OPEC May Production Data

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

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

OPEC crude only production was up 336,000 barrels per day in May. The two countries that are not subject to OPEC quotas, Nigeria and Libya, were up a combined 352,000 barrels per day. That means the rest of OPEC was down 16,000 bpd. And all this was after OPEC April production was revised upward by 72,000 barrels per day.

March OPEC production was revised upward by 23,000 bpd while April production was revised upward by 72,000 bpd.

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. They will be in a slow decline from now on.

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

Iran’s recovery from sanctions has apparently peaked. I expect a slow decline from here.

Iraq is down 218,000 barrels per day since their December peak.

Kuwait is down 154,000 bpd from their November peak. That is about 5.4%.

Libya was up 178,200 barrels per day in May but they still have a long way to go before they get back to their maximum possible production level, which is around 1.4 million bpd.

Nigeria was up 174,200 bpd in May but they had more labor problems in June. So look for their production to drop slightly next month.

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

Saudi Arabia cut in January, then stopped cutting. I think this is where we will be for some time unless there is a real shake up in OPEC.

The UAE is down almost 205,000 bpd since December. This is the largest percentage cut in OPEC. I don’t think it is all voluntary.

Venezuela’s problems will continue. They are now below two million barrels per day. They are at 1,963,000 bpd. Last March their production was 2,286,000 bpd.

They are saying global oil supply was up 113,000 barrels per day in May. OPEC production was up 336,000 bpd in may. If these two figures are correct then Non-OPEC had to be down 223,000 barrels per day in May.

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249 Responses to OPEC May Production Data

  1. Donn Hewes says:

    Hi Ron, Did you mean up in the first sentence? D

    • Yea, I caught that about five minutes after I put it up. But it turns out I only corrected it only on the “OPEC Charts” page and forgot to correct it on the post.

  2. Enno Peters has a new post up on the latest North Dakota production data.

    North Dakota – update through April 2017

  3. Thanks Ron for keeping us up-to-date. Not many have the endurance to do this. Especially as the data are not easily available in Excel format. Your graphs show that OPEC increased production before the November 2016 meeting and then cut production by almost the same amount. This is similar to what they did in the 1980s when they all increased oil reserves within a very short time (quota wars)


    My latest post is on the UK oil and gas industry which is now in negative post-tax cash flow

    Brent Exit

    • George Kaplan says:

      While I’d agree with your general points I think you’ve omitted the observation that ther is going to be quite a boost to production over the next two years with Glen Lyon and Greater Stella ramping up (130 and 55 kbpd nameplates) plus Clair Ridge, Kraken, Mariner, Kraken Western Isles, Montrose Area due this year and next. I predict headlines of the great North Sea comeback. It depends a bit on whether Buzzard production stays up – it should be coming to the end of plateau, but has been for over a year, but water cutis now on rising above 50%, which is often the beginning of the end

      After these though there’s not so much – Rosebank, which has been around for a long time, the Hurricane field if the extended production tests work out and some small gas projects and oil tie-backs. I don’t see the discoveries Rystad predict even on a high case – this year is busy and I think Douglas Westwood are only predicting about 100 mmbbld unrisked (could easily be zero).

      You also say there haven’t been many studies on the consequences of the decline. There have been a few but they aren’t good news and tend not to be widely reported. There was a all party group for peak oil and gas, and now there is one for limits to growth, There was also a study which showed a very high correlation between UK productivity changes and changes in North Sea production, which would suggest we might sustain productivity for a couple of years as the new fields arrive, and then it’s likely to plummet (there are regular media columns from high profile commentators on our productivity issues – none of them ever mention this correlation, it’s always a question of taxes, management, generational attitudes etc. – i.e. soft data that is almost impossible to question, and where everything would be fine if only … etc. ).

    • Watcher says:

      BP’s released data yesterday shows this for UK oil production:

      2010 1.36 mbpd
      2011 1.112 mbpd
      2012 946K bpd
      2013 864K bpd
      2014 852K bpd
      2015 963K bpd
      2016 1.01 mbpd

      Consumption 2016 1.6 mbpd up 2% from 2015

    • Jan says:


      You say in your article that the world cannot afford $100 oil. The evidence for that is circumstantial. Recessions have happened over the centuries and has nothing to do with oil prices.


      Recessions are far more related to excess lending and borrowing, followed by a time of prudence.
      global GDP is $80 trillion and to spend $4 trillion on everything related to oil is not a great deal. At $100 which would cost $4 trillion globally would pay for all oil exploration and production. All the oil to power agriculture, all the road haulage, all the cars driven, all the plane fuel. All the ships transporting people and goods.

      Cars now can get 80mpg and more.


      People who buy cars like this will be effected more.


      • alimbiquated says:

        The great advantage to $100 oil is that it shifts outlays from consumption to investment. For countries with high current account deficits, like the US, this is an important market signal. So America’s best bet now would be to tax consumption of liquid fuel so that the oil looks like it costs $100 a barrel to consumers.

        • Hickory says:

          I have thought we should have been doing that ($100 apparent) since the 1980’s. The revenues could have been used to build the long-term infrastructure and R/D to make the USA energy independent and on economic sure footing.
          That kind of thinking assumes a long term plan- purely wishful thinking.

        • Jan says:

          In the U.K. petrol and diesel is around £1.10 per litre.


          159 litres to a barrel or oil equals £175 per barrel, with an exchange rate of £1.30. We are paying around $227 for a barrel of oil.
          There are still a lot of cars here but at least we have a reasonable public transport system. You can get anywhere in Britain by bus and train and of course by train to Paris, Brussels and beyond.

          In Europe public transport is far better and cheaper, so Europe can adapt to peak oil reasonably well.

  4. Energy News says:

    Since mid-2014, Canadian tight oil production decreased from a peak of about 425 thousand barrels per day (Mb/d) to about 345 Mb/d at the end of 2016.

  5. Dennis Coyne says:

    Hi all,

    Enno Peters has a new North Dakota update up.


    Coffeguyzz suggested that the well profile presented by the NDIC in the presentation linked below should be better.


    The NDIC well Profile would be about 962 kb over 45 years.

    In my model, (recently updated) the well profile from 2008 to 2015 is 325 kb to 335 kb (a gradual increase in well productivity over time). In July 2016 to April 2017 the well productivity may have increased to around 350-360 kb (difficult to estimate with limited data). The model using these well profiles is below.

    Note that even cutting off the NDIC well profile at 30 years would still result in 872 kb of output about 2.5 times my high estimate (for recent Bakken wells). The NDIC well profile is not credible.

    The model below would not be possible without the data generously provided by Enno Peters.

    Thank you Enno.

    The wells added from May 2017 to Dec 2019 is assumed to average 80 new wells per month, obviously I cannot know the number of wells added in the future so this scenario simply guesses at the future number of future completed wells. For the past 12 months the average was 62 new wells per month with a low of 45 and a high of 83 new wells per month. The number of completed wells increased by 12 in April (from 56 to 68).

    • coffeeguyzz says:

      To both expand upon and, possibly, clarify my observation, suggest you and/or readers go to page 12 from that presentation to see the current 60 day IPs in color-coded ‘dashes’. These hash marks show both the wells’ productivities and locations.

      You should see hundreds of blue, green, purple and dark orange lines – on both the light grey (TF) and dark grey (Bakken/TF) – which are all incorporated into Enno’s vast data base. (Hats off to you again, Enno. Incredible display of time and effort on your part).

      So, Dennis, the DMR folks exclude many of those poor wells as they are not considered ‘typical’.

      Now, there is no way that I will attempt to define their ‘typical’ parameters, but I will say that as recovery techniques improve and drilling and extraction processes continue to decline in cost, the productive footprint of this Basin will tend to enlarge.

      • Dennis coyne says:

        Hi coffeeguyz

        In my view the mean well is typical anything else is cherry picking.

        The average well was about 335 kb EUR in 2015, in 2016 it went up to perhaps 350 kb though it may be too early to tell.

        The average well will not have an EUR of 950 kb.

        That’s called hype.

      • Dennis Coyne says:

        Hi Coffeguyzz,

        The point of my chart was to show how well the model works with average well productivity (EUR) of 325-360 kb. The point was perhaps unclear.

        To reinforce further, the scenario below assumes the same well profile as before until Jan 2015 and then the average well profile is changed to a mean of 647 kb from Feb 2015 to Jan 2018 (essentially it was multiplied by 2), as a reminder the NDIC well profile is 950 kb (about a factor of 2.5 times the correct average well profile of 345 kb).

        I think it is fairly clear that the actual North Dakota Bakken/Three Forks output of the model does not match the data well using such a well profile (from Feb 2015 through April 2017).

        That is the reason the NDIC typical well profile is not correct.

        Note that this scenario is not correct, the point is to show that the average well profile must be closer to a 350 kb EUR than a 650 kb EUR (or even a 950 kb EUR).

        • coffeeguyzz says:


          I will not attempt to suade you regarding your views.
          Suffice to say that the Department of Mineral Resources from the state of North Dakota has a very different perspective than you, partially, I would think, as a consequence of the factors mentioned in my above comment.

          • coffeeguyzz says:

            … and a quick PS …

            Do you know how many of the wells in Enno’s data base are from non Bakken/Three Forks formations?
            The DMR folks use the term ‘pool’ to indicate the targeted formation.

            • Dennis Coyne says:

              Hi Coffeeguyzz,

              In shaleprofile one can select the Middle Bakken and Three Forks formations. That is what I do when I find the average well profiles.

              There are 11,360 wells that have been producing at least 2 months in the Middle Bakken and Three Forks Formations, 7294 of thes ewells were in the Middle Bakken with the rest in the Three Forks.

              When all the wells in Enno’s database are included the total is 11,871 wells, so 511 wells are either unknown (confidential wells) or “other”, 47 of the wells with at least 2 months of output are unknown and I am confident these at the “confidential” wells. There are 464 wells in the “other” category.

              The Middle Bakken, Three Forks, and Unknown(confidential) wells were chosen under formation and years 2015, 2016, and 2017 were chosen for year of first flow. Chart below from shaleprofile.com

              • Mike says:

                Dennis, don’t forget how useful the BOE tool is to the shale oil industry. The Bakken appears to be getting gassier, as one might expect from four years of high grading and depleting sweet spots. The same is happening in the Eagle Ford. There is also a slow transition in the Eagle Ford from the oil window back to the wet gas window, because of prices. And the Permian is naturally gassier. At 6:1 all that gas can make BOE EUR’s look really peachy. They keep getting higher and higher. And it hardly matters whether that gas nets 20 cents an MMBTU, or goes up a flare stack…its not about profitability, its about productivity and big numbers. When 99.999% of American’s hear BOE they think BO. But that’s the point, isn’t it?

                • Dennis Coyne says:

                  Hi Mike,

                  Yes and at $50/b for oil and $3/MCF for gas, a boe of natural gas is worth about $18/boe or 2.8 times less than the barrel of crude.

                  In terms of value the natural gas “barrels” should be divided by 3 and the NGL “barrels” by about 2 (usually NGL sells at about half the price of crude, I think).

                  So for a financial analysis with 700 kb0, 50 kb NGL, and 200 kboe of natural gas, often touted as 950 kboe EUR, a more honest analysis would call it 800 kboe.

                  There is also the problem that type curves often use b=1.4 or higher which if carried out to 45 years (as is done by the NDIC) leads to an EUR of 950 kb. The reality is that the C+C produced is about 340 kb, I haven’t really followed the gas closely, because in the past most of it was flared, it adds very little value to a Bakken well,operators are forced to collect it because of EPA regs.

                  I examined this in a post in April 2013.


                  hyperbolic well profile uses (EUR30=304 kb)
                  Di=0.19, b=0.95, and qi=14,225
                  James Mason well profile (EUR30=500 kb)
                  Di=0.197, b=1.4, and qi=14,225
                  NDIC well profile (EUR30=570 kb)
                  Di=0.185, b=1.094, and qi=21,500

                  Chart from post below

                  • Dennis coyne says:

                    Hi Glenn,

                    Your chart from the EIA tells us very little as it does not break out out flaring by basin.

                    The data can be gathered at shaleprofile.com

                • Glenn E Stehle says:

                  Mike said:

                  And the Permian is naturally gassier.
                  At 6:1 all that gas can make BOE EUR’s look really peachy.

                  The truth, however, is something quite different, and the talk of “6:1” is just more fact-free nonsense from our resident “expert consensus.”

                  The reality is that the Permian is not “naturally gassier.”

                  One of the attractions of the Midland Basin is that on the northern end of the basin the wells are not very gassy at all, with gas composing only 6% to 15% of BOE, depending on the area and the zone of completion.

                  The average GOR for all Permian Basin wells (both the Midland Basin and the Delaware Basin) according to information gleaned from Enno Peter’s website Visualizing US Shale Oil Production, is only about 2,000 CFG/BO, and has trended generally downward since 2012 as operators have focused on drilling wells in the less gassy areas of the basin.

                  • Mike says:

                    What then is the current gas to oil equivalent ratio being used in the Permian if not 6: 1, Mr. Stehle ?

                    Its deceiving to the American public, whatever it is. BOE is not BO. Dennis has proven, with actual realized production data, that oil UR is not improving that much. Gas in the Permian is getting flared by the B’s. If they’re are moving to very specific, less gassy prone areas in the Permian maybe it is because of this: https://btuanalytics.com/permian-gas-takeaway/

                    What makes you our “resident” expert on POB, besides being a royalty owner receiving revenue from shale wells, free and clear of all costs? Are you an engineer, Mr. Stehle? A petroleum engineer and still a member of the SPE?

                    “Since 2011, the largest 30 independent U.S. shale producers spent an average of nearly $1.33 for every $1 they made drilling wells, according to a Wall Street Journal analysis.

                    In the past two years, those 30 have lost $130 billion. More than 120 companies have gone bankrupt, and many of those that survived have done so with cash infusions from Wall Street, which rewarded the drillers for their fast growth.”


                    The lower the price goes, the less relevant “growth” becomes and soon it becomes necessary, again, to impair all those reserve assets, again.

                    And this is really not good: http://www.reuters.com/article/us-usa-permian-funds-idUSKBN1970EW

                    Your royalty income is down 21% in just the past 2 months. Man, that’s gotta hurt, even the staunchest of gung-ho shale oil supporters.

                    Its ironic that not three months ago, at CERA, Harold Hamm, of all people, warned the Permian boys not to overproduce and drive the price of oil down. Knotheads they are, one and all.

                  • Glenn E Stehle says:

                    Mike said:

                    Gas in the Permian is getting flared out there by the B’s.

                    More fact-free nonsense from our resident “expert consensus.”

                    If we look at the natural gas being flared for the entire state of Texas, it amounts to less than 1% of the total produced.

                    Flaring or venting of natural gas in Texas is illegal except under the following conditions:

                    The Commission’s Statewide Rule 32 allows an operator to flare gas while drilling a well and for up to 10 days after a well’s completion for operators to conduct well potential testing.


                    An operator, however, can apply for a flaring permit to flare natural gas at times other than those mentioned above if certain conditions are met.

                    But as the RRC explains, this is typically in “areas new to exploration.”

