128 thoughts to “Open Thread Petroleum, March 7, 2018”

    1. Brent averaged US$71 in 2018

      2019-03-03 (Blooomberg) Petrobras posted $6.84 billion (R$25.8 billion) net income in 2018. The first positive annual result in five years is also the highest since 2011.
      Net debt decreased 18% compared to 2017, reaching $69.4 billion. With debt management, there was also the lengthening of the average term to 9.14 years, with an average rate of 6.1%.
      “The start-up of new platforms gives us confidence on our production growth target of 5% per year until 2023,” said Castello Branco. There was also a resumption of exploratory activity with the contracting of 11 new blocks in 2018.
      The company reported a cash inflow of about $ 6.1 billion with divestments.
      https://www.worldoil.com/news/2019/3/3/petrobras-posts-684-billion-net-income-in-2018

    1. Thanks Energy News. The most interesting chart here is the third one: Southeast Asia Oil Production minus Consumption. This is the Export Land Model in action. And this is just through 2016. It would likely look a lot worse today.

      1. I was thinking that posting some news & charts might help people with limited time to keep up with the news. Obviously it’s partly my own interpretation of what’s news worthy.

    3. I’m trying to understand one chart, Indonesia. It shows production at 900 kb/d. The consumption chart shows around 1200 kb/d, possibly 1300 kb/d. That should show up on the 3rd chart around -400 kb/d or -500 kb/d. Yet it shows up as around -700 kb/d. Am I missing something?

  4. Great Interview with Co-Author of “The smartest guys in the Room” ?Unintended consequences?
    “And as a result of that belief, a lot of the big, long-lived projects that take years of investment before they start to produce have been put on hold. So, that oil isn’t going to be coming online. And so, what happens if shale can’t deliver? It’s a big issue.”
    https://www.peakprosperity.com/podcast/114791/bethany-mclean-saudi-america

    1. Interesting.
      Wouldn’t it be interesting to see the overall numbers- how much money has been invested in the industry, what has been the exact source of the money and what was their return on investment, how much product has been sold and for how much. Where did that money flow- to labor, venture capital, investors, management? How much debt is outstanding, or has been written off?
      All we get to see is fragments.

      1. I am going to get to pay some income tax on an MLP I own some units in that bought back a bunch of its debt at a steep discount.

        Debt forgiveness income that flows to the unitholders.

        Not one of my better investments, LOL. The share price is 1/10 of what I paid, although I did get most of my initial investment back in distributions prior to the late 2014 oil price collapse.

        Hopefully the federal and state taxing bodies put the million (billions?) of tax receipts that have resulted from US E & P debt forgiveness to good use.

        Folks, the tax ramifications matter a lot. That’s why I am hammering on about the income tax net operating losses.

        I haven’t been able to get anyone to engage me on the NOL issue yet.

        Never did have anyone poke a hole in my 2015 well breakeven calculations either.

        1. Shallow sand,

          The Republican strategy is to starve the beast. Government is bad so the strategy is to defund by reducing taxes as much as possible. Reagan started this with tax cuts and increased government spending, fiscal responsibility is just something Republicans pay lip service to. States and local governments do not have to follow the lead of the Federal government, they set their own tax policy and in theory could raise tax rates on corporations and not follow Federal tax policy.

          I agree taxes matter, but see no reason why operating losses should not be allowed to be carried forward indefinitely (or until a company goes out of business). A clever business can operate with net income close to zero (like Amazon from 1997 to 2017) and avoid paying taxes while taking 33% of the US e-commerce share in 2016.

          From this perspective it would be better not to tax businesses at all but simply tax personal income from all sources (wages, interest, dividends, and capital gains, and profits for private corporations that are not publicly traded) at the same progressive income tax rates. This also has the benefit of simplifying the tax code.

    1. China is shipping product more than in the past. So this parameter does not say domestic production is down, nor that domestic consumption is up.

      1. China is importing about 50% more oil than they did just 4 years ago. They run a physical deficit thats 9% of GDP. Only reason their current account deficit is still positive is the fact oil price is 50% less than what it use to be. So if oil returned to 90$-$100 China would be in big trouble. More money is flowing out of China than is flowing in. They going to have to devalue their currency against the dollar and soon or they unravel quick.

        Every other central bank is printing while the FED isn’t. I think a strong dollar is going to carry price of oil below $20 for WTI. Sometime between now and the end of 2020. Now if it stays at $20 or below is all up to the FED. Does the FED step in an devalue the dollar? I don’t know the answer to that but if they don’t oil might get stuck in the $20’s

        The FED actually doesn’t have to devalue just because the dollar becomes strong. Dollar assets are soaking up the liquidity from all the other central banks. It’s the same as FED doing QE except you get a strong dollar instead of a weak dollar.

        1. $20 WTI would bankrupt most all US oil companies in short order. I don’t think you are being realistic about that number. What would Brent be priced at in your scenario?

          1. That number is very realistic and it has absolutely nothing to do with supply/demand dynamic. I actually expect supply to tighten and price to still sink. It has to do with the fact that all the other major CB’s have expansionary monetary policy and FED doesn’t and doesn’t have to.

            Everybody seems to treat oil price like it operates in a vacuum all by itself. That’s not how it works.

            Wait to later on this year when the ECB starts cranking up the next round of LTRO. The Euro is going to drive the dollar up and oil down. BOJ QE isn’t going anywhere. Neither are interest rates in both Europe and Japan. Wait till the 10y yield on Chinese bonds falls below that of the 10y US treasury.

            Anybody predicting $90-$100 oil is totally divorced from the reality of just how bad things are globally.

            1. FALIH SAYS 2019 GLOBAL OIL DEMAND IS SET TO GROW BY AROUND 1.5 MLN BPD, NO WORRIES ABOUT DEMAND AS US AND CHINA ARE STRONG – RTRS
              Giovanni Staunovo ?
              ‏ @staunovo
              1h1 hour ago

              FALIH SAYS CHINESE DEMAND IS HITTING RECORD AFTER RECORD, SEES CHINESE DEMAND BREAKING 11 MLN BPD IN 2019 – RTR

              Are we talking about the same globe?

            2. Ask yourself if everything is just peachy globally. Then why are all the centrals banks in crisis mode? You’ve bought into the illusion that things are good.

            4. Chinese oil demand will be China’s undoing. Oil,Natgas,and coal is the bulk of what they import. China has a current account deficit that was reprieve only because oil price fell 50%.

              They also run a physical deficit that is close
              to 9% of their GDP. So they are like Argentina and Turkey and run twin deficits and rely on outside capital to keep the show going. More money leaving China than going into China to state it in simpler terms.

              Also China can’t give an inch in Trump’s desire to reduce the trade deficit. Doing so would put them well into a current account deficit. I’m pretty sure the trade deficit just widen to an all time record.

              Maybe they are ramping up the deficit to an all time high just so they can reduce it back to where it was a few months ago just to say they cut the deficit. Kinda like OPEC’s oil cuts. 🙂

        2. By the way, if you believe your own hot air, here is the symbol for you to get rich on: ProShares UltraShort Bloomberg Crude Oil (SCO)

          1. leveraged ETFs lose money over time, even if the underlying parameter doesn’t move. Don’t bring that silliness here.

