Comments related to oil and natural gas production in this thread.
Thanks.
170 thoughts to “Open Thread Petroleum, January 10, 2019”
Chesapeake just announced a new world record 24 hour IP for a well in northeast Pennsylvania, in Sullivan county.
Well flowed 73.4 million cubic feet a day which passes the legendary Scotts Run figure of 72.9.
(Lateral length of SR being only 3,220 feet implies this achievement may never be surpassed.
New well is 9,800 foot long).
Adjacent well on Chesapeake’s pad flowed 62.6 MMcf with a 13,800 lateral.
For anyone following Appalachian Basin operations, the fact the XTO (Exxon) took out over a dozen permits in Jefferson and Indiana counties targeting Utica/Point Pleasant after bringing on a successful Utica well in that new region should prompt some thoughts on what is going on.
Chevron, also, just took out a Utica permit nearby.
Gas production in the US will soar for many decades into the future.
Go to shale profile and Look at Chesapeake wells that they have drilled in 2018 so far. Chesapeake is a bunch of liars.
I see no wells that even remotely look like what they are describing in the new article yesterday.
Go to shale profile and look for yourself
Phatom
That comment strikes me as odd on so many levels.
This new Chesapeake well would not show up on Enno’s site as his presentation only goes up to October.
Furthermore, using the ‘Monthly Flow’ – start – and the year 2018 for Chesapeake on Enno’s site shows (best I can make out on this tablet) every single one from September back already passing 1 Bcf cum, (Jan/Feb/March – 1/2/3 wells at 3.3/2.28/1.8 Bcf … current flow rates 7 and a half to 4 and a half MMcfd. If you think those are shabby profiles, you may not have much company).
In addition, Chesapeake has 122 wells (out of 794 total … 15%) over the 10 Bcf mark.
For those more familiar with oil terminology, 10 Bcf natgas equates to an oil well of more than 1.7 million barrels in terms of heat energy potential.
I’m still amazed at the Appalachian gas production numbers. Latest I could find shows that for October, the state of Pennsylvania produced 556 bcf, or about 18 bcf/day.
Are most operators making money?
Nope.
Maybe only Cabot, actually.
Sub $3 HH makes for slim pickens, and Woodymac projects low pricing for decades.
If the current EQT/Rice brothers spat breaks in the Rice brothers favor (they take over running the biggest gas producer in the country), EQT may become a financial juggernaut.
Meantime, these companies are struggling financially in the extreme.
Holy shit, Coffee; is that really you? You must have seen an image of Jesus in the shower glass door yesterday morning or something.
Wow!!
Mr. Roughneck
The few comments I make regarding the upstream boys’ financials are to put some context into the picture with Rune Likvern’s iconic Bakken Free Cash Flow graphic being just one example.
That dramatic sea of red ink was prompted by transforming a barren region the size of New Jersey – located way out in remote, harsh western North Dakota – into one of the biggest oil producing areas on the planet.
This, in just a few years’ time.
The Appalachian Basin operators generally signed 5 year leases with compensated 5 year extensions in which time frame a well needed to be developed.
Numerous leases signed in 2009 to 2011 have yet to be acted upon, especially in the north central tier.
Combining HBP terms along with honoring firm transportation contracts with the midstream boys has squeezed AB operators bigtime.
The delays in takeaway build out are receding. (A near Rover capacity pipe – the Mountaineer Xpress – is starting to come online with 2.7 Bcfd capacity. Mariner 2 is starting NGL deliveries to Marcus Hook).
Massive new CCGT plants from Florida, Virginia, Ohio and homegrown Pennsylvania are producing several thousands of megawatts per day using AB gas. Many more are in the pipeline.
The upcoming FIDs regarding LNG build out will rock observers as the speed and cost of constructing these plants continues to plummet.
If the Main Pass Energy Hub promoters are correct in their claims that 50% more LNG than Yamal can be produced at 1/3 the cost, global markets will forevermore be changed. (MPEH is projected to produce as much as all 3 Curtis Island operations combined at 1/6th the cost).
Driftwood and Delfin are no less impressive in their claims.
Thing is, Mr. Roughneck, stuff is evolving at lightning speed.
There will continue to be disruption in both the hydrocarbon and overall energy markets such as we have never seen.
Great stories on your site, BTW. Important to know from whence things came … and the character of the people who brought things about.
EQT share price has fallen from the $60s to below $20 since the Rice brothers sold their company to EQT. The value of the Rice Brothers shares appear to have dropped by about $300 million during that time.
I don’t know much about this spat, but all natural gas oriented E & P’s have seen share prices battered. It appears EQT has performed better than most, as most have or are on the verge of BK.
Not sure if Rice Brothers expertise would be of any help as it seems producing even more gas during an extreme glut would only drive gas prices lower, thus driving share prices lower.
Maybe they want to take over so they can go back to making multi million dollar salaries and receive retention bonus if EQT eventually has to file Chapter 11 BK?
As coffee says, given the complete lack of conservation of resources being exercised in the E & P space I suspect the Rice Brothers should have just taken all cash as it doesn’t appear this gas glut will ever end. Maybe they should just sell out now, before their equity is worthless
Did some more reading on EQT and find that part of step drop is due to spinoff of gathering business into ticker symbol ETRN.
So about $16 of stock price drop really isn’t, as shareholders now own share of ETRN also.
Shallow
There were several reasons the Rice/EQT consolidation made a lot of sense as they were/are big leaseholdets with much adjacent land.
In addition to logistical efficiencies, longer laterals (17,000+) could be drilled.
An even more important factor, however, would be the looming capital needs as the Rice outfit recognized that the Encana model of simultaneously developing dozens of wells could be the wave of the future.
In fact, the Rices did just that before the buyout when they brought online about 20 wells at the same time.
The lag in revenue generation, the massive logistics involved, the countless operational challenges (aka fuckups) all require an exceptionally high degree of competence that the new managers of EQT are suspected of lacking.
adorable optimism. only problem is, somehow if you were their shareholder you wouldnt have made any money since mid 90s. even in the f*cked up version of capitalism that works in US right now, this is not going to last for much longer.
73 mmcfd isn’t a world record. In the 1980’s I designed gas wells with surface facilities (such as flow lines, headers, test separators) for 110 mmcfd per well. The operating rate was set at 56 mmcfd and 1800 B/D condensate. In those days we had problems finding 10 thousand psi Xmas trees valves compatible with wells completed with 5 1/2 inch VAM tubing, and we simply wouldn’t risk high pressure completions with 7 inch tubing.
Later I had a job safety auditing a gas field where wells were designed for 210 mmcfd. But I wrote in my report that such designs were risky, because the header was something like 30 inches, and a header blowdown due to emergency conditions would lead to a flare condition which exceeded their flare design. In conclusion, those rates may be a record for Pennsylvania, but we do have much better producers, and I consider anybody who designs for high rates while having a very high shut in pressure to be a nutty operator.
Fernando
This new IP record is in regards to unconventional wells.
When the Scotts Run was being drilled, the operator – EQT – had to halt drilling for 6 months and bring in a much bigger rig due to high downhole pressure.
The Flowing Casing Pressure hit the 10,000 psi mark at the outset.
The recent Aikens 6M well from CNX that they claim to possibly become the second best Appalachian Basin well, had FCP of just under 9,000 psi and has been flowing on restricted choke at 23 MMcfd for about 8 months. (SR flowed 28 MMcfd for 8 months).
Both are Utica wells.
This Utica formation may rival the Mighty Marcellus in future years.
Got it. I have a really queasy feeling allowing a well to flow up the casing annulus when it has such a high shut in pressure.
I want to continue the discussion on TX completion trends from the last post. Everyone was mentioning a slow down in completions, but below is what I get from the Texas Railroad Commission for the Permian (districts 7C, 8, and 8A) new drill oil completions.
The spike in production in the August EIA 914 is somewhat surprising given completions were flat to trending down in the first half of 2018. We’ll have to wait to get the November and December monthly numbers, but the 561 completions in October is concerning. Is the data just late? Does October reflect completions that took place in August, which juiced production numbers, but not reported until later?
It’s also puzzling to reconcile the October and November completions numbers with commentary from pressure pumpers, sand companies, and other service providers, which all said things were slowing down. In the case of sand, new local mines continue to open, so perhaps the pressure was limited to northern white (which shows up disproportionately in public disclosure given a lot of the local sand is in the hands of private companies compared to northern white). Maybe pressure pumpers are dealing with too much capacity added rather than a slow down in completions. Doesn’t really add up.
I believe GuyM suggested the RRC data for completions might not be perfect, but that this data just gives us a general idea of the trend. If you do a trend line for the past 12 months for new drill oil completions the trend is essentially flat over that 12 month period. You can also look at data at shaleprofile and can choose TX Permian, NM Permian or both under Basin, look at the “first flow” well status.
Dennis is stating my opinion. Companies don’t post immediately, that’s for sure. You can pull up the actual completion report on the query, and it may be months behind when it was posted. This is not RRC’s fault, they report what they get.
Interesting — do I understand you correctly then that the October report reflects completions posted in October, but the actual well may have been flowing for many months already? Makes sense, given I don’t see them releasing revised reports anywhere else.
The vast majority were completed the month before, or the current month. But, there are some each month that have earlier dates. And some months have more older than others. No rhyme or reason.
GuyM,
I was not trying to assign blame, just suggesting the drilling and completion reports might not be accurate for whatever reason.
Shaleprofile is a great resource, but it’s only as good as its sources. Texas data in shaleprofile isn’t reliable until 4+ months after the fact given the amount of revisions that come in over time. E.g. the data for September 2018 will see major revisions for 4 months and minor revisions for many after that, so I don’t think it will be very reliable until Enno posts the December or January update, which will be in April or May 2019. This isn’t a criticism, just noting that leading edge trends are tough to discern in the data.
Usually, two months, as he gets the pending data file. Although, some months it’s three months. I’d venture to say, that what he has for August is pretty close to actual, as far as production goes. I’ve been tracking the pending data file for over a year, and the reported production plus the pending data file comes very close to the EIA 914 within two to three months. You can get the pending data file (wells without an assigned lease number) for the huge sum of $10 a month from RRC.
Thanks Guym. Happy to take your word for it on the pending file.
Your welcome. Glad your this interested. As for RRC, they have some limitations, mostly due to budget. However, they have to keep track of 437,000 oil and gas wells, along with thousands of producers. I have to give them A for effort. EIA has one redeeming report in the 914. Dennis also uses their shale well numbers, which he is happy with. Everything else on the site, I am pretty skeptical with. Everyone with some experience has some kind words on Enno’s site, shaleprofile. After a few months, drillinginfo is THE WORD. Except it costs a lot to join, which I am not willing to lay out. Dennis’ shale production numbers on the EIA site come from drillinginfo, so I go with Dennis when he quotes those, even though they are estimates for awhile.
GuyM,
The EIAs tight oil numbers (not the Drilling productivity report which is not very good) seem pretty good, they include more areas than Enno’s data, and I agree the most recent few months are not perfect, but they get revised as better data comes in. Agree also on drilling info data, but I only have access to what the EIA gives out monthly.
Some international fuel inventories week/week changes (million barrels)
Total Distillates: +23.08 (shown in chart)
Light Distillates: +8.39
Middle Distillates: +13.01
Heavy Distillates: +1.67
The big build is mostly due to the USA where total distillates increased +18.93
Chart (It should say Jan 4th) https://pbs.twimg.com/media/DwnwCMyWsAAw8_U.jpg
This has been addressed here. Search on this site isn’t great, but it does work sometimes.
Overall conclusion is the audit was of numbers provided. No auditor drilled exploratory wells to examine independently what was beneath the ground. That may not be completely required if an examination of already existing wells is performed — but even that may not have been done.
Lol. Independent “audit”. Doesn’t fall into a category of audit. Done by consultants. Not anyone that could lose a license over giving what the client wants. And the client does pay well. If they attest to this along with any IPO, then there would be liability. Plenty of it.
“These reports have been compiled based on information provided to us which has not been subject to a factual audit or review engagement. Accordingly, neither we, nor any of our representatives accept any responsibility for the reliability, accuracy or completeness of the compiled resource information nor do we accept liability of any kind whatsoever, including liability by reason of negligence, to any person for losses incurred as a result of placing reliance on the compiled resource information.”
So,
If you trusted Trump to be an honorable and dignified leader of your country, you may also find the IPO documentation of the crown prince of the House Saudi arabia to be the kind of factual source of information to bank on. I understand he has an honorary degree from Trump University. Good marketing skills.
The wiki lists him with a Bachelor’s Degree in Law from King Saud University.
Hickory, what is your source for this statement?
Official statement on D&M website is quite different: “DeGolyer and MacNaughton is pleased to acknowledge the recent completion of the first contemporary independent assessment of reserves in Saudi Arabia for the Saudi Arabian Oil Company. The study encompassed a highly detailed independent analysis of a massive dataset and onsite review. More than 60 geophysicists, petrophysicists, geologists, simulation engineers, reserves engineering specialists, and economists were involved in the 30-month effort.”
It is clear though that Aramco being a regular client of D&M, “independency” becomes a blur notion.
Ganesa- that accounting statement is not specifically pertinent to this IPO, and was offered as a general commentary on the relevance/trustworthiness of ‘audits’.
As you pointed out, being a client of the auditor/assessor negates the unbiased analysis aspect of the work they do. I wouldn’t trust it, personally.