                    And “areas new to exploration,” needless to say, does not describe most of the Permian Basin, where oil and gas production has been going on for nigh on 100 years. (“Areas new to exploration,” however, is an apt description for the Eagle Ford, or remote areas of the Delaware Basin like the Alpine High.)

                    The Texas Railroad Commission says:

                    Flaring of casinghead gas for extended periods of time may be necessary if the well is drilled in areas new to exploration.

                    In new areas of exploration, pipeline connections are not typically constructed until after a well is completed and a determination is made about the well’s productive capability.

                    Other reasons for flaring include: gas plant shutdowns; repairing a compressor or gas line or well; or other maintenance. In existing production areas, flaring also may be necessary because existing pipelines may have no more capacity.

                    But as the Railroad Commission goes on to note, flaring permits are of a very limited duration:

                    Commission staff issue flare permits for 45 days at a time, for a maximum limit of 180 days.

                  • shallow sand says:

                    Glenn. Do you have any views on the availability and costs of water in PB for high intensity frac as well as costs of disposal of produced water? Seems that water may be the biggest issue in PB.

                    Also, given that the price has dropped in Q2, but expenses are rising somewhat in PB, will Q2 earnings reflect that? Maybe why there has been some fund selling of PB shares, as Mike alluded to?

                  • Reno Hightower says:


                    Mike IS an expert by any definition. Feel free to dismiss him but I value any mans opinion who backs it up with action and his own money. Decades of experience in the oil business and lessons learned the hard way. with HIS money.

                    Mike brings a perspective to this board that not many have. Anyone can pull a powerpoint off of the internet. I prefer input from people who have seen the AFE’s JIB’s and monthly runs. Although your perspective is appreciated, I would just stick t what you have seen first hand. It would be much more persuasive.

                  • Dennis coyne says:

                    Hi Glenn

                    Looks like 33% of the boe is gas in 2016Q4.

                    That’s a lot compared to Bakken.

                  • Boomer II says:

                    Also, if your source of information is corporate presentations, take those with a grain of salt. If the goal is to raise stock prices or attract more investment money/loans or to sell assets, of course the presenters are going to put the best possible spin on the numbers.

                    That’s why this forum is so useful. It’s about numbers rather than hype. There are, of course, individuals who post comments which seem to be sales pitches, but if there are holes to be poked, they usually are.

                  • Mike says:

                    Mr. Hightower, you are kind, thank you. I feel the same way about your opinions. And Shallows. The shale oil industry is getting stressed out, clearly, and relying more and more on lies to maintain appearances. That is the part of it I can’t stand, the lying. Thankfully nobody seems to be buying much of it here on POB.

                    The flaring standards in the NM part of the Delaware are very lax, not anything like those of Texas. Over 170 new shale oil wells are coming on line each month out there in the Permian and it is taking months and months for infrastructure to get built to gather gas, particularly out in the Delaware. I flew over it a month or so ago, at a low altitude, and was stunned at the gas being flared. I stand by my belief that BCF’s are getting flared, WASTED, from the Permian. Its clever to quote TRRC rules but anybody that has ever actually operated in Texas knows rules are easily circumvented with the TRRC when everybody is behind and tax money is involved. Remember, the same folks regulating flaring are allowing lateral toes on $9M wells to be drilled 330 feet apart. Money talks.

                    How stupid is it, by the way, to tout thousands of drillable locations in an investor presentation, then have to wait 6-8 months after your 8 well pads are frac’ed and producing, for gas infrastructure to get built.

                    Ironically, for those that believe that America can become hydrocarbon independent thru unconventional shale resources, the shale oil industry is doing everything it can to actually PREVENT that from occurring by driving the price down. The guys’ porch lights are on, but nobody is home.

                    To answer your previous question regarding economic limits: it depends on produced water, of course. But we did some interesting work months ago about increasing incremental lift costs as the life cycle of the shale well goes on, particularly intervention, or workover costs, and it was an eye opener. I am thinking economic limits have to now be 15 BOPD with 4-6 BW per 1 BO. And that is not taking into consideration the debt burden that well must carry for billions of dollars of debt still on the books.

                    All of America has a right to expect the truth from the shale oil industry and the shale oil industry has an obligation, a fiduciary responsibility to all Americans, to TELL the damn truth.

                  • Dennis coyne says:

                    Hi Mike,

                    One thing is clear.

                    Those who claim that other people are making fact free claims are doing so because their comments have very little factual basis.

                    Most people reading this blog know which is which.

                    Investor presentations often stretch the truth way beyond facts.

                    There seem to be some that fail to recognize this basic fact.

                  • Glenn E Stehle says:

                    Mike said:

                    “The flaring standards in the NM part of the Delaware are very lax, not anything like those of Texas. Over 170 new shale oil wells are coming on line each month out there in the Permian and it is taking months and months for infrastructure to get built to gather gas, particularly out in the Delaware. I flew over it a month or so ago, at a low altitude, and was stunned at the gas being flared. I stand by my belief that BCF’s are getting flared, WASTED, from the Permian.”

                    While some, like Reno Hightower and Dennis Coyne, seem to be quite taken in by your anecdotal observations and other defactualized nonsense, I prefer facts and empirical data.

                    Take this from the EIA, for instance:

                  • Reno Hightower says:


                    Your flared gas chart assumes all things are equal. Namely number of wells. Want to compare the number of wells that produce gas in New Mexico to the number of wells that produce gas in Texas? Now if you can tell me how many Texas wells in the Delaware flare gas vs New Mexico wells in the Delaware that flare gas, you might have something.

                    This is pretty basic stuff. Mike knows this because he is an operator in Texas and has probably, from time to time, flared gas from his wells. I would bet that he has participated in wells in New Mexico, if he ahs not operated any, so he is familiar with the rules. But you pull up some chart from the EIA which is completely misleading to prove your point. Not sure why you are in a pissing contest with Mike, but if you would get past that you might realize he knows quite a bit about the oil business. From all points. Land, legal, geology, engineering, business, etc..

                  • Glenn E Stehle says:

                    Reno Hightower,

                    The way Mike carries on about how he “was stunned at the gas being flared,” you’d think he was a spokesperson for the Center for Biological Diversity (CBD) or the Sierra Club, and not for the oil and gas industry, which invariably takes the exact opposite position as what Mike has taken:

                    New Mexico Business Leaders Endorse Repeal Of BLM Venting And Flaring Rule

                    And for those with such a pronounced political-economic agenda, such as Mike and the renewables industry (who would like to see competition from shale producers eliminated by means of state intervention), facts don’t matter.

                    But the fact of the matter is that oil and gas producers in New Mexico do not vent or flare an inordinate amount of natural gas.

                    Here’s what the EIA figures indicate for the state of New Mexico:

                  • Glenn E Stehle says:

                    Reno Hightower,

                    To continue, it looks like on the surface that New Mexico vents and flares gas at about double the rate of Texas. But upon closer inspection, this isn’t the case.

                    Only about half of the total natural gas flared and vented is at the well site, with the other half being done at gas processing plants.

                    The Texas Railroad Commission only monitors and reports those volumes under its purview — the gas vented or flared at the well site. So the Texas Railroad Commission figures tell only half the story.

                  • Glenn E Stehle says:

                    Reno Hightower,

                    If we look at EIA data for the total amount of natural gas vented and flared in Texas — which includes both well sites and processing plants — it doesn’t look that much different from New Mexico.

                    So the bottom line is this: Mike has produced no factual or empirical evidence, only anecdotal evidence, to support his and the CBD´s and the Sierra Club’s claims that New Mexico oil and gas producers are venting and flaring an inordinate amount of natural gas.

                  • Mike says:

                    In my opinion there are likely 250-300 wells in the Permian at any give time in 30 day test (shaleprofile.com). At 33% of 2000 BOEPD IP’s, that’s at least 165,000 MCFPD getting flared right there, more than your EIA predictions for all of onshore Texas. Old data, I might add. And is THIS EIA data optimistic, or pessimistic; you seem to go back and forth. You have actually witnessed well testing, I assume, Mr. Stehle?

                    Further, if there are 500-800 wells at any give time awaiting gas hookup in the Permian, at 500 MCFPD each, that’s another 300,000 MCF getting flared, at least. So, its not a BCFPD as I suggested. That is an exaggeration on my part. But it is too damn much and its a waste. It is something you, as a so called “oilman,” or as someone who claims to be knowledgeable of the Permian (clearly only from an internet standpoint, not an operational standpoint), should be embarrassed by, and critical of. The oil business should be better than that by now.

                    The subject, by the way, before you went off on a link induced tangent, was grossly overinflated EUR’s and the role that BOE plays in exaggerating those EUR’s.

                    Look, I think people are sick of you and I going back and forth. I am after the truth, which is really hard to get from people like yourself and the rest of the shale oil industry. Its Fathers Day. Fathers tend to be worried about the future. They want a good life for their kids, a life that includes ample hydrocarbon supplies that they may, or may need in their lives. The people that are currently in charge of America’s unconventional oil and natural gas resources, or promoting it for their own self interests, like yourself, can’t think past next week. They are lying about our hydrocarbon future, wasting it, and exporting it all away for a quick buck now, so in a decade we’ll have to buy it all back from OPEC at 3 times the price. Get somebody else to try and explain that to you. I give up.

                    Relax; take the rest of the day off the computer and go mow the grass or something, productive.

                  • Glenn E Stehle says:


                    It isn’t so much that Wall Street or the EIA tried to meddle in the competition between conventional oil producer and shale oil producer. You may recall that back in 2014, when oil was $100/barrel, Wall Street looked quite favorably upon non-shale producers like ConocoPhillips, ExxonMobil and Chevron. And as Energy News pointed out on another thread, the EIA has consistently been overly pessimistic when it comes to predicting future shale oil production. Didn’t hear a lot of screaming about that from non-shale energy providers.

                    What matters is that, even though there is zero evidence for it, the non-shale oil producers and wind and solar energy producers continue to hypothesize that the shale producers colluded (whatever that means) with evil Wall Street and evil government to deny them the right to become the nation’s leading energy producers.

                    Conventional oil producers like yourself, just like renewables energy producers, never lose economic competitions. Their economic success is always stolen from them. They believe that the only fair outcome is when they win – otherwise, there has to have been some dirty tricks that stole economic victory from them.

                    According to you, everyone from Wall Street to the commercial banks to the EIA to the Texas Railroad Commission to the New Mexico Energy, Minerals and Natural Resources Department are responsable for your loss.

                    Those of us who have followed the energy wars for many years have heard this constant theme: non-shale oil producers and wind and solar energy producers have never ever ever ever lost a ‘fair’ economic competion. It’s always something other than their own costly production methods and techniques or their being out of touch with the American people, who overwhelmingly opt for the cheapest and most reliable energy supply when given the choice.

                • Cracker says:


                  Interesting thread, if one skips Glenn’s drivel, which is my SOP. Thanks for the comments.

                  • twocats says:

                    I bet 90%+ of the readers of POB now FLY past Glen’s comments. I’ve never seen Dennis decline to comment so the biggest worry is carpal tunnel on my “mouse wheel” finger, which is appropriately my middle finger, so in a sense you could say I’m CONSTANTLY giving glenn my middle finger.

          • Dennis Coyne says:

            Hi Coffeguyzz,

            Many will not bother to look at the presentation so the chart with the NDIC typical well profile from the Sept 16, 2016 Presentation is below.


            So we can see at 2 years the “typical well” is supposedly at 216 b/d for the yearly average output, where from shaleprofile.com we see that average output in year 2 for the average 2015 well is about 130 b/d. Also by year 2 the 2015 well has fallen in output to the level of the 2010 to 2014 average wells.

            • Reno Hightower says:

              In all fairness, aren’t P4 reserves the only reserves that matter?

              • Dennis Coyne says:

                Hi Reno,

                When considering profitability we need to assess the likely output over a well’s productive life.

                In the Bakken a well that produces 11 barrels per day of oil after 45 years is quite unusual, maybe 0.5% at most of wells completed. At 11 years the typical well should be producing 65 b/d. The average 2005 well (first production in 2005) produced about 12 barrels per day in its 11th year of production. Only 36 wells in the database.

                For 2009 wells (470 wells) output in year 7 was 42 b/d on average, the “typical well” has output at 84 b/d.

                The average Bakken well is unlikely to produce beyond 20 years and most will not be economic to produce at even 10 b/d.

                • Reno Hightower says:

                  P4 reserves=Powerpoint=raising equity/increased stock price

                  Win, win win all the way around


                  What is the minimum production needed to keep these wells producing at a profit. Forget them getting their money back, but at some point they will sell, and take the loss. What do you need to pay the LOE and regular workovers, etc to make money?

                  • Dennis coyne says:

                    Hi Reno,

                    I had never heard of p4 reserves so I didn’t get the joke.

              • Mike says:

                Reno, yes, but only if your selling, not if your buying. Howzabout the tail on that puppy, from a gas-expansion driven chunk of shale, wow !

                • Dennis coyne says:

                  Hey Mike,

                  Does 350 kb seem a little more reasonable than 950 kb for an average Bakken EUR?

                  • Dennis Coyne says:

                    Hi all,

                    Mike answered this question over at shaleprofile.com.


                    He said, yes 350 kb is more reasonable than 870 kb over the life of the well.

                    I am fairly sure he thinks 350 kb may be too optimistic, I think 300-350 kb cumulative output over the life of the average Bakken well which started production between 2010 and 2016 is reasonable.

                    The fact is we don’t know what these multi-stage fracked horizontal wells will look like after 10 years (they only optimized the method in 2008, so we have 9 years of data).

                    The 870 kb NDIC well profile (over a 30 year well life) is not credible at all. Even their older 570 kb well profile (from 2012) is almost 2 times higher than the average Bakken well profile supported by actual output data.

                    I have no doubt that the one million boe EURs touted by Pioneer in the Permian Basin are also overstated by about a factor of 2 and in terms of revenue from oil and natural gas sales more like a factor of 2.3.

                    Based on the data it looks like the average Permian basin well in 2016 has an EUR of 305 kb of oil and when natural gas and NGL are included the EUR in boe is roughly 327 kboe, the “barrels of revenue equivalent” (bre) would be about 314 kbre.

    • John says:


      With charts like these — one’s where you make projections — what technical methods do you use for extrapolation?

      • Dennis Coyne says:

        Hi John,

        The May 2017 to Dec 2019 scenario makes two assumptions.
        1. Number of wells completed each month averages 80 wells/month over that period
        2. Average well profile is unchanged from May to Dec 2017 and then gradually decreases at an annual rate of 3.5%per year (varies depending on rate that wells are completed) over that period.

        So the future values are based on those assumptions, if you have other assumptions I can easily put them into the model (completions could rise by one per month or they could be 70/month or 100 per month).

        As an example the scenario below assumes the well productivity remains at April 2017 levels(EUR=358 kb) until Dec 2019.

        I am happy to show other possibilities, just make a suggestion.

  6. OFM says:

    The Guardian is a good paper, but when it comes to predicting the future of the oil biz, I don’t put any more stock in the Gaurdian than in any other paper. They do at least however mostly add a few more qualifiers and ifs and maybes to the projections of government agencies and oil companies.

    So –

    Production in the USA is expected to be going up for the next year or so.

