economics”

  20. Boomer II
    Ignored
    says:

    Special Report: Vladimir’s Venezuela – Leveraging loans to Caracas, Moscow snaps up oil assets

    http://mobile.reuters.com/article/amp/idUSKBN1AR14U

  21. Glenn E Stehle
    Ignored
    says:

    texas tea,

    Talking about being a “productive member of our society who contributes in many ways to the quality of life my fellow country men enjoy,” it looks like you guys up there in Oklahoma are doing all the good.

    I saw this about the STACK and the SCOOP from Continental’s conference call:

    In STACK we continue to derisk the Meramec reservoir completing six standalone wells during the quarter. These wells had average initial rates of 1,915 Boe per day with average oil cuts of 45% and average lateral length of 6,870 feet.

    We recently completed another stepout well, that is a record setting well for the Meramec and STACK. TRES C FIU 1-35-2XH float at the remarkable rate of 1,021 barrels of oil and 29.6 million cubic feet of gas per day or 5,953 Boe per day. This was a 9,750 foot lateral and it produced this rate at an impressive 6,500 PSI full income casing pressure. Adding in the additional 1,978 barrels of anticipated natural gas liquids post-processing, we estimate 24 hour rate for the TRES C would be 7,442 Boe per day with 40% of the production being liquids on [indiscernible] basis. Now I have to say, this is the strongest flowing well I’ve ever been associated with in my career.

    Now for perspective, the company has announced the completion of 48 overpressured stacked Meramec well to-date. Results of extended the productive footprint of the Meramec, approximately 25 mile south and 35 miles west from Eastern Blink County into Dunn and Costa [ph] counties. The wells have established production from three Meramec reservoirs including the upper, middle and lower reservoirs as we have them defined today. Approximately one-third of the wells have been completed in each of the three reservoirs. The initial range of 24 hour IPs from these wells and each are really quite — and each of these reservoirs is quite similar and the average initial rate for wells in each reservoir falls within 20% to 25% of each other. So these are very good statistics given the overpressure STACK is so early in its development. These results are also in line with our geologic model.

    In addition to our stepout drilling, we also have seven Meramec density tests underway in STACK to determine the well density needed to maximize recoveries and the net present value of each unit, and increase — basically try to improve that in each of these. We have over 265 operated units for potential development underlying our 207,000 acres on STACK. The first two density tests we completed were in the Ludwig and Bernhardt units. We are monitoring the production from these units closely and are pleased to see that the density wells continue to produce in line with apparent wells. To illustrate, our production chart of the Ludwig unit wells is included in our slide deck on Page 22. The Ludwig unit density wells have been producing for about 300 days.

    We recently began flowing back our third Meramec density test in the Blurton unit. Blurton was an eight well density test with three new wells in the upper Meramec, four new wells and one parent well in the lower Meramec. Lateral links averaged approximately 10,000 feet. The unit is in the early stages of flowback and has not reached peak production rates. To date, the combined 24 hour initial rate we have recorded from the eight wells is 10,514 Boe per day with 78% of the production being oil, including anticipated post-processing natural gas liquids to combined estimated initial 24-hour rig would have been approximately 11,883 Boe per day on a three stream basis.

    The wells continue to clean up, and as they do oil production is aligning with the parent well. At day 22, the seven density wells are producing at average rates that are approximately 80% of the parent well. We continue to monitor the performance of these wells and will incorporate the results with other ongoing density tests to design our future develop plans for the Meramec reservoirs. This quarter we also introduced our type curve for the STACK Meramec condensate wells with a projected EUR of 2.4 million Boe for a 9,800 well. This type of curve delivers an 80% rate of return assuming a complete well cost of $10 million.

    In SCOOP we completed another excellent Springer well, the Robinson well completed flowing 1,636 Boe per day from a 7,700 foot lateral with 82% of the production being oil. This was a strategic well designed to drill and complete a thinner portion of the Springer where the reservoir gets down to approximately 20 feet thick. During the first 60 days the Robinson has produced at an average rate of 1,350 Boe per day and has produced historic — our historical 940 MBoe type curve by 89%.

    One last thing before I pass it on to John; during the quarter we also completed two Woodford wells in the Cottonwood project in Stevens County, approximately 10 miles south of our — most of our SCOOP Woodford activity. These were optimized completions in an area we had not completed wells for a couple years. The wells had an average initial rates of approximately 2,100 Boe per day with 26% of the production being oil. Once again, both wells are outperforming legacy wells in the area by 80% to 90% during the first 30 days.

    https://seekingalpha.com/article/4097204-continental-resources-clr-ceo-harold-hamm-q2-2017-results-earnings-call-transcript?part=single

    • Watcher
      Ignored
      says:

      “TRES C FIU 1-35-2XH float at the remarkable rate of 1,021 barrels of oil and 29.6 million cubic feet of gas per day or 5,953 Boe per day. This was a 9,750 foot lateral and it produced this rate at an impressive 6,500 PSI full income casing pressure. Adding in the additional 1,978 barrels of anticipated natural gas liquids post-processing, we estimate 24 hour rate for the TRES C would be 7,442 Boe per day with 40% of the production being liquids on [indiscernible] basis. Now I have to say, this is the strongest flowing well I’ve ever been associated with in my career.”

      What? Strongest in his career?

      But that is just pathetic.

      The KSA Original Magnificent Five dwarf that pitiful thing. They are magnificent not in being the best, just being old. There are far better wells there than this one below. But this one is one of the originals.

      ‘Ain Dar well has flowed 66 yrs. Average flow (not initial flow, average flow) for 66 friggin years — 7180 barrels/day. These shale wells debate over whether they can ultimately recover what, 400-700K barrels? That Ain Dar guy has recovered 152 MILLION barrels to date, and is still flowing at 2100 bpd when it is 66 years old.

      What bizarre hype from those CLR people.

    • shallow sand
      Ignored
      says:

      CLR is a good company to review with regard to US onshore unconventional profitability. They sold just about all of their conventional wells, have not diluted shares and have not engaged in many joint ventures or other complicated transactions

      CLR is out of the ordinary in that it is controlled by one investor, Harold Hamm. As I stated in the last thread, he started the company 50 years ago with one water truck.

      I encourage readers to look at CLR financials from 2012 to present. Despite gains in greatly reduced service costs and increased IP’s, CLR hasn’t overcome the drop in oil prices from WTI 90+ and Henry Hub 4+.

      Although I have also discussed that SEC PV10 is not particularly a good metric, I do think it is worth some noting of CLR PV10 in 2014, 2015 and 2016.

      I agree with Mr Hamm, sub $50 WTI and sub $3 Henry Hub doesn’t work for most US onshore E & P. However, it could take US onshore E & P drilling through most of its reserves before prices rise, which would take more than 5 years.

      Great for consumers, not so good for those investing in US onshore focused E & P’s. As consumers greatly outweigh the investors, overall a net positive for US economy.

      • Glenn E Stehle
        Ignored
        says:

        Continental’s Achille’s heel is that most of its oil production comes from the Bakken, and Bakken crude sells at a substantial discount to WTI because of high transportation costs.

        Traditionally this has amounted to about $8.50/barrel. However, as Continental reported,

        Our crude oil differential guidance for 2017 has improved by $1 to a projected range of $5.50 to $6.50 per barrel for the year. In the Bakken our crude differentials have already strengthened as much as $2.40 in the local markets. Overall, we expect our Bakken crude differentials could improve by as much as $2 per barrel on average in the second half of 2017. We also expect to see continued downward pressure on crude differentials…as additional infrastructures developed….

        The biggest reason the differentials are coming down is undoubtedly because the Dakota Access Pipeline became operational on June 1, 2017.

        The large crude differentials also explain why North Dakota rig counts haven’t recovered the way those in Texas and Oklahoma have. It certainly isn’t because of poor well productivy. Well productivity of Continental’s new wells in the Bakken is almost double what it was before the new wave of completion techniques began being rolled out (starting in the second half of 2015).

        • shallow sand
          Ignored
          says:

          CLR’s problem, as is the problem with most of lower 48 onshore, is the price of oil and gas is not high enough, even with lower costs for services and more productive wells.

          I suspect we will see several years of low prices, similar to the 1990s. US shale will drill through the bulk of its reserves, and break even, with small profits and losses on either side.

          Once the majority of locations have been drilled, maybe the price will rise assuming demand is still increasing. Then, a company like CLR will make money as a stripper well operator, operating 10,000 wells making 200K net BOEPD.

          That is the goal of the private equity firms buying in the Bakken, I presume. I have seen some of the PE firms’ joint interest billings to non-operated owners in the Bakken. 15-75 gross BOPD wells with LOE & overhead of $8-15K per month. Routine work overs are lower, it seems, $25-50K. The PE firms have no production growth pressure, so they will maybe keep one rig active till it makes sense price wise to do more.

          • Dennis Coyne
            Ignored
            says:

            Hi Shallow Sand,

            I think before long the OPEC cuts and the lack of investment in new large projects since 2016 (besides LTO plays) will start to reduce supply, demand will continue to grow, stocks will decrease and prices will rise.

            I expect by late 2018 we may reach your preferred oil price level (55-65/b as I recall) and by the end of 2019 we might see oil prices reach $80/b (these are monthly average prices for WTI).

            It might take oil prices at $120/b to cause another oversupply of oil (relative to demand at that price). Or we might never reach an oversupply situation for oil unless EV sales expand at 20% per year or more for a decade or two or there is a depression.

            • Nathanael
              Ignored
              says:

              Dennis, you’re going to be wrong about demand. I run a lot of peak demand models. The older ones were pointing at 2030. The more recent ones were pointing at 2025. But the new models are pointing at 2023, because displacement of heavy trucks displaces an unusually high amount of oil demand, and I’d left those out of the previous models.

              “Or we might never reach an oversupply situation for oil unless EV sales expand at 20% per year or more for a decade or two or there is a depression.”
              I have no idea why the rate of growth of EV sales would DROP to 20% per year. This is not an evidence-based number.

              The growth rate of EV sales, worldwide, has been *averaging* roughly 50% per year for the last 5 years. There is now evidence that it’s going to *accelerate*, particularly due to Chinese policy and expansion there. It’ll probably hit a battery raw material supply bottleneck at some point, since mines don’t seem to be opening fast enough, but that’s best described as a speed bump.

              So you you think it’ll take a decade of EV sales expanding at 20% per year… it’ll only take 5 years of EV sales expanding at 50% per year.

              My projections are based on the point when the rate of displacement of oil demand by EV purchases exceeds the *natural* decline rate of the fields. Basically every oil exploration & development project brings my date for the permanent oil glut closer to the present. Fields with accelerated depletion such as US shale push the date out further into the future, however.

              But as one person commented, looking for the *permanent* oil glut is a bit pessimistic. We could see permanent low oil prices before the permanent glut hits: investors are forward-looking, sources of temporary glut could be ongoing shortly before the permanent glut hits, there could be half-finished oil wells still in the pipeline.

        • Dennis Coyne
          Ignored
          says:

          Hi Glenn Stehle,

          It is the number of wells completed that matters, rig count is a very rough indicator of this as availability of fracking crews becomes an issue as output ramps up.

  22. Glenn E Stehle
    Ignored
    says:

    texas tea,

    Don’t know if you saw it, but Michel de Rougemont wrote a rebuttal to the paper that alleges that fossil fuels are subsidized to the tune of 6.5% of GDP.

    Here’s a link to the paper he is criticizing:

    http://www.sciencedirect.com/science/article/pii/S0305750X16304867

    And here’s Rougemont’s rebuttal:

    http://blog.mr-int.ch/?p=4217

    I thought this passage from de Rougemont was most germane to the discussion regarding a “productive member of our society who contributes in many ways to the quality of life my fellow country men enjoy”.

    Positive externalities are not considered at all, although they should be subtracted from the alleged costs.

    For example, almost all the World GDP could not be generated without energy; with just muscle power we would still be at medieval levels, whatever our intelligence would be.

    If energy consuming traffic is associated with social costs of accidents, aren’t there also social benefits in traveling and meeting people in other places, in being able to support all kinds of businesses, or enjoying gatherings among friends and family?

    Also, as a higher carbon dioxide concentration in the atmosphere clearly favours stronger plant growth, huge agronomic benefits must be subtracted from damages allegedly due to climate change. The IMF report is therefore highly biased, negatively.

    • Fred Magyar
      Ignored
      says:

      Also, as a higher carbon dioxide concentration in the atmosphere clearly favours stronger plant growth, huge agronomic benefits must be subtracted from damages allegedly due to climate change.

      You’re both an imbecil and a demagogue! Guess you slept through Plant Physiology 101! And probably most other science classes as well…

      https://www.khanacademy.org/science/biology/photosynthesis-in-plants/photorespiration–c3-c4-cam-plants/a/c3-c4-and-cam-plants-agriculture

      Introduction
      High crop yields are pretty important—for keeping people fed, and also for keeping economies running. If you heard there was a single factor that reduced the yield of wheat by 20% percent and the yield of soybeans by 36%, percent in the United States, for instance, you might be curious to know what it was.

      As it turns out, the factor behind those (real-life) numbers is photorespiration. This wasteful metabolic pathway begins when rubisco, the carbon-fixing enzyme of the Calvin cycle, grabs O2
      ​​ rather than CO2. It uses up fixed carbon, wastes energy, and tends to happens when plants close their stomata (leaf pores) to reduce water loss. High temperatures make it even worse.
      Some plants, unlike wheat and soybean, can escape the worst effects of photorespiration.

      C4 and CAM pathways are two adaptations—beneficial features arising by natural selection—that allow certain species to minimize photorespiration. These pathways work by ensuring that Rubisco always encounters high concentrations of CO2​​, making it unlikely to bind to O2

      In the rest of this article, we’ll take a closer look at the C4 and CAM pathways and see how they reduce photorespiration.