Seem that KSA still want to make a IPO for ARAMCO
India – Consumption of Petroleum Products (Without LPG or PetCoke)(kt/day)
December 2018 up +7.01% higher than December 2017
Average full year 2018 up +6.80% higher than full year 2017
Chart https://pbs.twimg.com/media/DwoYp5xWsAA_vRh.jpg
India Light Distillates Consumption (shown in chart)
Average full year 2018 up +9.74% higher than full year 2017
Chart https://pbs.twimg.com/media/DwoY_yjX4AA-S9K.jpg
India Middle Distillates Consumption
Average full year 2018 up +3.92% higher than full year 2017
The increase in barrels is +220 kb/day year/year (without LPG or Petcoke)
The latest assessment comes from DeGolyer & MacNaughton, a respected firm of oil analysts based in Dallas, Texas. The firm concluded that, including reserves in the “partitioned zone” between Saudi Arabia and Kuwait, the Kingdom’s total oil reserves would have amounted to 268.5 billion barrels at the end of 2017, after which the DeGolyer study was made.
Jim Krane, fellow in energy studies at Rice University’s Baker Institute in Houston, Texas, said: “There’s been a cottage industry in speculation about the ‘true’ size of Saudi oil reserves. These figures ought to put to rest speculation about the true size of Saudi reserves being anything other than what Aramco says they are.”
I’m not sure about the credibility of this audit. Just looking at the step-like historical graphs of Saudi oil reserves where no depletion ever takes place is cause for suspicion.
Good find, Iron Mike. Pretty much the consensus on this board the last time it was published.
Venezuela’s oil reserves are overstated. The Faja recovery factor was set at 20% by fiat, but to get 20% in the high grade very best zones we need about $100 per barrel. And given the poor reservoir management practices over the last decade, some areas are already ruined and will never get more than 6%. Getting a better recovery factor is much harder each year that goes by and the reservoirs are mishandled like they are.
By the way, right now Venezuela has two individuals claiming the presidency, the socialist dictator and a 35 year old upstart named Juan Guaidó, who belongs to the Voluntad Popular party headed by Leopoldo Lopez (who has been under house arrest or in a military jail since 2014). Things are very confusing, but January 23 has been set for a clash between large protest multitudes backing Guaido and security forces subject to Maduro’s control, who has the backing of over ten thousand Cuban military and secret police embedded in the Venezuelan military and police services.
Same source of info which is the Dallas Fed. Only, this one discusses costs more. As, was discussed here, previously, WTI needs to be closer to $70 ton induce interest.
Er, $70 a barrel, not ton?
2019-01-11 (Bloomberg) Saudi and Canadian cuts are leaving world hungry for heavy crude
Refiners along the Gulf Coast and in the Midwest invested billions of dollars in cokers and other heavy-oil processing units over the past three decades anticipating supplies of light oil would become scarce while heavy crude from Canada’s oil sands, Venezuela and Mexico would grow. Instead, the opposite occurred.
The shale revolution, as well as new offshore supplies form Brazil and West Africa, caused a surge of light oil, while supplies from Venezuela to Mexico declined. Canada’s growth has been stymied by delays in getting new pipelines built. https://www.bnnbloomberg.ca/saudi-and-canadian-cuts-are-leaving-world-hungry-for-heavy-crude-1.1197259
Peak oil is a figment of the imagination, according to this author. We just add to the fire these guys build. Suppose we kept building the supply of oil 100k each year until “infinity”, would we ever see a period of time that supply could not meet demand, at a reasonable price? Yeah, probably this year. Peak oil, or when it occurs, or if it occurs is probably anticlimactic. Predicting when peak oil will occur is a fools game. Assuming peak oil will never happen is insane.
This fool maintains that peak oil will be 2025+/-2.
Lol, but you have none of your money on that, or anybody else’s. Besides, by that time, the fact of there being peak oil will be less important than we don’t have enough oil.
Peek production over demand probably had its last peek over demand in 2018?
GuyM,
Hmm,
won’t the reason for us not having enough oil be the fact that oil resources are depleting?
Yes it is correct that I don’t have any investments riding on this, just suggesting that as we approach 2023 we are likely to see the 12 month average for WTI go to $90/b or more. There will of course be continued volatility.
Note that the 52 week average price is less volatile (especially for the past 2.5 years), prices have been rising at about $10/b each year since 2016 (trend of 52 week centered moving average from Jan 1, 2016 to July 31, 2018).
Chart below shows a naïve forecast where the trend of the past 2.5 years continues to 2025 where the 52 week centered average WTI oil price reaches about $130/b in Jan 2025. I imagine future oil profits for those in the oil industry will be pretty good if this forecast is correct. Note these are nominal prices, $140/b in 2026 is about $118/b in 2018$ (2.5% annual inflation rate assumed).
I know most of the people that read this board are of the belief that the world needs to use less fossil fuels, oil being a primary one.
I also believe if the Democrats sweep in 2020, there will be a considerable amount of “anti-fossil fuel legislation.”
I have attempted to educate the readers here of the vast differences between stripper well operators and the shale industry. I hope some of you that read this board now realize that stripper operators are largely small companies that employ and handful of people to operate wells that have a very small footprint compared to what is going on in the shale areas.
I also hope some here understand that petroleum will be needed in the USA for a few more decades. For example, it seems like the petroleum based chemical industry is not going away anytime soon.
In any event, do any of you see any benefit of stripper well operators trying to engage members of the Green movement? I think one problem could be the urban/rural divide. Stripper operators are almost all rural, by necessity, as that is where the wells are. Likewise, I get the feeling much of the Green movement is urban, although not entirely of course.
I’d be interested to hear some opinions on this. Is the Green attitude that oil producers should all be stopped in their tracks? For example, consider ExxonMobil versus the family that does everything themselves and maybe clears enough for a decent wage if WTI is $60? Are both of these considered equal enemies of the Green movement?
I have read a little about the “Green New Deal”. Should I take that to mean that all wells will be forced to be shut down by the government if that comes to pass?
I would think the political left would actually be in favor of stripper well operators if they were producing oil that was solely used for things other than ICE engines. Or am I wrong about that?
The Democrats can not be defined with a radical left, nor can the Republicans be defined as a radical right that wants to shut down the government over building a ridiculous wall. I am skeptical on deep conversations with either the radical left or the radical right. Any attempt I have had with either, seems to make them angrier. Perhaps, that’s just me. There are plenty of groups who could listen, otherwise, I’m sure.
The evolution of the two political parties over the past 150 years is astonishing. We started off with the Republicans attempting to abolish slavery, fighting the land owning Democrats in the South. And, here we are today. Polarized by the radical left and right, with the probable majority not aligned either way.
And, whether they be Republican or Democrat, the majority of the population would be quite unhappy, if they did not have enough gasoline for their ICEs. I seriously doubt that the Democrats, as a whole, would like to be aligned with the party who destroyed their own transportation.
GuyM.
I don’t want to get too political on the oil board but this is specifically about oil.
For example, I see the Green New Deal proponents want to eliminate all tax breaks for oil companies. I don’t know what ones they are referring to, but I assume they mean IDC expensing and percentage depletion, As I have stated, those are not big oil (integrated major) tax breaks.
I am afraid the Green NewDeal proponents will put the small producer out of business first if they have no nuance in their position, and I suspicion since most of the leaders of this group are urban, they likely don’t know much about small businesses in the oil patch, such as the many in my territory alone.
I am just wondering if some education attempt of the left wing would be beneficial?
We have wells drilled 1905-1910 that are still economic. They have survived the Great Depression, the recent oil price collapse and a lot in between.
I’d hate to see these, and about a million like them destroyed because politicians were basically unaware of them.
I think most believe they aren’t worth producing. That is simply not true. I think they will be needed for decades.
Yes, I know stripper production is a significant percentage of US production, and will be a larger percentage when shale production is dead and gone, or turned into stripper production. It’s serious. Educating elected officials seems the way to proceed. In doing so, it would be helpful to have their constituents sign petitions to that effect, which means reaching out to local communities. Or, grass roots, if you prefer. The minorities are more aligned with the Democratic Party as a majority. They are not necessarily aligned with the green movement. ‘Green at any cost” would not be what they would align with.
However, injecting a little humor into it, maybe you can join the Milk producers that are interested in educating the urban population that brown cows do not produce chocolate milk. Or, maybe you can connect with some of these green movement celebrities before they get on their personal jets.
GuyM.
That, I am afraid, is the problem.
Politicians view every oil related business as XOM.
That is why stripper operators probably at least need to make an attempt at engaging with the left.
Although difficult for most to believe, 10 BOPD supports approximately one job in the stripper fields. 10 BOPD x 365 x $50 = $182,500.
The number of royalty owners in this country are in the millions.
Completely ending oil production in the USA appear to be the goal of a growing movement in the USA. This was not even heard of just 10 years ago.
Lol. They would have a fine time in Texas. RRC has a pretty good history of ignoring Federal mandates.
Beto is a leading 2020 candidate for Democratic nomination, supports the Green New Deal, and is a Texan, from El Paso.
Last I checked, El Paso is near Reeves Co.
But, he was not elected in Texas. He lost. Most of the mineral right owners would not vote for him. If it were properly explained to the Hispanic community that their pickups would be in danger if he was elected, he wouldn’t stand a bat’s chance in hell.
He did a lot better in the urban communities than expected. All are highly Democratic, and a huge Hispanic vote. But, none would be happy with less oil. They lacked input on what “green” would entail.
His opponent was not truly admired, either. And, definitely did not run an effective campaign. Perhaps injecting what the hell “green” would really mean, could have given him a landslide victory. Beto came close to winning, because of the heavy Hispanic vote. They aren’t stupid, and are heavily prone to a grass roots approach.
Shallow Sand,
I believe the average stripper well is about 1 b/d or at least under 2 b/d. Not sure people are trying to end oil production. The tax code should be neutral, not favoring or causing disadvantage to any business. The exception would be if that business does harm to society through pollution or some other negative externality, in that case the pollution should be taxed based on the amount emitted. Likewise public goods that give a greater benefit to society than the profit that can be realized through sales (post office and public transportation are examples) should be subsidized by the government.
The tax code does try to be fair in the treatment of percentage depletion. Going back to its inclusion in the first draft to the Code. It’s an inherent cost of the mineral. If you bought material to make widgets, then that cost is deductible. It’s creating a fairness due to timing. If you have discovered and developed minerals and die, those minerals then have a stepped up basis to your children, or a defined cost. Years ago, they could elect to take cost depletion and eliminate half the income, or sell them, and whoever buys them can take the cost depletion. If you buy the property, and then discover oil, or whatever, you have no cost per the tax code to utilize cost depletion. That was considered unfair. Ergo, 22% was considered a fair number to use. Changed later to 15%. To make it simpler for the IRS and everyone who couldn’t comprehend cost depletion, the 15% was allowed for all small producers, as there were too many damn court cases. In a short synopsis, that’s the hundred year history of percentage depletion. It’s a dumbed down version of real cost. IRS position has been supported by the Supreme Court.
And, I am really lost on how the post office fits in.
One big problem has evolved over time in taxation to help put an estoppel over too much change. The oil, gas, or other minerals are not defined as personal property, but rather real property. Raising the question of income vs long term capital gain to the owners of the mineral rights. Simply rewording the lease agreements would change the nature of the transaction. Form over substance, that is supported by substance. States have continued over time to define, and redefine minerals as real property, as well as Federal. A Federal law overriding that would be challenged as Unconstitutional, and it would be.
I’d much rather pay long term capital gain rate vs a puny 15% deduction. Retaining the 15% depletion rate is fairer to the government than the owners of the mineral rights.
GuyM,
I will just leave this to lawyers and accountants. Seems tax code could be simpler, just treat all real property in the same manner, a capital asset is a capital asset and the depreciation rules should not change whether the asset is real or personal property.
For inherited property, just reassess at full value.
GuyM,
There are two types of externalities, a negative externality (pollution being the classic example) and a positive externality (public transportation and communication networks being examples).
In each case without government intervention we either get more than the optimal amount (negative externality) or too little of the optimal amount (for a positive externality) in a frre market capitalist system with no government interference in the free market.
A full discussion of externalities includes both positive and negative externalities.
The depletion allowance is complete bullshit. If an industrialist buys ten machines, and sells five, he can’t go to the government asking for a tax break because he only has five machines left. He sold them. He can write off his investment on a normal schedule, but not for the parts of it he sold off.
Those minerals don’t just vanish into thin air. They are sold at a profit. You can’t write off goods as a loss that you sell at a profit under normal accounting practice. It’s a scam.
Well, as a CPA, you have me totally confused.
Are you referring to cost depletion or percentage depletion.
Need to know that before discussing pros and cons.
Simple example.
I buy a one well lease for $100K. The equipment on the lease is valued at $50K per the purchase agreement. Under straightline depreciation, I would depreciate the equipment over 7 years, equally (assume date of purchase is today). I would receive a deprecation deduction of $7,143 in 2019 and the six years thereafter.
The remaining $50,000 could be deducted as cost depletion. I would estimate the number of barrels to be produced, say I come up with 10,000 over the life of the well, so reserves are valued at $5 per barrel.
Year one the well produces 1,000 barrels, I deduct $5,000 in unit cost depletion. Year 2 it produces 700 barrels, I deduct $3,500 in unit cost depletion.
Assuming I am a small operator (1,000 BOPD or less for year in question) I can elect to take percentage depletion if it is greater than cost depletion.
So, in year 1 if I sell 1,000 BO for $50 per BO, I could deduct $50,000 x .15 = $7,500 of percentage depletion.
Both deductions reduce my basis and if I sell the well I would be subject to recapture tax (ordinary and not capital gain rates) on the depreciated and depleted portion of the well.
Cost depletion doesn’t seem to me to be any type of “BS”. Percentage I can see the argument for it being “BS”.
Almost all mineral extraction companies are allowed percentage depletion, however, and only oil and natural gas are limited to small producers.
The idea behind allowing small producers to take percentage depletion was the hope of salvaging the one million stripper wells in USA during times of low prices, as prices are very volatile and the wells would be plugged. However, in 2012 as part of a negotiation during a potential government shutdown, taking percentage depletion beyond 100% of income per property was abolished.