    Here’s a question. Sometime back, a lot of people including some regulars here, but I can’t remember which ones in particular, were saying that there would be no demand for the extra light oil coming from places such as North Dakota, due to just about all the refineries being set up to do medium to heavy oil.

    Then there was talk of exporting it, in exchange for heavier oil suited to our refineries.

    What’s the situation now? IS most of the extra light oil gotten by fracking being exported? If so, where to? Have some domestic refineries been overhauled so as to process it efficiently?

    Thanks in advance, anybody.

    Some others were arguing that the domestic industry would have a hard time ramping up again, due to a shortage of experienced oil hands.

    I said the people who were laid off would be back, enough of them, due to lack of other good employment opportunities. I believe I was right in this case, that the economy has been and is slow enough that anybody offering good wages can hire plenty of skilled help.

    This of course does not mean that a guy in his mid fifties or older when he was laid off will be coming back.Most likely he won’t hire on again, unless he is offered good money and light duties, even if he is still working.

    So top hands might be hard to find, at any price.

    • notanoilman says:

      Please, the official miss-spelling of Guardian is Grauniad. 😉


    • Watcher says:

      Diluent for oil sands flow. Dumbbell yield profile.

    • Dennis Coyne says:

      Hi Old Farmer Mac,

      The oil between 35 and 44.9 API gravity commands a premium price, the Bakken/Three Forks oil is about 42 degrees API.



      It is the condensate from the Eagle Ford and Oklahoma that is not very useful for refineries and is used for diluting oil sands (and maybe as input to refineries that have mostly heavy crude input).

      Chart below from article linked above (from Nov 2014)

    • I read somewhere the USA exports about 1 mmbopd of light crude/condensate. Refineries take whatever if the price is right, price differential will get hit if exports go up to say 3-4 mmbopd.

      I wrote a post a while back where I guessed OPEC had to hold at 31.8 mmbopd for prices to move up. They are exceeding it, so I guess I got sort of lucky…prices aren’t going up.

      • coffeeguyzz says:


        In addition to the 1.1 MMbbls C/C exported in February, the US now exports over 1 million bbls/day propane/propylene and 170 thousand barrels/day liquefied ethane/ethylene.

        CEO of Swiss based petchem company, INEOS, just said no other country can now overcome US’ cost advantage for feedstocks derived from NGLs.

        This is the single biggest reason Foxconn is set to announce the location of its new $5 billion manufacturing plant in either Wisconsin or Michigan rather than expand in China.

        Inexpensive, NGL derived feedstock coupled with methane-fueled electric plants will make US an extremely potent industrial locale for decades to come.

        Old Farmer Mac

        There is, currently, a sharp labor shortage in the Bakken area.
        Mechanics, truck drivers and welders in particular are in short supply and it is impacting scheduled production.

        • Ves says:


          In terms of US LNG natural gas export to certain countries in Europe (Netherlands, Poland) in both cases it is political export. And why it is political?
          Because natural gas transportation by pipeline is significantly cheaper than building and employing expensive LNG port infrastructure. Russian Gazprom can produce and export gas to Europe at a much lower cost than LNG from across the Atlantic.

          What you have to take in consideration that in order to squeeze the other EU gas suppliers you have to have political pressure at the same time like recent US senate bill that has a provision that enables the United States to impose sanctions on European firms involved in financing Russian energy export pipelines to Europe. The main target being Wintershall, Shell, OMV and Engie financing Nord Stream II.

          Well again who said the world is fair place. But than again you have to be aware that it could be dire consequences where Russia can flood Europe with cheap gas to kill off US sea exports. It has 100 billion cubic meters of annual gas production capacity sitting on the sidelines in West Siberia, which can effectively be used as spare capacity. So US Natural gas industry could end up like today mature & expensive North American, North See, Oil Sands oil industry when OPEC does not want to play along and accommodate their production.

          For oil & gas employee word “cooperation” is always better than “competition”. But for politicians and bankers word cooperation does not exist in dictionary.

          • coffeeguyzz says:


            That is a great comment on so many levels.

            Your astute observation is but a part of the much bigger geoplotical ‘stuff’ that is ongoing in the global hydrocarbon world.
            Howevuh …
            The LNG (Liquified Natural Gas – aka methane) you allude to is quite distinct from the LPG (Liquified Petroleum Gas – propane) of which the US is now the world’s leading exporter.
            That exported LNG from the US is certainly skyrocketing and gets all the attention, but the below-the-radar NGLs (Natural Gas Liquids – aka ethane/propane/butanes/pentanes) are starting to exert an impact on an increasingly global scale.

            These acronyms can drive anyone batty, but they are what they are.

          • L0z says:

            And Americas occupation of the al Tanf border crossing between Iraq and Syria (illegal, but what the hey) was intended as the basis of a seizure of Syrian land proximal Jordan. The idea was a territory controlled by US etc backed ‘moderate’ terrorists who could be armed to push into Damascus – not far away. From Damascus, with a newly installed US etc backed Govt, the way is open for Saudi gas pipeline through Syria, to Europe via the Med (or Black Sea across Ukraine – who may have some unused pipes – admittedly in need of much overhaul – they can use to take gas into Europe)

            Then there will be the Israeli gas, needing to pipe to Europe somehow…what about the one now a conveniently short distance across the border?!

            Israel and Saudi Arabia seem to have a sort of understanding, and USA may be the deliberate catalyst for their mutual gas interests to merge in a collaborative pipeline across the Palestinian area, and through Israel. This would, for security sake, require some kind of arrangement with Hamas – but, oh no! – Qatar is chief financier and sponsor of Hamas. Hmmm….that’s odd, hasn’t Saudi fallen out with Qatar just recently?

            Iran needs a pipeline to Europe, and a pipeline via Iraq, then Syria to Greece or Bulgaria may do it. If Turkey turns more to Russia, it may become the pipeline transit option to Europe for both Russian and Iranian gas. But you have to trust – or have leverage – over Turkey (a NATO ally).

            Oh, and if Qatar mends a few fences with Iran, why, it could join Iran in piping gas to Europe!

            The puzzling demonization of Iran (last invaded another country many hundreds of years ago…) and Russia is not really puzzling at all.

            It’s about who will be the lowest cost gas provider to Europe (in the main).

            Its about who will be the reliable gas provider. Russia is at the moment…but NOT in future IF USA can control it’s European ‘partners’. (Germany in particular, seems to be ‘talking back’ just a little over having it’s energy arrangements scuttled by Mr. Trump’s USA! USA! USA!).

            Business is business, even when it has to be exceptionally well dressed up as something else.

          • Glenn E Stehle says:


            The geopolitical and economic objective is to break Russia’s near-monopoly stranglehold on Europe’s natural gas supply.

            Since regime change in Syria (and therefore a terrestrial natural gas pipeline across Syria to bring natural gas up from the Gulf States, northern Africa and the Levant to Europe) seems to be hopelessly stalled, and renewables have brought nothing but unreliable and high-cost energy to those who have tried them, LNG imports from the U.S. present a third way to try to break Russia’s natural gas monopoly, and pricing power, on Europe.

          • Glenn E Stehle says:


            And as far as the sort of free-market, frictionless “competition” imagined by Adam Smith, that exists nowhere except in those countless tomes and text books penned by classical and neoclassical economists.

            • Ves says:


              I agree with you that books are useless. Suffering is all you need if you want to find the truth.
              At the moment oil producers, small or large, independent or national, are suffering so they are closer to the truth. Dislocation between finance and resources happened in 2014 when the price collapsed 70%. I don’t think it is one single reason but combination of many things over longer period that just culminated in 2014. It is like boiling of water. It takes time to warm up but boiling point happens in a single moment.
              I would speculate that peak of conventional oil and zero interest monetary policies by CB since 2008 as main reasons. When interest rates are 0% then there is no capitalism.

              • Glenn E Stehle says:


                Well it truly is a dog eat dog, all against all free-for-all.

                Russia and its allies Syria and Iran are pitted against the US and Europe and their natural gas rich allies in the Gulf States, Egypt and Israel.

                The renewables industry is pitted against the fossil fuel industry, and they both compete with the nuclear industry.

                Natural gas is pitted against coal.

                Conventional oil and gas producers are pitted against shale producers.

                And according to an article in Rigzone, even shale producer is pitted against shale producer:

                Shale Gas Giants Battle for Dominance as US Supplies Surge

                And almost everybody wants some omnipotent, all-powerful state to intervene and crown them the winner of the competition.

                • Dennis coyne says:

                  Hi Glenn,

                  Mike has never suggested that the state intervene.

                  Should the government intervene to protect US workers that are hurt by low priced imports?

                  • Glenn E Stehle says:

                    Dennis coyne said:

                    Mike has never suggested that the state intervene.

                    Oh really?

                    Then what is the meaning of this?

                    Mike: The flaring standards in the NM part of the Delaware are very lax, not anything like those of Texas.

                    Or this?

                    Mike: Remember, the same folks regulating flaring are allowing lateral toes on $9M wells to be drilled 330 feet apart.


                    And those are just a couple of examples on this thread. Many others can be found on older threads.

                    From comments like these it can be seen that Mike, just like wind and solar advocates, would love to see the state step in and cripple the shale industry, if not completely regulate it out of business.

                  • Dennis Coyne says:

                    Hi Glenn,

                    He is pointing out that the regulations are different.

                    A fact.

                    He said nothing about the other state changing its laws except that energy was being wasted.

                    Also a fact.

                    He is also pointing out that the regulators allow wells to be drilled close together.

                    Another fact.

                    I don’t know enough about the industry to know if there is a good reason to change this as far as I know Mike didn’t say it should be, you are reading something that isn’t there.

                    Mike has never said the state should regulate the shale industry out of existence.

                    There was a 35 year period when the oil industry in Texas thought state intervention was a good idea (1935-1970).

                    Overproduction does not serve the industry well.

                    I noticed you ignored the question I asked. You seem to love Trump’s America first policy, should that apply to the oil industry?

                  • Mike says:

                    Gawd you are an asshole, Mr. Stehle. And clearly a bored one at that. Have you tried woodworking?

                    Look, I am an environmentalist, a conservationist, a helluva tennis player, I floss twice a day, am a conservative Republican AND an oilman with a long, proud heritage of success. I can be ALL those things. I am not Russian, do not belong to the Sierra Club and am no way tied to the renewable’s industry other than to hope, ultimately, it succeeds in some form or fashion that will be beneficial to my country. You are trying to paint me as someone other than who I am, simply because I think your analysis of shale oil and America’s energy future is horribly wrong.

                    I do indeed believe that the rate of shale oil development in America should be regulated. It would raise the price of oil, yes. I happen to believe that is important for me, my family, and the families of my employees. I ALSO believe, however, that higher oil prices would be good for my industry, and good for America. It would ensure that ALL facets of my industry are healthy and prepared to meet America’s hydrocarbon needs in the future, not just ‘your’ facet of my industry. It would promote conservation, something I feel strongly in, because I do not believe we have 50 years of unconventional shale oil resources to piss away at $40 oil. I would simply “love” to see the shale oil industry pay back all its debt. Perhaps if it did it would be financially successful. Now it is failing miserably.

                    I can like what is best for my family AND what is best for my country. If you believe that makes me “un-American” somehow, or a traitor to my industry, you can kiss my Texas ass.

                  • Glenn E Stehle says:


                    I realize you harbor a great deal of anger against the shale industry. This is only natural since it was partly responsible for your loss.

                    I also realize these angry outbursts may be of some emotional value to you.
                    Nevertheless, they will not change the economic reality, which is that the operators of stripper wells cannot compete with the shale operators, assuming the state does not intervene to hogtie the shale operators.

                  • Boomer II says:

                    I don’t get the logic of saying stripper well operators can’t compete with the LTO industry. Stripper wells don’t involve nearly as much investment as LTO wells, so the breakeven numbers should be better for the stripper wells.

                    Low prices are unwelcome by everyone in the industry, but I would think stripper well operators are better equipped to survive low prices than those companies spending millions on new wells.

                  • Caelan MacIntyre says:

                    “Its fun to observe sometimes, all that anger, until you start trying to verbally disembowel everybody… with F-bombs, belittlement and name calling, simply because… [they don’t] agree with you.” ~ Mike

                    “Gawd you are an asshole, Mr. Stehle. And clearly a bored one at that.” ~ Mike

                    Maybe it’s a different Mike.

                • Caelan MacIntyre says:

                  And of course, one industry– in main energy cases, usually the nation-state, itself– is sometimes owned or cannibalized by another, and then subsequently owned– including petroleum and so-called renewables. And so forth.
                  Besides, it still takes a lot of fossil fuels to make so called renewables, so why not invest in renewables if you’re a petro company…
                  Oh, wait, does that mean a collapse of the nation-state as a result? Then I guess it’s the Middle East, etc., for ‘good’ measure…

              • Dennis coyne says:

                Hi Ves,

                Last I checked the prime rate was about 3%.
                If people are willing to lend to goverments at a real interest rate of zero or negative rates, that is their choice.

                As long as inflation is under control it simply leads to poor allocation of capital.

                I agree better policy would shut off expansionary monetary policy at real rates of 0.5% and use fiscal policy if needed.

                • Ves says:

                  Hi Dennis,
                  What was the rate in the last 10 years? I don’t know. It is 3% now but we had several increases just in the last year.

                  • Ves says:

                    I just checked prime rate Eurozone and I was not that much off at 0% 😊
                    UK 0.25%, Japan 1.4%, Sweden -0.5% (brrr 😉)
                    US has little bit of room to maneuver that is only thanks to domestic shale. But conventional guys are paying the price for that so the system always must be in balance.

                  • Dennis Coyne says:

                    Hi Ves,

                    European economists need to learn a little economic history and re-read Keynes.

                    Trying to use monetary policy to help the economy at interest rates of 0% is like pushing on a string, the excess money created simply sits in the bank and the velocity of money decreases, very little extra economic activity occurs and capital is poorly allocated when the price of liquidity is zero.

                    This should be pretty basic stuff for most economists.

                  • Ves says:

                    Hi Dennis,

                    We are not discussing books, we are discussing the reality based facts that there is 0% rate in the largest trading block in the world. That is the fact. Europeans will have to re-write another set of books to match their reality. And US will have to re-write another set of economic books to match reality of drilling unprofitable oil. Existence does not care about written books.

                  • Dennis Coyne says:

                    Hi Ves,

                    Books are real, not imagined. Do you think Keynes’, General Theory did not have a profound effect on the World?

                    The effects of zero percent interest rates:

                    Please expound on what effects you believe this will have, and don’t use anything you have learned from books that you or your teachers might have read. 🙂

                    The books suggest what is likely to happen with very low interest rates (they will help the economy very little and result in poor allocation of capital).

                    Books often reflect what humans have learned about reality. Have you read any physics or chemistry books? They are a reflection of the understanding that humans have gained about the facts on the ground.

                  • Ves says:

                    Hi Dennis,

                    Would you be able to give logical explanation to Mike and Shallow and all of us from your economy books why shale drills unprofitable oil for 4th straight year? Why there are 800 rigs in the US at $44.
                    You can’t.