            1. Haha! YOU are worried about long term in the stock market? Makes me think of this by Bertrand Russell:
              “I knew a parson who frightened his congregation terribly by telling them that the second coming was very imminent indeed, but they were much consoled when they found that he was planting trees in his garden”

        3. HHH- if indeed the strong dollar brings the oil price down to the levels you suggest, what are the effects of that on the producers in various countries?

          1. It will bankrupt producers countries just like it will bankrupt shale oil companies. Producers countries will try to offset this by devaluing their currency. But it’s just temporary relief and actually feeds more dollar strength.

            1. Many of us have been thinking about oil price in terms of the race between depletion and replacement with electricity, and between economic growth (demand) vs economic stagnation (flat or declining demand), and throw in 1% population growth/yr).
              But the effects of dollar valuation and country debt/inflation rates, are certainly beyond any level of expertise or accurate understanding that I have.

              So how do you see these themes playing out in the early 2020’s?

            2. Can the debt that will be required for any so called replacement or transition to renewables actually be placed on top of all the debt that is currently in the system? Can renewables service the existing debt and also pay for themselves? If not there will be no replacement. They will remain add ons to the existing fossil fuel based economy.

              FED will eventually step in a devalue again. But right now stock markets are near all time highs and bonds are bid as well. and will remain so as long as every other central bank out there is printing. I think the bar is pretty high for the FED to do anything more than try to talk the dollar down at times. We’d have to have a major pullback in stocks for FED to step back in. I don’t see that happening with the flows of currency leaving Europe and Japan and elsewhere in search of yield in US markets.

              $20 oil will be great for US consumers. But it isn’t going to work to well for oil producers. Inflation outside the US will soar as oil in dollar terms becomes very expensive to the rest of the world.

              US will go back to importing oil instead of producing shale. But the catch is they will be importing $20 oil. Not $90 or $100+ oil.

              I know that goes against the grain of what most people think. But if you change the value of money $20 buys the same as $100 use to. But not without a lot of pain involved if your within the current construct where you need $75-$100 oil to service whatever obligations you might have. There will be mass bankruptcy.

            3. If one looks at the Euro US dollar exchange rate for the past 10 years, the rate was 1.2 to 1.5 dollars per Euro from 2009 to 2014, lately (2017 to present) the rate has been about 1 to 1.2 dollars per Euro, so the increase in the strength of the dollar has been about 20% for Euro US dollar exchange. This is unlikely to depress oil prices to $20/b. Note that current oil prices in the World market reflect the current exchange rates.

              Also note that if oil prices fall to a level where it is not profitable to produce, supply falls and oil price will tend to rise as long as demand continues to increase. I expect demand for crude plus condensate will continue to increase at about 800 kb/d each year (long term average 1982 to 2017) until Brent oil prices in 2018 US$ reaches $100/b and then the rate of increase will slow down until the peak in oil output is reached (2024 to 2026 is my best guess). The rise in oil prices to perhaps $200/b in 2018 US$ by 2027 will reduce demand for oil in line with available supply and likely will lead to a severe World economic crisis (level of GFC or possibly Great Depression, depends on application of proper fiscal policy Worldwide) by 2029 to 2031.

            4. More on US dollar strength see

              https://fred.stlouisfed.org/series/DTWEXM/

              Basically the dollar is pretty average at present against other major currencies. The average for this index from 1973 to 2019 (Feb) is 94.16 and for the past 12 months the average has been 89.88 (slightly weaker than the long term average).

            5. Dennis,

              The dollar has been moving sideways for 4 years. It’s going to break to the upside of those two little peaks that are right behind on your chart where current price is. When it breaks out above the range it’s been trading in for the last four years it’s taking oil downwards.

              It doesn’t matter where price has been. It matters where price is going and why. Dollar will break out above this 4 year range later this year. ECB’s next round of LTRO will be what pushes it on up out of this 4 year range.

              Brexit when it happens. Even in the best case where they get a deal done. Market would buy into the news then after they actually exit the British pound is going to sink. If it’s obvious no deal is coming it’s going to sink like crazy before they even actually leave. Either way upward pressure on the dollar will be the end result. Pound might get a relief rally if they get a deal done but ultimately it sinks further. Much further. BOE will step in and print pounds like crazy.

              China is a mess. They have a $48 trillion Renminbi or Yuan credit market. They have $2-3 trillion in reserves at best. They are going to devalue %30-%40% against the dollar it’s just a matter of when. It’s the biggest credit expansion in the shortest amount of time ever. Never been a credit bubble that big.

              Japan. Well do i even need to go there?

              Give me a reason why oil will decouple from the dollar. If not oil is going to $20

              One more thing. The dollar has been trading sideways in a range for the last four years. Oil has also been trading sideways in a range for the last four years. Go look if you don’t believe me.

            6. If oil goes to 20$ it will be 200$ a year later.

              Civil unrest in several oil producing countries, and a massive shale decline together will use up reserves at a fast pace.

            7. WTI averaged $50 in 2015 and $43 in 2016. The US rig count fell off a cliff. There were many bankruptcies. US production fell significantly. In the first quarter of 2016 the price dropped to $26. At that point OPEC and Russia announced a coordinated cut.

              The US stock market also dropped significantly in the first quarter and rebounded as oil rebounded after the announced production cuts.

              I do not disagree that there is a strong correlation between the dollar and oil. QE was a major reason for high prices 2010-14.

              However, $20 WTI is extreme. $20 WTI would mean cash prices for most US independents would be between $10 and $18. Lifting costs per BOE for shale range from $4-10, meaning the cost per BO is much higher, depending on a company’s GOR. G & A cost per BOE range from $2-5 per BOE. Again higher for BO.

              We would have to shut down almost everything we own. So would most of the 750K BOPD or so of US stripper production.

              I sure hope what you are predicting doesn’t come to pass as it would be a bad thing for more people than it would help. Massive layoffs, lower stock market and havoc in the high yield debt market.

            8. Shallow sand,

              It is highly unlikely that oil goes to $20/b before 2060, unless WW3 starts, or Great Depression 2 starts with an inept executive in the White House and other executive mansions in most OECD nations (by inept, I mean they are not familiar with basic macroeconomic principles). Probably $80/b+/-$20/b for any 12 month average over the next 20 years will be in the ball park.

              There could be months here and there where the oil price drops to $40/b or rises to $120/b and there will be much volatility no doubt, possibly storing oil and selling when prices are high and holding when oil prices are low would be a good strategy for a small producer (or a group of small producers that work together and buy a storage facility).

              Also on QE causing high oil prices, the dollar index was about 75 on average over the 2010-2014 period vs 90 recently, so the dollar was about 20% weaker than today.

              This would account for a move in oil price from $100/b to $83/b. So it is a part of the explanation for prices dropping, but only covers about $17/b of a $60/b drop in price.