For example, say in year 3 of my example well, it produces 500 BO (to the operator – me). The oil price is just $30 for the year, my sales are $15,000.
Assume the expenses to operate the well are $20,000. I cannot take percentage depletion. Prior to 2012, I could.
Say I have another well in year 3 where I sell 1,000 BO for $30 = $30,000. My expenses are $20,000. I can take $4,500 percentage depletion on that well.
I can see the arguments in favor of and against percentage depletion, the same as I can see the arguments in favor of and against many other tax items, such as Home mortgage interest deduction, state and local tax deduction, accelerated depreciation, business tax credits, alternative fuel credits, etc.
Just don’t call percentage depletion a TAX BREAK FOR BIG OIL!!! That is a LIE assuming the definition for big oil is an INTEGRATED MAJOR such as XOM, CVX, BP, RDS etc.
Hope this helps. GuyM can correct any mistake I made, I am sure. Trying to keep it simple.
It’s as exactly as shallow says for the producer. He in the business, he has to know. As to the percentage depletion, there is a long, long history of court cases, and rewrites of the tax law. Originally, only the owner of the mineral rights was allowed a percentage depletion for his cost of the minerals. However, if you review leases written today, or even old leases, there are not two sales of the minerals, there is only one. So, the argument was for the small producer to share. It made it much easier on the IRS, Congress, and the courts to have it that way. In a nutshell.
This part of the tax law has been fought over for close to a hundred years. Congress has re-written it again and again. Thousands of court cases, and whichever way it goes, there is always some dissention. And, in its current form, the mineral right owner has been the big loser the past hundred years. And, the State laws and court cases are against the mineral right owner refusing to lease. It’s going to get drilled, anyway. The well may be on the next owner’s property, but he is draining your oil, too. And you can wind up with nothing for it.
Dennis.
I do think some people are trying to end oil production in the USA, based upon what I am reading.
Some in our family have owned interests in oil wells for over 40 years, and say we all need to be looking for an good exit plan, not because of shale or electric cars, but because the political risk has become not only greater, but unpredictable.
I hope we have nothing to worry about. I’d say we better stay alert.
Shallow sand,
There are always risks, as peak oil approaches, the reward may be worth the risk as oil prices will increase quite a bit, wait for 2024 when oil prices will peak and then sell your oil wells.
I agree with Dennis, the risk may increase in the 2025 to 2030 period due to colliding climate and environmental problems. Depending upon initial severity it might trigger a populous movement away from fossil fuels.
The “Green New Deal” is not very well defined and as far as I can tell does not suggest ending oil production in the US.
It is a far left agenda that has about as much chance of being implemented in the US in the near term (next 10 years) as a major cut back in entitlements in the US in order to balance the Federal budget.
So much ado about nothing as they say.
The structure of government in the US is inherently conservative, nothing much gets done by the US government, hey it might be shut down until 2020 🙂
Good questions Shallow.
I agree that most people (and politicians) from around the country know nothing of the difference between small and large oil producers.
And I have no idea how to educate policy makers/public on this. If there is a way, it is well worth the effort.
Most voters, and perhaps even more so democrats, will side with small/family businesses over large corporations every time. If they are aware of the difference.
Regarding the NewGreen deal, I wouldn’t worry about that. I don’t think the extreme parts of that kind of package will make it through the policy process intact.
I do think that a carbon tax has a chance of being phased in at some point. This would hurt higher cost producers most, whether coal, oil or nat gas, although the cost will likely just be passed through to the consumer. But I’d be surprised if it will be high enough to alter demand much. A caveat to that is if we had some sort of big weather event that would call people to action- such as a very deep el nino.
The bigger threat to oil demand is the innovation that is happening in the electric vehicle sector. Over this coming decade, there will be a huge shift towards vehicles with batteries in them, and plugin charging capability. But it will take a long time to turn over the fleet of vehicles.
Thats how it looks from here (the coast).
If the stripper segment of the industry was to engage with the public, especially those who are not from producing areas, I do think the message you indicate would be well received.
But I wouldn’t waste the energy on trying to engage the far right or left wings, since they have positions pretty much fixed in stone. Energy would be better spent on those who are closer to the middle, if you can find them. IMHO
Totally agree. The minorities may not be closer to the middle on the Democrat/Republican spectrum, but neither can afford to pay a higher price for gas due to taxes or eliminating oil. Green is good, green at any cost would destroy the economy. Let the EVs proceed with development, or help them along. But, don’t throw the baby out with the bath water. Oil won’t be around that long, let’s rescue what we can.
Shallow sand,
Most people would be happy if the tax breaks were just the same as any mining industry (there are a number of different percentage depletion allowances.)
I don’t know what the Green New Deal is, to be honest.
From my perspective most lefties would be happy with a simple carbon tax.
Also coal is more of a problem than oil for most environmentalists and to some natural gas is more of a problem than oil, so I believe youa are incorrect that most think oil is the biggest problem. Generally the focus is on tax breaks for big oil companies that make billions and often pay little in taxes. Also companies like Exxon Mobil that knew very well about climate change and went the route of tobacco companies and tried to obfuscate are in the crosshairs of the green movement.
Dennis.
It is generally accepted that the integrated majors are the beneficiaries of large Federal Income “tax breaks.”
Actually, I recently researched this and posted about it. The integrated majors cannot take percentage depletion as an expense and cannot expense intangible drilling and completion costs.
Do you know what effective rates integrated majors pay in the US and what expenses or deductions they benefit from that other US businesses do not?
Large oil companies are limited to cost depletion, only. Which is similar to depreciation, only based on production. Any company gets depreciation, and most get better deprecation rates than cost depletion. They get a little of percentage, but not much. So, big oil companies get no tax breaks over others. There is a standard 15% for small producers, and sulfur and uranium get 22%. The percentage has changed over time (used to be the same as sulfur), but has been the same rate for many years.
Cost depletion works like this: they paid 2 million for rights to oil that has expected future output 1 billion barrels. The percentage of production to that one billion can be multiplied times 2 million for their deduction. In a very simplistic analysis.
The integrated majors cannot take any percentage depletion.
Independent oil and gas companies are permitted to take percentage depletion at 15% on a maximum of 365,000 BOE annually (1,000 BOEPD).
XOM claims that it paid $86.1 billion in federal, state and local income taxes in the US for the years 2008-17.
I also read where XOM paid the most worldwide taxes of any company in 2010, almost $75 billion in that year alone.
We have an oil refinery in our county. It pays right at 40% of the real estate taxes our county assesses each year.
Needless to say, when it is put out of business someday, we will take a massive hit. Not to mention the 800 jobs, almost all six figure annually.
I am aware of an oil refinery that was located in a small county for decades, that closed in the late 1990s. The county lost about 15% of its population, and local employment was saved only somewhat by a prison being built in the county.
Refineries pay a load in real estate taxes.
I am not advocating on behalf of XOM or our local refinery. Hopefully renewable energy will economically offset these tax receipts and jobs in some manner.
Hi Shallow Sand,
I believe some of the companies that are not integrated majors are still very large oil companies and are valued in the billions of dollars.
In my opinion the rules for depreciation for any capital employed, whether for an oil resource or equipment should be the same in every case. Accelerated depreciation rules should be eliminated. If I own a capital asset that I purchased Jan 1 for 10 million and at the end of the year it could be sold for 5 million, then I should be able to expense the 5 million.
This may be how the tax rules work, but when I read the rules my mind goes numb and there seems to be multiple exceptions to every rule so that only a tax professional or attorney could understand the rules.
The US tax code should be thrown in the trash and start from scratch with a limit of 5 pages of 8.5 by 11 inch paper to write the entire set of rules.
Same set of rules applies to everyone.
Any law should not exceed 4400 words. The length of the US Constution.
That could be done with simple switching to a VAT tax that all other countries use. I’m all for it. EVERYONE is treated the same, period. Or, as a more familiar term to most, a national sales tax.
GuyM,
VAT is highly regressive, as the wealthy don’t spend nearly as much of their income as the poor folks.
Could be combined with a progressive income tax where all income is treated the same (wages, capital gains, interest.dividends, and any other type of income I haven’t though of) and there are no deductions for anything, no loopholes, all eliminated. Might put many accountants out of work though.
Hopefully business expenses would be deductible. Straight line depreciation also
A price based phase out of % depletion would be ok if 100% income limitation per property were also removed. My vote would be full at price of $0-65, sliding scale $65-85, phaseout $85+.
Yeah, Dennis, but it’s various arguments that make the tax code so complicated.
And real estate is and was never subject to depreciation. Accelerated depreciation was injected into the code to stimulate investment. There is nothing in the Code for accelerated depreciation for oil companies, other than for small companies, they can take a certain percentage of work done on wells as expense, currently. Do you have any idea how much time, effort and IRS time is spent on earned income credit and child tax credit. It takes up most of the time on a simple return. That’s in addition to lower, or no tax brackets for lower income.
Your arguments are not new, and subject to the same misunderstandings I have heard on the tax code for forty years.
There is more complications on a simple return due to tax law, than there are on much more complex issues.
It’s Washington, DC, man. It’s not going to change based on a progressive income tax. It’s why other countries use VAT, and I support what would put me out of a job.
GuyM,
So if one builds a factory (real property), no depreciation of the building is allowed?
Interesting, I did not realize that.
I guess I am ok with mineral rights being treated like most capital assets (which would be personal property I assume), I am neither an attorney or an accountant, but earned income tax credits and child care tax credits should be eliminated, if one chooses to have children then you make the choice to either care for them yourself or pay others to do so.
I think the tax code should be simplified and I don’t think subsidies to encourage more children is good policy.
Note I do not suggest any of this would ever pass the US legislature, that’s where good ideas go to die. 🙂
I like VAT, but it should be combined with a progressive income tax.
Shallow sand,
Only net income is income, business expenses would always be deducted from gross revenue, and again I am not an accountant, but I assume only profit=revenue minus cost would be taxed.
Seems it would make more sense to do cost depletion and eliminate percentage depletion for all mining industries. In addition accelerated depreciation should also be eliminated for all industries, straight line everywhere. Again simplify the tax code.
Businesses close all the time, the paper industry in the Northeast has taken a beating over the past 20 years. As oil depletes and becomes more expensive, more people may switch to EVs if they are cheaper to own and operate and demand for gasoline may decrease. The smaller refineries may not be as efficient as larger refineries and may shut down if they are no longer profitable, it is just the way capitalism works.
XOM paid about 8.6 billion per year on about 30 billion per year in net income, about a 29% tax rate.
Dennis.
Yes, I agree that if market forces cause the demise, that is capitalism.
I am speaking for a special interest, no doubt.
Just wondering aloud if the left knows how many small businesses they will shutter?
Shallow sand,
Not sure the left has the agenda you think.
The aim is to tax carbon so we put less of it in the atmosphere, whether that happens or not, (in the US I doubt it will ever become law, though I think it is a good idea) oil will deplete, it will become expensive and eventually people will use less oil as more EVs are sold, there will still be quite a bit needed for water and air transport, though eventually alternatives might be found. At some point demand might decrease to a level where stripper wells are competing with OPEC and not sure how well that goes for small producers. It seems when oil prices get down to $40/b in 2018 $ many stripper wells stop being worth the effort. That probably does not occur until 2050 or later.
Dennis, Real estate meaning land. Of course a building is depreciable. Tax code real property is land and building and minerals. Personal property is tangible property other than real property, e.g. equipment, inventory. The oddity in the tax code is treating mineral rights as income vs capital gain. So, doing that, and allowing only a 15% depletion allowance is really not fair to the land owner. Because, long term capital gain would give a much better tax break than a lousy 15% deduction. If I produce minerals, it is income. If I just sell it to another, without producing, it’s a capital gain. And, even if is in the millions, the cap on that capital gain is a 20% tax. Then that person can use what he paid me as a basis for cost depletion.
The Green New Deal is a Neomarxist document written as a Trojan Horse by US communists. The content has a lot of the ideas and memes used by German communists who run a party known as “Die Linke”. This party has an outfit known as “Rosa Luxemburg Stiftung” with offices in New York. They work with Ocasio and the other communist radicals who are running under the disguise of “Democratic Socialists”, “Justice Democrats”, “Sunrise Movement”. I have been able to get deep into their social media, read their meeting notes, and other material, and the core is definitely communist and tied to the German communists as wells as the Castro machine. They have internal differences regarding issues such as Israel, taking campaign donations, the open border with Mexico, etc. But in general they are as red as they come. One of their stooges is Maxine Waters, but they have about six congressmen and another twenty or so who are afraid of them nearly as much as they fear AIPAC.
Ooh Marxists, very scary. 🙂
Those German communists are a lot less scary than the Neo-Nazis on the German right. In any case the fringe ideas, never get anywhere in the US, though perhaps from your perspective the New Deal was a communist plot and JFK was a commie sympathizer.
Hi Shallow.
Have only scanned this thread; sorry if I repeat a point.
My thought is that the New Green Deal is totally unformed, and not really a topic for policy discussion at this point.
That said, I can see you wanting to get in front of this, and that education or PR could help stripper well operators.
If I were to try and sell your industry, I would emphasize the low water usage compared to shale, the local aspect, the “use every part of the hog” aspect of stripper well operation.
We won’t get off oil quickly (which is why we’re all gonna die 🙂 ). That said, you guys are pretty much the least messy part of the business, as far as I can tell.
Vintage, artisanal oil, just like grandpappy used to drill. That’s how you sell it. I see an old geezer in bib overalls and straw hat, perhaps playing harmonica, sitting beside a pumpjack. (And I’m only half joking.)
Lloyd.
I know you are not necessarily joking.
Today, marketing matters more than ever.