                    I will tell you why. Your books are logical but life is illogical. Your mind is logical but life is dialectical. Life always moves from one extreme to other. You don’t know the answer and you don’t want to admit that you don’t know.
                    At least be Socrates that said: “When I was young I taught I knew much. As I become older I started thinking I knew everything. But as I become still older and my consciousness become sharper, I suddenly realized I don’t know anything.”

                  • Dennis Coyne says:

                    Hi Ves,

                    I agree, there is not a good explanation for the expansion in the LTO plays, though one potential explanation is that when prices went to $55/b they bought hedges and now they can sell a lot of their output at $55/b, when rig counts went up they may have been expecting that oil prices would go up.

                    There is a delay between price movements and drilling and completion decisions, maybe these companies expected higher prices which did not materialize.

                    But certainly reality is more complex than economic models, just as physical reality is more complex than what is taught in most undergraduate physics courses.

                    And yes new books are always being written, generally informed by what has been written before.

                    Oh and I am well aware that I don’t know the answers, you need to read more carefully.

                    The unprofitable wells may be drilled in a game of last man standing, money has been sunk in land and equipment and drilled but uncompleted wells. Often the decision is if I complete this well will my cash flow be higher or lower than if I don’t complete the well. If the answer is that there will be more cash flow, the well is completed even if a full cycle cost analysis shows the well will not pay out.

                  • Dennis Coyne says:

                    Hi Ves,

                    That is not the Prime rate that is the equivalent of the Federal Funds rate in the US, the Prime rate is the rate that banks lend to the customers with AAA credit ratings.

                  • Eulenspiegel says:

                    Ves, it’s very easy, you can earn a lot of money drilling unprofitable wells.

                    That’s basic economic written in the books – as seen before in the 1999 tech market. Lots of money was there earned, too.

                    It’s only important to have a hype, so you can burn other peoples money while getting fat checks as an CEO, consultant, wall street bank selling the debt nicely packed to investors, doing all the marketing.

                    You see, lots of money can be earned, so it’s very logical to drill these wells.

                    On the other hand, leases have to be hold so some drilling is forced.

                    As whole, the shale industry can survive heavy blows thanks to US bankrupcy regulations – just file, throw off the old debt and be rebirthed without debt, ready to continue drilling and take new debt. There are enough investors needing to buy junk bonds to “improve” performance.

                  • Ves says:

                    Dennis: “though one potential explanation is that when prices went to $55/b they bought hedges and now they can sell a lot of their output at $55/b, when rig counts went up they may have been expecting that oil prices would go up.”

                    Dennis, whose explanation is that? Is it yours or from “Tsvetana” from oilprice.com or WSJ 😊
                    That is a lie, and I have to tell you that people are so tired of lies and not just regarding energy issues.
                    Everyone knows, including you, that you need $70-$90 at least for full cycle costs so you think that “explanation” that by hedging at $55 is somehow believable explanation?
                    If it is not your speculation why are you mentioning? Write your authentic speculation even if it is wrong. Because it cannot be wrong if it is your authentic knowing. But if it is “borrowed” from someone else, Bloomberg, WSJ that it is not yours. Than you are just carbon-copy.

                  • Ves says:

                    Eulenspiegel: “Ves, it’s very easy, you can earn a lot of money drilling unprofitable wells.”

                    Who makes money? Yes, only selected individual accidentally. CEOs at that moment, mineral right owners….

                    But as society you don’t make any wealth drilling finite resource so you can have some “job” to pay for various bubbles created by CB.

                    Eulenspiegel “That’s basic economic written in the books – as seen before in the 1999 tech market.”

                    That is not the same. When you have bubbles in tech or real estate wealth is not created and than destroyed. It is just the price that goes up and down. House is still there and can be utilized. Yes, the house is now half price but it is just the number in people’s minds.
                    Do you sell your residential house when the price goes down? No, you still need a place to sleep.
                    But with oil is not the same. When it is gone it is gone.

                  • Glenn E Stehle says:

                    Ves says:

                    Everyone knows that you need $70-$90 at least for full cycle costs…

                    The managers, engineers and scientists at ExxonMobil and Chevron don’t seem to know that “you need $70-$90 at least for full cycle costs.”

                    But of course “everybody knows” that the managers, engineers and scientists at ExxonMobil and Chevron lie.

                  • Ves says:

                    Dennis: “And yes new books are always being written, generally informed by what has been written before.”

                    Dennis, books can be even dangerous in many cases.
                    For example, that law or theory of diminishing returns from economy books that you have learned and were discussing with someone the other day.
                    How that law applies to love? Do you have law of diminishing returns in terms of kisses when you are in love? So, law of diminishing returns is not universal law and that means it is not law at all. Dangerous things can be learned in the books.

                  • Ves says:

                    Ahh Glenn, If Exxon is doing great at $43 with what it has in US in terms of production, they wouldn’t be dispatching Rex to be Sec of State. It’s all about oil or lack of it. Think about it.

                  • Eulenspiegel says:

                    Ves, yes, someone pays the bill.

                    But when individuals can make money, they’ll do it in a capitalistic society.

                    You asked why people drill unprofitable wells, and that’s the reason.

                    Capitalism is a lot about letting other people pay your bills. Why paying the bill by yourself when you can persuade your congress member to help you out with a little help from the state, either direct or indirect.

                    Or setting up a little ponzi scheme nobody notices, and it could even work when the oil price would bounce back to 100$. Good ponzi schemes run longer than 10 years, so nobody really notices them while they work.

                  • Dennis Coyne says:

                    Hi Ves,

                    The “law of diminishing returns” is short for the law of eventually diminishing returns.

                    It is not a physical law, but just a rule of thumb in economics.

                    It works like this. For a production process there are variable inputs to the process, to keep things simple we will call them A, B and C. The fixed costs (factories and equipment) are taken to be fixed in the short term.

                    If we hold B and C fixed and increase A (lets say A is hours of labor) eventually output per worker will decrease because machines and other inputs are limited.

                    Very basic stuff covered in introductory microeconomics.

                    Yes the hedged output idea is not original, but it is one possible explanation, businesses will do some strange things to survive and some firms have better land leased and technology so they will be better than average.

                    For example at full cycle the average Pioneer well breaks even at about $54/b at the well head (10% annual discount rate). That is the net present value of the output of an average Pioneer Permian basin well at a wellhead price of $54/b and a discount rate of 10%/year is zero. Well and land and all other costs are paid and ROR is 10%/year.

                    Pioneer has hedges for about 85% of its expected 2017 output at $55/b according to SEC data.

                  • Ves says:

                    Hi Dennis,
                    ” It is not a physical law, but just a rule of thumb in economics.”

                    So, it is not law now but rule of thumb 😊 Are you trying to dig yourself out? There is law of gravity. That is a law. The law of diminishing returns is NOT a law. Its man made up stuff. In love, there is no diminishing return on kisses. So, there is no law on diminishing returns. It is very basic concept.

                  • Ves says:

                    Hi Dennis,

                    What is your opinion on that WSJ article about US oil exports that was analyzed by Mr. Berman?

                  • Caelan MacIntyre says:

                    That’s yet another reason why I keep calling it ‘pseudoeconomics’.

            • alimbiquated says:

              Adam Smith didn’t really expect markets to function without state intervention.

              In The Wealth of Nations he says “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

              • Glenn E Stehle says:


                And just as often as not, the “conspiracy against the public” or “contrivance to raise prices” consists of a pubic relations and lobbying effort to get the state to intervene on behalf of one’s or one’s group’s own special interests.

                • stan1 says:

                  Which means the state should never intervene in some quarters. Of course that ignores the fact that the state always intervenes since the simple act of printing money is an intervention. Even just setting the rules to create markets is an intervention. Those quarters that dislike intervention (primarily since they are enjoying the current results) don’t acknowledge these basic economics facts.

        • Glenn E Stehle says:

          coffeeguyzz says:

          Inexpensive, NGL derived feedstock coupled with methane-fueled electric plants will make US an extremely potent industrial locale for decades to come.

          This is the reason why the price theory of value that Dennis Coyne invokes above has its limitations.

          From Dennis’ comment above:

          Yes and at $50/b for oil and $3/MCF for gas, a boe of natural gas is worth about $18/boe or 2.8 times less than the barrel of crude.

          In terms of value the natural gas “barrels” should be divided by 3 and the NGL “barrels” by about 2 (usually NGL sells at about half the price of crude, I think).


          • Dennis coyne says:

            Hi Glenn

            Standard practice in economics.

            How do you measure the value of a good?

            Apples? 🙂

            • Glenn E Stehle says:


              If you are interested in exploring other theories of value beyond the very dogmatic and doctrinaire price theory espoused by orthodox economists, you could start here:

              The Problem of Value in the Constitution of Economic Thought

              • Dennis coyne says:

                No Glenn there is no objective theory of value.

                You brought it up and I am very familiar with the literature.

                It could be discussed on the non oil thread.

                Current mainstream economic theory uses a subjective theory of value.

                Price is not value, just an agreed exchange of money for a good.

                Nothing more or less.

                • Glenn E Stehle says:

                  Dennis coyne says:

                  You brought it up and I am very familiar with the literature.

                  No, it was you who first invoked the word “value” when you iterated the price theory of value, emphasizing the word in italics to boot!

                  • Dennis Coyne says:

                    Hi Glenn,

                    Yes my mistake. I should have used revenue.

                    There is no price theory of value, value is subjective, any objective value theory depends on the arbitrarily chosen measure of value. In many cases I suppose people use money as a measure because it is conveniently exchanged for goods, but it is just as arbitrary as labor, capital, or anything else as a measuring stick.

                    I used the word value without intending to talk about theories of value, it was you who brought up value theory.

                    Not interested.

              • Dennis coyne says:

                Quite an old article.

                Read Piero Sraffa, he showed using linear algebra that all goods can be reduced to the labor used to produce them to measure their value.

                The problem for neoRicardians is that one has to defend the assumption that labor is the correct measure of value.

                One could just as well choose capital as the measure of value.

                Marxism could then be turned around so that workers would exploit capitalists by extracting surplus capital.

                I agree their are many problems with economic theory. I also agree markets do not always result in the optimized outcome.

                I note it is you who complains when the gobernment intervenes in markets.

                So which is it, markets are best or government should intervene?

                You cannot have it both ways.

                I think limited gobernment intervention is necessary, I am very far from a free market fundamentalist.

                • Glenn E Stehle says:

                  Dennis coyne said:

                  I note it is you who complains when the gobernment intervenes in markets.

                  1) Shale energy producers are currently winning in the “free market” free free-for-all.

                  2) Wind and solar have been made competitive by the generous state subsidies that are lavished on them.

                  3) The track record of government intervention for the past few decades has been, generally speaking, to attempt to regulate the fossil fuel industry out of business, and speaking more specifically to regulate the shale industry out of existence.

                  So what is there for me to like about state intervention into the markets?

                  • Dennis Coyne says:

                    Hi Glenn,

                    What has happened to the US oil and natural gas industry over the past 10 to 15 years?

                    The government seems to be having trouble “regulating it out of existence”.

                    Talk about fact free, wow.

                    Maybe you are talking about coal, which has suffered mostly because natural gas has been so successful.

                    Oil has also been a victim of its own success, overproduction is a problem for any industry, but oil has trouble changing direction quickly, that is the reason the RRC and OPEC attempted to regulate output.

                    You have suggested perfectly competitive markets don’t exist, I agree.

                    It follows therefore that the efficient markets theory is not accurate as it rests on the myth of competitive markets.

                    The criticisms that you level against mainstream economic theory (some of which I agree with) undermine the faith in markets leading to optimal outcomes and support arguments for government intervention.

                    So it just boils down to politics.

                    Oil and natural gas will not do well with low oil and natural gas prices.

                    It will also lead to shortages eventually (3 to 5 years) unless oil and natural gas prices rise.

                  • Glenn E Stehle says:


                    You do realize there is a difference between “attempt to regulate the fossil fuel industry out of business,” which is what I said, and “regulating it out of business,” which is what you said?

                    So yes, it is true that the 350.org and Bernie Sanders types did not get their way completely, and were not successful in regulating oil and natural gas out of business, although this was not for lack of trying.

                    Which brings us to your second claim that coal “has suffered mostly because natural gas has been so successful,” which doesn’t pass the sniff test either.

                    If we plot the price of natural gas vs. the share of total U.S. electricity generation that came from coal, what we see is that the demise of coal began well before the shale revolution began. We also see that the demise of coal continued unabated regardless of what the price of natural gas did. So there doesn’t seem to be much correlation between the price of natural gas and coal’s demise.

                    So there’s something else going on besides “natural gas has been so successful.” Could that something else be regulation?

                    But yes, yes, I know that, since the destruction of the coal industry has proved to be political kryptonite in the heartland, that the environmentalists want to deny their handiwork. So they came up with this narrative that “It’s natural gas wot did it.”

                    But you are at least correct about one thing, and that is when you say, “So it just boils down to politics.”

                    So yes, absolutely, either the fossil fuel industry will be allowed to compete on a level playing field, free of burdensome regulation and state intervention, or it will be regulated out of business.

                    Either fracking will be banned, as 350.org and Bernie Sanders advocate, and as has already happened in New York, or it won’t.

                    It’s all politics, and that’s the reason why facts and sound logic carry so little weight in this debate.

                  • Dennis Coyne says:

                    Hi Glenn,

                    You said “the state”, which I interpreted as government.

                    Bernie Sanders and 350.org are not “the state”, so you are wandering pretty far from “the state”.

                    Now New York State can pass laws that it believes will protect its citizens.

                    This is often referred to as state’s rights.

                    Do you believe that you should be deciding the laws of New York State?

                    Are you a citizen of New York?

                    I think the people of New York should decide what is best for their state.

                    Just as the citizens of Texas should decide what is best for their state.

                    One last thing, so you still seem to be chanting it will be regulated out of existence.

                    The externalities from oil and natural gas (and coal) were ignored for a long time. Those mistakes of the past have tilted the field in favor of fossil fuels for over a century.

                    So yes there are two reasons the fossil fuel industry will fail to exist in the future, depletion will lead to high prices so that fossil fuel cannot compete and just as eventually humans realized that smoking cigarettes is not good for them, climate change will be recognized as a serious threat that needs to be addressed.


                • As far as his points go, they are very weak and actually subvert his argument:

                  1) Shale energy “wins” because we have a peak oil problem.

                  2) Subsidies exists because we have a peak oil problem

                  3) Government intervention exists because we have a peak oil problem (some AGU too) and haven’t come up with anything near an optimal solution

                  It’s probably not worth arguing with this guy — too much like Jay Sekulow going around in circles and eating his tail

                  • Glenn E Stehle says:

                    “We have a peak oil problem”?

                    Can you show me where that “peak oil problem” exists on this graph?

                  • Eulenspiegel says:


                    substract the shale oil from your graph, and you’ll see the peak oil problem.

                    Substract tar sand and you’ll see it more in detail.

                    And US shale oil won’t run more than 30 years, even in most optimistic scenarios (or in pessimistic scenarios where at oil prices of 200$ even marginal shales will be fracked).

                  • Glenn E Stehle says:

                    Eulenspiegel says:

                    substract the shale oil from your graph…


                    Shale oil isn’t oil?