    • Nick G
      Ignored
      says:

      Glenn,

      You should be more critical of information that seems to support your ideas. For example, this guy doesn’t understand the concept of externalities.

      with just muscle power we would still be at medieval levels

      That’s not an externality, it’s a direct benefit enjoyed by the direct purchaser/consumer of energy products. And, as it happens, it’s a benefit available from a wide variety of energy products, not just fossil fuels.

  23. FreddyW
    Ignored
    says:

    Hi,

    Here are my Bakken updates. A big drop in production for the 2010 wells. Production is now about the same as the 2007 wells when they were at the same age even though the initial production for the 2010 wells were more than 50% higher. Big drops also for the 2014 and 2015 wells. 2014 thereby continue to follow 2013 which follow 2012 which was a bad year. 2015 has dropped to the 2011 curve but is still above 2014 and 2013.

    2007 to 2009 has seen increases in production lately.

    • FreddyW
      Ignored
      says:

      GOR continue to increase for wells later than 2009, but the increase is maybe slowing down again. GOR increases for 2007 to 2009 seems to have leveled off.

    • FreddyW
      Ignored
      says:

      For water cut 2007 to 2009 are again different from the other curves. Notice how water cut has increased significantly lately at the same time as oil production has increased.

      • George Kaplan
        Ignored
        says:

        Wouldn’t it be easier to compare wells by showing the GOR and water cut the same as production against months from start-up rather than against actual date?

        • FreddyW
          Ignored
          says:

          Yes I see you point. When I first started sharing those graphs I wanted to show that the increase in GOR started around the same date. I have only been interested in seeing if GOR increases and how much it increases and not so interested in comparing that with other years. So I have not seen any need to change it. But I could provide that sort of graphs too if that is of interest.

          • Dennis Coyne
            Ignored
            says:

            Hi FreddyW,

            It would be of interest to me. If it’s not too much work to produce.

            Thanks.

        • FreddyW
          Ignored
          says:

          Ok here it is.

          Note that using this way of presenting the data, the first 12 months should be ignored as new wells are added every month and confidential wells are added until month 17 (also true for above graphs).

          • Watcher
            Ignored
            says:

            Measurement artifact? Gas takeaway capability is increasing.

            • George Kaplan
              Ignored
              says:

              Possibly – Freddy can you confirm that the GOR is based on wellhead numbers rather than sales?

              • Dennis Coyne
                Ignored
                says:

                Hi George,

                I asked this question in the past, my recollection is that it is production not sales. Freddy W please correct me if I am wrong.

                • FreddyW
                  Ignored
                  says:

                  Yes it is production as I have said before.

                  Also if it was takeaway capacity, then I would have expected more sudden jumps and not a steady continues increase over many years as it is in the graphs.

        • FreddyW
          Ignored
          says:

          And here.

          • George Kaplan
            Ignored
            says:

            Thanks – I don’t know what it all means exactly but the trends are really consistent, and much more evident than I expected, and you would think they can’t go on like that for many more years. It’s either completions method or geology or both, and you’d think the opposite would be happening if it was geology, given that the last couple of years the wells have all been in core locations. It seems to all fit with higher initial flow – i.e. higher flow, will decline faster so more gas, and also can carry more water overall, but I find it difficult to image that won’t mean a much faster decline at some point.

    • FreddyW
      Ignored
      says:

      I can also mention that 95 wells were put on production in June which is the highest number since September 2015.

      • Dennis Coyne
        Ignored
        says:

        Hi Freddy,

        How many of those 95 wells were confidential wells and were the remainder Bakken/Three Forks wells?

        Thanks for the info.

        I created two scenarios for future Bakken output based on the assumption that the current new well EUR remains constant until December 2019 and then decreases after that based on the number of completed wells (a higher completion rate causes new well EUR to decrease at a faster rate).

        The lower scenario has 95 wells per month completed until the end of 2030 and then fewer wells are completed (one less each month) until no further wells are completed in December 2038. Total wells completed is 31,840 wells from 2005 to 2040. URR is 9.1 Gb for this scenario through December 2040.

        The higher scenario reaches a maximum of 160 new wells completed per month with an increase of 5 new wells per month until 160 new wells per month is reached. The number of new wells completed decreases by 1 each month starting in Jan 2026 until reaching zero. Total wells completed is 40,000 and the URR is 10.9 Gb though 2040.

        The peak of the low scenario is about 1100 kb/d and the peak of the high scenario is about 1550 kb/d in 2021. Lower or higher scenarios could be created, but my expectation is that there is about a 90% probability that the actual output will fall between these two scenarios, with the most likely scenario near the average of these two scenarios as far as peak output (1325 kb/d) and the timing of the peak (2020 to 2023). I also expect URR from 2005 to 2040 to be about 10 Gb (about 2.2 Gb has been produced through June 2017).

        The precise path of future North Dakota Bakken/Three Forks output is impossible to predict.

    • Dennis Coyne
      Ignored
      says:

      Hi Freddy,

      Is there any evidence that many of the 2008 wells were refracked after about 75 months online? This would have been in 2014 to 2015, I am not sure if there is anything in the NDIC data that confirms this, as it is speculation on my part.

      I suppose it could be due to closely spaced wells near these 2008 wells that were completed around this period (2014-2015) that might have affected the 2008 wells.

      It seems strange that mostly 2008 wells were affected, perhaps there are more 2008 wells in the “sweet spots”.

      • FreddyW
        Ignored
        says:

        Hi Dennis,

        I don´t know which wells are have been refracked. But, if you remember, I did a deeper investigation of the data at the time and found out that most of the wells (but not all) which hade significant increases in production were in Parshal and close to newly completed wells. EOG drilled a lot of new wells in that area at the time. So my theory has always been that it was because of the “halo effect”. Also, I think someone here on the forum said that refracking is not very common. But maybe that has changed now?

        • Watcher
          Ignored
          says:

          Freddy, if we’re talking about the red line’s uptick before resuming decline, useful to note the axis. The uptick is only what, 20 bpd? Not very big numbers in the overall scheme of things.

          • FreddyW
            Ignored
            says:

            No not if it quickly goes back to previous levels. But if it stays higher than it should have been if it did not happen, then it will add up to a large amount in the end. Hard to say though what production should have been and what it will look like in the future.

        • Dennis Coyne
          Ignored
          says:

          Thanks for reminding me, I had forgotten that you had confirmed that the “halo effect” was the likely cause of that increase.

    • Watcher
      Ignored
      says:

      “2015 has dropped to the 2011 curve.”

      As has been mentioned before, this bespeaks faster decline for longer laterals and newer technology. 2015 wells were longer than 2011 with different choke management. Stage count increased in those 4 yrs, but those longer wells are now flowing what 2011 wells flow, despite their longer length? Do I have that right?

      If so, this is grim.

      • FreddyW
        Ignored
        says:

        It could be that because of close well spacing, many of the new wells are completed in partly depleted areas which more frack stages and more proppants cannot fully make up for. Pumping up the oil faster, as faster increasing GOR suggests, can temporarily increase production but it will deplete the reservoir faster and cause higher decline rates later as we now see.

      • Dennis Coyne
        Ignored
        says:

        Hi Watcher,

        My understanding is that the lateral length has remained relatively constant in the Bakken/Three Forks from 2008 to 2017 (and possibly since 2005).

        In the Permian basin there has been an increase in lateral length based on Enno Peter’s work at shale profile.

        You are definitely correct that there has been an increase in frack stages and proppant per well in the North Dakota Bakken/Three forks.

  24. Pingback: OPEC oil production jumps to 7 month high; US oil refining at a new record… | r.j.'s space

    Ignored

  25. George Kaplan
    Ignored
    says:

    China production had a good month in June, but gave it back in July. They have held a plateau for about a year though after big drops earlier (numbers based on 7.5 bbls per tonne). I think they have one platform shut in because of a leak, but I don’t know it’s production.

  26. Energy News
    Ignored
    says:

    This seems to be making the news today: Chinese crude oil refinery input in July at 10.7 million b/day, which is down 0.5 from June. But its still up year over year…

    Reuters
    Chinese refineries processed 0.4 percent more crude oil in July than a year earlier at 45.5 million tonnes, or about 10.71 million barrels per day (bpd), data from the National Bureau of Statistics showed on Monday.
    “Runs were slightly below our expectations, as fuel demand growth remained tepid and stocks were brimming,” said Harry Liu, a downstream consultant with IHS Markit.
    https://www.reuters.com/article/us-global-oil-idUSKCN1AU03C

    Chinese crude oil imports, seasonal, chart on Twitter
    https://pbs.twimg.com/media/DHLfjiuXYAENSXj.jpg

    Chart of Chinese inventory from the OPEC MOMR to June

    • Energy News
      Ignored
      says:

      Typo, missed the units, “down 0.5 million b/day from June”

      Regarding refinery runs, I don’t know if the drop is seasonal or not. In 2016 China’s statistics bureau shows a dip at this time of year whereas JODI Data only has an activity dip in October.

    • FreddyW
      Ignored
      says:

      “stocks were brimming”

      They are not “brimming” in the graph. And why did the Chinese build up crude stocks when the price was high and then has been selling off the crude stocks after the price dropped (or at least not imported enough oil)? This makes no sence at all.

      • Energy News
        Ignored
        says:

        Yes, not much sense looking at the official data. I’m guessing that those official figures don’t include independents inventories. The independents have been building their own tank farms.
        There must be something going on as there is said to be a “retail petrol price war”…

        BEIJING (Reuters) – Chinese oil refineries operated in July at their lowest daily rates since September 2016, official data showed on Monday, to ease brimming inventories as state-owned oil giants faced off independents in a retail petrol price war.
        Amid the glut of refined fuel products, Sinopec and state-owned rival PetroChina have been waging a retail price war against the independents known as “teapots” at the nation’s petrol stations. The competition for sales started in late March and by June had spread beyond the most heavily oversupplied provinces in the north.
        https://www.reuters.com/article/us-china-economy-crude-output-idUSKCN1AU18K

        And there is this too…
        2017-08-08 Saudi Aramco to cut crude oil supplies to Chinese customers by 5% – 10% in September

  27. Energy News
    Ignored
    says:

    Platts – OPEC cuts and the light/heavy oil imbalance – August 14, 2017
    Now seven months into the OPEC/non-OPEC deal, and the agreement has not yielded the desired affects, particularly because the cuts have proved toothless in tackling the imbalance of light and heavy crudes.
    The cuts have largely come from oil producers that produce heavy and sour oil, and the glut of light sweet oil remains.
    Libya and Nigeria, the two countries exempt from the deal, produce mainly light sweet crude, and with production in both recovering, this imbalance has been further skewed.
    Libyan output is now at four-year highs and Nigerian production is close to 18-month highs.
    To make matters worse, 2017 has also seen the resurgence of shale oil, resulting in yet more light more sweet oil, in a market awash with oil of this quality.
    Platts: http://blogs.platts.com/2017/08/14/light-sweet-crude-barrel-glut/

  28. OFM
    Ignored
    says:

    I suppose this should go in the non petroleum thread, but it’s old and about dead, and besides, what happens in Venezuela is very important in terms of world oil markets.
    I copied this directly from Fernado’s blog, which hit my inbox a few minutes ago.

    “Beatriz, a Venezuelan lawyer, and her son reached Chile yesterday at 4:30 am, made it through Chilean immigration ok. She was robbed by Venezuelan border guards on her way out, but she managed to get away with $1000 she had put in a very secret place (I had told her she was likely to be robbed, to keep a believable amount of money in her purse, and hide everything else).

    She says the border guards were very happy to see she had USA dollars they could steal, and since she kept quiet they didn’t search her bag thoroughly, so she managed to arrive in Chile with her diplomas, birth certificates, reference letters, and other documents which will help her get a visa. Chile is being very kind with Venezuelan refugees, so there’s a huge flow by road and air.

    Beatriz says it’s very cold in Santiago, so she was going to buy two air mattresses and two blankets. She has friends who took her in, but they don’t have the furniture or beds for her to use. I suggested she also buy warm clothing, and go to the market, buy vegetables and chicken to make soup, because she has to keep herself and her son warm. Getting sick at this point in time would be a serious blow because she’s there on a tourist visa, and has no right to public health care services.

    Based on the number of Venezuelans who went to the opposition sponsored consultation on July 16th, there are 2 million Venezuelans abroad, and roughly 50 thousand per week are leaving. This exodus doesn’t seem to get much coverage. ”

    It surely does seem to me that what’s going on in our own backyard in Venezuela ought to be making headlines day after day, at least here in the USA.My personal opinion is that Venezuela gets twenty percent, or maybe a little more, of the coverage that would be easily justified, in our Yankee msm.

    Maybe the mainstream media are embarrassed to cover Venezuela NOW because they ignored the situation there for so long, possibly because of political biases on the part of managing editors. This last remark is MOSTLY sarcastic in nature.

    It’s hard to predict how much longer the Maduro regime will be able to keep oil flowing …

    How much would it affect the oil markets if production there crashes to pretty close to zero?

    • Dennis Coyne
      Ignored
      says:

      Hi Old Farmer Mac,

      Please do not post instructions on how to sabotage an oil field on this blog, some of the other stuff is interesting.

      Also not that non-Petroleum comments can be posted in the Electric Power Monthly post.

      In general there will be occasions where there are two posts and the second post may be on a non petroleum topic (such as electric power or renewable energy), any non-petroleum topic can be discussed in that second thread.

      • Watcher
        Ignored
        says:

        Wait, sabotaging oil fields is CRITICALLY important information. I don’t see it in his text.