              I would call this a “minor” rather than a “major” effect. The “major” explanation was a glut of oil on the World market, that was the primary cause of the drop in oil prices.

            9. HHH,

              So your expectation is that the dollar index moves from current level of roughly 90 to the unprecedented level (relative to 1973 to 2018 experience) of 180 or more?

              That would be what would be needed just to move the WTI oil price to $29/b, let’s just say I am more than a little skeptical of such a scenario. Note that a dollar index level of about 260 would be needed to move the WTI oil price to $20 per barrel, do you really expect the dollar to strengthen by a factor of 3? This would be almost double the 1985 average dollar index of about 135 (the highest level recorded since 1973).

              From 1944 to 1971, the US and most other nations used fixed exchange rates.

              See

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

            10. Dennis,

              It’s not going to take a move anywhere near what you are talking about to get oil to $20. We can go back and forth on this. But i have no desire to do that. Just remember this whole conversation going forward.

              I will leave you with one last tidbit. Back in July of 2008 when oil was a little north of $140 right before the crash the dollar was at it’s weakest point on a chart as far as i can get a chart to go back. The dollar even through all the QE has been strengthening ever since.

              The long term correlation between the dollar and oil can’t be ignored. Well it can be. But thats why people get it wrong on price. And if you can’t get it right on price. Assumptions made on price aren’t worth a penny.

            11. HHH,

              I do not dispute that there will be some correlation between oil prices and the dollar index.

              My point is simple, the effect is minor compared to oil market volatility due to changes in the supply and demand for oil.

              The changes in the dollar index are on the order of 20% above and below the average, oil prices move much more than this, more like 100% (oil prices often change by a factor of two).

              Simply look at the charts and it is quite clear.

        4. HHH
          You are simply wrong with your numbers
          https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
          China GDP was 12 trillion $ /year in 2017 ( in PPP it was 23 trillion $ , quite larger than US GDP ) .
          Import of 10Mb/d of oil , priced 70$/bl cost 255 billion $, only a bit more than 2% of GDP.
          China’ s gold and foreign currency reserves were over 3 trillion $, enough for 12 years of oil imports.
          China’s trade surplus in 2017 was about half a trillion $ ( 2.22T$ exports, 1.74T$ imports ) , enough for 2 years of oil imports.
          Like it or not ( I don’t like it especially, as China is not democratic ) that seems to be the true as quoted from CIA.

          1. You are way off mark .China cannot use all it^s reserves for oil imports . It also has to import coal,iron ore,copper,food etc plus it also has to service debt it has in foreign currency . Several big Chinese corporations have raised debts in USD,Euro etc because of the differential interest rate .That has to be serviced . The minimum reserve required by China is $2 Trillion which would cover their 6 months of total imports and debt servicing . No country lives by oil alone . All countries need a minimum operating reserve .That is why when there was capital flight disguised as overseas investment in 2018 the CPC called all the CEO^s and told them to cancel all deals overseas ,sell assets and bring the funds back . This was so serious that the CEO of Anbang Insurance which purchased Hilton was picked up and vanished for a week or so and made an example for others .Another CEO of a large financial corporation in 2018 died in an accident while on holiday in France . A few more cases like this occurred and it shook the s^hit out of the Chinese public . The flight is now under control and that is evident that all hot property markets like SF,Toronto,Sydney,Auckland etc have cooled down because it was only the Chinese who were doing ^all cash^ deals . However it can very well start again if things get really bad

            1. That’s probably why the Chinese are so keen on EVs. Anyway, if there is a problem they can simply raise taxes to dampen demand. That works fine in most of the industrial word.

        5. ” More money is flowing out of China than is flowing in. They going to have to devalue their currency against the dollar and soon or they unravel quick. ”
          HHH , this is your feeling or have you any reliable source to quote?
          By the way, the Trump Administration has accused China ( right or wrong ? ) of their currency manipulation, keeping their yuan too low just to compete for exports.
          https://www.cnbc.com/2019/03/08/china-february-trade-imports-exports-beijing-reports-china-economic-data.html
          After a few month of trade war, China had still a trade surplus with USA , in the last 2 months more than enough to pay for their current oil imports. ( 27.2B$ + 14.7B$ for last 2 months )

    1. Not more than a few months ago a huge interview appeared with the fund manager of Norway’s SWF. There was extensive discussion in it of reducing oil holdings and why and it was presented here.

      It is astonishing that this story is making the rounds today. He explained it carefully. It’s not climate changed related. It’s not a projection of oil price. It’s directly an attempt to adhere to a sector mixture in the fund defined many years ago.

      The fund gets annual influx from oil. Simply that. Oil is where that 1 Trillion came from and continued influx each year adds to it. This means the North Sea Norwegian oil is, in effect, part of the SWF’s portfolio. There is thus already a big oil sector presence in the fund. Divesting other oil relevant holdings brings the fund in line with its own mandated sector holdings. This is the only change underway. It’s a choice to consider the North Sea itself to be part of the portfolio. This wasn’t done before and will be now.

      It has nothing to do with anybody’s narrative about political ideology or climate change or price projection or anything else. It’s a pure portfolio management decision recognizing the source of their $1 Trillion and choosing to define that source to be inside the portfolio.

      1. What they divested in has everything to do with price. They aren’t expecting price to ever recover to the 2014 level. And are shedding anything that doesn’t do so well at lower price and hold onto everything that is doing just fine at current price.

      2. So, it just occurred to them that their oil fields and their investments in other oil fields were similar? 10 years ago they were blissfully ignorant of this?

        1. Read the interview. Ten years ago they were nowhere near 1 Trillion and such things were not prominent in their strategy discussions. It got to 1 Trillion mostly from adding annual oil influx. Compounding didn’t do it, though it may prove more compelling with 6% on 1 Trillion vs 6% on 100 Billion.

    1. The mechanism for flattening and decline in global oil consumption (demand will continue to map to population) will be twofold:

      1) Lower production. You cannot consume what you cannot produce. This will flatten and lower consumption.

      2) The reduction will sharpen greatly as wars over the scarce oil kill off several billion people. Not only can you not consume what you cannot produce, you also cannot consume if you are dead.

      1. What mass wars do you predict Watcher? I mean, who exactly is going to be invading who and why?

        1. I’ll answer that. Asia Pacific countries as of 2017 have a gap between what they produce and consume of 26.7mb/d Soon as Saudi and Russia lose 2-3mb/d of exportable oil between the two the entire Asia Pacific will be in complete chaos. Might not even have to lose that much exportable oil before war breaks out. Notice i say exportable oil not actual production.

          Who gets shorted? Does Russia sell less to Europe in order to cover China?

          About 16mb/d of what Asia Pacific countries import comes from OPEC countries. There could easily be a drop of exportable oil by other OPEC countries other than Saudi that amounts to 2-3mb/d over next 5-10 years.

          I can tell you one thing. I work for a company with US government contracts supplying the US military with medical supplies. Business has increased 10 fold over past 2 years. They are stockpiling everything you can imagine.