                  • Dennis Coyne says:

                    Hi Glenn,

                    Using EIA monthly data for World C+C output


                    The World C+C monthly peak was Nov 2016 at 82.27 Mb/d.

                    The centered 12 month average World C+C peak was October 2015 at 80.69 Mb/d.

                    click on chart for larger view.

                  • Dennis Coyne says:

                    Hi Glenn,

                    Tight oil is oil of course, but the resource is much more limited than investor presentations would lead you to believe.

                    Pioneer suggests they have 20,000 drilling locations, which is probably correct.

                    What is not correct is the assumptions in the investor presentations that the EUR will be 1 MMboe per well, it is more likely to be a third of that so URR falls by a factor of 3 from 20 Gb to 6.3 Gb under the optimistic assumption that all 20,000 locations will have an average output equal to the 2016 Q1 average well in the Permian basin.

                    US LTO URR will be about 50 Gb+/-10 Gb, on the World scale this amounts to very little relative to conventional reserves of 1250 Gb. LTO output will peak by 2023 and decline will be rapid, the 2015 12 month centered average peak may be surpassed by 2025 and perhaps we will reach a 12 month World average C+C output level of 84-85 Mb/d, but such a level will be maintained for 2-3 years and decline will begin by 2030 (higher output levels will result in a shorter plateau and steeper decline).

                    It would be better to conserve resources to prepare for the needed transition.

                  • Glenn E Stehle says:


                    So am I to take it that you believe that Nov 2016 is peak oil?

                  • Dennis Coyne says:

                    Hi Glenn,


                    I expect the peak will be between 2020 and 2030, a more precise date is impossible to predict, but my guess is 2025+/-2 years.

                    So far the 12 month peak (centered) is Oct 2015 (centered running 12 month average output). I think the 12 month average is more interesting than month to month fluctuations.

                    When OPEC ends its cuts, I expect a new 12 month peak will be reached within 12 months.

                    By 2030 oil demand may start falling faster than supply and lower prices may lead to a more rapid decline in oil supply. The transition to non-fossil fuel powered transportation may be well underway at that point.

                    Regulation will be much less of a problem than competition.

                    Though I am sure the fossil fuel industry will seek to have the government intervene on their behalf. 🙂

          • Dennis coyne says:

            Hi Glenn,

            When doing an economic analysis revenue and cost are important.

            So the revenue collected from natural gas for a barrel of oil equivalent is one third of that of a barrel of crude at $50/b oil and $3/MCF natural gas.

            Do you dispute this basic fact?

            Or are you going to change the subject again?

            • coffeeguyzz says:


              Please don’t let me interrupt the back and forth in which you and Glenn are engaging …
              but, if you could look at the numbers you posted, ie, cost/revenue of energy measured in barrels of oil, and temporarily take the view of the purchaser of that energy, different and important potentialities emerge.

              Put aside, for the moment, some of the preposterous declarations such as Continental’s recent describing a well with 99% methane content and presenting it in terms of boe thus, having a boe of a gazillion plus.
              Almost comical that they would do that.

              Also, put aside (NOT dismiss) the important EUR determinations that can skew when a high gas component can mask diminishing liquid content.

              I would ask you to review your above stated boe/oil/gas numbers from a purchasers position.

              Now, it’s not the revenue from the gas/oil that is paramount, it is – predominantly – the COST to obtain said energy potential.

              This is a huge reason the oil-derived Naptha feedstocks are facing daunting competition from the much cheaper NGLs.
              This is why Mexico is importing vast amounts of US natgas to fuel their power plants and to stop burning domestic oil.

              The gasoline and diesel transportation industries are under increasing assault from their gas cousins as well as a growing legion of localized power (ICE plants) in applications far and wide.

              From new ocean going ships to the household generator, dual fuel engines are becoming the norm in order to capture the big price/cost differential you described above.

              As this horizontal development becomes the norm – in the US, at least – the cost and operational peculiarities vastly, vastly favor the gas producers.

              The broader, downstream consuming market will continue to adapt to this new reality.

              • Dennis coyne says:


                I do not dispute that low prices are good for those who purchase energy.

                For producers do you believe that is true?

                • Coffeeguyzz says:

                  Of course the producers of oil are being crucified in the marketplace.
                  This holds true for smaller, independent operators, huge multinationals, and entire countries dependent upon oil based revenue.
                  It is a huge upheaval in the established order that we all, especially folks who engage in sites such as this, are witnessing on a day by day basis.

                  My main point being, there is now – and will continue to be – a vast amount of hydrocarbons coming to market via these unconventional techniques … all the more so in gaseous form.

                  … and in a related note, a record producing Marcellus well for 1 month, the T Kropa (8-10?) from Cabot, just came online.
                  Flowing over 43 MMcfd, it produced 1.3 Bcf for the month of April.
                  Its sister well actually has a higher cum at 1.9 Bcf with it being online 2 weeks longer (51 days).
                  These are simply staggeringly high numbers and portend Appalachian Basin gas output far off into the future.

                  • Dennis coyne says:

                    Not if they continue losing money.

                  • Dennis Coyne says:

                    Hi Coffeguyzz,

                    I guess in the first quarter 2017 the two largest natural gas producers in the Appalachian Basin did not lose money, Chesapeake was barely profitable (8 cents per share, PE=64) and Cabot earned 23 cents per share (PE=98).

                    So better than most LTO firms.

                  • coffeeguyzz says:


                    Little time to ‘research’ but Cabot might be a leading indicator in this field due to its compact footprint sitting stop the most carbon-rich shale on the planet.
                    Chesapeake may divest large withholdings in coming months/years to better optimize operations.

                    Over in the wetter southwest regions, Range, EQT and Antero, in particular, are poised to capitalize on increased pipeline takeaway in the coming months as well as increasing efficiencies (minimal new pad building).

                    In a somewhat related vein, the wholesale spot electricity price in New England briefly spiked above $150/KWh last night, which is 5 times the normal.
                    Those commercial operations up there will find it increasingly challenging to successfully compete against competitors whose juice does not rely upon Ra and Zephyr.

              • Dennis coyne says:

                Hi Coffeeguyzz

                Do you expect natural gas fueled transportation is likely to become ubiquitous in the near term?

                The world will run short on liquid fuel for transport.

                NGL will be unlikely to fill the gap.

                I focus more on LTO and less on shale gas. How are shale gas producers doing?

                Take the top 5 producers, what are the earnings per share?

                • Dennis Coyne says:

                  So for shale gas, the top producer is Chesapeake with 2017Q1 earnings of $0.08 per share and debt of $9.5 billion. Cash and equivalents decreased by (aka cash burn was) $633 million in 2017Q1.

                  Cabot earned $0.23/share and had positive cash flow ($39 million). Debt is $2.5 billion.

                  These two companies produced about 26% of total Appalachian Shale Gas (5 of 19 MMCF/d) and about 14% of the US Shale Gas Produced in the first quarter (around 35 million CF/d).

                  US Natural gas output has plateaued since 2015 at about 90 million cubic feet per day.

                  Shale gas lately (2016-2017) has been about 39% of gross natural gas output in the US.

                  • coffeeguyzz says:


                    This may not mean much to you, but news just came out that EQT bought out possibly the most skillful operator in the AB, Rice Energy.
                    Their complementary lease holdings and pipeline infrastructure will – if it doesn’t already – make it/them the biggest gas producer in the country.

                • L0z says:

                  The New Zealand case is instructive. In the last liquid fuel shortage in the early ’70’s liquid fuel for private transport (largely imported) was so short that the Government mandated:

                  1. ‘Carless days’ for private transport. Every citizen had to select a day of the week when they would not drive their car. A windscreen sticker showed which day they had selected. Fines imposed for transgressors.

                  2. The Government of the day heavily subsidized citizens on the installation cost of (Govt. approved) ‘dual fuel’ systems allowing any car to run on either gasoline or compressed natural gas.

                  3. The Gvt. converted almost the entire Admininstration fleet to dual fuel and ordered all staff to always use Compressed Natural Gas, not gasoline.

                  4. Private cars of the day mostly had older cast iron engines whose valve seats did not burn out when switching to CNG (Alloy heads usually needed hardened valve seats to be installed – very expensive).

                  5. The Govt made sure a good network of CNG compressors and storage was available in major centres. And the distance between major centres was relatively short anyway.

                  6. The Govt. paid the developers/operators of the Maui offshore mega gas field a guaranteed fixed price, and underwrote all development costs via a ‘take or pay’ arrangement.

                  None of the above factors apply to the demand side in USA today.

                  No wonder private operators are in the mire. Only taxpayer subsidies can save them in a free market in oversupply (Ponzi financing, by definition, must ultimately collapse).

                  Obviously, the Govt. of the day in NZ was very heavily subsidizing the gas producers for strategic reasons.

                  Absent gasoline shortages and temporary low prices CNG was not popular, in and of itself. CNG cylinders were heavy, they were space takers, CNG reduced power to the engine somewhat, and refills were an inconvenience, CNG was not really popular with forecourt operators either. They had thin margins for retail CNG and regulatory costs for the highly spec’ed large compressed gas cylinders they needed for storage. Not that long after the crisis abated, CNG use dropped, especially as gasoline became cheaper. Diminishing use led to diminishing supply at the forecourt, eventually people either removed the dual fuel system, or preferred to buy cars without it. Finally, only some taxis and some commercial vehicles used it. (Interestingly, many range-bound taxis have now switched to electric cars.)

                  The important point is that these actions were about fuel availability/security, not economics.

                  And the operators of the fields did OK.

                  Looking to the future, liquid fuels will climb in price, and as the ‘export land’ phenomenon bites there will be absolute shortage of liquid fuels in most parts of the world. The Govt. of USA will probably be forced to turn to CNG.

                  But in USA, unless it turns to nuclear power (dirty and age-dangerous) it won’t have the industry profit structure, the across-nation infrastructure, or car engine configuration for private energy needed to ‘gas up’ the domestic fleet through the capitalist system.

                  So what will happen? Tax-payer subsidy of all these elements, of course. Just like the New Zealand case.

                  Yes, subsidizing domestic shale gas enterprises will assure supply for a while – but only a while. Yes, subsidizing car conversions to CNG and subsidizing distribution systems will allow the domestic transport to be somewhat normal – but only if USA is prepared to accept a reliance on shipments of liquified nat gas from overseas – Qatar, Iran, Russia, Saudi etc.

                  Nat Gas is in oversupply, and countries around the world are increasingly turning to natgas to replace coal. If they are wise, they will make dual fuel coal/natgas burners, relying primarily on natgas, with coal as a potential arse-saver in case of supply disruption.

                  Back end of electric cars (the counter argument for private transport) is a power plant. Coal, natgas, nuclear, hydro, wind, solar? In what combination? Who gets the subsidy? What are the security issues? What are the infrastructure distribution issues?

                  Who makes these decisions? For whose benefit?

                  The USA has no proportional representation of the people, and therefore a 2 party duopoly is permanently entrenched. Naturally, this leads directly to a pork-barrel-politics patronage system, where private interests and power groups seem to insert personal short-term interests over long term strategic view in the public good (where ‘public’ means ‘people’, not business corporations).

                  All around the world – lack of vision. Lack of analysis. Short term thinking. Special interests distorting the ‘allowable’ public discourse.

                  Amazing, really, when you consider the price of what is at stake…

                  Thank you Ron, Dennis, and all the contributors, both for this forum and for the very informative, thought provoking discussions presented.

            • Glenn E Stehle says:

              Dennis, coyne said:

              When doing an economic analysis revenue and cost are important.

              Only so much can be gleaned from microeconomic analysis — analysis conducted at the level of the firm.

              Macroeconomic analysis yields a different set of insights, including the internal contradictions that exist within classical and neoclassical economic theory.

              • Dennis Coyne says:

                Hi Glenn,

                I agree. In the long run the theory of the firm may roughly approximate how an individual firm might behave (rational profit maximizing behavior). In the short term, firms may not behave “rationally” as they struggle to survive, but eventually firms will become bankrupt if they lose money year after year.

                The consequence of this will be a lack of investment due to low oil prices and a high likelihood of very high oil prices within 5 years.

                Whether that becomes a problem for the macroeconomy will depend in part on the rate of increase in oil prices.

                Impossible to predict in advance, but an average annual rate of increase in real oil prices of 15%/year for the next 5 years does not seem out of the question in my opinion (about $100/b in 2017 $ in July 2022).

                • Dennis Coyne says:

                  Hi Glenn,

                  I noticed the answer to my question is yes.

                  You did not answer the question I asked, instead you changed the subject.

                  You are consistent, you consistently change subjects when challenged.

                • Glenn E Stehle says:


                  Low oil prices are undoubtedly not good for oil firms’ next quarter bottom lines.

                  But your next conclusion — that low oil prices will be bad for the macroeconomy too at some future date — is quite the demonstration of speculation and logical gymnastics.

                  • Dennis Coyne says:

                    Hi Glenn,

                    No simple logic. Low prices leads to lack of investment which leads to lower supply.

                    Most of the oil industry requires 3 to 5 years for large projects to go from sanctioning to first output.

                    The piddly 2 Mb/d that LTO might provide will do little to help.

                    So the low oil prices then lead to very high oil prices due to shortages.

                    Are you arguing that low prices at good for the macroeconomy, but that high prices are not?

                    Or do you not see that low investment levels will lead to lower future output?

                    This is so clear to me that it is not clear what you fail to understand.

                  • Glenn E Stehle says:


                    The future is unknowable.

                    There are an infinite number of things that could occur in the future that do not follow your carefully crafted script.

                    Speculation does not equal knowledge. Your crystal ball is not infallible. The future may be very different than what you earnestly believe it will be.

          • Dennis Coyne says:

            Hi Glenn,

            Value was a poor choice of word by me, I am not really interested in the Value Theory rabbit hole. I should have used “revenue”, rather than “value”.

            Modern economics does not have a “price theory of value”, value is in the eye of the beholder, every person decides what the value of a good is individually, if the price is less than or equal the the subjective value and the person has available cash to spend they may choose to make the purchase of a good.

            Walrasian consumer theory has problems because it assumes consume preferences are determined exogenously and the existence of advertising suggests this may be a poor assumption.

            Perfectly competitive markets are a gross simplification presented to introductory students, no economist believes such markets are widespread. Monopoly and oligopoly are also analyzed by economic theory and many other types of hybrid markets.

            Mainstream theory is far from perfect and all social science suffers from the theory affecting behavior as well as the inability to conduct experiments.

            The “hard” sciences are much easier in this regard.

            • stan1 says:

              Well, we can conduct experiments in the social sciences. It is generally just morally problematic to do so. Interestingly, a good many economic experiments keep getting run despite fairly well established literature to the negative social effects. Of course the experiments pay their proponents well so the lessons cannot be “learned”.

          • Dennis Coyne says:

            Hi Glenn,

            Again I am using value incorrectly where I should be using the term revenue. So the revenue from a barrel of oil equivalent of natural gas is about one third of the revenue from a barrel of crude if natural gas sells for $3/MCF and oil sells for $55/b (these prices are used in PXD’s June investor presentation).

            If we are looking at whether a well is profitable we consider revenue and cost.