        Sabotage from the perspective of bombing pipelines or blowing up some pumps . . . no one cares about that. Too obvious.

        But if someone has a way to inject something into the ground, or execute some water drive procedure that PERMANENTLY destroys oil in a field, that is something that should be discussed.

        We had a conversation some years ago about bioengineering the oil spill cleanup bacteria to function at the temperatures and pressures of oil underground. Doug had excellent info on that and how difficult that environment is. If there’s a different technique known, that needs to be talked about.

      • OFM
        Ignored
        says:

        Hi Dennis,

        I get it, and will not post any comments in the future that can be construed as directions or suggestions for saboteurs. Sorry about that, I failed to think about implications for the blog.

        But the question is still a valid one. Considering the situation in Venezuela, it’s entirely reasonable to speculate that oil industry there will collapse for lack of spare parts and other necessary inputs that must be imported.

        Most of the key skilled workers from other countries are apparently already gone.

        So- Does anybody have an opinion as to how much the price of oil might go up if the Venezuelan oil industry goes belly up?

        I don’t have a clue, because I’m guessing that maybe a couple of countries such as Russia and Saudia Arabia might have enough spare capacity to take advantage of the opportunity to sell enough more to offset the loss of Venezuelan production.

        • Nathanael
          Ignored
          says:

          Consider this: Angola kept producing oil for decades despite a really nasty and long-running civil war. Nigeria keeps producing oil even though rebels keep attacking and seizing the oil fields (the *rebels* sell the oil).

          The problem with oil is that, once you’ve got the well and the pump, it just comes out of the ground. It can, therefore, be *stolen*. Like gold. Or jewels.

          It’s not like… say… expertise. You can’t “steal* scientists because they will just refuse to work for you, or sabotage your work. One reason the Nazis had a disadvantage was that scientists were frequently volunteering to work for the US and Russia, while many were half-heartedly trying not to finish their assignments for the Nazis, or were defecting if they could.

          There is a theory that war is decreasing throughout the world because it’s impossible to take home booty. The US is known for its great universities… attempt to conquer them by force, and you get nothing.

          But oil can just be taken. Venezuela’s fields are not super complicated. I see no reason why it would be disrupted more than *Angola*.

  29. Glenn E Stehle
    Ignored
    says:

    Looks like the “bubble point death” theory is stiking out one more time.

    US Shale Output Poised To Keep Rising Despite Investor Concerns
    http://www.rigzone.com/news/oil_gas/a/151387/US_Shale_Output_Poised_To_Keep_Rising_Despite_Investor_Concerns?utm_source=DailyNewsletter&utm_medium=email&utm_term=2017-08-14&utm_content=&utm_campaign=industry_headlines_1

    Shale production in the largest U.S. oilfield should rise by as much as 300,000 barrels per day by December, according to updated forecasts following the industry’s latest quarterly results….

    Consultancy Wood Mackenzie sees another 300,000 barrels per day (bpd) coming from Permian projects by the end of the year, raising its year-end forecast by 200,000 bpd.

    Rystad Energy, meanwhile, projects output from the Permian will rise by 300,000 bpd in the six months from June to December.

    Both expect oil production in the Permian next year will approach or surpass the 2.7 million bpd mark.

    “The Permian continues to surprise us to the upside,” said Alex Beeker, an analyst at Wood Mackenzie….

    The robust volume outlooks come as investors sold off shares in a range of Permian shale producers after Pioneer Natural Resources Co earlier this month disclosed an unexpected drop in second-quarter oil production and higher costs on some Permian wells.

    Pioneer executives said that greater-than-expected natural gas volumes compensated for the lower-than-forecast oil production last quarter….

    Parsley Energy Inc, another large Permian producer, also boosted its forecast for the percentage of gas it expected to pump this year. The company said it still expects strong oil production even if it pumps more gas.

    “Look at the absolute oil volumes per well that are being produced,” Matt Gallagher, Parsley’s president, said in an interview. “There’s nothing from a geological basis that should change our oil forecast to the negative.” ….

    Dan Katzenberg, an oil industry analyst at R.W. Baird & Co, said rising natural gas production is good for producers.

    “There’s more total resource,” he said, “That is the important point, and it’s clearly being overlooked by the market.”

    • Dennis Coyne
      Ignored
      says:

      Hi Glenn,

      Permian output has risen by about 200 kb/d in the first 6 months of 2017 based on EIA tight oil estimates. Perhaps the second half will be better (300 kb/d), but according to several companies there were plans to cut back on capital spending in the second half of the year.

      If there is more natural gas produced this will increase the barrels of oil equivalent produced, but the aim for Permian producers is oil not natural gas. Texas and New Mexico have pretty strict regulations on the amount of natural gas that can be flared and I wonder if pipeline capacity and flaring regulations might limit output in the second half of 2017.

      Also for the past 4 months (February through June) Permian output has only increased by 60 kb/d, if that rate continues through December 2017, then Permian output would only increase by 90 kb/d in the second half of 2017. Time will tell, my guess is 150 kb/d for the second half of 2017 with a low to high range of 100 kb/d to 200 kb/d.

      Oh and this “bubble point of death” is not a widely held theory as far as I can tell and it’s not Art Berman’s theory.

      Link to post on the theory below by Scott Lapierre:

      https://www.linkedin.com/pulse/bubble-point-death-pxd-oil-mix-challenge-scott-lapierre

      • Mike
        Ignored
        says:

        Bubble point can occur at different times in different shale benches throughout a basin, from one isolated sweet spot to another. PDX has some problems in some of its Spraberry/Wolfberry stuff in the Midland Basin, no doubt. Given its market cap and consecutive quarterly losses the price of its stock was due for a big ‘ol bath anyway, regardless of GOR.

        Rising, then declining GOR affects artificial lift differently in vertical wells than it does HZ wells. We’re not sure exactly, yet, how GOR is going to affect HZ wells but I suspect eventually fluid conductivity to the lateral will decline to a point of very low entry and wells on rod lift will go on time clocks and/or pump off controls and become stripper wells below economic margins. We’re seeing that already in the Eagle Ford. Gassier is NOT better in any circumstance. It is a precursor to poorer well economics, as if shale oil economics can be much worse than they are, they will get worse. Barrel of oil equivalents (BOE) at 5.8: 1 is the most deceptive tool the shale industry uses when discussing economics and as shale plays get gassier the industry will use it to their advantage, e.g. 1M BOE EUR’s. People will be fooled by that, which of course is the entire point.

        Permian production will continue to grow for a while longer but it will have NOTHING to do with folks scoffing at rising GOR. Read the comments to Lapierre’s article. Rig contracts, sand contracts, draw downs on credit lines and anti-cash hording covenants in loan agreements, volume requirements in hedge contracts and 70% annual decline rates will keep the Permian going as long as there is low interest money to borrow and ungodly interest payments to be paid.

        I liked, and agree with Lapierre’s comments regarding over exaggerated EUR’s. They are, by a wide margin, in my opinion. If re-determined based on GOR and fluid flow regime’s that change thru the life cycle of a well, declining oil prices and increasing gas in the revenue stream, using 15:1 ratios based on dollars for dollars, I believe a lot of big companies, Whiting, Continental, Devon, for instance, with lots of long term debt likely don’t have the discounted 1P reserves to even cover their debt and are, for the most part, insolvent.

        Folks still celebrating the shale phenomena are in deep denial about its financial condition and well economics. Its existence is based entirely on credit and much of it has not even been paid for yet.

        I would not run out and buy a boat load of CHK stock. Or anybody else in the shale industry, oil or gas. If you get that hankerin’ be sure and check with Shallow first. You can drive down the street throwing dollar bills out the window of your pickup and be better off.

        Thanks, Dennis.

        • Lightsout
          Ignored
          says:

          Mike.

          Glad to see you posting the forum needs a bit of sanity.

        • Dennis Coyne
          Ignored
          says:

          Thank you Mike.

          Have Eagle Ford wells had problems because they reached the “bubble Point” earlier than expected?

          I would think that a quickly rising GOR will eventually result in lower oil production rates, which is the point of an LTO well.

          Higher natural gas output is great if you drill a gas well, but at a 1/3 revenue stream relative to oil (in boe), the economics are not great.

        • Boomer II
          Ignored
          says:

          Thanks for posting, Mike.

        • Synapsid
          Ignored
          says:

          Hi Mike.

          Do you know what happened at Oilpro? Did it have anything to do with David Kent’s conviction?

          • Mike
            Ignored
            says:

            Thanks very much to all; I appreciate that. Dennis, I don’t know about ‘earlier than expected;’ there are NE-SW strike oriented dry gas, wet gas, volatile oil, so called “dead” oil contacts throughout the Eagle Ford and initial GOR’s are all over the place. Increasing GOR, and WOR, in some of EOG’s stuff in the volatile oil window is bad enough it is taking lots of wells off rod lift and putting them back on gas lift but pumping units are not moved anticipating those wells to go back on rod lift when the gas is all pooped out. And Marathon has an area where wells drilled on 330 ft. spacing, toe to toe, got real gassy real fast. You are correct, the economics of gassy oil wells sucks, particularly when, not if, gas prices start going down. Shale gas from shale oil wells is going to be a big problem for shale gas wells very soon, IMO.

            Syn, yes; but it was relative to the recent civil part of the litigation between the two parties, not the criminal part.

            • Mike
              Ignored
              says:

              May I suggest, please, some light but fun fictional reading for late summer, some insight into the Permian Basin oilfield of the late 1930’s and 1940’s, a book called The Iron Orchard by Tom Pendleton. The book is now being made into a film, due for release in 2018, a lot of which was shot near Big Spring, Texas. A hokey story, perhaps, but the book was well written by an old oilfield hand, his one and only book, and passionately describes a very hard way of life. Great effort was made in the shooting of the film, I know, to stay period realistic: http://www.imdb.com/title/tt7014234/ and https://www.facebook.com/theironorchardfilm/

            • Synapsid
              Ignored
              says:

              Thanks Mike.

            • Hickory
              Ignored
              says:

              I’ll add to chorus of folks by saying I very much appreciate your perspective Mike.

    • shallow sand
      Ignored
      says:

      “There is more total resource,” “That is the important point, and it’s clearly being overlooked by the market.”

      What market? WTI closed at $47.51 and Nat Gas closed at $2,96. So, I would say the market is fully aware of rising volumes out of the Permian Basin.

      If he means stock market, I would suggest looking at earnings for 2011-2014 and then 2015-2017. Then look at stock prices for some mid 2014 high flyers in the US onshore E & P space:

      Whiting Petroleum 8/14/17 close $4.59 1/4/17 close $13.10 8/29/14 close $92.66
      EOG 8/14/17 close $87.99 12/13/16 close $108.01 6/20/14 close $117.98
      Pioneer Natural Resources 8/14/17 close $132.84 2/14/17 close $198.90 6/20/14 close $232.30
      Marathon Oil 8/14/17 close $11.63 12/13/16 close $18.80 8/29/14 close $41.69

      I could name several more. Not too many have fared well from mid 2014 till now, nor from the beginning of 2017 to now.

      Then, lets look at the S & P 500 over similar time frames.

      S & P 500 Index 8/14/17 close 2,465.84 12/28/16 close 2,249.92 6/13/2014 close 1,936.16

      Looks like maybe throwing money in an S & P 500 index fund would have been a better idea than investing in US onshore focused E & P’s (i.e. shale).

      I suspect this underperformance will continue for several years, and may take down a few more names. Looks like Whiting may be circling the drain right now.

      But hey, there are “compelling returns” to be made in US shale at $40 WTI, at least that is what I keep reading. Still waiting for it to be true in earnings. I guess FANG has major earnings. But, FANG also took over $10 per share in impairments in 2015 and 2016, so they knocked down the depletion deduction enough to show earnings in 2017. I think FANG is among the best financially in the Permian, but they are still outspending cash flow, as they seek to greatly increase production in an oversupplied market.

      • Watcher
        Ignored
        says:

        SS, like most things associated with an HFT driven market, even the S&P isn’t pure.

        Stocks are added and subtracted from various indices like the S&P by the selection committee. They have criteria, but they are not rule based. It’s what one might call restricted whimsical.

        Point being, the S&P 500 companies of 2014 aren’t the same companies now. There were 15 changes in 2014 and the average change per year is 23 since the 60s.

        No one pays any attention to this because it is too complex to understand for any sort of long term assessment. So people just ignore it and pretend it’s not happening.

        • shallow sand
          Ignored
          says:

          Watcher.

          Pretty much everything I own that is not commodity related is up since 2014.

          My speciation is that the commodity bear market will last about 10 years. Therefore, US shale will produce a lot of oil and gas thru 2023 or so for little to no profit.

          About the time everyone has given up on commodities, they will rebound.

          • Watcher
            Ignored
            says:

            Suppose there is no market.

            HFT and algorithms are moving into all the trading venues. A trading algorithm seeks only to defeat a competing algorithm, not determine a price based on anything other than what will inflict harm on the opposing algo.

            The popular rebuttal is “yes, but humans program the algos”. Yes, they program them to care about nothing but defeating the opposing algo. They don’t program them to care about “trends” or “counter-trends” or historical this or that or (gasp) supply/demand. They just detect activity by the opponent and act to defeat it.

            You think it’s 10 yrs? You think they will rebound? You think it on the basis of nothing.

            • Eulenspiegel
              Ignored
              says:

              They will rebound despite the algos when they manage to create a big oil deficit. Even when official oil price is 20$ then, you’ll get it only if you pay 120 cash down. Markets will seperate when the black stuff gets rare.

              And they are on their way to manage that. Low prices increase driving (fuel record in the USA), Europe gets China+India + several countries develop and thrive, based on oil traffic, investing in deep sea oil is a no go, exploring is a no go, big long lasting expensive oil project are a no go, expensive investments like nitro injection in old field is a no go, only fracking in the USA is in.