            1. If the Chinese are buying 27 million cars a year, 25 million of which are ICE, then I’d suggest it’s going to be quite sometime until they need LESS oil.

            2. Survivalist,

              Depends on how quickly the sales of BEV in China grow. If we assume sales growth averages 20% per year for a decade then sales increase from 2 million to 12 million by 2029. If we assume a 30% average growth rate then BEV sales reach 28 million in a decade. China can move much faster than most developed nations by simply requiring the growth to take place, they may not hit their targets, but they can move pretty fast relative to representative democracies.

            3. BEV worldwide sales increased at an average rate of 58% per year from 2014 to 2018, from 2017 to 2018 the rate of growth was 64%. The 30% growth rate assumption may be far too conservative especially when oil prices rise to $200/b in 2018$, probably by 2026. If we assume 60% BEV annual sales growth for 6 years, World BEV sales reach 33 million by 2025 and if the growth rate of 60% continues for 9 years to 2028 world BEV sales reach 68 million. In 2017 there were about 97 million total vehicles produced worldwide (cars, suv, light trucks, heavy trucks, and buses). Output grew by about 2.4% from 2016 to 2017.

              If autonomous cars are ever approved, new car sales might drop as Transportation as a Service may replace individual car ownership.

            4. I just don’t understand this line of thinking (that EV = significantly less oil use/demand). Maybe someone can help me out.
              Here’s my trouble:

              (1) Oil is a mixture of subcomponents. When you refine it you get gasoline, diesel, fuel oil, asphalt, lubricants, etc.

              (2) Even if gasoline demand drops to zero because we’re in a 100% BEV, self-driving utopia, the world still needs and will demand all of the other oil components. So…the question becomes what do you do with all the ‘waste’ gasoline? Same problem the world had back in the early 1900’s I understand.

              (3) It’s always important to remember that transport consumes 66% of oil, and gasoline is 46% of *that*. Ergo, only 30% of gasoline-based oil demand is up for displacement by BEV. Some portion of diesel too, but mostly just the short-haul uses (buses, etc).

              (4) All BEV options are much more capital expensive than a cheapo ICE construct. That’s likely to remain true (ex-subsidies, which could distort that). Ergo, there will remain significant demand from the growing billions moving out of poverty and up the economic ladder for ICE options.

              (5) The stock of ICE vehicles is so freaking large that it’s going to take a long, long time to displace a significant fraction of them.

              (6) Sooner or later the third, and most ill-advised credit bubble in all of history will explode tanking demand for oil, but also for expensive vehicles (in part because the subsidies will get axed by strapped governments). When the dust clears and people begin moving about again, they will want cheap vs. expensive.

              In summary, I have a hard time imagining my way through a story that gets us anywhere meaningful in terms of market-based reductions in oil demand before peak oil hits hard and/or the global economy suffers the fate of a QE inspired debt bubble heart attack.

            5. Chris,

              Buses, trucks, etc can use batteries especially short haul, long haul can move to electrified rail, air transport will be reduced or move to other types of fuel (biofuel, hydrogen or fuel cell). Oil will become more expensive and BEVs will become less expensive, TCO for a 35K Tesla Model 3 will probably be significantly lower than for a Toyota Camry or Honda Accord, the Federal subsidies for Tesla vehicles in the US will end on Dec 31, 2019 unless US law is changed. If current growth in sales of BEVs continues at 60%/year all new personal vehicle sales Worldwide will be BEV by 2030, by 2043 nearly all personal vehicles will be BEVs and possibly sooner as I have ignored TaaS in my scenario.

              Autonomous driving will allow BEV trucks to take over much of trucking, the costs may be much lower than ICE trucks.

            6. China has a second reason for pushing electric vehicles: The government sees it as a chance to beat the rest of the world to the next level of the car industry.

          2. HHH,how did you arrive at the figure of 26.7mbd ? I think (correct me if i am wrong)the total world exportable surplus is close to 37/38 mbd . If SEA is taking 26.7mbd then the world has only 11mbd which does not make sense . India is importing 4mbd,the US is still at 6mbd then where is the rest of the world ?By the way I presume SEA is all countries between Myanmar and China including Indonesia and Philippines .Please clarify .

        2. Prediction is crap.

          Odds are all that matter.

          The only critical probability is that people will act like people — which means scarcity will not be shared evenly. Scarcity will absolutely be unevenly distributed and who gets too little will see his people starving. There isn’t any leader anywhere who is going to decide he’s the one that gets too little and has to accept that fate. No one will tolerate his cities starving to death if someone else has cities with delivered food. He’d be the worst of human beings if he did.

  10. Totally anecdotal, but I just got back from talking to a retired Aramco employee in a bar in a Tunisian hotel where I’m staying. He says they (Saudi Arabia) have another field bigger than Ghawar and they’re recently discovered yet another field in the Red Sea. He didn’t quote numbers but he smiled when I said that’s maybe good for KSA, not so much for the planet…

    1. Too many keepers of those secrets. Bogus. Some Joe Blow dood hears about it in a bar, the big secret would be out elsewhere already.

      1. You’re right. Like I said, totally anecdotal, but it made me smile to be discussing Peak Oil with an ex-Aramco employee in a bar in N.Africa. I don’t encounter them normally in the Libertine cocktail bar (for example) in Aberystwyth, UK…

        1. Nod. Another effect worth noting is KSA doesn’t have unlimited geography in which to find that “field bigger than Ghawar”. They get earthquakes in parts of the country. Those typically preclude oil. Caprocks get cracked in a hundred million years of quakes.

    1. Bloomberg also published a “call on OPEC 5y forecast” figure in this article: https://www.bloomberg.com/news/articles/2019-03-11/opec-laid-low-to-mid-2020s-by-thriving-u-s-shale-iea-says.

      US is supposed to make up 70% of growth in global “production capacity”. What is the global net growth then and which countries will decline due to depletion? Have you seen these figures published? I guess there has to be a y-o-y balance in the report that compares production growth, depletion and demand growth but I haven’t read the report. Russia’s “gross export” peaks in 2020, I assume this is b/o production peaking.

    2. I’ve not seen any decline rates. And these figures in the IEA free summary are oil+LPG.

    3. My “high” scenario for US LTO from Dec 2018, with oil price assumptions from US EIA AEO 2018 reference oil price case (Brent oil price in constant 2017$ on right axis). The IEA prediction at $70/b and $80/b Brent oil prices do not look very realistic in my opinion, if the USGS mean TRR estimates are correct. An important difference is that IEA forecasts include NGL, my scenario is crude plus condensate only. It is possible that growth in US NGL output might be as high as 2 Mb/d from 2019 to 2025, making the IEA estimate at $80/b consistent with the scenario that is presented below.

      1. Alternative scenarios from Feb 2019. Same oil price assumption, but different well completion rates are assumed.

        1. Dennis, have you ever run a scenario that answers this question: “how much will oil output grow if capex is funded entirely from operational cash flows?”

          I ask this because the prior growth in output was funded heavily by investors (and I use that term lightly) were willing to pour hundreds of billions into negative FCF operations.