            Any other considerations are simply an attempt to change the subject.

  7. Jeff says:

    IEA oil market report June (subscribers but short summary available): http://www.iea.org/newsroom/news/2017/june/omr-whatever-it-takes.html

    IEA report that stocks do not drop as fast as previously expected and rebalancing will take longer.

  8. Cliffhanger says:

    US shale oil alone cannot meet the world’s growing demand for crude, Chevron CEO warns

  9. Watcher says:

    Worth revisiting the effect of these new technological marvels in the major shale players that have reduced their breakeven oil price. Earnings:

    EOG -$1.07/sh

    CLR -$0.54/sh

    WLL -$4.31/sh

    OAS -$0.77/sh

    Those are all minus signs. Science triumphs.

    • SRSrocco says:


      Very nice show of fundamental break-even analysis. Yes, the “TECHNOLOGY LOWERING” Breakeven mantra will continue as these energy companies continue to choke on their debt.

      Along with their lousy earnings, these four companies long term debt has increased nicely since they started producing the WONDERS OF SHALE OIL & GAS. Here are the changes in the total long term debt of these four companies:

      CLR, EOG, OAS & WLL Long Term Debt:

      2007 = $2.4 billion
      2016 = $19 billion

      So, with the price of oil above $100 from 2011 to mid 2014, these companies continued to ramp up their long term debt. So, it makes perfect sense if they weren’t making money at $100, then of course technology has made them profitable at $30-$40.

      Furthermore, just to SERVICE the interest on their debt, these four companies INTEREST EXPENSE has also ballooned. Here is the increase in INTEREST EXPENSE:

      CLR, EOG, OAS & WLL Interest Expense

      2007 = $136 million per year
      2016 = $1 billion per year

      So…. just like the poor slobs who can only pay their minimum credit card interest payment, these four companies are now paying $1 billion per year, just to service their debt.

      Talk about the WONDERS of SHALE ENERGY.

      Lastly, both Shell and Chevron dumped their Oil Shale Projects several years ago. I gather they realized it wasn’t ever going to be profitable to produce an energy source with an EROI of less than 2/1. But, if they can figure out how to lower the BREAKEVEN as these wonderful shale oil companies have… then maybe OIL SHALE will be the next Permian???


  10. Dennis Coyne says:

    Hi all,

    Enno Peters has a new post on US LTO and shale gas


    The three charts below were pulled from shaleprofile.com.

    • Dennis Coyne says:

      Oil from Enno Peter’s site.

      Most of the improvement in well productivity is for the first 36 months after that increased output is marginal.

    • Dennis Coyne says:

      Looking at well profiles by major basin (same years as the chart above) for US LTO.

      The Permian matches the Eagle Ford profile through month 28 (it is hidden by the Eagle Ford well profile). The overall shape of the Eagle Ford, Permian and Niobrara is similar, the Bakken is markedly different.

    • Dennis Coyne says:

      If we consider only 2015 and 2016 oil wells (rather than 2011 to 2017 in previous chart), we can see the improvement in Permian wells which fall between Bakken and Eagle Ford well profiles recently.

      • George Kaplan says:

        According to Art Berman one problem Permian faces more than the others is water, maybe because some of the wells are conventional. I don’t know if the main issue is problems with disposal or impact on the well production or both. All the years have rising water cut, more so than the other LTO areas. I haven’t figured out exactly if anything can be gleaned from the upticks at the end of Enno Peters’ curves when there are few wells shown, but probably you have to wait for more data to be clear – maybe once the wells start hitting around 15 bpd.

        • shallow sand says:


          A couple things I have noticed:

          First, there have been a lot of horizontal wells drilled in the Grayburg/ San Andres formations. These are wells in active water floods and CO2 floods. These wells produce a lot of water per barrel of oil, so need to be excluded from the analysis.

          Second: It seems like there are some Bone Spring wells that produce a lot of water, with others that do not. I am not sure what factors play into that.

          I would like to see some more discussion about produced water disposal in the PB. Are they now drilling SWD wells on the leases where they drill from a multi well pad? Pumping water directly from the gathering facility into disposal wells is almost always several times cheaper than truck hauling it.

          One example would be Devon Energy’s wells in Lea Co., NM. Some of those wells produce over 10 BW for every BO.

            • shallow sand says:

              Mike. Thanks. I read that RBN information over.

              It is probably a bad idea to just separate unconventional Spraberry/Bone Spring etc from any Permian analysis.

              Almost all of those drilling unconventional in PB are also operating conventional. I have repeatedly noted that PXD operates over 6K vertical Spraberry wells. PE and FANG also operate many.

              When EOG bought Yates, I believe that included all the conventional wells. Same with XTO purchase of BOPCO. Also OXY, XTO, APA, CVX and many more have substantial conventional assets in PB, including large water and CO2 floods.

              Not many operating strictly unconventional wells in PB. Therefore, although below I mention 6-8 BW per BO is likely high for the unconventionals as a group, I am sure it is what almost all operators in PB are experiencing in field wide operations.

              Not only is unconventional overproduction hurting the likes of us, it is destroying the economics of all of the conventional production owned by all engaging in the destruction.

              Interesting eh? Have to wonder if the larger players are wondering what the impact of shale overproduction is on overall company profitability?

            • They may have to build water lines to dispose of it offshore. Maybe a 400 mile, 40 inch diameter line taking 1.5 mmbwpd.

        • Glenn E Stehle says:

          From the study IHS did for the EIA (and that Dennis linked on a previous thread):

          Water disposal costs are significant, but lower than in other plays. The Permian produces just 0.2 bbl of water for every Boe that is produced.


        • Dennis coyne says:

          Hi George

          It looks like water output is lower after 2012.

          The 6 to 8 bw per bo quoted by RBN is different from Enno Peter ‘s data.

          • shallow sand says:

            6-8 seems high and .2 seems low from my review of wells, but also it appears water rates are highly variable, even for wells on the same pad.

            Not surprising, as that is our experience in sandstone formations also.

          • George Kaplan says:

            Water was lower before as well, so I don’t think a trend can be inferred. Maybe to do with where and what type of wells were drilled in 2012. Since then the numbers seem more consistent and showing a continuous upward trend, I think all are higher than the Bakken, EF or Niobrara (TBC – I’m not sure exactly how Enno Peter’s separates out oil vs gas wells and conventional vs LTO).

            By the IHS study rates at 0.2 bbl water / boe give 10% of LOE so 4 bbl / boe would almost triple LOE, probably more like 4 or 5 times because artificial lift costs would rise based on liquid volumes as well. The number looks a bit suspect.

            • Dennis coyne says:

              Hi George

              It seems from your chart that water increased from 2009 to 2012 and then decreased after 2012. Lately it has been 2 to 3 bw per bo.

        • Dennis Coyne says:

          Something I just realized is that the Permian water to oil charts at Enno’s blog only includes New Mexico.

          George probably knew this, but others may have missed this.

  11. Longtimber says:

    How much Better can it get? Lower quality reserves arrive at the Party?
    “Aside from learning more about the rocks, the following six factors have contributed to the tight oil learning curve:”


    • George Kaplan says:

      Isn’t the biggest factor whether completions outnumber spuds and by how much (i.e. how many DUCs are being added / removed). If rigs are being added then there has to be a period of building the DUC inventory that the completion crews can work on – hence efficiency appears to go down; it’s a factor of how it’s defined, not how well the crews are performing. Just like when efficiency appeared to be increasing because completions were outnumbering spuds. Rig efficiency should be measured by feet per rig, not production.

      • coffeeguyzz says:

        Mr. Kaplan

        That is exactly right, the growing disconnect between number of rigs and production continues for the reasons you just cited.

        Currently, many operators are drilling between 3 and five wells at a time on a single pad.
        Weeks/months may elapse before they are frac’d and brought online.

        As for feet/rig drilled, the longest onshore lateral – 19,300 feet – was just drilled by Eclipse in Ohio with their Great Scott well.
        27,400 feet TMD in 17 days.

        It is becoming more common for rigs to drill a mile a day with the 7,200′ plus by Antero in 24 hours the current record, I believe.
        In the Niobrara and, increasingly, the EF, so called Monobore drilling is conducted where spud to TD takes less than 5 or 6 days time.

  12. George Kaplan says:

    For those interested Oman has a new data site, which includes a lot of energy data and a lot of fancy graphics. I’m not sure there is much continuity in the data for some of the measures though.


    They agreed to 45 kbpd cuts for NOPEC and seem to be sticking to it exactly. They started adding IOR and EOR in 2007 after years of decline and rapidly increased from 3000 to almost 10000 production wells. But the production gains stopped lat year. They haven’t really found any significant new oil and much of their stuff is heavy, and the fields mature. It’ll be interesting to see if they recover all the decrease when the agreement ends.

    • Watcher says:

      Oman is listed in BP’s data with a 2016 production increase from 981K bpd to 1.004 mbpd. Somewhat relentless increase since 2006. The downtick you show is since 2016 and it’s not much. Might not hold, though that’s a govt source and they won’t want to be first to announce they are breaking the cut.

  13. George Kaplan says:

    Azerbaijan oil is following a pretty steady linear decline. They agreed 35 kbpd cuts, based on natural decline. They are at 29 and likely to be below their limit in a few months. However they have Shah Deniz starting next year which will add 50 kbpd condensate, so I’d guess their agreement would stop whenever that becomes available.

    China’s production also dropped last month by about 70 kbpd, but their yearly decline rate is levelling off at around 3 to 4% rather than last year’s numbers around 10%.

  14. Watcher says:

    Azerbaijan noted by BP with 2016 decrease of 1.6% down to 826K bpd.

    China production is listed as -7.2% down to 3.999 mbpd. Consumption up to 12.4 mbpd.

    When you HAVE to have it, and you DO have to have it, you’ll do anything to get it.

    No way in hell they are going to back down in the South China Sea. The wrong player is being demonized. Russia isn’t going to start a war because they have too little oil. China is.

    • George Kaplan says:

      You do understand that BP just takes data that others give it and repackages it with a bit of propaganda? There’s nothing new in what they say at all.

      • Watcher says:

        Somewhat. You do recall I wrote to them to challenge their data from a conversation here? And got a reply that was rational and pretty clear that they didn’t just rubber stamp all data and had good justification for the item in question. They do have an analysis staff. Not just clerks gathering numbers and typing them into the spreadsheet. I posted it all here.

        It’s hard to just conduit propaganda and still be an industry standard. So you don’t think China’s production was down last year? And consumption up? Which item got your attention?

        Oh wait, was it the Oman thing above? That wasn’t really any sort of disagreement.

        • George Kaplan says:

          I wasn’t disagreeing really, just a bit confused what point you were trying to make. I don’t recall what you wrote, I may not have read it in the first place but either way I’m pretty sure 99% of posts here and most other similar blogs – yours, mine and everyone else’s – are forgotten about ten seconds after they are read (or skimmed), unless they exactly concur with the reader’s imbedded views.

          • Watcher says:

            Forgotten whether they agree or not. It all means nothing. Oil scarcity will kill most reading this, certainly their kids, regardless of agreement.

            • Boomer II says:

              Not really. I doubt that most of us reading this will die because of oil scarcity. I’ll likely die of whatever disease I get as I get older. If I die at the same age as my parents, I only have about 5 to 15 years anyway.

              I think Africa and Asian countries are likely to see the human killing effects of oil scarcity before the US or Europe.

              Life will be different with less oil, but it won’t kill us. We don’t need to fuel our cars.

  15. George Kaplan says:

    The OPEC annual statistical bulletin is out, if anyone is interested. For the seventh year all OPEC countries found exactly the amount of oil that they produced.

    • George Kaplan says:

      Their GDP continues to fall, but not as fast as 2015. Somehow they have Venezuela GDP constant.

    • Dennis Coyne says:

      Hi George,

      US reserves do not remain exactly the same over time, but from 1993-2007 there was very little change (a decrease of 1.6 Gb) while about 30 Gb of cumulative oil was produced.

      • George Kaplan says:

        So didn’t do quite as well as any of the OPEC countries, despite having rapidly falling production in those years while OPECs has been increasing over all. Interesting that the OPEC countries are all choosing to keep so many of their discoveries secret as well, while the USA announced all their major discoveries with some fanfare (I’m betting ‘reserve’ and ‘growth’ might appear in the next paragraph down).

        • Dennis Coyne says:

          Yes George,

          US reserves “grew” by about 21 Gb (discoveries were about 7 Gb over that period).

          OPEC “proved” conventional reserves are about 1000 Gb, about 165 Gb of C+C was produced by OPEC over the past 14 years with “reserve growth” of 165/1000=16.5%, considerably less than the 93% reserve growth in the US proved reserves from 1993-2007 (5.65 times lower).

          I do agree unchanged reserves for many years suggests these numbers are meaningless.

          Also looking at your chart, OPEC conventional 2P reserves are probably about 700-800 Gb, I will use 750 Gb. US 2P reserve growth was about 70% from 1993-2007 (discoveries were deducted), if we assume OPEC reserves grew by the amount of oil produced for the last 14 years this would be 165/750=22%, still much less than US 2P reserve growth (2P/1P=1.7) by a factor of 3.2.

          I would not assume that US reserves grow, but that OPEC reserves do not. Nor would I assume that OPEC reserves grow at the same rate that US reserves do, the reported numbers suggest they grow far more slowly.

          • George Kaplan says:

            No argument from me. The period you picked, presumably the reason you picked it, was a perfect combination for reserve growth – lots of mature reservoirs that had been developed kind of ad hoc, meeting new technology for the first time in a growing economy with declining oil supplies. The IT developments through the nineties had huge impacts, drilling, seismic and modelling methods grew by leaps and bounds. And all that learning and technology was being applied all of the world at the same time, especially in Saudi and the bigger OPEC producers. So their fields probably had similar growth in the same period, we’ll probably never know, and their new fields got all the benefits from the word go. Therefore all the low and medium hanging fruit has gone, and comparing reserve growth from one location and period to anywhere else is as meaningless as the OPEC reserves numbers are.

            • Dennis Coyne says:

              Hi George,

              I picked the a US period where reserves changes very little and compared it with a period where OPEC reserves were also relatively flat, that is all. I have data for the US, but not anywhere else.

              I am simply suggesting that it is a possibility that OPEC reserves might have grown by one third the rate that US reserves grew over the 1992-2007 period during the past 14 years, but we have no decent data on OPEC reserves so it is simply speculation, just as it is speculation that their reserves did not grow.

              • George Kaplan says:

                So meaningless would seem to pretty much capture it all, which was kind of the caveat I was hinting at by highlighting the absolutely constant reserve numbers.

                • Dennis Coyne says:

                  Hi George,

                  Likewise over a 14 year period US reserves were nearly constant, though in that case we actually have some data so we can see the discoveries and reserve growth. OPEC is just a black box.

    • Jeff says:

      This may sound as semantics but I think that OPEC uses the same figure as reported last year when a member does not report a reserve figure. In other words, graph 3.2 shows that OPEC-members have not updated their reserve figures since 2010. It does not show that they have replaced each extracted barrel with exactly one new.

      What would be interesting to know is why all the OPEC-members suddenly stopped reporting reserves in 2010..?