              Now we are still in the rush of the 2012-14 big expensive projects finishing now – when they crank up investing again it will take again 3-5 years until the oil comes out. Until then shale oil and a few spare capacities in Russia / SA have to stem all the decline of mature fields, old sea / deep sea oil and Venezuela revolutions.

              A classical pork cycle, now at the low end of investing and and low end of price.

            • Caelan MacIntyre
              Ignored
              says:

              Hi guys, I’m not necessarily making any point by it, but just wandered in, caught a slice of your convo, and thought to share a clip, FWIW, of some of what I’ve been reading lately…

              “The global market and institutional developments have created ever more institutional, geographical and conceptual space between financial actors. It is totally impractical on a global scale to form trusting relationships based on long lasting interpersonal knowledge. In that sense, there is an inherent ‘moral hazard‘ arising out of a spatial dispersion of economic actors. The result is that the finance sector is now driven by people who feel no loyalty to anyone. They take decisions based entirely on mathematical algorithms and rely on computer checked statistical calculations about clients and partners.” ~ Brian Davey, ‘Credo: Economic Beliefs in A World In Crisis’

              • Nathanael
                Ignored
                says:

                Caelan, that’s a good topic to study. Finance has gotten very problematic. I know a fair bit about the algo trading; the guys who write the algos are just jobbing programmers for the most part, and the guys who hire them don’t understand what they’re doing, and it’s a field rife with the opportunity for scams and for accidents.

                Good topic to study but you need to start reading the stuff written from the POV of the people who are actually doing it. (It’s basic know your enemy stuff… all communists should read the WSJ, etc. You realize that’s the only reason I read oil blogs?)

                Most of the algos are written to trade based on principles which worked in the past, without realizing that the algos themselves are changing the markets in a way which invalidates those principles.

                The algos are fundamentally destabilizing the markets. The “flash crashes” are the most obvious sign of this. These are dealt with by simply pretending they never happened and cancelling all the transactions — not a sustainable method.

          • Nathanael
            Ignored
            says:

            Have commodities ever all traded in sync? Don’t they usually have individual behavior?

            I think the oil market in particular is doomed to a *very* long term glut. I haven’t figured out gas in the long term, but the glut should last at least 10 years. That said, I fully expect a rebound in industrial metals before then.

  30. Energy News
    Ignored
    says:

    Latest oil well numbers from the Texas RRC Well Distribution Tables

    • HVACman
      Ignored
      says:

      My uninformed layman’s interpretation of this chart:

      In 2011 – TX had 31,000 oil wells total, with 30,000 at or approaching stripper levels and only 1,400 wells producing over 100 b/day.

      In 2017, after several years of prodigious levels of well drilling, TX now has 55,000 active wells – adding 24,000 wells net, but only adding 8,000 wells net producing over 100 b/day.

      It would appear that most common result of this frenzied well-drilling activity was to expand TX’s low-production-well inventory, growing by 16,000 wells to 46,000 wells.

      I would gander that if well-drilling ceased today in TX, the RRC stats would change within a year to 54,000 wells producing 10-100 b/day and back to the pre-2011 level of 1,000 wells over 100 b/day.

      Conclusion: The Red Queen never sleeps, even in TX.

      And this is a US-energy SUCCESS story?

  31. Watcher
    Ignored
    says:

    Revisiting the topic of how one can imagine ways of permanently inhibiting oil fields. If mankind can research creation of oil via techniques like biodiesel, there’s no reason to presume freedom of academic thought would be halted in researching the reverse.

    https://www.scientificamerican.com/article/how-microbes-helped-clean-bp-s-oil-spill/
    Critter names: Colwelia, Cycloclasticus, Alkanovorax, Methylococcaceae — none of which sound familiar from previous discussion

    http://video.nationalgeographic.com/video/news/nsf-oil-somasundaran-vin

    It’s pointed out that the organisms require localized nutrients and some of them oxygen, so separate organisms would be needed that provide that, for both spills or field injection. One article talked about capsules on shoreline rocks containing these augmenting critters. The temps and pressures underground certainly pose a bioengineering challenge, but there’s plenty of money around to fund such things.

    Noted that the thousands or millions of years of GOM oil seeps has encouraged the natural evolution of organisms that process that oil, so nature is helping develop the field injectable techniques. One might also wonder about the nature of the oil and how tailored the organisms would need to be. The 2010 Macondo spill was apparently LLS plus methane and at least locally, nature’s development of oil destroying microbes might not apply to injection for Ghawar Arabian heavy or light, or the offshore KSA fields. Though one might expect local microbes to have evolved for that particular offshore oil type, presuming seeps.

    Pretty hard to make it all happen at deep field temps. Deserves research tho.

  32. Longtimber
    Ignored
    says:

    Paging Matt Simmons.
    https://seekingalpha.com/article/4098775-saudi-arabian-oil-running-will-affect-long-term-oil-markets
    Discussions on increasing water cut on future flows. Buy Sell or Hold KSA ?

  33. texas tea
    Ignored
    says:

    another trip into the real world

    http://oilprice.com/Energy/Gas-Prices/US-Gasoline-Demand-At-All-Time-High.html
    “Last week’s report noted that Finished Motor Gasoline supplied in the U.S. for the week ending 7/28/17 was 9.842 million barrels per day (BPD). That is a record, and not just seasonally. Last week’s gasoline demand was the highest weekly U.S. gasoline consumption on record. The top four weekly gasoline consumption numbers on record have all occurred in 2017 — not exactly what one might expect given all of the “peak demand” articles that are all the rage.
    Not only are we using record amounts of gasoline in the U.S., but refiners are also exporting record amounts of crude oil and finished products — more than 3 million BPD (even though the U.S. is still a net importer of crude oil). And just to be clear, the gasoline consumption numbers reported above do not include gasoline that is exported. The EIA specifically notes”

    • Nick G
      Ignored
      says:

      Of course. Contrary to the tone of the article, this is no surprise – GDP and population are growing, oil is relatively cheap, SUVs are heavily subsidized by import tariffs, and the White House is occupied by someone who thinks that the US is a net oil exporter.

      Here’s a good question: what would happen if Iran and KSA started a full-out war, and all oil exports from the Persian gulf were halted?? Maybe it makes sense to reduce the risk of such an event by reducing gasoline consumption? Particularly when investment in greater fuel efficiency has a 3 year payback even at current gas prices???

      • Nathanael
        Ignored
        says:

        To make another point: electric car sales are limited by production capacity — they sell every one they can make and are rushing to expand factories. And the electric car sales per year in the US is smaller than the population of people turning 18 per year in the US.

        What happens when electric car sales per year exceeds the population of people turning 18 per year? I think the conclusion is obvious. And electric car sales are doubling every two years.

    • Glenn E Stehle
      Ignored
      says:

      …not exactly what one might expect given all of the “peak demand” articles that are all the rage.

      https://media.giphy.com/media/3oEduPQqbpT1LqVOz6/giphy.gif

  34. Energy News
    Ignored
    says:

    The China fuel demand story on ZeroHedge

    While daily refining output typically falls from June to July on maintenance, last month’s fall was the biggest seasonal decline since 2014.

    Bloomberg reported last month, the world’s largest refiner, state-run China Petroleum & Chemical Corp. known as Sinopec, will process about 1 million metric tons a month (about 240 kb/day) less than it previously planned over June to August because of weaker fuel demand growth and competition from teapots.
    ZeroHedge: http://www.zerohedge.com/news/2017-08-14/big-red-flag-crude-bulls-chinese-oil-refining-tumbles-most-three-years-fuel-demand-s

    • jed
      Ignored
      says:

      Deja vu of similar stories ZH was writing this time last year about China about to crash the oil market, less refining/lower imports. I dunno, overall I don’t think their demand is going away judging by import numbers.

      17July 8.68
      17June 8.79
      17May 8.76
      17Apr 8.37
      17Mar 9.17
      17Feb 8.28
      17Jan 8.01
      16Dec 8.57
      16Nov 7.87
      16Oct 6.78
      16Sep 8.04
      16Aug 7.74
      16Jul 7.50
      16Jun 7.45
      16May 7.60
      16Apr 7.96
      16Mar 8.00
      16Feb 8.28
      16Jan 6.29
      15Dec 7.81
      15Nov 6.65
      15Oct 6.23
      15Sep 6.82
      15Aug 7.70
      15Jul 7.30

      • Jeff
        Ignored
        says:

        China has a growing economy and car ownership increase. It’s not like in OECD were new fuel efficient cars more or less replace old less efficient vehicles. Therefore, the logic conclusion is that China will continue to increase their oil consumption for many years as long as sales of ICE-vehicles increase and the economy expands.

        However, as has been discussed here before, it’s not possible to obtain accurate figures on Chinese oil stocks. Their reported commercial stocks seem to be declining but strategic stocks (and perhaps independents/tea-pots?) increase. Estimates of the net inflow to Chinese stocks are all over the place.

        Some reports (rumors) have been saying that Chinese strategic stocks are almost full and their imports will therefore stabilize or decline until demand catches up. Others have said the opposite. Domestic production decline will also affect the dynamic.

        • Energy News
          Ignored
          says:

          yes from the news that I’ve seen it sounds like China is still filling its SPR. But as you know the official level is always delayed by a year and so it keeps everyone guessing…

          2017-08-15 China is about 46 percent of the way to meeting its target of strategic stockpiles equivalent to 90 days of imports, according to calculations by Thomson Reuters Oil Research and Forecasts.This means importing crude for stockpiling is likely to continue for several years.
          http://uk.reuters.com/article/column-russell-crude-china-idUKL4N1L125J

          2017-07-12 China State Planner says will accelerate construction of 2nd phase of strategic oil reserves, push forward construction of 3rdphase

          2017-07-19 China has relaxed the rules for entry into the oil storage industry. This comes after the government said in May it would allow private companies to invest in its oil and gas storage.
          https://www.reuters.com/article/us-china-oil-reform-idUSKBN1A4097

          2017-05-01 China SPR inventories: 244mb as of mid-2016, just 10mb higher since early 2016 – Ministry of Commerce

          • Energy News
            Ignored
            says:

            I’m still wondering why the Chinese NBS and the JODI Data numbers are different (JODI only updated to May)

          • Energy News
            Ignored
            says:

            Looking at the Chinese NBS refinery figures, July and August are often quiet months. And Q4 is usually their busiest time of year.

  35. Glenn E Stehle
    Ignored
    says:

    Oil ‘God’ Blames Worsening Market, Algos for Closing of Fund
    http://www.rigzone.com/news/article.asp?hpf=1&a_id=151397&utm_source=DailyNewsletter&utm_medium=email&utm_term=2017-08-15&utm_content=&utm_campaign=feature_2

    [I]t was nearly impossible to trade oil based on fundamental trends in supply and demand….

    [T]he trajectory of prices is chaotic, he said. “Investing in oil under current market conditions using an approach based primarily on fundamentals has therefore become increasingly challenging. It seems quite likely this will continue to be the case for some time to come.”

    After losing almost 30 percent of the value of that fund in the first half of this year on bets that oil prices would rise, Hall warned that U.S. shale firms would continue to flood the market.

    “With the WTI forward curve back above $50, shale operators will be able to profitably hedge incremental production for 2018, thus risking even looser balances next year,” he said….

    There’s currently no consensus on a long-term price anchor due to the disruptive nature of U.S. shale oil, Hall said.

    “Oil price bulls argue that the shale oil business model is a flawed one and is unsustainable, at least at current prices,” he said. “Bears, on the other hand, say technology is allowing these companies to continuously drive costs lower as well as add to recoverable reserves.”

  36. Energy News
    Ignored
    says:

    BEIJING (Reuters) – China plans to develop two new shale gas fields in the south of the country and open up tenders for more oil and gas exploration blocks, the Ministry of Land Resources said on Tuesday.

    At a news conference Beijing, ministry officials said China plans to start commercial production of shale gas in the southwestern city of Anye in Guizhou province and Yichang in Hubei province. The ministry did not give a timetable for the start date.

    Drillers tapped a daily gas flow of 100,000 cubic metres, or about 3.5 million cubic feet per day, in the well, an amount considered commercially viable, according to an auction document the ministry released in July.

    China’s efforts to unlock its potentially massive shale gas resources have been stymied by the cost of drilling and geological complexity, with only a handful of discoveries now in commercial operations.
    Reuters: https://uk.reuters.com/article/uk-china-energy-shale-oil-idUKKCN1AV09E
    map on Twitter https://pbs.twimg.com/media/DHRIHtTUQAQM4nA.jpg

  37. Heinrich Leopold
    Ignored
    says:

    The EIA drilling report came out yesterday. Below chart depicts the falling, yet still extremely high production growth from new wells (102 % year over year growth, blue line) and the still soaring depletion (a record 93,7%, red line), which results in a net growth of just 8% year over year (yellow bars right hand scale).

    As many investors probably do not understand the link between depletion and economics of oil production, the rise of the depletion rate from 50% towards nearly 100% this year means nothing else than that the oil and gas assets of shale companies evaporate after just one year. The consequence is that shale companies have to depreciate their oil and gas assets by at least over 50% over the course of this year.

    As production and drilling costs have to be discounted over all produced barrels over the lifetime of a well, a 50% shorter lifetime of a well means a doubling of production and drilling costs per produced barrel. This will seriously impact the balance sheets of shale companies leading towards massive impairments during the course of the year and significant declines of share prices. This comes despite lower production and drilling costs per well.

    • Watcher
      Ignored
      says:

      Naive.

      Faster loss of assets? If that will hurt enough companies, the SEC will change its impairment requirements.