          Assuming that goes away, then there’s a different steady state that has a parameter that sets the drill rate as a function of (current output) * (price of oil) – (debt service costs) – (opex) – (dividends [if any]) and divides the answer into the assumed drill cost for a well. Naturally, the decline rates factor into the “current output” over time.

          1. Chris Martenson,

            The short answer is no. Generally businesses, especially large oil and gas producers have access to capital in the real World, so an analysis of the sort you refer to would never occur to me.

            I have done an analysis of the Permian Basin which uses past well profile information, and assumptions about future well profiles (fixed from Jan 2017 to Dec 2022 and then decreasing after that), royalties and taxes at 33% of wellhead revenue, refinery gate prices at AEO 2018 Brent oil prices, transport costs at $5/b, well cost $9.5 million in 2018$, LOE at $2.3/b plus $15000 per month (also 2018 $), nominal annual discount rate of 10%, and annual interest rate of 7.4% (assuming 2.5% annual inflation rate for both discount rate and interest rate). I also assume the mean USGS TRR for the Permian basin is correct, overall economically recoverable resources are less when profitability is considered.

            I tabulate cumulative net revenue from 2010 to 2050 for the scenario, the Permian tight oil output is shown on right axis and cumulative net revenue in billions of 2017$ on left axis.

            The mean USGS TRR is about 75 Gb (252,000 completed wells), the ERR is about 57 Gb (172,600 completed wells with profitability considered).

            When we consider this a single project over 41 years (Jan 2010 to Dec 2050), $95 million (2017$)invested in Jan 2010 (10 wells completed at $9.5 million per well) becomes $734 billion (2017$) by the end of 2050. This is equivalent to an average annual real rate of return of about 24.4% per year over that 41 year period. The nominal rate of return if the average annual rate of inflation was 2.5% over that 41 year period would be 26.9% on average over the 41 year period.

            1. Chris,

              Decline rates not really a part of the model, I use well profiles based on data at shaleprofile.com and well completion rates, see post below for a flavor of how this works.

              http://peakoilbarrel.com/oil-field-models-decline-rates-convolution/

              The Permian model uses 6 separate well profiles from 2010 to 2017, then assumes a fixed 2017 well profile for 2017 to 2022, after that the average well becomes less productive each month depending on the number of wells drilled (more wells results in a bigger decrease in average EUR the following month), this occurs each month until wells are no longer completed because it is no longer profitable to do so. So from Jan 2023 to March 2049 when drilling ceases in the Permian basin there are 315 separate well profiles one for each month in the period with each having a slightly lower EUR than the previous month.

              The initial impetus for this analysis was the post below

              http://theoildrum.com/node/10102

              The post above also refers back to earlier Red Queen posts.

              The author of those posts is in no way associated with any of my analysis and any errors are mine alone.

            2. Chris,

              I did a quick model for the Permian basin where all new wells are financed out of cash flow starting in Jan 2019. This requires an initial drop in wells completed to 225 wells per month by mid 2019 from Dec 2018 level of 410 new wells completed, then completion rate is able to return gradually to over 400 wells per month by May 2021. I did not increase the wells completed after this scenario was able to reach the level of the original scenario in Nov 2022, so the economically recoverable resource is reduced a bit, though in reality more wells could be completed profitably after 2022 than shown in this scenario, this was a quick and dirty scenario to show that a lot of oil (55 Gb) could be produced when operating using cash flow only in the Permian basin. Chart below

            3. A more careful analysis presented below, I found some errors in the chart above.
              In the scenario below a more gradual change over 2019 to reduce completion rate by 20 per month to get to operating from cash flow, I also show cumulative net revenue in this case and adjusted the decrease in new well EUR to account for lower completion rate from 2019 to 2024 and fewer overall wells completed in the scenario. Peak moves to late 2029 at about 7400 kb/d, economically recoverable resources through December 2050 are 56 Gb.

  12. This is the latest news that I can find on the Red Sea. The Red Sea is said to have both oil and natural gas but they’re only going for gas at the moment…

    2019-03-09 (Argaam) Saudi Arabia to boost Red Sea gas exploration: Al-Falih
    Saudi Arabia has already discovered large quantities of gas in the Red Sea, and Aramco will intensify exploration in the region over the next two years, Saudi Press Agency (SPA) reported, citing Khalid Al-Falih, the Kingdom’s energy minister.
    Oil quantities in the Red Sea are limited and can be costly to extract, as it exists about 1,200-1,500 meters deep, Al-Falih said on Thursday during a tour at King Salman International Complex for Maritime Industries and Services in Ras Al Khair Industrial City.
    https://www.argaam.com/en/article/articledetail/id/598213

  13. Libya is returning to full capacity after the outage. Saudi Arabia is set to produce less. And Russia said that they would cut more this month. I don’t know if this is planned but the reduction in Saudi production equals the increase in Libya from El Sharara…

    2019-03-11 (Argus) Saudi production fell to 10.1mn b/d in February, according to Argus data. Earlier, Saudi oil minister Khalid al-Falih said production would decline to 9.8mn b/d this month. That is a drop of 1.3mn b/d from its record production of 11.1mn b/d in November.
    https://www.argusmedia.com/en/news/1863017-saudis-make-deep-cuts-to-customer-allocations-for-april?backToResults=true

    2019-03-10 (Reuters) – Output at Libya’s largest oil field El Sharara is expected to be restored to 300,000 barrels per a day in two weeks, a field engineer said on Sunday.
    Production restarted a week ago in the 315,000 bpd field which was closed for three months after it was seized by state guards and tribesmen.
    https://www.reuters.com/article/libya-oil/libyas-el-sharara-oilfield-to-reach-300000-bdp-in-2-weeks-field-engineer-idUSL8N20X0VC
    Bloomberg chart https://pbs.twimg.com/media/D1W7ldKWsAAn3Ub.png

    2019-03-04 Russia will reduce its oil production by 228,000 b/d from October level by the end of March, Energy Minister Alexander Novak tells reporters in Sofia, Bulgaria.

  14. 2019-03-11 (Platts Oil) UK oil production will fall by 23% from last year’s level to 840,000 b/d in 2024, the Oil & Gas Authority said Monday.
    The projection is based on latest production data and takes a “conservative” approach, including a “small notional allowance” for recently discovered and undiscovered fields that might be brought on line in the period, the OGA said in the report, ‘Projections of UK Oil and Gas Production and Expenditure.’
    https://www.spglobal.com/platts/en/market-insights/latest-news/oil/031119-uk-oil-output-to-fall-23-to-840000-b-d-in-2024-regulator

  15. The EIA predicts in the latest report continues strong growrh in oil demand about 1.2 Mbbl each day because of strobg growth in petro chemistry and Airplane fuel. They predict US will cover 70% of this demand and shale oil next 5 years will grow with 4 millions barrels a day . They suggest oil majour like Exxon , Shell and other will secure this growth. I remember what the shale pioner Mark Papa in EOG told , they dont see any increase at a 55 usd WTI world, oil price would likely need to be 75 usd WTI before they could pay dividend to their shearholders abd use funds to exspend without increase depth above 20%. I wonder how EIA shall get this profittable increase of 4 mill bbl from and what price WTI.