Organic free range chicken. .
Shallow Sand Wrote:
“I also believe if the Democrats sweep in 2020, there will be a considerable amount of “anti-fossil fuel legislation.” ”
I doubt really its not about fossil fuel consumption, its about an energy tax. Never seen a democrat that didn’t love a new big fat tax.
FWIW: My guess is that the DNC will continue to move towards socialism, pressing for much higher taxes on the working class, to support single payer healthcare & basic income for the poor (they’re primary voting base). An Energy tax would be another revenue source to support these spending programs. Its likely taxes would target refined energy products sold to US consumers: ( gasoline taxes at the pub, higher electricity rates, NatGas Tax). 90% of the discussion coming from Socialist Democrats is about higher taxes (ie the 70% to 90% tax rates on the Wealthy). To fund any grant socialist program like single payer healthcare is going to require a lot of revenue.
My guess is that higher tax rates for the working class & demographics (retiring boomers) will put a limit on energy demand in the US. However, global demand for energy will likely continue, as more US business relocate overseas to avoid excessive US regulation & taxes. As long as US is able to export oil prices for producers should be stable or increase modestly as foreign consumption replaces US domestic demand. I think the gov’t would want to tax revenue generated from energy exports, since the US debt is already at $22T and budget deficits will be in the $1T per year going forward for at least the next decade do to pensions, entitlements, and other gov’t expenditures.
Two ideologically neutral points about politics.
First, no one right now has any idea what issues are going to decide the next election. Prominent things in the news this far ahead of election day will likely be off the radar screen by then. Case in point, the Iraq War dominated discussion during the nomination process of 2008. Obama moved leftward of Hillary during the nomination campaign and who promised getting troops out before the other became the measurement of nomination support. After all that, the decisive issue in the election proved to be the Lehman Brothers explosion and the economy derived therefrom. That’s per the exit polls. No one had any idea what issue would decide the election even six months before the election.
Second, everything and everyone gets co-opted. The popular label is Deep State. Radical policies, and lets not use that term — rather call them policies departing from those widely embraced by Congress — no matter what the policies are they never survive Washington.
True. And a major issue before the next election could be the price of gasoline. Quien sabe?
Agree, Rapier is very good. $70/b by the end of 2019 is very reasonable and actually similar to many of the major banks. The $55/b average expectation of oil executives according to Dallas Fed is too low in my opinion. Rapier is spot on (within $5/b of being correct) imo.
I think the inventory draws will be much deeper than most expect, so it could be higher.
Isn’t $35 per barrel entirely reasonable? The reasonable word is amusing. It would be far better to use the word credible.
Actually, any price is credible. Our ongoing discussion revolves around what is going to re-start shale production growth, and what is reasonable for that to happen.
GuyM,
Much depends on what ROI is acceptable for an oil company, if they require a 15% ROI, then the average 2017 Permian Basin well (average cost full cycle assumed to be $9.5 million) needs $66/b at refinery gate ($62/b at wellhead) to meet that hurdle, EUR is about 411 kb.
Watcher,
Yes poor word choice, the analysis by Rapier seems very credible.
The $35/b price is reasonable only if the oil can be produced profitably at that price. This might be the case for about 40 Mb/d of the oil produced in the World (OPEC, Russia, and some stripper wells [about 4% of US output]) at $35/b, much of the World’s oil needs at least $65/b and the marginal barrels (the most expensive barrels to produce) probably $70/b is needed for those barrels to result in a profit.
I know you maintain that price does not matter, and I would suggest you are incorrect.
blah blah
Is $35 credible? No ifs and buts. Yes or no.
No, I don’t think it is credible any more. Within probabilities statistically, but not credible. Credible meaning believable. My choice of words your attacking. I used reasonable, which for a synonym you could use rational. It’s what I meant, and defined so in the dictionaries. So, I fail to see how it is a poor choice of words.
Don’t remember if you were around a few years ago when Argentina declared the price of oil to be about 20 or $30 per barrel higher than the rest of the world. This was done because they taxed their oil production and needed it to flow.
Enshrouding credibility with some array of probabilities based on no knowledge of news events of the future can’t possibly make sense.
Any price is credible. And the really bad news for you folks is they are all equally probable.
Come now. War is the natural state of human society as proven by thousands of years. A war that wipes out most of the population of Japan is going to spike or crash the price of oil? We can’t even predict that, and that’s given presumed knowledge of an event. It would be elimination of consumption, and also great fear about the war spreading.
All prices are credible, and equally probable.
Given. But, I choose to live my life on informed decisions to make a reasonable/rational choice. Shit happens, but I’m not going to miss the boat, because I’m afraid it will sink.
Wait. What boat.
This is not an investment blog. Or it didn’t used to be.
And I posted nothing about investments. Your kinda strange.
Watcher,
So one billion US $ per barrel (in 2018$) has the same probability as $65/b (2018 US$) for the 2019 12 month average Brent oil price?
I would strongly disagree.
No
Watcher,
Is a price of $0/b credible? I would say no.
I would also say $35/b for any 12 month average WTI oil price prior to 2035 is also not credible.
“Is $35 credible? No ifs and buts. Yes or no.”
yes if the US & the world plunge into another major recession. Sooner or later credit cycles come to an end cause deep recessions.
Currently CBs are loading up on Stocks as they stopped selling and started buying again causing their balance sheets to rise again. This has temporarily stopped the stock market sell off.
Techguy,
It is not clear how much prices would fall in response to another severe financial crisis. Demand might slow a bit, but $35/b might not result in sufficient supply.
It is doubtful there will be a major recession near term and a much higher probability oil prices will be $65/b or more than $35/b or less (12 month centered average Brent Oil price) in the next 5 years.
Eventually a future recession (after 2030), might see oil prices at $35/b or less, my guess is after 2040, when transition to electric transport is further along.
If the Fed continues to tighten it certainly will trigger another recession. Every US recession since the 1920s has been triggered by the Fed.
That said we are very long in global credit cycle. We already see signs of a pull back with falling Mortgage applications and auto loans. LIBOR rates have increased by 100 bp in the past 10 months (Fast than CB rate hikes).
For now it appears CB reversed course by increasing their balance sheet (obviously to stop the market route). There is a strong possibility, that investors in retirement or close to retirement will sell into the current rally, since they may not risk get caught in another long term bear market. I think stocks will be flat or decline in 2019.
I think consumers are once again approaching max debt. having doubled down in debt after the 2008-2009 crisis. That’s why asset prices have exceed the 2007-2008 highs. People used debt to maintain BAU, and used the lower interest rates to maintain lifestyles. But I think they accumulated so much more debt they reached their limit, and the CBs will have to drop rates to enable consumers to take on more debt.
Also consider that many Auto manufactures have announced significant layoffs. GM, Ford & Chrysler are in the process of reducing there workforce between 5% and 12%. Usually Auto companies are the first to downsize, when consumers start cutting back on big ticket items.
Perhaps if the CB banks start dropping rate again, a major recession can be postponed.
See how my old $63 per barrel model is not that bad after all? Right now it’s a bit higher, about $70.
Fernando L,
So your model suggests $70/b for Brent in 2019?
In support of RRC, I looked up their agency expenses, and found they are less than $50 million. That’s to pay for keeping up with almost a half million oil and gas wells, thousands of operators, and multiple other duties, including taking care of a significant amount of State income. There is a grand total of about 725 employees. Hats off!
Could have 1/2 of a F35 not including Fuel.
But, they collect about 3 billion for the State, in addition to managing the wells and producers.
Partially to cover another 50k bpd coming from the Bakken. Not much help to Cushing.
Chinese crude oil imports up +9.9% higher in full year 2018 compared to FY 2017.
The month of December up +29.9% higher than Dec 2017
2019-01-14 OilyticsData
Another big crude import number from China (2nd consecutive month of imports above 10 MMB/D). Low oil prices and startup of mega refineries such as RongSheng and Hengli is helping to keep these numbers near record levels.(Source; GAC China)
Chart https://pbs.twimg.com/media/Dw3fk2GXcAUZ_Vu.jpg
Oilytics https://twitter.com/OilyticsData
Whoa. This suggests the domestic oil production in their Northeast has fallen a great deal.
Their nominal consumption growth is about 5 to 6%. For them to be importing nearly 10% more suggest an outright oil production decline domestically of 4%. That’s rather a lot, and not projected by the Interior Ministry that I can recall.
Somewhat fortuitous in that it will serve to reduce their Trade Surplus during the current tensions.
Going to have to dig into that more deeply and determine if recent refinery development has them exporting product to local Asian consumers and thus requiring more crude influx.
China makes the top 10 list of petroleum product export at about $25B. This seems to be a few hundred thousand bpd.
This would not cover the import total. They are growing consumption and/or losing production.
“filling the government depot alone could add 70,000 b/d to Chinese crude demand between now and the end of 2018 and another 150,000 b/d in 2019.”
China as been prepping for a major war for the past few years. Stockpile Oil is part of the plan.
“China steps up preparation for war” https://thehill.com/opinion/national-security/413632-china-steps-up-preparation-for-war-with-whom
” Beijing has spent hundreds of billions of dollars on a massive military buildup to deter or defeat Washington in war; now, America is refocusing its national security strategy on great-power military competition — meaning China. Since China’s economy clearly is slowing and heavily in debt, its leaders might see now as the best time to displace U.S. power in the region through war.”
[Consider that China active military personnel size is about 50% larger than the USA. It would not surprise me if China is spending close, if not more than the US. Note China public military budget does not reflect its actual budget size. US increased its budget for 2019 to about $720B. Up from about $630B in 2018.]
My guess is there will be another major war in mid to late 2020s. We probably start to see China start some proxy wars with the US soon in order for China to assess US strength\tactics and the effectiveness of against Chinas new weapons.
It all will be proxy wars. No country has the power to start an invasion against a somewhat powerful nation at the moment, even not the USA. Nobody wants this all out wars.
So it’s all about proxy wars and swapping dictators in some gulf, african or south american countries. China will claim the ocean several 1000 miles around China for themselves and remove US influence in this part of the world. If it gets really dirty it will be a Vietnam like conflict.
The real showdown will between Russia and China. They have a land border – and if the Russians are not careful they soon will be a satellite state of China even with their nukes.
“Oil exports: News that the US Army Corps of Engineers has placed a $93-million order with Great Lakes Dredge & Dock Company for the deepening and widening of its ship channel at the Port of Corpus Christi broke last week. This is the first step the federal government has made to support efforts to boost crude oil exports.”
This is a form of Federal government energy policy, in effect a subsidy to facilitate export of domestic fuel supplies. Its a choice the country makes. The money could be spent on domestic energy security, instead of oil exportation. Example- transmission lines to connect windy and sunny places (like Texas) that would enable export of electricity to domestic customers in other regions of the country (like Chicago).
Lots of choices. Winners and losers.
It would seem that Texas power producers might want to sell excess power to other states besides Mexico, if they ever get to that point they might want to join the rest of the US .
Or they could remain “independent” and the opportunity to sell cheap solar power to other parts of the US can be left for New Mexico, Arizona, and California.
The oil and gas industry pipelines must already be subject to Federal regulation, or don’t they connect with other states?
Guess they just don’t like additional regulation by the Feds. Solar is not their deal, anyway. Wind farms are. They keep growing.
Guym- not quite, 2019 Texas is on tap to add the most new Solar and Wind generation of any state in the country. Texas is in the early stages of being a massive solar generator.
The owners of that resource ( or the State itself) may want to export to consumers outside the borders of the state, as oil and gas are exported by the state to the benefit of other owners currently.
I’m well aware of the outstanding texas wind power production and further potential,
And someday down the line solar will blow right past it.
The point is that at some time Texans may be wanting to be integrated with the other national grid components to sell excess power, just like pipelines for gas take that energy beyond the borders.
That may be true, but I think it would only happen if they have excess production. Historically, I don’t think there has been too much of a track record of areas producing too much electricity. If they build up in a cheaper location, old more expensive locations are bested, and are shuttered. They way I understand it, but certainly no expert on electricity.
In the meantime, they do have the capacity to add to, or take away from other grids at the flip of a switch. Texas has the third best record of states in preparation of cyber attacks.
Most states import and export electricity at times during the day and/or seasonally. The grid network does not stop at state borders, with rare exception.
Brazil is hanging on to a plateau for oil, but declined a bit in November. Two of the big FPSO due at the end of 2018 have been delayed to this year. The Santos basin, where there’s most of the start-up activity, is in slight decline, partly because the FPSOs started before mid 2016 are collectively past peak but also because the Tupi (ex-Lula) pilot vessel has been taken off line. It was producing almost 50 kpbd from a single well, it will be started up now as an extended test project in a different area of the field, and should start again producing as much or more. The Campos basin is also just about on plateau because of a recent start up, but is likely to start declining again soon.
With the new right wing government, with oppression and development, will this accelerate?
The short message seems to be that technology will solve all problems. I would reply that the technology is not cheap and applying the technology will raise average well cost.
There is some room for growth in the Permian Basin, but it will require $60-$70/b for the oil companies to make any money.
Also needed are pipelines and ports to export the light oil produced, which are at least a year away.
In the mean time Permian oil output is likely to grow much more slowly in 2019 than it did in 2018 (probably at a rate that is 3 to 4 times lower than 2018).
EIA STEO US crude oil production
October 11.54 million b/day (914 survey)
November 11.76 million b/day (forecast)
December 11.80 million b/day (forecast)
North Dakota Director’s Cut just out.
1,375,000+ barrels oil per day, about 17,000 bpd drop from October with 115 fewer producing wells.
Pennsylvania just released November production.
Passed 18 Bcfd mark. New record.
Coffeguyzz how high you think the Bakken can go on d day production rate?
Phatom
That is a very pertinent question for many reasons, but a clarification might be needed on your use of the phrase “can go” versus “will go”.