  16. shallow sand says:

    Glenn. I do not view conventional or stripper oil well producers having much in common with wind producers or solar producers.

    Wind producers and solar producers are generating electricity. As I am sure you know, oil is not used for electric generation in the US, nor in most other parts of the world. We do use electricity to operate oil wells in the US, but it doesn’t appear cost effective to go off the grid and construct our own wind or solar generation for this purpose.

    I also do not follow your competition arguments between US conventional and US unconventional. As I stated above, most producers of unconventional have significant conventional production, especially those in the Permian Basin.

    Low oil prices do not benefit companies producing oil, no matter what kind of wells the companies are producing oil from. That is stating the obvious, but you seem to be arguing that somehow US unconventional wells are benefitting from low oil prices, because they are driving US conventional wells out of business. Is that what you are arguing?

    The reason US companies produce oil is to make money. Why is it so bad that some of us have been pointing out that US companies are being aggressive drilling, yet they are generally not in the best shape financially? What is wrong with pointing out how wells are challenged to payout or companies have little to no EPS and a lot of debt?

    Why is it so bad that I would like a better return than I am getting in my oil investments. Since when did making a profit become a bad thing?

    I own stock in four US oil companies. All four operate US onshore conventional and unconventional wells. Two completely eliminated dividends and one cut it’s by a substantial amount. All are trading at or near 52 week lows. I’d like to see oil prices go up some so they could all resume the previous dividends and so their stock prices would go back up. Is that bad for me to want that?

    I own WI, ORI and RI in oil wells. I’d like to make more money on that too.

    As long as US companies overproduce, it looks like I won’t make much money on those investments, and none of the US companies will make much either. You seem to be happy about that?

    • Mike says:

      It is vital to America’s hydrocarbon future to have a healthy, sustainable oil and gas industry, conventional AND unconventional. Forty five percent (45%) of our domestic production in the US still comes from the GOM, Alaska, heavy oil extraction in California, and stripper wells all over the country. That production declines at 4-5% per year and employs hundreds of thousands of men and women. And, I am quite certain, is paid for.

      As to the angry, divisive contention conventional production factions are “competing” with the unconventional shale industry in America, what possible good does that suggestion have for America’s future? None.

      The shale industry is woefully unprofitable. During a five year period of the highest sustained oil prices in world history, the US LTO industry racked up hundreds of billions of dollars of debt it can now NEVER pay back. It has destroyed shareholder equity and its reserve base declines at the rate of over 80% the first 3 years of production and then 10-14% per year thereafter. The American shale industry would not exist but for low interest stimulus money to borrow from the FED. It has essentially no finding costs other than the interest it pays on its massive debt loads. That’s not “fair competition.” Let it pay its debt off and work from net cash flow, then let us see how it can “compete” with conventional oil production in America. The worse well I ever drilled in my long career is far more profitable than 90% of America’s shale wells. I would rather be out of debt and operate my junk, than be up to my hard hat in debt and own the junk the shale industry owns.

      People that embrace this shale oil phenomena so passionately, so vehemently, ignore its unprofitability and all that enormous debt. They believe the money that funds the shale business will never end. Lets quit lying about all that and figure out a way to pay for it. At the moment it is NOT paying for itself.


      • Watcher says:

        Mike, that’s all the wrong metric.

        The Fed created money from nothingness to an an amount of 25% of GDP. This is not capitalism. And when it’s something so fundamental . . . money . . . and the core of all analysis, the analysis can’t mean anything.

        The BOJ and ECB are still creating. They haven’t stopped. Finance is such a huge industry that no one can dare to spend time on that previous paragraph. They have to pretend normalcy, and there has to be a desperate hope by the Fed that they can unwind that 25% of GDP on their balance sheet. They don’t know what the ramifications will be for what they did. Fed Governors have SAID THIS. They don’t know what will happen. It’s entirely new territory.

        But counterparties, also in desperation, pretend. Undergraduate courses teach the same syllabus and essentially don’t mention what was done, or dismiss it.

        And so, oil has to flow. Measuring it in money . . . something created from nothing . . . isn’t going to tell you anything. Oil HAS to flow. Something created from nothing can never be allowed to get in the way of flow that MUST happen.

        This is why China’s situation points to war. They MUST have it, increasing amounts of it, and domestic flow is dying.

        • Dennis Coyne says:

          Hi Watcher,

          Money is a medium of exchange and has been created from nothing since the US went off the Gold standard in 1971.

          The excess liquidity has simply reduced the velocity of money.



          The velocity of US currency has fallen from 2.6 in 1996 to 1.3 in 2015.

          The excess money sits in bank accounts. The “exchange value” of money is what it can be traded for and this has always been the case whether money is gold or numbers written on a ledger.

          • Watcher says:

            I often wonder if you are personally aware you don’t know anything about what you post.

            Fractional reserve banking never ever before did 25% of GDP in 5 years. Bitcoin creates money from nothing if counterparties agree, but they don’t do 25% of GDP in 5 yrs.

            There has never before the crisis been explicit authority granted to the SNB and BOJ to directly buy equities. There was no Flashboys book prior to the crisis. The PBOC is utterly overt in all it does, but nevermind, go draw some more worthless charts.

            If you have to have oil, and you DO have to have oil, a substance defined only by counterparties is not going to prevent getting it.

        • Dennis Coyne says:

          Hi Watcher,

          They can buy oil like the US and Europe have been doing for many years, much cheaper than warfare.

    • Glenn E Stehle says:

      shallow sand,

      It seems to me that folks like you and Mike are caught up in a hopeless situation, damned if you do and damned if you don’t.

      If you do throw your lot in with the environmentalists, what long-term future is there in that? They have stated in no uncertain terms that they intend to destroy fossil fuels root and branch.

      But on the other hand, if you don’t throw your lot in with the environmentalists, who want to cripple or eliminate the shale industry through regulation and state intervention, then you may get wiped out by the low oil and gas prices that the shale revolution is producing.

      As to your claim that “Low oil prices do not benefit companies producing oil,” that depends on how you look at it. In the ongoing energy war with renewables, there is no better argument to be made before the jury of public opinion than to be able to point to a track record of delivering abundant, cheap and reliable energy. And if that has been done domestically, that’s even better.

      Australia is the lastest basket case where the long arm of the law got too heavy-handed in regulating fossil fuels. In its attempt to lend a helping hand to the environmentalists’ hallowed “energy transformation,” in Victoria it even went so far as to ban fracking. Politicians are just now waking up to the fact that the exorbitant energy prices are creating political and economic problems:

      Everybody in the Parliament agrees spiralling power prices are a massive problem, politically and economically. Any MP will tell you of a large business in his or her electorate about to go to the wall….

      Straya takes gold in globe’s most costly energy bills

      The advocates of the “energy transformation” at MacroBusiness blog, however, are blaming the problems on the evil fossil fuel industry and the evil utilities. The advocates of wind and solar are, of course, never to blame for anything.

      • Stephen Hren says:


        To interject, you still refuse to address the issue that even with sky high oil prices from 2001-2014 the shale industry racked up hundreds of billions of dollars worth of debt. Can you explain how shale is so awesome given this obvious defect?

        • Glenn E Stehle says:

          Having the creditworthiness, assets and income to be able to borrow hundreds of billions of dollars is an “obvious defect”?

          Gosh, I wish I had that “obvious defect.”

          • Boomer II says:

            I don’t think being able to borrow is necessarily a sign of creditworthiness. That’s why we have a category of bonds called junk bonds. And the financial crisis of 2008 was due to home loans being made to uncreditworthy homeowners and then repackaged and unloaded elsewhere.

              • Glenn E Stehle says:

                So let’s see, the oil and gas industry defaulted on $28.8 billion in loans out of a total loan portfolio of $500 billion during the first half of 2016.

                That’s a loan default rate of less than 6% for an industry that just saw the product it sells fall in price from about $100/barrel in 4Q2014 to about a third of that in 1Q2016.

                But if we compare those default rates to the default rates of other folks the commercial banks loan money to, they don’t seem bad at all.

                I suppose that with enough spin, you can make just about anybody look bad.

                • Boomer II says:

                  I said being able to get a loan is not proof of creditworthiness. You made the point by showing the percentage of all types of loans in default. Lenders will lend money to people they know can’t repay the loans. It doesn’t matter to them as long as they can unload those bad loans on someone else.

                • Nick G says:

                  $28.8M from 500M, in 6 months, is 11.5% per year. That’s much higher than the actual default rates for consumer debt, which is around 5% (your chart showed late payments, not defaults).

                  And it’s much, much higher than the normal default rate for commercial paper, even if it’s junk-rated (consumer debt has much more recourse than commercial debt: repossessions, etc).

                  • Glenn E Stehle says:

                    Nick G,

                    What’s the default rate for the oil and gas industry over a 13-year span, as is illustrated for other types of debt customers in the graph? What do you believe it will be for the first half of 2017?

                    It’s easy to highlight extraoridinary events, such as what happened to oil companies in the wake of the worst oil price crash since the 1980s, to make one’s case.

                    Like I said, with enough spin, you can make anybody look bad.

                  • Nick G says:

                    What’s the default rate for the oil and gas industry over a 13-year span…

                    Good question. I was simply helping raise the level of the debate, by pointing out elements of that comment which were misleading.

          • Stephen Hren says:

            Yes, losing hundreds of billions of dollars is an obvious defect. I run a small business as a home inspector and make a living at it. If I had accumulated multiple years worth of debt while I was “making a living” each year I would consider myself a failure. Period.

            • shallow sand says:

              But, if you ran a home inspection business that had thousands of employees and paid yourself millions a year in compensation, despite having billions of debt and negative earnings, you would be considered by many to be wildly successful. Non-recourse debt is a wonderful thing.

            • Glenn E Stehle says:


              You went from saying that “from 2001-2014 the shale industry racked up hundreds of billions of dollars worth of debt” to accusing it of “losing hundreds of billions of dollars.”

              There’s just a little bit of difference between those two claims.

      • shallow sand says:

        I’m not throwing in with anyone.

        It’s dollars and cents that I am focused on and FACTS in relation thereto, contained in actual well production histories and SEC filings.

        Oil production is a business in the USA, last I checked.

        I am not into political crusades from either the right or the left. A lot of spin there. Not a lot of FACTS.

        • Glenn E Stehle says:

          shallow sand,

          Yes, “oil production is a business in the USA.”

          And some of those in the oil business have written off their bad investments — those that required $60+ oil prices to be economical — and moved on.

          Take ExxonMobil, for instance. After writing off 13% of its reserves in February, it’s chairman, Darren Woods, in March expressed his skepticism of an improving price environment for oil:

          Our view on the oil price is there’s still a lot of uncertainty in the marketplace, so while we have seen prices go up in the short term, we’re not building our investment campaign based on the assumption those prices are going to be there forever…

          One of the advantages we have with this recent acquisition that we did in the Permian is we have a much bigger portfolio of short-cycle investments. That gives us the flexibility to move as the market moves, and raise our investment levels up to match what we see as opportunities in the marketplace.


          Exxon shifted 25% of its CAPEX for 2017, or $5.5 billion, to drilling shale wells in the Permian and Bakken, “where the diversified energy giant can make a profit even when crude prices are just $40 per barrel.”

          Exxon believes it can increase its production from the Bakken and the Permian Basin in the next nine years from less than 200,000 BOE to 800,000 BOE.

          However, I do realize that you and the rest of the “expert consensus” on this blog believe you know more about Exxon’s business than Exxon does, and nothing I or anybody else says or does will ever disabuse you of that notion.

          • shallow sand says:

            Glenn. I have owned XOM stock since they were XON.

            I really don’t think you even read my posts so I think maybe I just need to stop engaging with you here.

            • Mike says:

              Shallow, check this this out:


              Scroll down to the 2nd map on the first page and click it. Dial it up and you can then watch flaring of associated gas in all three of America’s shale oil basins, over time, right up until just a few days ago. This is a NOAA satellite by the way, and NOAA data.

              What you’ll see is a historical timeline of shale oil idiocy. As you watch Bakken and Eagle Ford flaring grow you must please remember that all those wasted MCF’s generate no money; not for taxing authorities, not for royalty owners, not for operators. All those wasted BOE’s WERE, however, included in BOE economics in investor presentations and were BOOKED reserve assets to the SEC. If that doesn’t piss you off, nothing will. In the Bakken they did that for 5 years! They’d still be doing it if they could get away with it.

              Now watch as time goes on and flaring in the Permian grows, particularly in the northern Delaware Basin of New Mexico. None of THIS gas was making any money either. Not for anybody. It was being wasted but also used to book reserve assets with the SEC. All that wasted gas soooooooo….more oil could go be produced, faster, the price of oil would go down (25% in just 2 months), and Permian shale oil operators would ultimately make LESS money from their oil.

              What’s stupider than the American LTO industry?

              Not much.

              • Glenn E Stehle says:


                Way to go!

                More anecdotal evidence.

                Next thing you know you’ll be trotting out the photos of the starving polar bears to make your case for more regulation of the fossil fuel industry.

            • Glenn E Stehle says:

              shallow sand,

              Moping around hoping that the shale industry will implode of its own accord, or that the government will step in and hamstring it with regulation, seems more like wishful thinking than a sound business strategy.

          • SRSrocco says:

            GLENN & SHALLOW,

            First… GLENN. You say that Exxon is going to spend 25% or $5.5 billion on drilling shale wells in the Permian and Bakken. Yeah, I read the article. However, Exxon only spent $704 million Q1 2017 so far on U.S. upstream CAPEX. Will be interesting to see how much this figure increases during the remainder of the year.

            Also, total Exxon CAPEX spending Q1 2017 was $4.1 billion, $1 billion less than same quarter last year. So, unless Exxon really starts to increase its CAPEX spending over the next three quarters, they are on track to only spend $16-$17 billon…. much less than the $22 billion stated in your comment.

            Furthermore, Exxon only had $2.1 billion left over after they paid their CAPEX and DIVIDENDS…. basically, Free cash flow minus dividends. While this is better than what they had been doing in the past few years., the only reason they have $2 billion left over is that they have totally gutted their CAPEX spending from $34 billion in 2012, down to $16 billion last year.

            You can move from a Deficit (free cash flow minus dividends) to a Surplus when you cut your CAPEX spending by more than half.

            It will be interesting to see how Exxon is able to live up to its LOFTY GOALS in the Permian and Bakken. However, if the U.S. and Global Economy finally takes a noise dive, due the extreme leverage in the system, this will not be good for the oil price or Exxon’s optimistic plans to produce profitable oil in the Permian and Bakken.

            SHALLOW…. I agree with you. Glenn is not likely reading your posts. Actually I don’t post that much here, rather I like to write FULL ARTICLES on my site, the SRSroccoReport.com, where they get 20-40,000 reads.

            Much better EROI.


            • Glenn E Stehle says:

              SRSrocco said:

              However, if the U.S. and Global Economy finally takes a noise dive, due the extreme leverage in the system, this will not be good for the oil price or Exxon’s optimistic plans to produce profitable oil in the Permian and Bakken.


              Like they say here in Mexico:

              Si mi abuelo fuera nacido sin cojones, no seria mi abuelo. (If my grandfather were born without balls, he wouldn’t be my grandfather.)