    1. Also look for the Permian basin “deep dive” report which is excellent in my opinion.

      Enno Peters does outstanding work.

      1. Yes he does.

        Pretty stunning how much 2018 wells contribute to the total and Enno still has one more month of production, plus revisions, to add once all the data is in.

        1. shallow sand,

          In 2017 about 9000 wells were completed (Dec 2016 to Dec 2017), in the past 12 months Nov 2017 to Nov 2018 about 11,000 tight oil wells were completed in the plays Enno covers on the blog (the free site). In Nov 2018 the 2018 wells produced 54 % of output, for the March 2018 report for Nov 2017 it was about 44% with only 6953 wells completed in 2017 vs 9917 wells completed in 2018.

          It seems clear that the acceleration in well completion rates in 2018 is the reason for this difference.

          1. shallow sand,

            If we look back at 2014 (before crash in oil prices that led to a slow down in US tight oil well completion rate from 14,270 wells in 2014 to 10, 367 wells in 2015, 6467 wells in 2016, and 9053 wells in 2017 (less than every year from 2012 to 2015), the wells completed from Jan to Nov 2014 produced 61% of total tight oil output in Nov 2014. This is just the nature of tight oil production.

            Perhaps as major oil companies take over much of the tight oil production in the US, the pace of development will slow and oil prices will gradually rise so that the oil can be produced profitably and pipelines and other facilities (export terminals etc) might not be overbuilt. Perhaps refineries will be refitted to handle the lighter tight oil so that less tight oil needs to be exported and less heavy oil needs to be imported.

  17. Oil production capacity.

    What does this mean? Formal definition?

    If KSA has wells drilled and chokes the well closed so that only X bpd flows, vs X+30% if the choke is open, then that makes sense as to production capacity. They have X+30% capacity, larger than present production.

    But though shale has chokes on their wells, this can’t mean anything about capacity because of the decline rate. Shale fields don’t have a lot of wells sitting with closed chokes able to open them and spike production at will. Capacity can’t be measured the same way.

    So what does it mean?

    1. Why would KSA choke their wells while simultaneously water flooding them? I you want less production, all you have to do is cut back on the water flooding and voila!

      1. I suppose the point was not well made.

        Water flooding is analogous to choking the well. You have total instantaneous reasonably long-term control of flow, via choke open or water drive spigot open.

        You do not have total instantaneous long-term control of flow with a shale well.

        And so what can oil production capacity possibly mean in shale?

        1. Watcher,

          At any time t, production capacity would simply be the maximum possible output from producing wells considering storage, transport, and other necessary facilities. This value is never fixed and can only be estimated. You are correct that estimates would be easier in a giant oil field than for a tight oil play.

  18. Canadian inventories declined in December, before the Alberta curtailment started, due to record net exports
    Inventories chart https://pbs.twimg.com/media/D1ZybZMWsAESzxd.png

    2019-03-11 (Statistics Canada) Canada produced a record 23.7 million cubic metres (148.9 million barrels) of crude oil and equivalent products in December, up 5.5% from the same month a year earlier.
    Press release https://www150.statcan.gc.ca/n1/daily-quotidien/190311/dq190311b-eng.htm

  19. The situation in Venezuela is rapidly deteriorating. When the grid is down for a prolonged period of time (four days now) this allows the looting of key elements of the grid that are valuable such as high gage wire and transformers. Communication disruption will spread and doing any business, including pumping and moving oil, will quickly become impossible. It is not unreasonable to expect oil production and exports to drop to zero in the next few months if there is no rapid solution.

    https://www.npr.org/2019/03/11/702179263/this-is-going-to-end-ugly-venezuela-s-power-outages-drag-on

    1. I wonder how reliant on the grid (celltowers for example) the military, and police are for communication.

      1. No bigger a deal than what Iraq faced. For a couple of years they just had portable generators running on street corners powering that city block.

        China and Russia probably could donate some.

  21. This is what George was saying about oil companies saving money by doing all of their least expensive projects first…

    John Hess CEO of Hess Corp.
    2019-03-12 (S&P Platts Global) “I’d venture to say the [US] Gulf of Mexico itself is on life support,” he said. “We’re not putting enough money back in to grow supply five [to] 10 years from now.”
    In 2004, 8,800 leased were licensed to oil companies, whereas today, the number is 2,500, Hess said. That is down more than 70%.
    [US Gulf of Mexico] oil production is growing thanks to relatively quick tiebacks, or hookups of new discoveries to nearby existing production hubs. That avoids years of lead time and construction of new massive, multibillion-dollar stand-alone facilities before first oil.
    https://www.spglobal.com/platts/en/market-insights/latest-news/oil/031219-ceraweek-oil-gas-likely-to-stay-major-fuels-for-years-but-producers-need-to-spend-more-john-hess

  22. The EIA have revised down their forecast for oversupply in 2019, I guess due to the OPEC cuts. And they have lowered their forecast for US growth a little.
    Chart-> https://pbs.twimg.com/media/D1eWgosWoAIZsoD.png
    EIA STEO March 2019 https://www.eia.gov/outlooks/steo/

    2019-03-12 (Giovanni Staunovo) The EIA thinks that the oil market was oversupplied by 0.56 million bpd in 2018 (0.53mbpd previously) and will be oversupplied by 0.18mbpd (was 0.44mbpd) in 2019 and by 0.43mbpd (was 0.63mbpd) in 2020.
    The EIA projects that US crude production fell by 40 kbpd m/m to 11.88 million bpd in February (the January estimate was cut to 11.92 from 12.02mbpd). EIA sees US crude production at 12.63mbpd (was 12.72) in December 2019 and 13.35 mbpd (was 13.53) in December 2020.
    Twitter https://twitter.com/staunovo

    1. Thanks Energy News.

      The STEO has US output increasing by 1.5 Mb/d from Dec 2018 to Dec 2020 with 860 kb/d coming from lower 48 excluding Gulf of Mexico (a reasonable estimate in my opinion) and about a 650 kb/d increase in output from the GOM. I will leave it to SouthLaGeo or George Kaplan to comment on whether we should expect that level of output in the Gulf of Mexico (the forecast is 2.45 Mb/d for GOM output in Dec 2020, which seems high based on previous analysis by George Kaplan and SouthLaGeo).

      1. Dennis,
        I still hold to the view that EIA’s GOM predictions are too high. The most recent STEO has a slight downward revision of their 2019 average – from about 2.0 last month to 1.94 mmbopd, but I think that’s still too high.
        2018 saw record production of 1.73, up about 50 kbopd from 2017. I still think anything above 1.8 for this year is a real stretch, and that makes EIA’s current 2020 prediction of 2.27 even more unlikely.
        One project coming on this year that has the potential to really move the needle is Shell’s Appomattox. That facility will have significant capacity – in the 170 mbopd range. If Shell is in a position to quickly ramp that facility up to over 100 kbopd and even higher, then, maybe, you can start getting close to some of EIA’s predictions.