About 6 years or so back, 2 big outfits analyzed Bakken potential and came up with an outlandish sounding 2 million bpd or so.
(Reports may still be available online).
I think that might be high, but 1.7 million bpd might be achievable for a few years (tapering off from there for several additional decades of +MMbpd).
This is a geology/operational based opinion.
However, the price of the product will – as always – be a determining factor.
As per the Director’s Cut. Bakken wellhead was $39/26/36 bbld for Nov/Dec/today.
So … As more infrastructure (gas and oil pipelines and processing plants) are built, output could increase a bit for awhile.
If the pricing stays low, output will be constrained.
One thing that I seldom see on this site is the description of the drilling and – especially – the completion improvements that continue to evolve.
Bigger unknown to the upside is effective EOR.
There are a gorillion research projects across the globe directed at this topic alone.
Total US may be down Nov, and surely by Dec. Not following the STEO much.
There seems to be a bearish twist to these reports week after week (after the 86$ top in Brent in October). Finally it seems that something is happening and the market goes back to some sort of friendliness towards producers. Sharp momentum towards backwardation for Brent is a sign that OPEC+ think it is time to tighten the market. 200k/d increase in estimated US production from EIA, but only 2 days to get a reality check from Schlumberger in their 4Q report. It defies logic that the shale oil industry will not slow down with too low oil prices lasting for 2-3 months. It is just too easy to do something about it, reduce completions and a few rigs and wait for higher prices. In the mean time both OPEC policy and natural oil field decline around the world is working in the same direction; it is not difficult to predict higher oil prices coming forward. China buys crude again from the US and personally I think reports about drastically lower Iran production and exports should be questioned a bit. Oil has a tendency to find a way to the market. How much some powers will fight for low oil prices (US?, China?) and for how long, is more difficult to predict. And how high prices will go after a while is also difficult to predict. But at some point this low price party is going to bite in the form of too low supply.
The 200k increase is unmitigated BS. Nov and Dec did not see much increase from 10.5, probably a decrease. So, the weekly is probably 400k over reality. So, what’s new?
GuyM,
The EIA monthly data says 11,537 kb/d for Oct 2018 and US tight oil output increased by 136 kb/d in Nov 2018, if the rest of US output was flat, that implies about 11,673 kb/d for Nov 2018 output, the four week average was about 11,700 kb/d, not that far off. Often there is a small decline in winter (as North Dakota often has lower output due to cold weather) so perhaps we well see flat to declining output from Dec to Feb as the low prices start to affect completion rate.
I think the 4 week average weekly data is somewhat useful, but it can sometimes be off by 400 to 500 kb/d, for the past couple of months the 4 week average crude output estimate has looked pretty reasonable.
Hell, ND already down 17, instead of up 31, like Oct. think about it, Texas was only up 18 in Oct.
If Nov monthlies show close to flat, or down, there is some severe cognitive dissonance between reality and EIA short term.
Mexico’s Pipeline Theft Crackdown Inflicts Pain On U.S. Gasoline Suppliers
Tuesday, 01/15/2019 – Published by: Laura Blewitt
With Petróleos Mexicanos’ (Pemex) refineries struggling to operate at more than 30% of total capacity, gasoline pumps across Mexico are more likely to be filling up tanks with fuel imported from the U.S. than with domestic supply. This arrangement works well for U.S. refiners, who are running close to flat-out and depending on export volumes to clear the market. But now, the Mexican government has shut a number of refined products pipelines to prevent illegal tapping, and that’s had two consequences: widespread fuel shortages among Mexican consumers and a logjam of American supplies waiting to come into Mexico’s ports. https://rbnenergy.com/no-es-justo-mexicos-pipeline-theft-crackdown-inflicts-pain-on-us-gasoline-suppliers
The new posts here were already highlighted in a bland and pleasant light blue. What is with the obnoxious and distracting *New* ? It’s like a sign for a cathouse.
Greenbub,
Someone asked for it, found the light blue hard to see.
2019-01-16 (ShaleProfile) US – update through September 2018
After all revisions are in, oil production from these horizontal wells should come in well above 6 million bo/d for September. The ~8,000 wells that started in the first 9 months of 2018 will then already have contributed ~3 million bo/d in September. Never before in the history of US shale was so much new production capacity added in 9 months. As the total decline of older wells (<2018) was over 2 million bo/d (as shown by the top of the light blue area) in this period, the actual growth rate was a little below 1 million bo/d. https://shaleprofile.com/blog/
Both of these numbers are incredible.
Adding 3 million BOPD in nine months.
Wells completed prior to 2018 declining over 2 million BOPD in nine months.
Never has there been anything like this in the oil markets.
This can’t continue forever. I’ll bet tons of number crunching going on to figure out when the tipping point occurs. Very difficult to do with price volatility.
Other oil fields have other efforts.
Shale has to add 3mb/d new capacity per year.
Conventional fields have to add CO2 injectors / water injectors / creaming. Lot’s of drilling adding 0 capacity to nameplate, but still drilling.
And in offshore the costs are not the drilling, but the installations / platforms.
So you can’t compare this. LTO is more like strip mining than conventional oil drilling. You have to always continue operation and moving stuff there, too.
If you have a bigger lease you can compare it very good. Take one fracking team that continually finishs one hole after the other – like your trucks and diggers in a strip mine. You could name this “adding new capacity”, but it’s only an ongoing mining operation.
And like in mining, if the Diesel and tire wear for the trucks is more expensive than the ore they get out, you should suspend mining until times get better.
Note that 3 Mb/d of new wells being added results in a 1 Mb/d increase over 9 months or an annual rate of increase of 1.3 Mb/d for an annual rate of increase in capacity of 4 Mb/d=3/0.75, an annual increase in capacity of 2.7 Mb/d might roughly keep output on a plateau until the sweet spots get fully drilled up (this likely occurs by 2021-2023) at that point new wells are drilled in less productive areas and more wells need to be drilled for an equivalent increase in output to offset decline from older wells, in addition there are an increasing number of older wells so legacy decline will tend to gradually increase and maintaining a plateau in output becomes harder to achieve.
Eventually decreasing new well EUR overcomes any future oil price increases so the new wells become less and less profitable. Completion rate gradually decreases to zero as profits from new wells also approaches zero.
In my lower completion rate Permian scenario (maximum of 500 new wells per month) the final well is completed in Feb 2050 and output has fallen from a peak of 5500 kb/d in 2032 to 2450 kb/d in Feb 2050 with cumulative output at 57 Gb. For the faster ramp up scenario (maximum of 727 new wells per month in 2026) the peak is 7300 kb/d in 2027 and the final well is completed in June 2049, with output at 1175 kb/d at that point and cumulative output at 59 Gb.
Shallow sand,
Just a matter of what the completion rate will be. If the completion rate increases slowly the peak occurs later but will not be as high and decline will be slower. About 5.5 kb/d for Permian for peak in 2032.
A faster increase in the number of completions per month would lead to a higher peak at an earlier date with faster decline after the peak. For the faster completion scenario the Permain peak is about 7300 kb/d in 2027.
Both Permain scenarios have an ERR of about 60 Gb with EIA’s AEO2018 Reference case for Brent oil price assumed for both scenarios. New well EUR assumed to begin decreasing in Jan 2023 with average new well EUR assumed constant at 2017 EUR level from Jan 2017 to Dec 2022 average well cost assumed to be $9.5 million (full cycle cost).
Dennis.
Just a tremendous amount of locations out there.
Why do you see 2024 being a high oil price period?
Shallow sand,
I expect US tight oil to peak.
See chart at link below that compares an IEA scenario with my scenario (red line with peak at 9.5 Mb/d in 2025).
So in 6 years US tight oil goes from 7 Mb/d to 9.5 Mb/d an average of 420 kb/d increase each year for 6 years. Most of the World increase in output lately (past 2 years) has been due to US tight oil output, which has increased by 2.6 Mb/d over the previous 24 months. World output has increased at an average annual rate of 800 kb/d each year from 1982 to 2018.
The 420 kb/d rate of increase that seems likely from US tight oil over the next 6 years will leave the World short by 380 kb/d each year or a total of 2.3 Mb over the next 6 years.
Higher prices will be needed for some demand destruction and to speed the transition to EV transport.
If you – or anyone – chooses to spend 15 minutes, 60 minutes (as I just did) and go over Art’s interview (I read the transcript) and do some cross checking and further reading, one may realize why so much of this Peak Oil genre has been so wildly wrong for the past decade.
Using Art’s own words regarding the recent Delaware Basin assessment, one can only scratch one’s head and wonder why he uses a figure of 170,000 boe to make projections when both Tables #1 and #2 show the Wolfcamp (Upper and Lower) A,B,C along with 3 Bone Springs AUs with 167, 191, 192, 253, 232, 185, and 137 thousand barrel OIL EURs.
Say again, these are OIL EURs, NOT boe.
Spend 2 minutes or less, download the USGS pdf and see with your own eyes.
Next – to counter Martenson’s reference to BEG Director Scott Tinker’s bullish stance on increasing recovery percentage – Art makes a weird detour into the EOR realm, seemingly oblivious to recent primary recovery rates approaching 20% (25% for some Appalachian Basin operators).
And, despite a hilarious statement that technology can take decades to develop and commercialize, these upstream boys are ALREADY, DEMONSTRABLY implementing innovative completion/production processes to great effect as a simple glance at Enno’s site (well profiles) can attest.
Towards the end, Art makes one of the most outrageously outlandish statements that can only be compared the bizarre postings from that Steve guy … the statement that US gas gross supply has probably peaked/start GOING DOWN (???).
I’ll go no further but to state once again, this interview can be extraordinarily educational as to why so much of the peak oil view point has been so incorrect for so long.
Oil output of 82.2 million cubic meters, or 1.42 million barrels a day, would be the lowest since 1988. The forecast compares to actual production of 86.2 million last year, and is down from an earlier estimate of 87.2 million.
A new post is up, OPEC December Production Data, along with a new Non-Petroleum thread.
Chesapeake just announced a new world record 24 hour IP for a well in northeast Pennsylvania, in Sullivan county.
Well flowed 73.4 million cubic feet a day which passes the legendary Scotts Run figure of 72.9.
(Lateral length of SR being only 3,220 feet implies this achievement may never be surpassed.
New well is 9,800 foot long).
Adjacent well on Chesapeake’s pad flowed 62.6 MMcf with a 13,800 lateral.
For anyone following Appalachian Basin operations, the fact the XTO (Exxon) took out over a dozen permits in Jefferson and Indiana counties targeting Utica/Point Pleasant after bringing on a successful Utica well in that new region should prompt some thoughts on what is going on.
Chevron, also, just took out a Utica permit nearby.
Gas production in the US will soar for many decades into the future.
Go to shale profile and Look at Chesapeake wells that they have drilled in 2018 so far. Chesapeake is a bunch of liars.
I see no wells that even remotely look like what they are describing in the new article yesterday.
Go to shale profile and look for yourself
Phatom
That comment strikes me as odd on so many levels.
This new Chesapeake well would not show up on Enno’s site as his presentation only goes up to October.
Furthermore, using the ‘Monthly Flow’ – start – and the year 2018 for Chesapeake on Enno’s site shows (best I can make out on this tablet) every single one from September back already passing 1 Bcf cum, (Jan/Feb/March – 1/2/3 wells at 3.3/2.28/1.8 Bcf … current flow rates 7 and a half to 4 and a half MMcfd. If you think those are shabby profiles, you may not have much company).
In addition, Chesapeake has 122 wells (out of 794 total … 15%) over the 10 Bcf mark.
For those more familiar with oil terminology, 10 Bcf natgas equates to an oil well of more than 1.7 million barrels in terms of heat energy potential.
I’m still amazed at the Appalachian gas production numbers. Latest I could find shows that for October, the state of Pennsylvania produced 556 bcf, or about 18 bcf/day.
Are most operators making money?
Nope.
Maybe only Cabot, actually.
Sub $3 HH makes for slim pickens, and Woodymac projects low pricing for decades.
If the current EQT/Rice brothers spat breaks in the Rice brothers favor (they take over running the biggest gas producer in the country), EQT may become a financial juggernaut.
Meantime, these companies are struggling financially in the extreme.
Holy shit, Coffee; is that really you? You must have seen an image of Jesus in the shower glass door yesterday morning or something.
Wow!!
Mr. Roughneck
The few comments I make regarding the upstream boys’ financials are to put some context into the picture with Rune Likvern’s iconic Bakken Free Cash Flow graphic being just one example.
That dramatic sea of red ink was prompted by transforming a barren region the size of New Jersey – located way out in remote, harsh western North Dakota – into one of the biggest oil producing areas on the planet.
This, in just a few years’ time.
The Appalachian Basin operators generally signed 5 year leases with compensated 5 year extensions in which time frame a well needed to be developed.
Numerous leases signed in 2009 to 2011 have yet to be acted upon, especially in the north central tier.
Combining HBP terms along with honoring firm transportation contracts with the midstream boys has squeezed AB operators bigtime.
The delays in takeaway build out are receding. (A near Rover capacity pipe – the Mountaineer Xpress – is starting to come online with 2.7 Bcfd capacity. Mariner 2 is starting NGL deliveries to Marcus Hook).
Massive new CCGT plants from Florida, Virginia, Ohio and homegrown Pennsylvania are producing several thousands of megawatts per day using AB gas. Many more are in the pipeline.
The upcoming FIDs regarding LNG build out will rock observers as the speed and cost of constructing these plants continues to plummet.
If the Main Pass Energy Hub promoters are correct in their claims that 50% more LNG than Yamal can be produced at 1/3 the cost, global markets will forevermore be changed. (MPEH is projected to produce as much as all 3 Curtis Island operations combined at 1/6th the cost).