      If you seek accuracy, think joules, not dollars.

      • Heinrich Leopold
        Ignored
        says:

        Watcher,

        Thanks for your comment, despite you cannot resist to get personal, which is in my view completely unnecessary.

        What is most disturbing in the depletion curve (red line in my chart) is that the curve accelerates exponentially. Shale companies risk running into a financial meltdown. The fast rising depletion curve even surprises the SEC and if it reacts it will be too late.

        The fast depletion turns shale companies into empty shells with little assets and negative equity. The recent furious correction of PXD is just the beginning of this trend.

        In my guessimate, the shale industry has invested over USD 1 trn (equity and bonds) during the last ten years. It looks like all these investments have been burned through and little long term assets are left through depletion. It will be interesting to see the consequences on bond and equity markets when investors wake up.

        What really counts in investing is how much value measured in cash and assets will be added by a company – no matter if it is mobile phones, cars or hydrocarbons or joules.

    • Watcher
      Ignored
      says:

      Didnt someone here say they will change the data to reflect the price — rather than vice versa?

      • Sean
        Ignored
        says:

        I’m afraid I don’t understand. My concern is 230 million barrels extra in storage means the overhang will take much longer to clear and hence lower prices for even longer. In addition, IEA are now forecasting inventory builds for 2018??

        Am I reading it correctly?

        • twocats
          Ignored
          says:

          watcher (i believe) is saying that the Powers are finding excuses to justify the oil price as opposed to oil prices being affected by anything that might be based on supply demand / rational market moves / or reasons commonly being talked about. So if the data doesn’t support the price… change the data.

          even a casual observer of business news over at least the past decade has to be dead-eyed cynical about the “reasons” given for why price moves happen in any given direction for any given asset. From HFT, to stop-gap-runs, to BTFATH and so on.

          • Nathanael
            Ignored
            says:

            Every piece of business news reports a price move and then gives a “reason” and the reason is always 100% bogus. No idea why they feel compelled to give a “reason” rather than just saying “we don’t know why”.

        • Dennis Coyne
          Ignored
          says:

          Hi Sean,

          World storage data is not very good.

          A better measure is to look at output and consumption, which may be estimated better. Changes in storage will be determined by supply minus demand.
          I think currently stocks are being drawn, at some point storage levels will reach some critical point where prices will respond.

          When this occurs can only be guessed, my guess is August 2018+/-3 months.

          • Sean
            Ignored
            says:

            Hi Dennis,

            IEA are predicting a 154million build in 2018Q3… have to admit I was shocked to see the new chart. Should have sold out 6 months ago!

            • Dennis Coyne
              Ignored
              says:

              Hi Sean,

              The IEA may think that OPEC and US shale output will rise faster than what is likely to happen, unless we see a rapid rise in oil prices between now and 2018Q3 (maybe to $75/b or more), I doubt we will see a stock build. US LTO output is rising at about 600 kb/d per year while conventional output is falling by 160 kb/d/year and GOM output is likely to be flat so the net increase in the US may be about 450 kb/d over a 12 month stretch, it is not clear how much of an increase we will see from the rest of the World, but it is unlikely to be enough to keep up with increasing demand given the lack of oil investment since 2015.

              In short, the IEA is likely to be incorrect in their oil output forecast unless oil prices rise sharply over the next 12 months.

  38. texas tea
    Ignored
    says:

    http://www.epmag.com/next-frontier-eor-unconventional-resources-1645586#p=full
    “This data supports our previous estimates that the incremental recovery due to EOR is adding 30% to 70% more oil to our primary recovery estimates,” Helms said.

    • coffeeguyzz
      Ignored
      says:

      I believe the authors of that article consistently erred when using CO2 and EOR together as it is field gas, methane, ethane, CO2, or combinations of all the above that is being utilized by labs, EOG, and in the pilot test underway in the Bakken.

      EOG specifically said in their first CC describing EF EOR efforts that they were utilizing field gas as the medium.

      The EERC folks got their 90% oil mobility in their lab samples using ethane.
      They found ethane had the lowest Mean Miscibility Pressure by far of all the gas combos they tried.
      High formation temperature (129C) was the surmised reason. The presentation by Stephan Hawthorne clearly, concisely depicts what is going on with the rock, the oil, and the gas and is viewable online.

      When Core Lab mentioned upcoming EOR testing in the Bakken in which they are partaking, the CEO glossed over the specifics but stated something like a tailored gaseous mixture would be utilized in a series of huff and puff cycles.
      They were hoping for eventual 50% additional production for $2 million cost.

      The small Canadian outfit, Granite Oil, has been successful for the past few years doing EOR in their Bakken unconventional development using field gas to repressurize the area. They have some great graphics on their website describing this.

      • texas tea
        Ignored
        says:

        Coffee you clearly are more up to date than I and without getting into a discussion about what mix of gases someone maybe using, I have a friend whose daughter is doing some work on co2 sequestration for her masters in geology, he also is in the oil business. The irony is not lost on us, what if the “evil co2” is used to extend carbon based energy for decades to come😜 producing more energy, more food and greening the planet for our children and grandchildren. makes for a great promotional pitch.

        To the point of the article, I have little doubt re-pressureing or gas cycling will be used extensively where the gas is already available. It is easy to envision a 1280 acre unit with 6 10,000′ laterals wells, using the center well(s) for injection and the outside wells for production. As the article points out, if future development (well spacing, fracking techniques, etc) are taken into consideration early on this will be common place in a few years time.

        • coffeeguyzz
          Ignored
          says:

          TT
          The muted nature of all this work understates the enormous financial, social, and political ramifications on a global scale.

          The coal burner up in Beulah, ND, has been piping captured CO2 north to Canadian oil fields for awhile now.
          Although the NRG project of CCS in Texas has fallen short economically, it is a proven concept operationally and you best believe the coal boys are avidly promoting this approach.

          North Dakota has some of the largest lignite deposits on the planet and the state government is very receptive to assisting this research and development.

          The eastern one third of Ohio is sitting stop huge amounts of oil with no technically proven method to extract it.
          Should techniques involving gas re-injection be successful, much known resource may be recoverable.

          The outfit that designed the world’s first mobile, micro LNG plant (marketed as LNGo by new owner Siemens), came up with the idea of using semi liquefied gas to carry neutrally buoyant proppant to do waterless fracturing.
          Although it never got off the drawing board, should that – or a comparable – process ever work, it could open up vast areas such as the Mancos and Bazhenov that have high clay content.

          Lottsa stuff going on all the time.

          • Nathanael
            Ignored
            says:

            It’s all very interesting but spending money on producing more of a soon-to-be glutted product is not sound from an investment point of view.

            There is no end in sight to the technical innovation in the battery industry or the solar industry.

            The fate of the oil and gas industry will be much like the fate of steam locomotives. There will be fabulous new technological developments made just around the time they became totally uneconomic because the substitute was way cheaper.

    • Glenn E Stehle
      Ignored
      says:

      There is no end in sight to technical innovation in the upstream oil and gas industry.

      Peak oil is like peak silver. Peak silver production was prophesied almost 500 years ago, but it didn’t happen. For nigh on 500 years now, technical advancements in silver mining and extraction have delayed the onset of peak silver.

      By the mid-sixteenth century, it was well known in Spain that American silver production was in decline due to the depletion of high-grade ores and increasing production costs. The New Laws, prohibiting the enslavement of Indians, had resulted in higher labor costs as miners turned to wage labor and expensive African slaves. These higher production costs made mining and smelting anything but the highest grade silver ores prohibitively expensive, just as the availability of high grade ores was in decline.

      Bartolomé de Medina initially focused his attentions on learning about new smelting methods from smelters in Spain. He was approached during his research by an unknown German man, known only as “Maestro Lorenzo,” who told him that silver could be extracted from ground ores using mercury and a salt-water brine. With this knowledge, Medina left Spain for New Spain (Mexico) in 1554 and established a model patio refinery in order to prove the effectiveness of the new technology. Medina is generally credited with adding “magistral” (a copper sulfate) to the mercury and salt-water solution in order to catalyze the amalgamation reaction… [H]e promoted his process to local miners and was able to obtain a patent from the Viceroy of New Spain. As a result, he is generally credited with the invention of silver amalgamation in the form of the patio process….

      The introduction of amalgamation to silver refining in the Americas not only ended the mid-sixteenth century crisis in silver production, it also inaugurated a rapid expansion of silver production in New Spain and Peru as miners could now profitably mine lower-grade ores. As a result of this expansion, the Americas became the primary producer of the world’s silver, with Spanish America producing three-fifths of the world’s silver supply prior to 1900.

      https://en.wikipedia.org/wiki/Patio_process

      But Medina’s innovation was just the beginning, the first of many revolutionary breakthroughs in silver mining and exploitation to come:

      Later, several other countries began to contribute more substantially, notably the United States with the discovery of the Comstock Lode in Nevada. Silver production continued to expand worldwide, growing from 40 to 80 million troy ounces annually by the 1870s.

      The period from 1876 to 1920 represented an explosion in both technological innovation and exploitation of new regions worldwide. Production over the last quarter of the 19th century quadrupled over the average of the first 75 years to a total of nearly 120 million troy ounces annually.

      Similarly, new discoveries in Australia, Central America and Europe greatly augmented total world silver production. The twenty years between 1900 and 1920 resulted in a 50 % increase in global production, and brought the total to about 190 million troy ounces annually. These increases were spurred by discoveries in Canada, the United States, Africa, Mexico, Chile, Japan, and other countries.

      In the last century, new technologies have also contributed to a massive rise in overall silver production. Major breakthroughs included steam-assisted drilling, mining, mine dewatering, and improved haulage. Furthermore, advances in mining techniques enhanced the ability to separate silver from other ores and made it possible to handle larger volumes of ore that contained silver.

      Such methods were critical to the increased volume of production, as many of the high-grade ores throughout the world had been largely depleted by the end of the 19th century.

      Today, more than 5000 years after ancient cultures first began to mine this precious metal, yearly global mine production averages 671 million troy ounces.

      http://www.silverinstitute.org/site/silver-essentials/silver-in-history/

      • A reminder that people like GlennEStehle do not understand that crude oil is a finite and non-renewable resource. When they say things like this, it becomes obvious:

        “Peak oil is like peak silver. “

        Silver is of course finite, but the difference with crude oil is that it is renewable. By renewable I mean that silver cannot be completely destroyed and so can be recycled to a degree. In contrast, crude oil can’t be recycled.

        An example of an element that can’t be recycled very easily is helium.

        • Nathanael
          Ignored
          says:

          Yeah, helium supply is a *major* strategic issue for the world.

          You can basically only make helium from the decay of radioactive elements, and it’s not very fast.

      • Caelan MacIntyre
        Ignored
        says:

        Oil is a form of energy, silver is not. Silver doesn’t power anything. Oil is needed to mine silver.

  39. George Kaplan
    Ignored
    says:

    There’s a BOEM GoM Lease sale today, early indications are that interest has been low.

    Also Rowan are laying off people in Houston as another of their drilling contracts comes to an end. At current rate of decline there could be fewer than ten rigs operating in the GoM by next year.

    • Boomer II
      Ignored
      says:

      “In a pre-bidding notification, the Interior Department said it’s received 90 bids for the 14,177 blocks on the auction block. In terms of acreage, less than 1 percent of the total has drawn interest.”

      https://www.upi.com/Energy-News/2017/08/16/First-Gulf-of-Mexico-oil-and-gas-lease-under-Trump-set-for-auction/2201502875644/

      • Boomer II
        Ignored
        says:

        More interest in deep water leases.

        The auction offered 14,177 blocks totaling 75.9 million acres, but only 508,000 received bids, according to the BOEM. This year’s auction covered Western, Central and Eastern areas of the gulf. The year-earlier auction was only for the Western region.

        https://www.reuters.com/article/us-oil-gulfmexico-auction-idUSKCN1AW29D

        http://www.ogj.com/articles/2017/08/shell-chevron-headline-subdued-first-regionwide-us-gulf-lease-sale.html

      • George Kaplan
        Ignored
        says:

        http://www.worldoil.com/news/2017/8/16/wood-mackenzie-reports-results-of-gom-lease-sale

        The U.S. Gulf of Mexico region wide Lease Sale 249 was held today, Aug. 16, 2017. It attracted 99 bids from 27 participating companies, with high bids totaling $121 million. Activity is down by roughly half from Central Lease Sale 247, with operators submitting a total bid value of $137 million for 90 blocks, a decrease of 57% and 45%, respectively. The decrease in activity comes after the first increase in five years seen during the last sale in March.

        Commenting on the results of this latest lease round, William Turner, senior research analyst at Wood Mackenzie, said: “Deepwater (400-m depth) blocks won the day today, with 76 blocks receiving 98% of high bid value at $118 million. The deepwater industry is emphasizing short-cycle, low-risk prospects above high-impact, wildcat drilling. Today we saw operators continue to focus on areas near existing infrastructure with a majority of bids close to existing hubs or appraised developments.”

        The highest bid came from Total E&P U.S., for Garden Banks 1003 at $12.1 million. GB 1003 is adjacent to North Platte, Cobalt’s appraised discovery, which is being actively marketed.

        “However, bids from Chevron, Shell & Total near pre-FID discoveries, Guadalupe and North Platte, were a vote of confidence in higher-risk, standalone developments with potential for higher rewards.” Turner added.

        I like that last paragraph – mustn’t have any bad news, no matter what.

        • Boomer II
          Ignored
          says:

          I read that sale 247 was the last under the Obama program. So this current one, under Trump, was less successful by half. Realities make it impossible to bring back the glory days of coal. Economic realities may also hamper his plans for oil.