          • Dennis Coyne says:

            Hi Glenn,

            So far actual output in the Permian from Exxon and Chevron is not all that much. We will see if their actual results match their investor presentations. There may indeed be a few companies that can make money at $40/b, but if we look at average output of all producing wells in the play, on average it will take $60/b or so for average wells to break even, clearly not all wells are average, infact because of the skewed nature of the distribution about 60% of wells are below average and about 40% are above average.

            In order to succeed at current prices, companies will need to complete above average wells, if they all do, it they will all succeed. 🙂

            Logic dictates that this is unlikely.

            Success=profitable in the game being played.

            • Eulenspiegel says:

              Another question, how many acres do you need in Permian to drill a well? Since it’s now about 60.000$ / acre this isn’t cheap, even when you can drill several wells in different stacked layers.

            • Glenn E Stehle says:

              Dennis Coyne said:

              We will see if their actual results match their investor presentations.

              Indeed we will.

              Art Berman, in his latest article for OilPrice, cited an article from the Wall Street Journal that explains how the coin is now in the air, and we will soon see how it falls.

              The Wall Street Journal article is behind a paywall, but was reproduced on Fox News for free at this link:

              Big Oil Firms Are Exploring a New Frontier in Shale: Profits

              Of course Berman, consistent with his anti-shale bias, only cited those parts of the article that are consistent with his prejudice. Here’s the link to the Berman article:


              Berman omitted, of course, the conclusion to the Wall Street Journal article, which reads:

              A few years ago, Chevron began working with top operators in the region, even allowing some of them to drill on its land. By observing close-up the work of companies like Pioneer Natural Resources Inc., Chevron was able to learn without costly experimentation of its own.

              Chevron has brought its production costs in the Permian Basin down 30% since 2015 to below $20 a barrel. It says its operations will generate free cash flow by 2020, far faster than typical big oil projects.

              “The market may be underestimating the ability of these companies to change or adapt,” said John Dowd, portfolio manager of the Fidelity Select Energy Fund, which holds about $2 billion in energy assets.

              • Boomer II says:

                It would appear that the more LTO we get, the lower oil prices go. Profits may be illusive.

                • Boomer II says:

                  Oil prices 'like a falling knife' as sentiment hits all time low, says analyst: “‘This is like a falling knife right now, I genuinely haven’t seen sentiment this bad ever,’ Amrita Sen, the co-founder and chief oil analyst at Energy Aspects, told CNBC on Wednesday.

                  ‘We have had clients emailing saying they have been trading this for 20 or 30 years and they have never seen something like this,’ she added.

                  Oil prices have tumbled more than 20 percent his year, marking its worst performance for the first six months of the year since 1997 and putting the commodity in bear market territory.”

                • Boomer II says:

                  Crude Inventory Draw Offers Sliver Of Hope For Oil Markets | OilPrice.com: “The active rig count in the U.S. increased last week for the 22nd week in a row, reinforcing expectations that U.S. crude oil output will continue to stave off OPEC cuts, plunging international prices deeper, but, at least according to Barclays, this is unlikely. In a note to investors, the bank said that the keep the rig count above 900, U.S. producers would have to spend 70 percent more and the costs per well would have to decline – both very unlikely.”

  17. shallow sand says:

    Before anyone gets the wrong idea, I’m talking $55-65 WTI. I fully realize the problems with high oil prices.

    All things in moderation. Too bad US shale companies do not subscribe to that motto.

    • Dennis Coyne says:

      Hi shallow sand,

      It is not clear that most LTO wells will pay out at a reasonable return at $65/b, some will, but the average well will not in most plays. The average 2016 Permian well (first production in first two quarters so we at least have 11 months of data to estimate a well profile) pays out in 60 months at $70/b, pays out in 36 months at $81/b and NPV is zero at $61/b.

      I assume the well produces until 10 b/d are produced and the well is then abandoned and assume natural gas sells at $3/b and NGL sells at half the price of crude.

      Well cost assumed to be $9 million, discount rate is 10%, G&A, interest, lifting cost, and other are $13.40/b, royalties and taxes are 32%, it is assumed 0.21 boe of NGL is produced per 1000 CF of natural gas.

      Spreadsheet with breakeven calculation at link below.


      So a 10% annual return is earned at $61/b for the average 2016 Permian well. If a 15% annual ROR is required, then the breakeven price is $67/b.

      My point is that $65/b will not lead to a healthy LTO sector, note that the Permian is likely the most profitable play in the US (loses the least amount of money per well).

      • Dennis Coyne says:

        Correction: I assume Natural gas sells at $3/MCF not $3/b.

      • Dennis Coyne says:

        Hi Shallow sand,

        When I use the average PXD well for 2016Q1, I get a breakeven of about $54/b at a discount rate of 10%/year and a well cost of $9 million. Payout is at 65 months at $54/b.

        • Dennis Coyne says:

          Hi Shallow sand,

          If I fit a hyperbolic to the Pioneer natural gas from 2016 Q1 the breakeven changes.

          It is $46/b breakeven at 10%DR and $9 million well cost, at $48/b payout is in 59 months and at $55/b payout is in 38 months.

          So PXD has some pretty decent wells with an average EUR in the first quarter of 460 kbo, and 721 kboe. The EUR based on barrels of revenue equivalent (bre) where we adjust for the lower revenue of a boe of natural gas and NGL is 584 kbre.

          If we assume a very low well cost (7.2 million by ignoring land cost or maintenance or water disposal) the well pays out in 24 months at $55/b, but I agree with Mike that $9 million is a more reasonable estimate of well cost.

          Investor presentations play very fast and loose with their assumptions to get $40/b breakevens. For Pioneer and the well profiles I have estimated a $7.4 million well cost would lead to a $40/b breakeven at a 10% annual discount rate. The Pioneer capital expenditure in 2017 divided by wells to be completed suggests about $9.5 million in capital spending per well completed.

          At the $9.5 million cost per well, breakeven (NPV=o at 10% annual DR) oil price is $48/b.

        • shallow sand says:

          Dennis. It took $26-35 WTI to slow US production, I assume it will now take a lower range than that.

          Break even does not matter. What matters is how steep of losses can be stood.

          There were still historically a high number of onshore rigs running during the low price points of 2016, if one looks at the time period 1987-2017. In fact, the wells on Enno Peters’most recent post with first production in the years 2015 and 2016 produced over 2.1 million BOPD. It is clear those wells on the whole have been very unprofitable, given oil prices since 1/1/2015 have been around $45 WTI on average, or $35-$40 on average at the well head in the shale basins. Likewise, gas has been sub $3 at the well head during that time frame.

          Well payout absolutely will not occur for most US 2015-2016 US LTO well projects (including land, seismic, LOE, G & A and interest) within 36-60 months, absent a tremendous price spike soon, which is not in the cards at this time.

          • coffeeguyzz says:


            This is a bit off topic, but it definitely ties in to this bigger picture of low hydrocarbon prices.

            Just read how Fluor, one of the world’s biggest construction contractors, took a $150 million dollar penalty for lateness in completing Chevron’s $6 billion petchem complex near Houston.
            Main reason for the delay?
            Shitty welding.

            Seems there is an incredible shortage of skilled crafts people all over, especially in Da Guf region.
            I guess $200 billion worth of high tech, complex petchem construction will do that.

            Shell is working on ensuring the availability of the 6,000 workers needed to build their upcoming cracker in PA with increasing anxiety as there seems a dearth of people willing to learn and bust their ass to earn $100k plus for a few years.

            Foxconn’s new $6 billion dollar manufacturing plant may encounter the same issues during build out up in Michigan or Wisconsin.
            When the global ‘poster boy’ of HR abomination decides to set up shop in the heart of US union country, something big is definitely afoot.

            You and I are probably not inclined to strap on our gear and march out into the high pay, adventurous world of this new reality, but some hardy younger folks are staring a once in a lifetime opportunity square in the face.

          • Dennis Coyne says:

            Hi Shallow sand,

            I agree, this is forward looking, what price is needed for a well completed today, in order for it to break even.

            No doubt a lot of 2015 production was hedged, maybe not so much by 2016. I doubt there will be as big an increase in output as some seem to assume (by Sept the market may be closer to balance nd stocks may start to decrease). We might stay in the $45 to $55/b range for a while and I doubt the rig count will increase a lot more at those prices.

            Always a difficult guess, but I doubt prices will dip as low as $30/b (monthly average price).

            Past wells completed in 2015 and 2016 probably will not make much money (in fact the are likely to lose money unless a low discount rate of 2% is used for NPV).

            • Eulenspiegel says:

              30$ oil would plainly kill offshore oil – I doubt they can sustain north sea at theses prices, and Brasilian deep salt will be silently buried. And nobody would invest double digit billion $ in projects that payout after 10 years with such unstable oil prices.

              After this shale oil has to be ramped up by 10 mbpd to prevent oil spiking high over the 100$, replacing rapidly declining deep sea oil and increasing demand (SUVs in China and India at low oil prices) the same time.

              Good luck finding all the billion $ for investing, building pipelines, good workers and utility companies.

              • Watcher says:

                Ahh yes.


                The new word coined for oil. When oil was rising (few weeks ago) that was “balance”. Supply was equal to demand and upward price was balance.

                When it falls, even if not sharply, that’s “unstable”.

                “We need to restore stability to the oil market” means “it would be nice if the price was higher”. The declaration of supply and demand balance suddenly must not have been so, just because price didn’t do what they wanted.

                OTOH, Senate sanctions were voted more strict and a Syrian jet was shot down. Russia is supposed to just tolerate this?

                • Eulenspiegel says:

                  I don’t use the usual financial press usage here – it’s just a zipping between 30 and 140$ the last 10 years, so how do you calculate a long running project with high $/barrel costs in such an enviroment?

                  Hedging is not the silver bullet here, it costs, too and can additional cut your profit in a 1 or 2 year price spike.

                  When we get a global resession, we’ll be in deep shit. Then money for long running project will dry out completely – and many fields have depletion rates of 10% or more a year. Receccions reduce fuel demand, but not in such great numbers. And they stop investing in more fuel efficient technique.

                  So a big global recession can have an oil price of 150$ when money dries out, deepening the recession. Even when big oil can finance project from cashflow then, they take time.

  18. Cliffhanger says:

    Collapse of Global Civilization by 2020-Irrefutable Evidence


    • Watcher says:


      What does collapse mean?

    • Nick G says:

      Or, maybe it means the countries on that chart have enough “stuff”, and so the production of “stuff” is leveling off.

      So, it’s services that are expanding: medicine, law, entertainment. It’s easy to measure the number of cars manufactured per year or hour, but it’s very, very hard to measure “productivity” (GDP per work hour) for services. How do you tell that a doctor or lawyer is producing more this year than last? Healthier patients? Faster surgeries? More lawsuits per hour? What’s a productivity increase for a movie maker – more special effects per hour? These things are very hard to measure.

      We can try to measure production in terms of inflation-adjusted sales value, but how does that work for free iPhone apps?

      • Watcher says:


        The end of the world — Everyone dies and no one is left alive. If a breeding total lives, even if only 300 people, that’s not the end of the world.

        Collapse of civilization — this is tricky. Not measured by availability of iPhones, internet or even cars. Rather, lets have it be explicitly measurable. Collapse is the loss globally of 50% of life expectancy.

        • Lloyd says:

          Collapse is the loss globally of 50% of life expectancy.

          I like this except for one missing factor- time.

          How fast does this decline have to occur in order to be considered collapse? A 50% drop in life expectancy over 100 years probably wouldn’t indicate collapse.
          If hat 50% drop occurred in less than five years? That would get my attention.


      • Strummer says:

        “So, it’s services that are expanding: medicine, law, entertainment”

        Yeah, medicine expanding… that’s why the US had a decline in life expectancy last year, for the first time since 1993 (which was the tail of the AIDS epidemic), right?

        “These things are very hard to measure.”

        Nope, medicine is very easy to measure, by objective measurable metrics.

        • Nick G says:

          the US had a decline in life expectancy last year

          Well, there was a decline among Trump voters (lower income older white males!), due to substance abuse and depression (too much Fox News and talk radio…). Overall, not so much.

          Medicine in the OECD is fighting the effects of obesity. If you eat a healthy diet, things are very different.

          medicine is very easy to measure

          Well, overall population health outcomes are easy to measure, but how do you associate them with specific medical provider labor inputs? For instance, how do you measure labor productivity for an ophthalmologist replacing a lens? Surgeries per hour?

          What measures do you suggest for measuring health services labor productivity?

  19. Energy News says:

    in the news…

    Rystad Energy Annual Review Of Global Recoverable Oil Resources:
    Bloomberg Briefs, chart on twitter: https://pbs.twimg.com/media/DC2O-aHXsAAWl3b.jpg

    There seems to be a consensus amongst analysts that if US E&P shale companies want to increase production they are going to need more cash (if oil prices stay low).
    Chart on twitter from BCA Research showing capex spending split into various sources: cash flow, debt, asset sales, equity.

    There’s also a consensus that world crude stocks should draw until the end of 2017 – which assumes a large increase in demand etc.
    Macquarie sees oil draws this year. But 2018 is back to builds – which I guess means that they assume that shale companies get that cash?
    WSJ, Morgan Stanley: https://pbs.twimg.com/media/DCwgDRwW0AEG5D1.jpg

    BTU Analytics – shale producers often gloss over the considerable variability in results

    Exxon Makes a Biofuel Breakthrough
    most algae growing in this environment would produce about 10 to 15 percent oil. The Exxon and Synthetic Genomics collaboration yielded a strain with more than 40 percent.
    Even with this newest discovery, commercialization of this kind of modified algae is decades away

  20. Dennis Coyne says:

    Hi all,

    A new post is up on World Energy by Minqi Li (aka Political Economist).


  21. George Kaplan says:

    Mexico production numbers for May are out and continuing recent trend of holding steady: crude up 6000 bpd, all liquids up 8000. Their 2016 reserve numbers came out in early June and continuing to fall but not as fast as 2015. I am going to try and put a small post together for Dennis consider. If he doesn’t think it suitable I’ll just put a couple of the more interesting charts as comments next week.


  22. George Kaplan says:



    “Something has to give to keep the market in balance,” the analysts said. Per-barrel prices may fall back into the $20s early next year and average $35 a barrel in the first half of 2018, prompting “massive” cuts in U.S. drilling rigs, they said.

    “It is now consensus that global oil markets will swing into surplus in 2018, and the burden of proof that this will not happen lies with the bulls”.

    The story on supply/demand seems to change every week. The other story yesterday was 106% OPEC/NOPEC compliance with cuts. A lot of the NOPEC cuts are from natural decline – i.e. they have met their commitment and are still falling. I am no further along in understanding where all the oil is going to come from in 2019 and 2020 than I was last year when IEA indicated there was more to come. Even Iran and Iraq are moving now so slowly that they are unlikely to do anything major in the next to years. So it has to be all Permian I guess.
    (message to the bots – human or otherwise – please don’t post a whole bunch of trite company and industry happy-clappy propaganda bullshit, which I can find for myself any time I’m having trouble dozing off, just because it contains the word Permian.)

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