        1. SouthLaGeo,

          Thank you.

          So would 1.8 Mb/d in 2019 and 1.9 in 2020 for GOM output annual averages be reasonable, based on what you know now? If not could you give us your best guess?

          1. Appomattox is currently slated to come on production in 3Q 2019, so it won’t impact 2019 numbers too much, but could have a decent impact on 2020. But the production uplift Appomattox brings in 2020 could be largely offset by overall declines from everywhere else.
            I don’t think there are any projects with significant production slated to come on line in 2020 – the biggest I’m aware of is the latest phase at BP’s Atlantis, which is predicted to add about 40 kbopd.
            I see production staying fairly flat for 2019 and 2020 – 1.7-1.8 mmbopd each year. These would still be at or above record numbers.
            The next big projects slated to come online are Shell’s Vito in 2021 (100 kbopd capacity) and BP’s Mad Dog 2 (140 kbopd capacity) soon thereafter.
            Maybe, with these projects coming on line, there’s another chance to boost production to new record levels, but not til the 2021-2022 time frame. But I’m not sure I want to predict that at this time.

            1. SouthLaGeo,

              Thank you. So perhaps the 2019-2020 undulating plateau (1.75+/-0.5 Mb/d) will continue in 2021-2022 with decline offsetting the new projects coming online.

              Your analysis suggests that the STEO is likely to be about 650 kb/d too high in Dec 2020 and the overall US increase in C+C output would only be about 850 kb/d over the next two years, an average annual increase of only 425 kb/d, if the EIA estimate for L48 onshore and Alaska is correct.

            2. That’s right – and that 650 is a big difference for the GOM for such a short time window – only ~21 months out or so from now,,

      2. A least squares fit to the Jan 2019 to Dec 2020 monthly STEO estimate has a slope of 716 kb/d per year (an average increase in US C+C output of 716 kb/d each year for 2019-2020). If demand for C+C follows the long term trend of an 800 kb/d increase each year, then only an 84 kb/d increase would be needed from the rest of the World, if the EIA STEO projection is correct.

  23. https://www.ogj.com/articles/2019/03/eia-oil-prices-up-on-lower-opec-us-production.html
    Seems to me that shale production was slightly down in February compared to January. I find this reasonable as number of active drilling riggs have been declining and after about 2-3 months of a new well it will start decline from top production. Else EIA predicts WTI 54-59 usd /barrel 2019-2020. According to Mark Papa that should mean not much dividend or increased investment this period… they exspect US increase shale production by 400k b/d in 2019 and 700k b/d in 2020. This might be hard in a 50 usd WTI world ….

    1. Freddy,

      I agree, the EIA’s price predictions are probably incorrect, $60-80 per barrel for Brent crude in 2018$ is a more reasonable estimate and at that price level, tight oil producers may be able to be profitable.

  24. Here is a contrarian opinion on US tight oil production.

    Philip Verleger
    PHILIP VERLEGER
    Dr. Philip K. Verleger, Jr., has studied and written about energy markets since 1971. His earliest research, published in 1973, addressed the determinants of gasoline…

    U.S. Oil Production Is Headed For A Quick Decline

    By Philip Verleger – Mar 11, 2019, 7:00 PM CDT

    The most recent forecasts published by the US Energy Information Administration show US oil production increasing steadily. The February Short-Term Energy Outlook sees the output from US wells rising from 11.9 million barrels per day at the end of 2018 to 13.5 million barrels per day by the end of 2020. Most other forecasters agree.

    Thus, it may come as a surprise to learn that production at the end of 2020 may have actually decreased from December’s 11.9 million barrels per day level to between 11.3 and 11.5 million barrels per day. This lower figure represents the production level that should be expected given the financial activity of the independent firms behind the shale output surge.

    The coming decline will occur mostly in the areas that have produced the most growth over the last five years: the Bakken, Eagle Ford, Haynesville, Julesburg, and Permian basins. The production drop will occur because the firms operating there have been forced by monetary constraints to cut back on drilling. The recent reduction in debt and equity issuance by these firms assure the output decline.

    Drawing an analogy between farming and drilling by the frackers will help explain the coming decrease. Every year farmers borrow heavily to purchase seed, fuel, and fertilizer for the summer growing season. They hope to pay their loans off when they sell their harvest in the fall. To make sure they can perform on their loans, they will sell some portion of or all their production forward. They will also purchase insurance to protect against crop failure.

    Data on bank lending and statistics issued by futures authorities provide some advance indication of the planning decisions of farmers. The amount of bank loans issued to them gives an indication of crop size. Increases in open interest for futures such as corn during the spring also provide a signal as to future production.

    Many frackers behave like farmers, except that the “crop cycle” appears to be longer, perhaps two years. These firms will borrow or sell equity one year and then drill for sixteen to twenty-four months. Production will surge two years later and then, as many authorities have noted, fall off rapidly.
    Related: Analysts: Permian Oil Output Set To Double By 2023

    These firms will also enter into hedges as soon as the size of their new discoveries is delineated. The futures sales will likely occur when wells are completed and before they are fracked to ensure the company can cover costs and perhaps profit, even if prices fall.

    Data on the issuance of debt and equity by shale firms and their positions in futures markets thus provide an indicator of their future production. These data today point to a large decline in output.

    A February 24 Wall Street Journal article by Bradley Olson and Rebecca Elliott should warn everyone of the impending slowdown. A key graph presented there shows that debt and equity issued by US shale producers declined to $22 billion in 2018, which is less than half the amount raised in 2016 and one-third the amount raised in 2012.

    When one compares the total debt and equity issuance to Lower-48 onshore production lagged two years, one finds a close relationship. Lower-48 onshore output rose from three million barrels per day to 8.5 million barrels per day in 2018. However, the drop in the issuance of equity and borrowing suggests this production could fall by a third to six million barrels per day by the end of 2020 if the relationship holds.

    The activity in the futures markets points in the same direction. Figure 1 compares the rise in US oil production in the five major fracking areas (the Permian Basin, the Bakken, Eagle Ford, Haynesville, and the Julesburg Basin) to open interest in WTI futures. Note that open interest began to decline in late 2013. The production decline began eighteen months later.

    The decrease in open interest anticipated the future drop in production. In our view, drilling firms that were forced to curtail activity also curtailed sales of future production, understanding that they would produce less.

    These declines were mirrored by a drop in the short position of swap dealers—the financial institutions that write bespoke hedging instruments to producers. The reduction in hedging in 2014 and 2015 led to the later decrease in production.

    The same phenomenon is occurring today. Total open interest has fallen by twenty percent, as can be seen from the figure. Swap dealer short positions have also contracted. The message is clear: producers are hedging less, and they are hedging less because they expect to produce less.

    The statistics point to a one to two-million-barrel decline in production from the frackers. Some but not all this loss may be made up by the increased activity of firms such as Exxon. In short, the growth in US oil output is about to be reversed.

    PS: Further details will be posted here on Monday afternoon.