  40. Energy News
    Ignored
    says:

    This is where some of the oil is going (4.1 million barrels = 406,000 m3 + 91,000 m3 + 164,000 m3)

    Tank Storage Magazine – New Chinese oil and chemical storage terminal launched – August 15, 2017
    The Weifang Sime Darby liquid terminal expands Weifang Sime Darby Port’s range of services offered for storage and other terminal facilities.
    The first phase of the facility was opened earlier this month, with a storage capacity of 406,000 m3. The second phase, which involves the construction of 91,000 m3 of capacity is expected to become operational in October. Building work on the final phase, with a capacity of 164,000 m3 is expected to be complete by the first half of 2019.
    ‘The launch of our liquid terminals is timely to capture the growing market for crude and refined oil, as well as chemicals in China. These commodities have benefitted from the gradual liberalisation of import and export policies in China.’
    http://www.tankstoragemag.com/display_news/9954/new_chinese_storage_terminal_launched/

    • Energy News
      Ignored
      says:

      It doesn’t make sense to just find 230 million barrels. Most of the stored oil in the world is in OECD countries, everyone knows the USA has the biggest storage , and it’s all accounted for. Unless they mean tankers floating offshore? If it’s a statistical model then it might be the case that those barrels aren’t real?

      Bloomberg – Julian Lee – Aug 11, 2017
      How do you suddenly find 230 million barrels of oil? By realizing that the countries who were driving demand growth over the past couple of years weren’t driving it as fast as you thought.
      https://www.bloomberg.com/gadfly/articles/2017-08-11/iea-drives-opec-from-quiet-confidence-to-panic-stations

      • Jeff
        Ignored
        says:

        I just assumed that it was a modelling/data collection error. Perhaps they found out when supply, use and net storage change didn’t add up? There are differences between IEA and BP. Two men say they’re Jesus one of them must be wrong…

        US storage is what matters and it should be the last to rebalance. Biggest storage, best data (accurate, updated frequently, transparent and available to the general public) and among the lowest inventory cost.

      • Energy News
        Ignored
        says:

        Yeah if most of the stored crude oil is in: OECD countries, OPEC which is mostly Saudia Arabia, China, floating tankers

        Then I’m guessing that the rest of the world including India and Brazil doesn’t add up to 230 million barrels. I’ve not seen any recent numbers for Russia

        • clueless
          Ignored
          says:

          The “Units” are “million barrels.” Maybe “1,000’s??” Otherwise, they have 40,000 “millions of barrels” in storage = 40 billion bbls.

  41. Glenn E Stehle
    Ignored
    says:

    Fracking puts a cap on oil prices:

    OPEC’s Long-Sought Success Spoiled by 2018 Oil Supply Worry
    http://www.rigzone.com/news/oil_gas/a/151407/OPECs_LongSought_Success_Spoiled_by_2018_Oil_Supply_Worry?utm_source=GLOBAL_ENG&utm_medium=SM_TW&utm_campaign=FANS

    “OPEC is walking a tight rope,” said Ehsan Ul-Haq, London-based director of crude oil and products at Resource Economist. “If prices are above $60 a barrel then shale oil will come back.”

    • Watcher
      Ignored
      says:

      Agreement between counterparties determines oil prices. Neither may care about output. Or consumption.

    • Nathanael
      Ignored
      says:

      You’ve notice that the cost of fracking caps the oil price and haven’t noticed that electric cars are uniformly cheaper to operate than gasoline cars at *any* oil price above $20?

  42. Glenn E Stehle
    Ignored
    says:

    U.S. Oil Drillers Keep Pressure on OPEC With Record Shale Output
    https://finance.yahoo.com/news/u-oil-drillers-keep-pressure-210746267.html

    Oil output from major U.S. shale plays is poised to reach a fresh record next month, further complicating OPEC’s efforts to support prices.

    The Energy Information Administration expanded its monthly forecasts to include the Anadarko shale region spanning 24 Oklahoma and five Texas counties. The region, a well-established oil and gas producing area, has seen an uptick in improved drilling and completion technology, the agency said in its monthly Drilling Productivity report released Monday.

    The U.S. shale production gain is being led by the oil-rich Permian basin of New Mexico and Texas, where production has risen steadily over the past two years. The agency projects Permian output to rise by 64,000 barrels in September, reaching a record of 2.6 million barrels a day.

    The forecast comes just as Saudi Arabia and Iraq, the two biggest producers of the Organization of Petroleum Exporting Countries promised to strengthen their commitment to cutting production. Crude output in the U.S. meanwhile has climbed in nine of the last 10 months. Prices declined to a three-week low Monday amid global glut concerns. Non-OPEC supply is set to expand over the next five years, while growth in total oil demand will slow, according to a note by Sarah Emerson, energy principal at ESAI Energy in New York.

    The EIA report also made another change to reflect shifts in oil and gas production: The agency consolidated data from the Marcellus and Utica areas, known for their natural gas production, and classified it as a single Appalachia region.

    “Combining the relatively small number of active rigs across the broader Appalachia region should improve the precision of our productivity estimates,” the EIA said, noting that drilling patterns no longer align with previous regional definitions.

    Crude output from the Eagle Ford and Bakken regions are also expected to rise in September, with Eagle Ford projected to produce 1.39 million barrels a day and Bakken forecast to produce 1.05 million. Output in the newly included Anadarko region is poised to reach 459,000 barrels.

    • Dennis Coyne
      Ignored
      says:

      The DPR is a model that is often not very accurate.

      A better gage for US tight oil output is the estimate from the EIA of “actual” output at the page linked below.

      https://www.eia.gov/petroleum/data.php#crude

      Click on “tight oil production estimates” to download a spreadsheet with the data.

      Based on the annual rate of increase for the past 11 months (611 kb/d), December output might rise to about 4930 kb/d by Dec 2017, if the linear trend of the past 11 months continues.

      Lower investment levels and lower oil prices might reduce the rate of growth from July to December, however future oil prices are difficult to predict, a spike in oil prices might also lead to higher growth rates in US tight oil output.

      • Dennis Coyne
        Ignored
        says:

        By my estimate the DPR forecast for Sept 2017 LTO region oil output is 300 to 400 kb/d too high, using the trend for conventional oil in the DPR regions and the trend for tight oil output based on the EIA data.

        Bottom line, those relying on the DPR for LTO output estimates are being fooled into thinking LTO output is rising faster than is the case.

  43. Krisvis
    Ignored
    says:

    As a chemical engineer, I can say that oil growth in Permian will be limited by some rate limiting step. Does anybody know the associated gas handling capacity of Permian? Will it permit additional oil production?

    • Glenn E Stehle
      Ignored
      says:

      “These are good problems to have,” as one of H.L. Hunt’s nephews told me once upon a time when I was complaining about having to build larger tank batteries in order to handle oil production that exeeded expectations.

      Different For NGLs – NGL Pipelines Out Of The Permian, Part 4
      https://rbnenergy.com/different-for-ngls-ngl-pipelines-out-of-the-permian-part-4

      Exploration and production companies (E&Ps) active in the Permian are primarily in pursuit of crude oil, but as we said in Part 1 of this series, oil wells in the play also produce large volumes of associated natural gas and natural gas liquids (NGLs) that add considerable monetary value of their own. The region already is producing 2.3 million barrels a day (MMb/d) of crude oil and 6.6 billion cubic feet per day (Bcf/d) of dry natural gas, and under RBN’s Growth Scenario those numbers are expected to rise to 3.7 MMb/d and 12 Bcf/d, respectively, by 2022. The growth outlook for Permian NGLs is similar. Nearly 800 Mb/d are being produced today, and five years from now the region’s NGL output could top 1.4 MMb/d, a prospective increase of nearly 80%….

      Our analysis shows that of the more than 1.7 MMb/d of total NGL pipeline capacity out of the Permian, only two-thirds of that (just over 1.1 MMb/d) is effective takeaway capacity — in other words, actually available to transport NGLs produced in the play. As it turns out, that effective takeaway capacity of 1.1 MMb/d is about midway between where Permian NGL stands today (almost 800 Mb/d) and where production would stand in 2022 under RBN’s Growth Scenario (1.4 MMb/d), suggesting that new NGL takeaway capacity out of the Permian will be needed soon.

  44. Energy News
    Ignored
    says:

    Still wondering if the low price of oil will limit the number of completions? Some signs of penny pinching…

    Aug 16 (Reuters) – U.S. shale oil companies are pulling back on the amount of sand they use to hydraulically fracture new wells, responding to rising prices of the material that are driving up costs.
    Sand prices soared in the last year as oil companies ramped up shale drilling and production.
    But with crude prices below where they started the year, oil producers are employing new well designs and chemical agents that lessen the use of sand that represents around 12 percent of the cost of drilling and fracturing.
    A slowdown in sand use, combined with new mining capacity coming online, could lead to a glut of the material and bring down prices. The worries have pressured shares of sand companies.
    https://uk.reuters.com/article/usa-oil-sand-idUKL2N1L11ZN

  45. texas tea
    Ignored
    says:

    “For E&P companies and oil prices, investors will benefit most when the long oil cycle again starts to dominate, most likely from H2 2020. Shale production growth will have been maintained, but the Non-OPEC, Non-shale output will be missing in the oil markets significantly. First, the lack of infill drilling in mature fields will have limited output by 1mmbbl/d in the current short cycle, and second, the lack of new field sanctioning since 2015 will have cut output significantly five years forward.”

    https://www.rystadenergy.com/NewsEvents/PressReleases/the-effect-of-oil-price-cycles-on-investors

    of course those assumptions outlined do NOT factor in any geopolitical event. the companies best prepared to “profit” from the new cycle, like it or not will be domestic (US) shale players in the most prolific plays.

    • Nathanael
      Ignored
      says:

      Thanks for the Rystad link. It’s interesting that they forecast oil price rises starting in 2020…

      However, as should be obvious, the companies best prepared to profit from the new cycle will be electric car and truck manufacturers. If oil prices start going up in 2020, oil demand will be strangled in its crib by the purchase of electric cars and trucks.

      Supply of electric vehicles is growing at an exponential rate of about 50% growth per year. Just following current trends forward — at current oil prices! — peak oil demand is likely to hit between 2023 and 2025. A spike in oil prices would accelerate investment in EV production, with a roughly 1 or 2 year lag; so a 2020 oil price spike would lead to greater-than-50% growth in 2022; but electric vehicles will still face demand much higher than supply, so profit margins will remain high. Meanwhile, the only people making money on oil will be those with old wells in old fields who have no capex.

  46. shallow sand
    Ignored
    says:

    Noticed that another large sale of Bakken assets, Whiting to a company backed by Warburg Pincus. Previously, we has Halcion to a company backed by Archlight Capital.

    The Bakken shale shareholders (main street shareholders) always though a major would come in and buy their shares at a premium.

    • Mike
      Ignored
      says:

      Shallow, when pressed on the issue of debt, many shale oil cheerleaders countered that ‘majors’ would step up and acquire these shale companies and their 1P reserves and that debt would ultimately be paid back. It hasn’t happened, has it? The M&A that has occurred in shale plays since about 2013 have been inconsequential and most of that as been to acquire PUD reserves in the Delaware (Exxon and Bass, for instance). I can think of no big acquisitions of production, for production sake, in any shale basins of any significance. Piddly things here and there (Sanchez and Anadarko, etc.), save perhaps the EQT thing in the App Basin. In the mean time, since 2014 another $100B of debt has been added to the upstream cookie jar. Google it.

      RE: Rystad link: “For E&P companies and oil prices, investors will benefit most when the long oil cycle again starts to dominate, most likely from H2 2020. Shale production growth will have been maintained, but the Non-OPEC, Non-shale output will be missing in the oil markets significantly.” How stupid is this? How does Rystad, in Norway, know that ‘shale production growth will have been maintained?’

      Everything shaley completed in 2017 will have declined essentially 80% or more by 2020. For instance, a well completed in August 2017 for 600 BOEPD will be producing 120 BOEPD, or less, ( and getting gassier) by 2020 and the well will unlikely have reached payout. That well is carrying its own financial burden (borrowed to drill it), PLUS the burden of all other legacy wells in that company’s production inventory that have not been paid back since inception. So Rystad, like everyone else, assumes that the shale oil industry will be in a good position, and “investors” will be happy by 2H 2020. Well, investors are pretty pissed off now. So where is the money going to come from for the shale oil industry to keep drilling its sorry wells and be in a “good position” to benefit from the next ‘up’ cycle? Everyone rooting for the shale industry automatically assumes that low interest capital will ALWAYS be available to the shale industry, regardless of profitability. Or that oil prices will magically be $80 dollars soon.

      Would you take that bet? No, neither would I. What’s better to have when, and if the next “up cycle” occurs: conventional production that is paid for and declining at the rate of 4% annually, or shale production that has terminal decline rates of 12-14% per year and has $8B of debt associated with it, and still growing…the debt, that is?

      NOBODY in their right, oily mind, thinks unconventional shale production is the cat’s meow. Its expensive, unprofitable, debt-ridden, and declines like an anchor getting dropped in the open ocean. If you took a poll of 49 out of the top 50 shale producers in America they would ALL get out, NOW, in a Midland minute… if they knew how. How easily people ignore that the shale oil and shale gas industry exists ONLY because of credit, and that it has not paid off its MasterCard bill….yet, not in over 9 years !!

      • Hickory
        Ignored
        says:

        Makes me wonder just whose money has been used up, or put at risk. Pension funds? Venture capital? Is this debt that tax payers will eventually be on the hook for?

        • Nathanael
          Ignored
          says:

          Yes, lots of pension fund money. Lots of mutual fund money, so lots of IRA money. Lots of endowments. Some venture capital. Taxpayers won’t pay for it. Retirees and charitable foundations probably will.