Driftwood and Delfin are no less impressive in their claims.
Thing is, Mr. Roughneck, stuff is evolving at lightning speed.
There will continue to be disruption in both the hydrocarbon and overall energy markets such as we have never seen.
Great stories on your site, BTW. Important to know from whence things came … and the character of the people who brought things about.
EQT share price has fallen from the $60s to below $20 since the Rice brothers sold their company to EQT. The value of the Rice Brothers shares appear to have dropped by about $300 million during that time.
I don’t know much about this spat, but all natural gas oriented E & P’s have seen share prices battered. It appears EQT has performed better than most, as most have or are on the verge of BK.
Not sure if Rice Brothers expertise would be of any help as it seems producing even more gas during an extreme glut would only drive gas prices lower, thus driving share prices lower.
Maybe they want to take over so they can go back to making multi million dollar salaries and receive retention bonus if EQT eventually has to file Chapter 11 BK?
As coffee says, given the complete lack of conservation of resources being exercised in the E & P space I suspect the Rice Brothers should have just taken all cash as it doesn’t appear this gas glut will ever end. Maybe they should just sell out now, before their equity is worthless
Did some more reading on EQT and find that part of step drop is due to spinoff of gathering business into ticker symbol ETRN.
So about $16 of stock price drop really isn’t, as shareholders now own share of ETRN also.
Shallow
There were several reasons the Rice/EQT consolidation made a lot of sense as they were/are big leaseholdets with much adjacent land.
In addition to logistical efficiencies, longer laterals (17,000+) could be drilled.
An even more important factor, however, would be the looming capital needs as the Rice outfit recognized that the Encana model of simultaneously developing dozens of wells could be the wave of the future.
In fact, the Rices did just that before the buyout when they brought online about 20 wells at the same time.
The lag in revenue generation, the massive logistics involved, the countless operational challenges (aka fuckups) all require an exceptionally high degree of competence that the new managers of EQT are suspected of lacking.
adorable optimism. only problem is, somehow if you were their shareholder you wouldnt have made any money since mid 90s. even in the f*cked up version of capitalism that works in US right now, this is not going to last for much longer.
73 mmcfd isn’t a world record. In the 1980’s I designed gas wells with surface facilities (such as flow lines, headers, test separators) for 110 mmcfd per well. The operating rate was set at 56 mmcfd and 1800 B/D condensate. In those days we had problems finding 10 thousand psi Xmas trees valves compatible with wells completed with 5 1/2 inch VAM tubing, and we simply wouldn’t risk high pressure completions with 7 inch tubing.
Later I had a job safety auditing a gas field where wells were designed for 210 mmcfd. But I wrote in my report that such designs were risky, because the header was something like 30 inches, and a header blowdown due to emergency conditions would lead to a flare condition which exceeded their flare design. In conclusion, those rates may be a record for Pennsylvania, but we do have much better producers, and I consider anybody who designs for high rates while having a very high shut in pressure to be a nutty operator.
Fernando
This new IP record is in regards to unconventional wells.
When the Scotts Run was being drilled, the operator – EQT – had to halt drilling for 6 months and bring in a much bigger rig due to high downhole pressure.
The Flowing Casing Pressure hit the 10,000 psi mark at the outset.
The recent Aikens 6M well from CNX that they claim to possibly become the second best Appalachian Basin well, had FCP of just under 9,000 psi and has been flowing on restricted choke at 23 MMcfd for about 8 months. (SR flowed 28 MMcfd for 8 months).
Both are Utica wells.
This Utica formation may rival the Mighty Marcellus in future years.
Got it. I have a really queasy feeling allowing a well to flow up the casing annulus when it has such a high shut in pressure.
I want to continue the discussion on TX completion trends from the last post. Everyone was mentioning a slow down in completions, but below is what I get from the Texas Railroad Commission for the Permian (districts 7C, 8, and 8A) new drill oil completions.
The spike in production in the August EIA 914 is somewhat surprising given completions were flat to trending down in the first half of 2018. We’ll have to wait to get the November and December monthly numbers, but the 561 completions in October is concerning. Is the data just late? Does October reflect completions that took place in August, which juiced production numbers, but not reported until later?
It’s also puzzling to reconcile the October and November completions numbers with commentary from pressure pumpers, sand companies, and other service providers, which all said things were slowing down. In the case of sand, new local mines continue to open, so perhaps the pressure was limited to northern white (which shows up disproportionately in public disclosure given a lot of the local sand is in the hands of private companies compared to northern white). Maybe pressure pumpers are dealing with too much capacity added rather than a slow down in completions. Doesn’t really add up.
I believe GuyM suggested the RRC data for completions might not be perfect, but that this data just gives us a general idea of the trend. If you do a trend line for the past 12 months for new drill oil completions the trend is essentially flat over that 12 month period. You can also look at data at shaleprofile and can choose TX Permian, NM Permian or both under Basin, look at the “first flow” well status.
Dennis is stating my opinion. Companies don’t post immediately, that’s for sure. You can pull up the actual completion report on the query, and it may be months behind when it was posted. This is not RRC’s fault, they report what they get.
Interesting — do I understand you correctly then that the October report reflects completions posted in October, but the actual well may have been flowing for many months already? Makes sense, given I don’t see them releasing revised reports anywhere else.
The vast majority were completed the month before, or the current month. But, there are some each month that have earlier dates. And some months have more older than others. No rhyme or reason.
GuyM,
I was not trying to assign blame, just suggesting the drilling and completion reports might not be accurate for whatever reason.
Shaleprofile is a great resource, but it’s only as good as its sources. Texas data in shaleprofile isn’t reliable until 4+ months after the fact given the amount of revisions that come in over time. E.g. the data for September 2018 will see major revisions for 4 months and minor revisions for many after that, so I don’t think it will be very reliable until Enno posts the December or January update, which will be in April or May 2019. This isn’t a criticism, just noting that leading edge trends are tough to discern in the data.
Usually, two months, as he gets the pending data file. Although, some months it’s three months. I’d venture to say, that what he has for August is pretty close to actual, as far as production goes. I’ve been tracking the pending data file for over a year, and the reported production plus the pending data file comes very close to the EIA 914 within two to three months. You can get the pending data file (wells without an assigned lease number) for the huge sum of $10 a month from RRC.
Thanks Guym. Happy to take your word for it on the pending file.
Your welcome. Glad your this interested. As for RRC, they have some limitations, mostly due to budget. However, they have to keep track of 437,000 oil and gas wells, along with thousands of producers. I have to give them A for effort. EIA has one redeeming report in the 914. Dennis also uses their shale well numbers, which he is happy with. Everything else on the site, I am pretty skeptical with. Everyone with some experience has some kind words on Enno’s site, shaleprofile. After a few months, drillinginfo is THE WORD. Except it costs a lot to join, which I am not willing to lay out. Dennis’ shale production numbers on the EIA site come from drillinginfo, so I go with Dennis when he quotes those, even though they are estimates for awhile.
GuyM,
The EIAs tight oil numbers (not the Drilling productivity report which is not very good) seem pretty good, they include more areas than Enno’s data, and I agree the most recent few months are not perfect, but they get revised as better data comes in. Agree also on drilling info data, but I only have access to what the EIA gives out monthly.
Some international fuel inventories week/week changes (million barrels)
Total Distillates: +23.08 (shown in chart)
Light Distillates: +8.39
Middle Distillates: +13.01
Heavy Distillates: +1.67
The big build is mostly due to the USA where total distillates increased +18.93
Chart (It should say Jan 4th) https://pbs.twimg.com/media/DwnwCMyWsAAw8_U.jpg
The fuel hubs ARA & Singapore, monthly data but with the last 2 weeks of weeklies shown for Dec2018 & Jan2019. Seasonal chart
https://pbs.twimg.com/media/DwnwP-DWwAAP1RI.jpg
Fujairah had an increase too, total distillates: +3.2 million barrels w/w
https://pbs.twimg.com/media/DwnxhlZWoAEESpt.jpg
What are you guys views on the “independent audit” done on Saudi reserves ?
Quite questionable with the IPO in perspective, no ?
I was wondering the same actually… https://www.demac.com/news/.
Any thoughts Ron?
This has been addressed here. Search on this site isn’t great, but it does work sometimes.
Overall conclusion is the audit was of numbers provided. No auditor drilled exploratory wells to examine independently what was beneath the ground. That may not be completely required if an examination of already existing wells is performed — but even that may not have been done.
Lol. Independent “audit”. Doesn’t fall into a category of audit. Done by consultants. Not anyone that could lose a license over giving what the client wants. And the client does pay well. If they attest to this along with any IPO, then there would be liability. Plenty of it.
“These reports have been compiled based on information provided to us which has not been subject to a factual audit or review engagement. Accordingly, neither we, nor any of our representatives accept any responsibility for the reliability, accuracy or completeness of the compiled resource information nor do we accept liability of any kind whatsoever, including liability by reason of negligence, to any person for losses incurred as a result of placing reliance on the compiled resource information.”
So,
If you trusted Trump to be an honorable and dignified leader of your country, you may also find the IPO documentation of the crown prince of the House Saudi arabia to be the kind of factual source of information to bank on. I understand he has an honorary degree from Trump University. Good marketing skills.
The wiki lists him with a Bachelor’s Degree in Law from King Saud University.
Hickory, what is your source for this statement?
Official statement on D&M website is quite different: “DeGolyer and MacNaughton is pleased to acknowledge the recent completion of the first contemporary independent assessment of reserves in Saudi Arabia for the Saudi Arabian Oil Company. The study encompassed a highly detailed independent analysis of a massive dataset and onsite review. More than 60 geophysicists, petrophysicists, geologists, simulation engineers, reserves engineering specialists, and economists were involved in the 30-month effort.”
It is clear though that Aramco being a regular client of D&M, “independency” becomes a blur notion.
Ganesa- that accounting statement is not specifically pertinent to this IPO, and was offered as a general commentary on the relevance/trustworthiness of ‘audits’.
As you pointed out, being a client of the auditor/assessor negates the unbiased analysis aspect of the work they do. I wouldn’t trust it, personally.
Seem that KSA still want to make a IPO for ARAMCO
India – Consumption of Petroleum Products (Without LPG or PetCoke)(kt/day)
December 2018 up +7.01% higher than December 2017
Average full year 2018 up +6.80% higher than full year 2017
Chart https://pbs.twimg.com/media/DwoYp5xWsAA_vRh.jpg
India Light Distillates Consumption (shown in chart)
Average full year 2018 up +9.74% higher than full year 2017
Chart https://pbs.twimg.com/media/DwoY_yjX4AA-S9K.jpg
India Middle Distillates Consumption
Average full year 2018 up +3.92% higher than full year 2017
The increase in barrels is +220 kb/day year/year (without LPG or Petcoke)
2019-01-11 (Bloomberg) The International Energy Agency, which expects the country to be the fastest-growing oil consumer through 2040, cut its 2018 demand forecast for India at least two times. The agency estimated India’s oil demand growth at 245,000 bpd in 2018 and 235,000 bpd in 2019.
https://www.worldoil.com/news/2019/1/11/india-oil-demand-rises-from-four-year-low-as-cash-ban-impact-fades
There is still some debate as to how much oil Iran is selling. Tanker trackers like Kpler have a good record.
Reuters Kepler chart: https://fingfx.thomsonreuters.com/gfx/ce/7/2562/2555/Pasted%20Image.jpg
I guess that the figures that the Economist is using includes oil going to floating storage and oil going to tank farms where the oil will still be owned by Iran.
The Economist, chart: https://pbs.twimg.com/media/Duv3sLWW4AAqJmZ.jpg
2019-01-11 (Reuters) https://www.reuters.com/article/us-iran-oil-exports/irans-crude-exports-stay-subdued-in-january-despite-waivers-sources-idUSKCN1P5006
Saudi Aramco oil reserve upgrade seen boosting bonds, IPO
The latest assessment comes from DeGolyer & MacNaughton, a respected firm of oil analysts based in Dallas, Texas. The firm concluded that, including reserves in the “partitioned zone” between Saudi Arabia and Kuwait, the Kingdom’s total oil reserves would have amounted to 268.5 billion barrels at the end of 2017, after which the DeGolyer study was made.
Jim Krane, fellow in energy studies at Rice University’s Baker Institute in Houston, Texas, said: “There’s been a cottage industry in speculation about the ‘true’ size of Saudi oil reserves. These figures ought to put to rest speculation about the true size of Saudi reserves being anything other than what Aramco says they are.”
I’m not sure about the credibility of this audit. Just looking at the step-like historical graphs of Saudi oil reserves where no depletion ever takes place is cause for suspicion.
Plus the big step in 1990 was clearly due to internal OPEC quota politics, Kuwait, Abu Dahbi, Iran having done the same before, for instance :
https://books.google.fr/books?id=tX5KAAAAQBAJ&pg=PA6&lpg=PA6&dq=campbell+saudi+reserves&source=bl&ots=5KnjxCk4IL&sig=Ci-YbQzIPDXlfTLqdy7x3eGyK6w&hl=fr&sa=X&ved=2ahUKEwjtnJDShujfAhUBfBoKHUxfAbcQ6AEwAnoECAgQAQ#v=onepage&q=campbell%20saudi%20reserves&f=false
Check out the first comment under:
https://oilprice.com/Energy/Energy-General/New-Audit-Shows-Higher-Aramco-Oil-Reserves.html
Good find, Iron Mike. Pretty much the consensus on this board the last time it was published.
Venezuela’s oil reserves are overstated. The Faja recovery factor was set at 20% by fiat, but to get 20% in the high grade very best zones we need about $100 per barrel. And given the poor reservoir management practices over the last decade, some areas are already ruined and will never get more than 6%. Getting a better recovery factor is much harder each year that goes by and the reservoirs are mishandled like they are.