    By Philip Verleger for Oilprice.com

    1. Yes it seems that investors are losing interest. And yes it’s been said in the media that the majors, XOM & CVX don’t need to raise money to be able to ramp up their LTO production. I guess being integrated they only need to worry about gasoline sales?

      2019-03-12 Haynes and Boone Releases Spring 2019 Borrowing Base Redeterminations Survey – other key findings…
      Capital markets — both equity and debt — have fallen significantly out of favor as sources of capital
      There is increased interest this year in sourcing capital through joint ventures, such as farmouts, DrillCos, etc.
      Respondents do not expect recent commodity price volatility to cause oil and gas companies to head into bankruptcy, but they do anticipate that it will be a difficult year to monetize oil and gas investments.
      http://www.haynesboone.com/press-releases/spring-2019-borrowing-base-redeterminations-survey

    1. Ovi,

      A major change is the move of oil majors into the Permian basin, they have very deep pockets and the analysis you cite probably does not apply well to the current situation. I think the increase in tight oil output may be slower than 2018 (about a 450 to 600 kb/d increase in tight oil output in 2019 at current oil price level.) At lower prices (under $50/b) tight oil output might decline a bit (no more than 100 kb/d by the end of 2020), but I think it is unlikely that oil prices will decline, OPEC/Russia will keep a lid on output to drive oil prices higher, probably they will aim for $70-$80/b, which is enough to result in higher tight oil output due to better tight oil profits at that price level.

      1. Ron,
        You started this site! You of all people should be able to post any chart you wish.
        In any case there are a number of tricks to try to reduce file size and what Energy News says about graphics of any sort having to be below 50 Kb is the key. That is a limit that you and Dennis have set. BTW this particular chart can be changed to a gray scale image instead of keeping it as full color RGB JPEG. Then you can play with bit depth or custom color palettes with GIFs etc… PNG has its own special issues!

        Cheers!

        1. That is a limit that you and Dennis have set.

          No, neither Dennis or had anything to do with this limit. WordPress is the culprit here. I tried posting only GIFs since they use far less memory than PNGs or JPEGs. But I will try your tricks next time and see if that helps.

          Thanks.

        2. Fred,

          The add on that allows us to put chart in the comments has that limitation, I do not know how to increase the file size.

    3. I had to reduce the file size on this chart before it would post, if that’s any help (Charts have to be below 50 kb. The PNG file type seems to be the best but only JPG worked on this one here)

      1. Let’s take a look at the chart.

        There is a drop in 2008, 2010, 2012, 2013, and 2014, of these 5 large drops in open interest, one led to a significant drop in output, so perhaps there is a 20% chance that output might drop by the end of 2020. I am not convinced that financial markets alone drive the oil industry, the open interest in the oil futures market is affected by multiple factors such as the expected future price of oil which is driven by the economic and political climate in various oil producing and consuming nations.

        More data at
        https://www.eia.gov/finance/markets/crudeoil/financial_markets.php

        Much is driven by the oil price and the breakeven oil price in shale basins.

        The average 2017 Permian basin well breaks even at about $61.75/b for refinery gate pricing, today the Lousiania Light Sweet contract is at about $65/b and Brent is at $67/b, wellhead breakeven (assuming $5/b transport cost) is about $56.75/b, close to WTI oil price.

        Assumptions for breakeven calculation are LOE of $2.3/b plus $15,000 per month for average downhole maintenance over the life of the well, royalties and taxes of 33% of wellhead revenue, average estimated ultimate recovery for the average 2017 Permian well is 389 kb over a 173 month well life at breakeven price levels, well is shut in at 14 b/d of output. Well cost is assumed to be $9.5 million in 2018$ and nominal discount rate is 10% assuming 2.5% annual inflation rate. The well reaches payout at 63 months under these assumptions and a breakeven oil price of $56.75 at the well head.

        1. Dennis

          If the breakeven price is $55 to $65 why did most of the shale drillers rake up huge amounts of more debt in 2018 when prices were above that for most of 2018?

          1. Hugo,

            The breakeven occurs over the first 63 months of production, if we assume the price remains at the breakeven price for the entire 63 months, also the calculation was for the Permian Basin only, each play has different well costs, well profiles, etc. Also note that the price in the US is often lower than the LLS oil price by about $8/b. The average WTI oil price in 2018 was about $65/b, with Permian transport costs at $5/b, this would be about $60/b at the well head. For a well completed in Jan 2018 only $4.7 million of net revenue for a 9.5 million dollar well would be realized by the end of the year, for each subsequent month there would be less net revenue (due to fewer months producing).

            In fact if we assume the breakeven price of $61.75 for all of 2018 (to make the calculation easier) and that 400 wells were completed in the Permian Basin in each of the 12 months of 2018 (again to simplify the analysis), then there would have been 31 billion in new debt accrued, if we assume zero net revenue from wells drilled before 2018 (I also assume all the capital spending occurs for these wells in 2018, an unrealistic assumption). Also note that if we assume the refinery gate oil price was $65/b for all of 2018, the accumulated debt (under the same assumptions) would be $30 billion. It takes time to pay for these wells, it does not happen overnight. The break even price is the price where the discounted cash flow over the life of the well is equal to the initial cost of the well, if the price remains fixed at that breakeven price over the 14.4 year life of the well. If that is true the well will have an annual return on investment of 10%/year over those 14.4 years.

            1. Dennis

              Thanks for that info.

              I can see why investors are reluctant to put any more money into these companies. I think some will go bust and their drilling rights will be bought up by bigger companies over the next year or 2.

              Lower production will lead to higher prices and a reasonable return for investors but not for a year or so.

        2. Child wells have 20% higher decline rate than horizonthal latherals , this challange will hitt the bottom line. A company needs also profit to invest in new equipment, do research , pay interest of huge loan. Investor wants dividend and that is normaly substracted from profit. Seems like Mark Papa is correct when he exspect WTI 75 usd /b before there will be exspansion that not is depth driven and investors could have a suffisient interest on their investment .

          1. Freddy,

            I use basin wide averages for the well profile used in my estimate of breakeven price, some wells will be better than average, others will be worse, in addition some companies will have better well locations on average and will have higher profits than other companies. For the industry as a whole, operating in the Permian basin, the estimate will be fairly close for 2017 wells on average. Future well profiles can only be guessed, they may be better or worse than the average 2017 well.

  26. Ovi , thank you for shearing this article. As I remember consultant Companies used same practise when they established some investment fund that invested based on their own inside informations they retrieved from Companies that was their customers. That drilling Companies also utilize their knowledge from drilling in shale playes is 100% sure. I see a presentation from one CEO in one of the oil majours lately, the whole speach was more or less to gain trust from the investors, but think they have already heared enough. History have also shown oil majours change plans and cut investment when fundamentals change. At least it seems they get pipeline capacity and even more than they need …

  27. “Venezuela: Production from the Orinoco oil belt, the largest source of Venezuelan output, has collapsed to only around 100,000 b/d from 700,000-800,000 b/d before the blackout, a senior union official said.”

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