          • Boomer II
            Ignored
            says:

            Some funds and foundations no longer support fossil fuel investments. Not enough so far to kill LTO, but maybe that philosophy will have a major impact at some point.

      • SRSrocco
        Ignored
        says:

        Mike,

        I believe you are using way too much logic in describing the Shale Oil Patch. Didn’t you know there is no room for Logic today when Central Banks and Corporations believe Debts are Assets?

        One of the reasons the Shale Oil Boom continues, is due to the motto, THERE’S A SUCKER BORN EVERY MINUTE. However, today, there’s at least a dozen born every second now.

        Funds looking for higher yield, which they couldn’t really find in the market thanks to the Fed’s Zero or low interest rate policy, plowed into Shale Energy. By giving their money over to the drilling black hole in the U.S., these funds receive a nice PHAT YIELD.

        For example, Continental Resources, Whiting Petroleum, Pioneer Resources and EOG Resources paid out a combined $364 million in interest expense in 2011. That’s when the price of oil was north of $100. In 2016, these four companies paid out a stunning $1.4 billion in interest expense…. while the price of oil was $45. This had a profound impact on interest expense ratio.

        Now, their interest expense turns out to be a PHAT YIELD on some Fund’s balance sheet. Unfortunately, the POOR SLOBS who gave their money to the U.S. Drilling Black Hole will never see it again. So… we continue to see more money flow into the Permian because most Americans (and possibly a few in this blog) are suffering from serious BRAIN DAMAGE.

        While the Drilling Party will continue for a bit longer, the hangover will be ugly.

        steve

        • OFM
          Ignored
          says:

          It’s in the interest of all the people who SHOULD be warning the people supplying the money to the tight oil industry to ignore the reality that guys like SRSrocco and Mike are pointing out. So long as they pretend everything is on the up and up, they can continue to collect their salaries as loan officers, stock market analysts, brokers, and so on.

          UNCLE SAM is extremely fond of cheap oil, and more than happy to throw a few thousand or even a million investors under the bus and a few billion dollars in easy money here and there to the people who are keeping oil cheap. The loss out of one pocket is TRIVIAL in relation to the gains in various other pockets. These other pockets include the tight hold incumbents have on their seats in state houses and DC and the advantages accruing to Uncle due to oil being cheap, such as a more favorable balance of trade, and tough times for certain enemies, real or at least perceived.

          Of course there’s a day coming when top management, in banking, stock brokerages, and in politics, will be throwing these same compliant people under the bus wholesale, in order that higher management people will be able to themselves hang on for another few weeks, months, or even years, collecting huge salaries, bonuses, and golden parachutes.

          “They” may crash the market for oil, by electrifying transportation, but so far I haven’t noticed ” them” making any more land, except by filling in a few acres of wetlands at enormous expense once in a while, even as the people keep on making more people.

          It’s not liquid, but in the end…… land has always held it’s value as well or better than just about anything else. You can live on it, you can rent it out, you can eat off of it, and you can be buried on it, lol.

          And while it can be seriously degraded, it’s damned near IMPOSSIBLE to actually destroy it. I’m not a gold bug, but I have a very small stash of gold, maybe enough to bribe a cop if I ever need to flee my home turf…….. but where could I go if I ever need to flee, that would be safer than here in the southern mountains?

          Safety in all things appears to be relative , in relation to prevailing physical and political conditions.

          I am not predicting that it will happen, but it does appear to be altogether reasonable to think that someday the ENTIRE HOUSE OF CARDS that constitutes our various money and financial systems will come tumbling down.

          In that case……. which assets will really be worth anything? Stocks will be worthless, notes receive able off all sorts will be worthless…… land will be worthless unless you are prepared to defend it……. Gold will be damned dangerous unless you are prepared to defend your self and your gold……

          In the end, a ton of ten ten ten and fifty gallons of diesel fuel might get you a fairly presentable virgin daughter.Maybe even one with looks and brains as well.

          NOTE that the FOUNDER of this blog is a confirmed doomer.

          I used to be one myself, but nowadays I’m cautiously optimistic that at least some of us, maybe even most of us, will pull thru without going feral.

          • Boomer II
            Ignored
            says:

            If I were a rich person, I’d be buying land, especially land with access to water.

            • Nathanael
              Ignored
              says:

              I spent a while looking into the best areas to have land in. My conclusion: Great Lakes. Canadian side preferable.

          • Boomer II
            Ignored
            says:

            I’m not a hardcore doomer because I see no value in it for me. It’s like being preoccupied with my death from the time I was old enough to have a thought. I know I will die. I know every living thing will die. But we need to live in the meantime. Or go ahead and just kill ourselves and get it over with.

            I do expect hard times, though, and sooner than later. I see relatively few people preparing for an economic system which could be quite different than we have now. So I expect some systems to fall apart. But I think we, as a species, will survive. We’ve survived much worse.

            I also think in the US we have a political system not willing or able to anticipate needed changes.

            • Boomer II
              Ignored
              says:

              Another concern is that I see a big chunk of the US population unable to process information. So they may be unable to adapt to changing situations. They may find themselves out luck. Even if they have basic survival skills, if they can’t observe what is happening around them, they may not be flexible enough to handle what they are exposed to.

              I think a big part of the discussions in this forum are about facts versus biases. Climate, natural resource depletion, etc. If information doesn’t fit your world view, you may reject something that is happening until it is too late to adjust to changing circumstances. If you assume you will never be hit by a flood, then you probably have no plan.

          • Nathanael
            Ignored
            says:

            Global warming is actually going to destroy the land in Florida by flooding it. Be careful where you get land.

        • HuntingtonBeach
          Ignored
          says:

          “Didn’t you know there is no room for Logic today when Central Banks and Corporations believe Debts are Assets?”

          “While the Drilling Party will continue for a bit longer, the hangover will be ugly”

          Steve, still using fear to sell your metal’s ? Now a taste of the real world.

          “We focus on creating value and maintaining our internally funded capital budget within our operating cash flows. We are also focusing our capital on oil projects, which provide higher margins and low decline rates that we believe will generate growing cash flow to fund increasing capital budgets that will grow production in a higher price environment.

          Our low decline rates compared to our industry peers plus our high level of operational control give us the flexibility to adjust the level of such capital investments as circumstances warrant. As a result, we have developed a dynamic plan which can be scaled up or down depending on the price environment.

          Our 2017 base capital budget was initially set at approximately $300 million. The two joint ventures we entered into contemplate our partners providing capital for the development of certain of our oil and gas properties. As a result, we increased our total 2017 capital program to approximately $400 million, including the portion funded by MIRA that will not be reported in our consolidated results. The program will include up to $150 million in joint venture drilling and completions as well as internally funded amounts of $115 million for drilling and completions, $55 million for capital workovers, $45 million for facilities, $25 million primarily for mechanical integrity projects and $10 million for exploration. Our capital program also reflects approximately $17 million in efficiencies and cost savings identified year to date. In a prolonged period of around $40 Brent prices, we would reduce our internally generated capital in the second half of the year to stay within cash flow and rely on the joint venture capital to maintain a certain level of activity.

          Our capital investment for the six months ended June 30, 2017 was $132 million, of which $43 million was funded by BSP. The joint ventures afford an additional layer of optionality. We recently closed our second $50 million tranche of funding with BSP and expect the JVs to allow us to maintain at least a six-rig program for the balance of the year. In a higher price environment, the resulting acceleration of activity from the JVs should help compound the efficiencies and cost savings which we are implementing.

          We began 2017 with two rigs and had an average of three rigs for the six months ended June 30, 2017. At the end of the second quarter, we were operating seven rigs. By the end of the year, we expect to be operating eight rigs, with two focused on steamfloods, two on shales, one on waterfloods and three on conventional reservoirs. We expect that one of the rigs will also be used for exploration in the second half of the year. Our 2017 development program will focus on our core fields.”

          California Resources Corporation 8/3/2017

          • Nathanael
            Ignored
            says:

            Ouch. That’s a lot of money burned on worthless drilling. They’re simply *betting* on a higher price environment, and their plan if it isn’t higher is to, uh, wait and get more money from joint venture investors. Inveterate gamblers…

            Peak gasoline demand and peak diesel demand is going to completely blindside nearly all of these companies (with the honorable exception of Royal Dutch Shell). What do you bet they go begging to governments to bail them out? I bet they do.

            • HuntingtonBeach
              Ignored
              says:

              “That’s a lot of money burned on worthless drilling”

              Nate, it appears you don’t understand the gravity of the situation. These companies have legacy debt obligations, shareholders, employees and capital investments that have to be carried forward. Quitting and boarding up shop is a much worse alternative. Pretty much the entire industry is suffering from bloated inventories from free market pricing swings. CRC’s statement shows the marginal cost of drilling at current prices adds to the companies bottom line and cash flow. Clearly these are tough times for the energy industries, but these current excesses will shake out and the markets will balance along with prices. In this time of musical chairs, you don’t want to be caught without a seat at the table. After 150 years, the world still hasn’t reached peak demand. Quitting is not an option. No economist ever said capitalism is always pretty.

  47. Watcher
    Ignored
    says:

    Worth noting to the Great Unwashed that low oil prices or high oil prices are not really on CB radar screens.

    It’s the delta that matters. Because of the overwhelming levels of debt around (one hell of a lot of it on the Fed and ECB balance sheets).

    If you increase prices, continually, level not important, 1st derivative important, then that is inflation and it cheapens currencies (not with respect to other currencies, WRT stuff) and that means the debt is worth less. If you have a trillion in debt and you inflate it X%/yr for Y yrs, that trillion doesn’t demand as much from the borrower to repay it.

    Conversely, oil prices falling, and continuing to fall creates Central Bank disaster. This is the 2nd part of the Fed dual mandate. Ya gotta manage jobs, and ya also gotta manage inflation. It originally was single mandate — inflation only — and jobs were added just a few decades ago. But when the mandate was put into place the concept was to keep inflation down. Not up. Now they have a problem getting it to rise.

    This is disastrous. Debt becomes more burdensome over time. It demands more and more of the borrower to service it. You can’t inflate debt away when deflation is prevalent.

    Food and oil are called non core inflation, but that is only because in the past both were volatile (English definition of “volatile”, not the recent BS definition of simply down. Oil prices are stable means nowadays that they are up. Oil prices are volatile now means they are down. Just another BS outrage.)

    If non core became core by edging downwards for YEARS, then you’re looking at global deflation that no one with debt can endure.

    • Nathanael
      Ignored
      says:

      Yes, it’s actually critical for macroeconomic health to have some inflation. Deflation is disastrous *throughout 5000 years of history*.

      There’s several reasons for this, and you explained the most important of them: debt deflation. During deflation, since the debts get larger in real terms (require more hours to pay off), the debts can’t be paid and the money system collapses — often those in debt slavery become chattel slaves or serfs as happened at the end of the Roman Empire. Sometimes there’s a revolution.

      Another is simply hoarding: if the money is getting more valuable every day, why spend it? Save it for tomorrow. This takes money out of circulation and then real economic activity reverts to barter…

      I think we’ll be OK this time — but it may require direct money-printing to stay out of deflation. (Japan actually HAS had deflation in recent decades — a disaster.)

  48. texas tea
    Ignored
    says:

    “China’s oil demand will reach a ceiling of 690 million tonnes a year, equivalent to 13.8 million barrels per day (bpd), by 2030, CNPC said. The country is the world’s second-largest oil consumer. That compares with last year’s estimate of a peak of 670 million tonnes a year by 2027.”

    https://www.reuters.com/article/us-china-cnpc-outlook-idUSKCN1AW0DF

  49. texas tea
    Ignored
    says:

    Mike ask: “What’s better to have when, and if the next “up cycle” occurs: conventional production that is paid for and declining at the rate of 4% annually, or shale production that has terminal decline rates of 12-14% per year”?

    I suppose the answer in part is, how many NEW DRILLING opportunities do the: “conventional production that is paid for and declining at the rate of 4% annually” owners have to bring NEW freaking oil to the market. If the answer is very few, (which it is) then it will be the LTO players that can grow their production. The companies I follow have 10-15 years of drilling inventory. It is a reasonable assumption that if LTO production is growing in a $45-$50 environment that the level of LTO production in the next 2.5 years will be stable, I think even the folks in Norway can figure that out while few “experts” here in Texas are challenged to draw a line and connect the dots.

    • Mike
      Ignored
      says:

      I don’t pretest to be an ‘expert’ on the shale oil industry; I am just rendering my opinions, same as you, such as they are. I am, however, after 40 years as an operator, pretty good at drawing lines lines and connecting dots (without the help of investor presentations) and when I do it is clear to me, and apparently just about everyone else with an IQ higher than the price of oil , that LTO production is still growing, ever so slightly, because the shale oil industry is a.) selling assets, b.) still losing money and destroying shareholder equity further than it already has, c.) still drawing on credit lines, d.) generally speaking, kicking the net long term debt can as far down the road as it possibly can, e.) soaking service and supply providers for temporary lower costs, and f.) telling more untruths and/or half truths (EUR’s), whatever it can do to raise more money. The shale oil industry IS STILL OUTSPENDING REVENUE by a significant margin.

      For someone who claims to be IN the oil business you seem to struggle a great deal with where the money comes from for your beloved shale industry to keep drilling it’s lousy wells. Productivity, or increasing production, is NOT the same as profitability. Increasing production does NOT mean the shale oil industry is succeeding. It simply means it continues to use OPM it will likely never be able to pay back unless oil prices go to $100 a barrel and stay there for ten years. Find someone in the “check book oil business” that can explain that to you better. Having 15 years of “drillable locations,” whatever the hell that means, is meaningless unless there is money available to drill those locations. The shale oil industry sure as hell does not have that money.