By the way, right now Venezuela has two individuals claiming the presidency, the socialist dictator and a 35 year old upstart named Juan Guaidó, who belongs to the Voluntad Popular party headed by Leopoldo Lopez (who has been under house arrest or in a military jail since 2014). Things are very confusing, but January 23 has been set for a clash between large protest multitudes backing Guaido and security forces subject to Maduro’s control, who has the backing of over ten thousand Cuban military and secret police embedded in the Venezuelan military and police services.
http://energyfuse.org/u-s-shale-taps-brakes-with-wti-below-50/
Same source of info which is the Dallas Fed. Only, this one discusses costs more. As, was discussed here, previously, WTI needs to be closer to $70 ton induce interest.
Er, $70 a barrel, not ton?
2019-01-11 (Bloomberg) Saudi and Canadian cuts are leaving world hungry for heavy crude
Refiners along the Gulf Coast and in the Midwest invested billions of dollars in cokers and other heavy-oil processing units over the past three decades anticipating supplies of light oil would become scarce while heavy crude from Canada’s oil sands, Venezuela and Mexico would grow. Instead, the opposite occurred.
The shale revolution, as well as new offshore supplies form Brazil and West Africa, caused a surge of light oil, while supplies from Venezuela to Mexico declined. Canada’s growth has been stymied by delays in getting new pipelines built.
https://www.bnnbloomberg.ca/saudi-and-canadian-cuts-are-leaving-world-hungry-for-heavy-crude-1.1197259
https://www.forbes.com/sites/michaellynch/2018/06/29/what-ever-happened-to-peak-oil/#4f6f0880731a
Peak oil is a figment of the imagination, according to this author. We just add to the fire these guys build. Suppose we kept building the supply of oil 100k each year until “infinity”, would we ever see a period of time that supply could not meet demand, at a reasonable price? Yeah, probably this year. Peak oil, or when it occurs, or if it occurs is probably anticlimactic. Predicting when peak oil will occur is a fools game. Assuming peak oil will never happen is insane.
This fool maintains that peak oil will be 2025+/-2.
Lol, but you have none of your money on that, or anybody else’s. Besides, by that time, the fact of there being peak oil will be less important than we don’t have enough oil.
Peek production over demand probably had its last peek over demand in 2018?
GuyM,
Hmm,
won’t the reason for us not having enough oil be the fact that oil resources are depleting?
Yes it is correct that I don’t have any investments riding on this, just suggesting that as we approach 2023 we are likely to see the 12 month average for WTI go to $90/b or more. There will of course be continued volatility.
Note that the 52 week average price is less volatile (especially for the past 2.5 years), prices have been rising at about $10/b each year since 2016 (trend of 52 week centered moving average from Jan 1, 2016 to July 31, 2018).
Chart below shows a naïve forecast where the trend of the past 2.5 years continues to 2025 where the 52 week centered average WTI oil price reaches about $130/b in Jan 2025. I imagine future oil profits for those in the oil industry will be pretty good if this forecast is correct. Note these are nominal prices, $140/b in 2026 is about $118/b in 2018$ (2.5% annual inflation rate assumed).
I know most of the people that read this board are of the belief that the world needs to use less fossil fuels, oil being a primary one.
I also believe if the Democrats sweep in 2020, there will be a considerable amount of “anti-fossil fuel legislation.”
I have attempted to educate the readers here of the vast differences between stripper well operators and the shale industry. I hope some of you that read this board now realize that stripper operators are largely small companies that employ and handful of people to operate wells that have a very small footprint compared to what is going on in the shale areas.
I also hope some here understand that petroleum will be needed in the USA for a few more decades. For example, it seems like the petroleum based chemical industry is not going away anytime soon.
In any event, do any of you see any benefit of stripper well operators trying to engage members of the Green movement? I think one problem could be the urban/rural divide. Stripper operators are almost all rural, by necessity, as that is where the wells are. Likewise, I get the feeling much of the Green movement is urban, although not entirely of course.
I’d be interested to hear some opinions on this. Is the Green attitude that oil producers should all be stopped in their tracks? For example, consider ExxonMobil versus the family that does everything themselves and maybe clears enough for a decent wage if WTI is $60? Are both of these considered equal enemies of the Green movement?
I have read a little about the “Green New Deal”. Should I take that to mean that all wells will be forced to be shut down by the government if that comes to pass?
I would think the political left would actually be in favor of stripper well operators if they were producing oil that was solely used for things other than ICE engines. Or am I wrong about that?
The Democrats can not be defined with a radical left, nor can the Republicans be defined as a radical right that wants to shut down the government over building a ridiculous wall. I am skeptical on deep conversations with either the radical left or the radical right. Any attempt I have had with either, seems to make them angrier. Perhaps, that’s just me. There are plenty of groups who could listen, otherwise, I’m sure.
The evolution of the two political parties over the past 150 years is astonishing. We started off with the Republicans attempting to abolish slavery, fighting the land owning Democrats in the South. And, here we are today. Polarized by the radical left and right, with the probable majority not aligned either way.
And, whether they be Republican or Democrat, the majority of the population would be quite unhappy, if they did not have enough gasoline for their ICEs. I seriously doubt that the Democrats, as a whole, would like to be aligned with the party who destroyed their own transportation.
GuyM.
I don’t want to get too political on the oil board but this is specifically about oil.
For example, I see the Green New Deal proponents want to eliminate all tax breaks for oil companies. I don’t know what ones they are referring to, but I assume they mean IDC expensing and percentage depletion, As I have stated, those are not big oil (integrated major) tax breaks.
I am afraid the Green NewDeal proponents will put the small producer out of business first if they have no nuance in their position, and I suspicion since most of the leaders of this group are urban, they likely don’t know much about small businesses in the oil patch, such as the many in my territory alone.
I am just wondering if some education attempt of the left wing would be beneficial?
We have wells drilled 1905-1910 that are still economic. They have survived the Great Depression, the recent oil price collapse and a lot in between.
I’d hate to see these, and about a million like them destroyed because politicians were basically unaware of them.
I think most believe they aren’t worth producing. That is simply not true. I think they will be needed for decades.
Yes, I know stripper production is a significant percentage of US production, and will be a larger percentage when shale production is dead and gone, or turned into stripper production. It’s serious. Educating elected officials seems the way to proceed. In doing so, it would be helpful to have their constituents sign petitions to that effect, which means reaching out to local communities. Or, grass roots, if you prefer. The minorities are more aligned with the Democratic Party as a majority. They are not necessarily aligned with the green movement. ‘Green at any cost” would not be what they would align with.
However, injecting a little humor into it, maybe you can join the Milk producers that are interested in educating the urban population that brown cows do not produce chocolate milk. Or, maybe you can connect with some of these green movement celebrities before they get on their personal jets.
GuyM.
That, I am afraid, is the problem.
Politicians view every oil related business as XOM.
That is why stripper operators probably at least need to make an attempt at engaging with the left.
Although difficult for most to believe, 10 BOPD supports approximately one job in the stripper fields. 10 BOPD x 365 x $50 = $182,500.
The number of royalty owners in this country are in the millions.
Completely ending oil production in the USA appear to be the goal of a growing movement in the USA. This was not even heard of just 10 years ago.
Lol. They would have a fine time in Texas. RRC has a pretty good history of ignoring Federal mandates.
Beto is a leading 2020 candidate for Democratic nomination, supports the Green New Deal, and is a Texan, from El Paso.
Last I checked, El Paso is near Reeves Co.
But, he was not elected in Texas. He lost. Most of the mineral right owners would not vote for him. If it were properly explained to the Hispanic community that their pickups would be in danger if he was elected, he wouldn’t stand a bat’s chance in hell.
He did a lot better in the urban communities than expected. All are highly Democratic, and a huge Hispanic vote. But, none would be happy with less oil. They lacked input on what “green” would entail.
His opponent was not truly admired, either. And, definitely did not run an effective campaign. Perhaps injecting what the hell “green” would really mean, could have given him a landslide victory. Beto came close to winning, because of the heavy Hispanic vote. They aren’t stupid, and are heavily prone to a grass roots approach.
Shallow Sand,
I believe the average stripper well is about 1 b/d or at least under 2 b/d. Not sure people are trying to end oil production. The tax code should be neutral, not favoring or causing disadvantage to any business. The exception would be if that business does harm to society through pollution or some other negative externality, in that case the pollution should be taxed based on the amount emitted. Likewise public goods that give a greater benefit to society than the profit that can be realized through sales (post office and public transportation are examples) should be subsidized by the government.
The tax code does try to be fair in the treatment of percentage depletion. Going back to its inclusion in the first draft to the Code. It’s an inherent cost of the mineral. If you bought material to make widgets, then that cost is deductible. It’s creating a fairness due to timing. If you have discovered and developed minerals and die, those minerals then have a stepped up basis to your children, or a defined cost. Years ago, they could elect to take cost depletion and eliminate half the income, or sell them, and whoever buys them can take the cost depletion. If you buy the property, and then discover oil, or whatever, you have no cost per the tax code to utilize cost depletion. That was considered unfair. Ergo, 22% was considered a fair number to use. Changed later to 15%. To make it simpler for the IRS and everyone who couldn’t comprehend cost depletion, the 15% was allowed for all small producers, as there were too many damn court cases. In a short synopsis, that’s the hundred year history of percentage depletion. It’s a dumbed down version of real cost. IRS position has been supported by the Supreme Court.
And, I am really lost on how the post office fits in.
One big problem has evolved over time in taxation to help put an estoppel over too much change. The oil, gas, or other minerals are not defined as personal property, but rather real property. Raising the question of income vs long term capital gain to the owners of the mineral rights. Simply rewording the lease agreements would change the nature of the transaction. Form over substance, that is supported by substance. States have continued over time to define, and redefine minerals as real property, as well as Federal. A Federal law overriding that would be challenged as Unconstitutional, and it would be.
I’d much rather pay long term capital gain rate vs a puny 15% deduction. Retaining the 15% depletion rate is fairer to the government than the owners of the mineral rights.
GuyM,
I will just leave this to lawyers and accountants. Seems tax code could be simpler, just treat all real property in the same manner, a capital asset is a capital asset and the depreciation rules should not change whether the asset is real or personal property.
For inherited property, just reassess at full value.
GuyM,
There are two types of externalities, a negative externality (pollution being the classic example) and a positive externality (public transportation and communication networks being examples).
In each case without government intervention we either get more than the optimal amount (negative externality) or too little of the optimal amount (for a positive externality) in a frre market capitalist system with no government interference in the free market.
https://en.wikipedia.org/wiki/Externality
A full discussion of externalities includes both positive and negative externalities.
The depletion allowance is complete bullshit. If an industrialist buys ten machines, and sells five, he can’t go to the government asking for a tax break because he only has five machines left. He sold them. He can write off his investment on a normal schedule, but not for the parts of it he sold off.
Those minerals don’t just vanish into thin air. They are sold at a profit. You can’t write off goods as a loss that you sell at a profit under normal accounting practice. It’s a scam.
Well, as a CPA, you have me totally confused.
Are you referring to cost depletion or percentage depletion.
Need to know that before discussing pros and cons.
Simple example.
I buy a one well lease for $100K. The equipment on the lease is valued at $50K per the purchase agreement. Under straightline depreciation, I would depreciate the equipment over 7 years, equally (assume date of purchase is today). I would receive a deprecation deduction of $7,143 in 2019 and the six years thereafter.
The remaining $50,000 could be deducted as cost depletion. I would estimate the number of barrels to be produced, say I come up with 10,000 over the life of the well, so reserves are valued at $5 per barrel.
Year one the well produces 1,000 barrels, I deduct $5,000 in unit cost depletion. Year 2 it produces 700 barrels, I deduct $3,500 in unit cost depletion.
Assuming I am a small operator (1,000 BOPD or less for year in question) I can elect to take percentage depletion if it is greater than cost depletion.
So, in year 1 if I sell 1,000 BO for $50 per BO, I could deduct $50,000 x .15 = $7,500 of percentage depletion.
Both deductions reduce my basis and if I sell the well I would be subject to recapture tax (ordinary and not capital gain rates) on the depreciated and depleted portion of the well.
Cost depletion doesn’t seem to me to be any type of “BS”. Percentage I can see the argument for it being “BS”.
Almost all mineral extraction companies are allowed percentage depletion, however, and only oil and natural gas are limited to small producers.
The idea behind allowing small producers to take percentage depletion was the hope of salvaging the one million stripper wells in USA during times of low prices, as prices are very volatile and the wells would be plugged. However, in 2012 as part of a negotiation during a potential government shutdown, taking percentage depletion beyond 100% of income per property was abolished.
For example, say in year 3 of my example well, it produces 500 BO (to the operator – me). The oil price is just $30 for the year, my sales are $15,000.
Assume the expenses to operate the well are $20,000. I cannot take percentage depletion. Prior to 2012, I could.
Say I have another well in year 3 where I sell 1,000 BO for $30 = $30,000. My expenses are $20,000. I can take $4,500 percentage depletion on that well.
I can see the arguments in favor of and against percentage depletion, the same as I can see the arguments in favor of and against many other tax items, such as Home mortgage interest deduction, state and local tax deduction, accelerated depreciation, business tax credits, alternative fuel credits, etc.
Just don’t call percentage depletion a TAX BREAK FOR BIG OIL!!! That is a LIE assuming the definition for big oil is an INTEGRATED MAJOR such as XOM, CVX, BP, RDS etc.
Hope this helps. GuyM can correct any mistake I made, I am sure. Trying to keep it simple.