      • shallow sand
        Ignored
        says:

        What I think is interesting is that, in the Bakken, the buyers are private firms.

        I have looked at what those firms own, generally wells that are producing under 75 BOPD, where the decline, although still there, is much more gentle than the first years of Bakken wells. From a review of the State of ND website, it appears these firms have one or two rigs running, or none.

        Mike and I have often discussed the “out years” of these horizontal wells. I agree with him, in a low price environment, not much money to be made. However, assuming these companies are correct, and that high prices return, I think money can be made on wells that pump “part-time” that make 10-30 BOPD, with little water, provided down hole issues are minimal. Yes, a 20,000′ well bore is a concern. The abandonment costs for these wells will be significant.

        The Bakken appears to be heading into the phase that most US conventional production hit in the 1990s, the larger players are starting to sell out to private firms. I agree, it is just beginning, but appears that is the trend.

        I suspect we will see this begin in the EFS, if it hasn’t already. The Permian may be a different story, it is not a one trick pony, like Bakken and EFS. Many productive zones, and I suspect when XOM, CVX, OXY etc are there, it is not just for the tight, Hz zones. Those companies operate significant conventional production in the Permian and have for decades. So, they may not just sell out of the Permian.

        • Dennis Coyne
          Ignored
          says:

          Hi Shallow sand,

          I imagine most of the new development going forward in the Permian will be tight oil, with continued production from the old stripper wells, there are a number of different productive zones, but the best seem to be the Wolfcamp, Spraberry, and Delaware formations with the Wolfcamp having the largest technically recoverable resource (based on USGS evaluations so far with Delaware under evaluation currently).

          Eventually the same will occur in the Permian as is happening in the Bakken, but the horizontal development started in earnest about 5 to 7 years after the Bakken so this may be delayed until 2020 to 2025 for the Permian basin. It depends in part on oil prices and the speed with which the Permian is developed. If it follows the pace of the Eagle Ford, it will be closer to 2020.

      • texas tea
        Ignored
        says:

        you are livin in the past man

        Worst may be behind for energy borrowers
        “We’ve hit the bottom of defaults,” said Steven Oh, global head of credit and fixed income at PineBridge Investments. “By and large, it’s over.”

        “However, companies in the deep-water drilling segment and other high-cost production services have yet to go through “a downturn that is nowhere near recovery,” Oh said.

        http://www.worldoil.com/news/2017/8/17/worst-may-be-behind-for-energy-borrowers

        • Dennis Coyne
          Ignored
          says:

          Hi Texas Tea,

          Perhaps, but if tight oil output is as prolific as some people believe, then oil prices will fall below $40/b and the worst may not be over, especially if service costs start to rise further. What is your expectation for future oil prices?

    • Dennis Coyne
      Ignored
      says:

      Hi Texas Tea,

      There is a lag in the response of output to oil prices. Let’s assume shale oil output grows as forecast by the EIA’s DPR, or that OPEC and non-OPEC producers that have agreed to limit output do not extend their cuts beyond March 2018, or both assumptions above prove correct.

      In that case oil prices might fall below $45/b and LTO output may decline as was the case from March 2015 to June 2016. Stable output is a possibility if oil prices remain at $45 to $55/b and those lending money to LTO producers do not tire of seeing continued negative earnings from the companies whose debt they hold.

      At some point debt defaults by bankrupt LTO players may reduce the appetite for such debt.

      From the December 2016 report linked below,
      http://www.haynesboone.com/~/media/files/attorney%20publications/2016/energy_bankruptcy_monitor/oil_patch_bankruptcy_20160106.ashx

      As of December 14, 2016, 70 producers have filed bankruptcy so far this year, representing approximately $56.8 billion in cumulative secured and unsecured debt.

      The bold was added by me, note that “this year” refers to 2016 in the quote above. At some point lenders will require higher interest rates due to higher risk, this leads to lower profits for the energy companies and higher bankruptcy rates in a positive feedback loop until financing dries up for the LTO players.

      I also note that Rystad suggests about 100 billion has been raised by the US oil industry, let’s assume all of this was the LTO industry and that each well costs $10 million on average to complete (full cost), so we have 100,000 million divided by 10 million or 10,000 wells that can be completed. In the US in 2015 there were about 9700 horizontal LTO wells completed in the US and output decreased slightly from Jan 2015 to Jan 2016.

      Whether the recent growth in shale output will be maintained at oil prices under $50/b is an open question. From Jan 2016 to Jan 2017 about 6200 horizontal LTO wells were completed in the US and LTO output fell by 140 kb/d. The more wells that are online (about 69,000 in Dec 2016), the higher the completion rate needs to be simply to maintain current output,

      We have better well counts from June 2015 to June 2016 with 7592 new horizontal LTO wells completed over this period (66,384 wells in June 2016) and US tight oil output decreased by 420 kb/d over that period. Incomplete data from the RRC of Texas makes it difficult to estimate recent well completion rates, particularly for horizontal wells in the Permian basin.

      • Nathanael
        Ignored
        says:

        I think it’s completely insane that the US oil and gas industry has raised $100 billion in a year. The value destruction is spectactular. Invest that much building a few electric car factories, you could make real money.

  50. Watcher
    Ignored
    says:

    Cycle? Oil price cycle?

    When you can create 25% of GDP via Quantitative Ease in just 5 years why do you presume that there is still potential for cycle? Why believe that cycles still exist? If you can create money from nothingness you don’t have to have cycles.

    I know it’s difficult for people to accept, but there is no reason to believe that things must be as they used to be. That all went away and it’s not coming back.

    Only scarcity is beyond the control of central banks and they’re trying to get control over even that.

    • Nathanael
      Ignored
      says:

      You’re incorrect. People have created money from nothingness forever, since the invention of money in ancient Sumeria. (Really. I know the history of money.) There have always been commodity price cycles.

      The cycles are fundamentally psychological.

  51. Watcher
    Ignored
    says:

    https://www.eia.gov/petroleum/production/pdf/table5.pdf

    People this is a layout of API number for oil produced by each state. Proportional.

    Does EIA archive this stuff? That would be pretty important to see.

    Look at GOM proportion of sub 40 liquid vs NoDak and Colorado. . . and Texas.

    Reminder, WTI set to 39 for damn near all history and recently was upped to almost 41. Lynn Helms swore to us for years the Bakken oil was 39. Now they don’t even try to hide 42.

  52. Rune Likvern
    Ignored
    says:

    The only way to understand the profitability of shale wells is to establish each well as a profit/loss center (from studying several shale companies SEC 10-K/Q filings I have so far found none that does this).

    What the companies (and the public) miss by doing this is how especially specific LOE and interest costs/expenses develops over time as the well depletes and the development in employed capital (capital to be recovered until (or rather if) payout is reached and from there the profits the wells make.

    Look at it this way, manufacturing a well at $8M-$9M is like borrowing that well what it costs with an interest of 6% pa and the principal (well cost) is paid down with the surplus post taxes, OPEX (inclusive G&A) and interest expenses (in the example the interest expenses are reduced by 35% to reflect a “tax rebate”).
    Royalties at 18%.

    Some companies are now recirculating borrowed money (at some interest) from the net operational cash flow and with a sustained low oil price a big portion of this money will never be recovered.

    The chart below shows how this develops for an average well in Bakken of 2014, 2015 and 2016 vintages.
    First 12 months flow;
    2014 vintage: 90,3 kbo (started in Jan-14)
    2015 vintage: 101,9 kbo (started in Jan-15)
    2016 vintage: 125,0 kbo (started in Jan-16)

    LOE is here defined as a fixed amount plus an amount related to gas and water production (treatment and disposal) and has its low below $3/bo (as the flow is highest) and then grows (as production declines) and is capped at $12,50/bo.
    The oil price used is monthly and for North Dakota Sweet (NDS), from Flint Hills.
    No effect from hedges included.
    Presentation does not include costs from any heavy maintenance/interventions.
    Losses from natural gas and NGL sales not included.
    Note future flows are likely to have lower flows than what was used especially for the 2015 and 2016 vintages.

    By lumping oil, natural gas and NGLs together (which is a ruse) it becomes possible to lower the specific cost elements, but for the last 3 years that has also helped hide the fact that natural gas and NGLs comes with a loss that has to be carried by the sales of oil.

    The chart shows actual and estimated trajectory with an oil price of $40/bo (NDS) at the wellhead.
    A higher oil price allows recovering more of the remaining employed capital. And vice versa.

    • Rune Likvern
      Ignored
      says:

      The chart below shows developments in gross specific interests costs/expenses (this is before any corporate “tax rebate” of 35% is applied) for the average well of 2014, 2015 and 2016 vintages for which the recovery profile for employed capital was shown in a chart above.
      Over time and at present wellhead prices the interest costs becomes by far the dominant costs/expenses element ….and few are talking about this.

      The reason is by lumping oil, natural gas and NGLs together in BOE units which are fair if one is looking at energy content, but becomes deceptive with regards to financials.
      Further the interest expenses are also spread out on wells pre 2014 which mostly have recovered their employed capital and becomes further diluted by newer wells with high initial flows. By doing this the true financial state of the individual wells becomes obfuscated.

      • Dennis Coyne
        Ignored
        says:

        Thanks Rune,

        Great stuff as usual.

        I was confused by the comment about NG and NGLs and losses, but on doing a little research apparently these generate little net revenue at current prices and supposedly are “breakeven” at best.

        • Rune Likvern
          Ignored
          says:

          Dennis, thanks.

          What I did was to go in and out of the Mcf to BOE conversions.
          To illustrate this Whiting for Q2-2017 reported in their SEC filing that their average sales price for natural gas was $1,68/Mcf which equals to $10,08/BOE using a 6 to 1 conversion and $9,02/BOE post taxes.

          Totaling LOE, G&A and interest costs on a BOE basis results in a total cost of $16,21/BOE which translates into a loss of ($9,02 – $16,21) = -$7,19/BOE or -$1,20/Mcf.

          Same thing for NGL which sold for $10,41/b (BOE) or $9,32/b (BOE) post taxes.
          ($9,32 – $16,21) = -$6,89/b (BOE)
          In Q2-2017 each barrel of oil came with (on average) 1,48 Mcf natural gas and 0,23 barrels/BOE of NGLs.
          Total losses, and staying with the BOE units, from natural gas and NGLs for each barrel of oil becomes;
          1,48 * -$1,20 + 0,23 * -$6,89 = -$3,36 (average losses each barrel of oil has to cover for).

          Same method applied for Oasis for Q2-2017 results in a loss of -$0,83/Mcf and on average each barrel of oil came with 1,78 Mcf natural gas (Oasis does not split out natural gas and NGLs).
          This amounts to an average loss of; 1,78 * -$0,83 = -$1,48 per barrel of oil.
          Losses is also found for natural gas for both 2015 and 2016.

          Losses (primarily)/gains from natural gas and NGLs are not included in what I presented.
          If included, it would make all negativier.

          • Dennis Coyne
            Ignored
            says:

            Thanks Rune.

            I guess I would do the accounting differently and only apply the LOE,G&A, and interest expense to the oil produced and then add in the net revenue (post tax) from NG and NGL to the net revenue stream.

            To make sure I understand properly, when analyzing oil (and ignoring NG and NGL) for Whiting in 2017Q2 , did you use $16.21/bo for the combined LOE, G&A, and interest expense? Or did this number increase because you ignored the BOE from NG and NGL so the barrels in the denominator was smaller.

            As a simple example, say we had $20/BOE in expenses for 100 BOE that includes 20 BOE of NG and NGL combined, if we ignore the NG and NGL (assume the price was zero for both), I would now put the expenses at $2000/80 bo=$25/bo and then I would add the post tax revenue from the NG and NGL back into the analysis.

            • Rune Likvern
              Ignored
              says:

              Dennis,

              I believe it is important to be aware that using BOE dilutes the specifics (LOE, G&A, etc.).

              This makes it look good on the financial statements.

              One alternative way to do it is as you describe (I do it all the time), say; oil carries all costs then add in the (specific net incomes; pr bo) from natural gas and NGLs.
              Alternatively stay with the BOE then adjust net back for oil for the natural gas and NGLs.

              In Bakken it appears now that natural gas needs north of $4/Mcf to carry its own weight.

      • Mike
        Ignored
        says:

        Rune, thank you. Regrettably you might have gotten cut off at the knees with another post and your excellent work will not receive the attention it deserves.

        Statements such as these: “We’ve hit the bottom of defaults,” said Steven Oh, global head of credit and fixed income at PineBridge Investments. “By and large, it’s over,” are so ridiculously absurd it is incredible. The shit has not even begun to hit the windmill for the US shale oil industry yet.

        • Rune Likvern
          Ignored
          says:

          Mike, thanks.

          Would the blog owner allow linking a thread in the new post?
          Kaplan has some good posts!

          Some days/weeks ago I noticed on NDIC site that 61 rigs were active, today 53 and 5 MIRU. Not sure what that means.
          From looking at the 10-Qs I noted that the companies outspent cash flow from operations so far in 2017.

          If present prices are sustained for say another year I would keep a safe distance to windmills. 🙂

          • Mike
            Ignored
            says:

            Yes Mr. Kaplan does have good posts but the topic always seems to turn to shale oil somehow and I think your work needs revisiting; I’ll cut and paste it if I need to. I am still reeling from the implications of interest on legacy production…its like malaria that never goes away.

            Roger that on windmills; it seems to me that the first big blob to hit will be WLL. Its in, or on the way, to hospice care.

    • Nathanael
      Ignored
      says:

      Rune, it’s lovely to see someone who actually knows the principles of full life-cycle profit-and-loss accounting. 🙂

Leave a Reply

Your email address will not be published. Required fields are marked *