It’s as exactly as shallow says for the producer. He in the business, he has to know. As to the percentage depletion, there is a long, long history of court cases, and rewrites of the tax law. Originally, only the owner of the mineral rights was allowed a percentage depletion for his cost of the minerals. However, if you review leases written today, or even old leases, there are not two sales of the minerals, there is only one. So, the argument was for the small producer to share. It made it much easier on the IRS, Congress, and the courts to have it that way. In a nutshell.
This part of the tax law has been fought over for close to a hundred years. Congress has re-written it again and again. Thousands of court cases, and whichever way it goes, there is always some dissention. And, in its current form, the mineral right owner has been the big loser the past hundred years. And, the State laws and court cases are against the mineral right owner refusing to lease. It’s going to get drilled, anyway. The well may be on the next owner’s property, but he is draining your oil, too. And you can wind up with nothing for it.
Dennis.
I do think some people are trying to end oil production in the USA, based upon what I am reading.
Some in our family have owned interests in oil wells for over 40 years, and say we all need to be looking for an good exit plan, not because of shale or electric cars, but because the political risk has become not only greater, but unpredictable.
I hope we have nothing to worry about. I’d say we better stay alert.
Shallow sand,
There are always risks, as peak oil approaches, the reward may be worth the risk as oil prices will increase quite a bit, wait for 2024 when oil prices will peak and then sell your oil wells.
I agree with Dennis, the risk may increase in the 2025 to 2030 period due to colliding climate and environmental problems. Depending upon initial severity it might trigger a populous movement away from fossil fuels.
Shallow sand,
Based on this piece
https://www.politico.com/story/2019/01/12/democrats-green-new-deal-1068840
The “Green New Deal” is not very well defined and as far as I can tell does not suggest ending oil production in the US.
It is a far left agenda that has about as much chance of being implemented in the US in the near term (next 10 years) as a major cut back in entitlements in the US in order to balance the Federal budget.
So much ado about nothing as they say.
The structure of government in the US is inherently conservative, nothing much gets done by the US government, hey it might be shut down until 2020 🙂
Good questions Shallow.
I agree that most people (and politicians) from around the country know nothing of the difference between small and large oil producers.
And I have no idea how to educate policy makers/public on this. If there is a way, it is well worth the effort.
Most voters, and perhaps even more so democrats, will side with small/family businesses over large corporations every time. If they are aware of the difference.
Regarding the NewGreen deal, I wouldn’t worry about that. I don’t think the extreme parts of that kind of package will make it through the policy process intact.
I do think that a carbon tax has a chance of being phased in at some point. This would hurt higher cost producers most, whether coal, oil or nat gas, although the cost will likely just be passed through to the consumer. But I’d be surprised if it will be high enough to alter demand much. A caveat to that is if we had some sort of big weather event that would call people to action- such as a very deep el nino.
The bigger threat to oil demand is the innovation that is happening in the electric vehicle sector. Over this coming decade, there will be a huge shift towards vehicles with batteries in them, and plugin charging capability. But it will take a long time to turn over the fleet of vehicles.
Thats how it looks from here (the coast).
If the stripper segment of the industry was to engage with the public, especially those who are not from producing areas, I do think the message you indicate would be well received.
But I wouldn’t waste the energy on trying to engage the far right or left wings, since they have positions pretty much fixed in stone. Energy would be better spent on those who are closer to the middle, if you can find them. IMHO
Totally agree. The minorities may not be closer to the middle on the Democrat/Republican spectrum, but neither can afford to pay a higher price for gas due to taxes or eliminating oil. Green is good, green at any cost would destroy the economy. Let the EVs proceed with development, or help them along. But, don’t throw the baby out with the bath water. Oil won’t be around that long, let’s rescue what we can.
Shallow sand,
Most people would be happy if the tax breaks were just the same as any mining industry (there are a number of different percentage depletion allowances.)
I don’t know what the Green New Deal is, to be honest.
From my perspective most lefties would be happy with a simple carbon tax.
Also coal is more of a problem than oil for most environmentalists and to some natural gas is more of a problem than oil, so I believe youa are incorrect that most think oil is the biggest problem. Generally the focus is on tax breaks for big oil companies that make billions and often pay little in taxes. Also companies like Exxon Mobil that knew very well about climate change and went the route of tobacco companies and tried to obfuscate are in the crosshairs of the green movement.
Dennis.
It is generally accepted that the integrated majors are the beneficiaries of large Federal Income “tax breaks.”
Actually, I recently researched this and posted about it. The integrated majors cannot take percentage depletion as an expense and cannot expense intangible drilling and completion costs.
Do you know what effective rates integrated majors pay in the US and what expenses or deductions they benefit from that other US businesses do not?
Large oil companies are limited to cost depletion, only. Which is similar to depreciation, only based on production. Any company gets depreciation, and most get better deprecation rates than cost depletion. They get a little of percentage, but not much. So, big oil companies get no tax breaks over others. There is a standard 15% for small producers, and sulfur and uranium get 22%. The percentage has changed over time (used to be the same as sulfur), but has been the same rate for many years.
https://www.law.cornell.edu/uscode/text/26/613
Cost depletion works like this: they paid 2 million for rights to oil that has expected future output 1 billion barrels. The percentage of production to that one billion can be multiplied times 2 million for their deduction. In a very simplistic analysis.
The integrated majors cannot take any percentage depletion.
Independent oil and gas companies are permitted to take percentage depletion at 15% on a maximum of 365,000 BOE annually (1,000 BOEPD).
XOM claims that it paid $86.1 billion in federal, state and local income taxes in the US for the years 2008-17.
I also read where XOM paid the most worldwide taxes of any company in 2010, almost $75 billion in that year alone.
We have an oil refinery in our county. It pays right at 40% of the real estate taxes our county assesses each year.
Needless to say, when it is put out of business someday, we will take a massive hit. Not to mention the 800 jobs, almost all six figure annually.
I am aware of an oil refinery that was located in a small county for decades, that closed in the late 1990s. The county lost about 15% of its population, and local employment was saved only somewhat by a prison being built in the county.
Refineries pay a load in real estate taxes.
I am not advocating on behalf of XOM or our local refinery. Hopefully renewable energy will economically offset these tax receipts and jobs in some manner.
Hi Shallow Sand,
I believe some of the companies that are not integrated majors are still very large oil companies and are valued in the billions of dollars.
In my opinion the rules for depreciation for any capital employed, whether for an oil resource or equipment should be the same in every case. Accelerated depreciation rules should be eliminated. If I own a capital asset that I purchased Jan 1 for 10 million and at the end of the year it could be sold for 5 million, then I should be able to expense the 5 million.
This may be how the tax rules work, but when I read the rules my mind goes numb and there seems to be multiple exceptions to every rule so that only a tax professional or attorney could understand the rules.
The US tax code should be thrown in the trash and start from scratch with a limit of 5 pages of 8.5 by 11 inch paper to write the entire set of rules.
Same set of rules applies to everyone.
Any law should not exceed 4400 words. The length of the US Constution.
That could be done with simple switching to a VAT tax that all other countries use. I’m all for it. EVERYONE is treated the same, period. Or, as a more familiar term to most, a national sales tax.
GuyM,
VAT is highly regressive, as the wealthy don’t spend nearly as much of their income as the poor folks.
Could be combined with a progressive income tax where all income is treated the same (wages, capital gains, interest.dividends, and any other type of income I haven’t though of) and there are no deductions for anything, no loopholes, all eliminated. Might put many accountants out of work though.
Hopefully business expenses would be deductible. Straight line depreciation also
A price based phase out of % depletion would be ok if 100% income limitation per property were also removed. My vote would be full at price of $0-65, sliding scale $65-85, phaseout $85+.
Yeah, Dennis, but it’s various arguments that make the tax code so complicated.
And real estate is and was never subject to depreciation. Accelerated depreciation was injected into the code to stimulate investment. There is nothing in the Code for accelerated depreciation for oil companies, other than for small companies, they can take a certain percentage of work done on wells as expense, currently. Do you have any idea how much time, effort and IRS time is spent on earned income credit and child tax credit. It takes up most of the time on a simple return. That’s in addition to lower, or no tax brackets for lower income.
Your arguments are not new, and subject to the same misunderstandings I have heard on the tax code for forty years.
There is more complications on a simple return due to tax law, than there are on much more complex issues.
It’s Washington, DC, man. It’s not going to change based on a progressive income tax. It’s why other countries use VAT, and I support what would put me out of a job.
GuyM,
So if one builds a factory (real property), no depreciation of the building is allowed?
Interesting, I did not realize that.
I guess I am ok with mineral rights being treated like most capital assets (which would be personal property I assume), I am neither an attorney or an accountant, but earned income tax credits and child care tax credits should be eliminated, if one chooses to have children then you make the choice to either care for them yourself or pay others to do so.
I think the tax code should be simplified and I don’t think subsidies to encourage more children is good policy.
Note I do not suggest any of this would ever pass the US legislature, that’s where good ideas go to die. 🙂
I like VAT, but it should be combined with a progressive income tax.
Shallow sand,
Only net income is income, business expenses would always be deducted from gross revenue, and again I am not an accountant, but I assume only profit=revenue minus cost would be taxed.
Seems it would make more sense to do cost depletion and eliminate percentage depletion for all mining industries. In addition accelerated depreciation should also be eliminated for all industries, straight line everywhere. Again simplify the tax code.
https://www.investopedia.com/terms/p/percentage-depletion.asp
Shallow sand,
Businesses close all the time, the paper industry in the Northeast has taken a beating over the past 20 years. As oil depletes and becomes more expensive, more people may switch to EVs if they are cheaper to own and operate and demand for gasoline may decrease. The smaller refineries may not be as efficient as larger refineries and may shut down if they are no longer profitable, it is just the way capitalism works.
XOM paid about 8.6 billion per year on about 30 billion per year in net income, about a 29% tax rate.
Dennis.
Yes, I agree that if market forces cause the demise, that is capitalism.
I am speaking for a special interest, no doubt.
Just wondering aloud if the left knows how many small businesses they will shutter?
Shallow sand,
Not sure the left has the agenda you think.
The aim is to tax carbon so we put less of it in the atmosphere, whether that happens or not, (in the US I doubt it will ever become law, though I think it is a good idea) oil will deplete, it will become expensive and eventually people will use less oil as more EVs are sold, there will still be quite a bit needed for water and air transport, though eventually alternatives might be found. At some point demand might decrease to a level where stripper wells are competing with OPEC and not sure how well that goes for small producers. It seems when oil prices get down to $40/b in 2018 $ many stripper wells stop being worth the effort. That probably does not occur until 2050 or later.
Dennis, Real estate meaning land. Of course a building is depreciable. Tax code real property is land and building and minerals. Personal property is tangible property other than real property, e.g. equipment, inventory. The oddity in the tax code is treating mineral rights as income vs capital gain. So, doing that, and allowing only a 15% depletion allowance is really not fair to the land owner. Because, long term capital gain would give a much better tax break than a lousy 15% deduction. If I produce minerals, it is income. If I just sell it to another, without producing, it’s a capital gain. And, even if is in the millions, the cap on that capital gain is a 20% tax. Then that person can use what he paid me as a basis for cost depletion.
The Green New Deal is a Neomarxist document written as a Trojan Horse by US communists. The content has a lot of the ideas and memes used by German communists who run a party known as “Die Linke”. This party has an outfit known as “Rosa Luxemburg Stiftung” with offices in New York. They work with Ocasio and the other communist radicals who are running under the disguise of “Democratic Socialists”, “Justice Democrats”, “Sunrise Movement”. I have been able to get deep into their social media, read their meeting notes, and other material, and the core is definitely communist and tied to the German communists as wells as the Castro machine. They have internal differences regarding issues such as Israel, taking campaign donations, the open border with Mexico, etc. But in general they are as red as they come. One of their stooges is Maxine Waters, but they have about six congressmen and another twenty or so who are afraid of them nearly as much as they fear AIPAC.
Ooh Marxists, very scary. 🙂
Those German communists are a lot less scary than the Neo-Nazis on the German right. In any case the fringe ideas, never get anywhere in the US, though perhaps from your perspective the New Deal was a communist plot and JFK was a commie sympathizer.
Hi Shallow.
Have only scanned this thread; sorry if I repeat a point.
My thought is that the New Green Deal is totally unformed, and not really a topic for policy discussion at this point.
That said, I can see you wanting to get in front of this, and that education or PR could help stripper well operators.
If I were to try and sell your industry, I would emphasize the low water usage compared to shale, the local aspect, the “use every part of the hog” aspect of stripper well operation.
We won’t get off oil quickly (which is why we’re all gonna die 🙂 ). That said, you guys are pretty much the least messy part of the business, as far as I can tell.
Vintage, artisanal oil, just like grandpappy used to drill. That’s how you sell it. I see an old geezer in bib overalls and straw hat, perhaps playing harmonica, sitting beside a pumpjack. (And I’m only half joking.)
Lloyd.
I know you are not necessarily joking.
Today, marketing matters more than ever.
Organic free range chicken. .
Shallow Sand Wrote:
“I also believe if the Democrats sweep in 2020, there will be a considerable amount of “anti-fossil fuel legislation.” ”
I doubt really its not about fossil fuel consumption, its about an energy tax. Never seen a democrat that didn’t love a new big fat tax.
FWIW: My guess is that the DNC will continue to move towards socialism, pressing for much higher taxes on the working class, to support single payer healthcare & basic income for the poor (they’re primary voting base). An Energy tax would be another revenue source to support these spending programs. Its likely taxes would target refined energy products sold to US consumers: ( gasoline taxes at the pub, higher electricity rates, NatGas Tax). 90% of the discussion coming from Socialist Democrats is about higher taxes (ie the 70% to 90% tax rates on the Wealthy). To fund any grant socialist program like single payer healthcare is going to require a lot of revenue.
My guess is that higher tax rates for the working class & demographics (retiring boomers) will put a limit on energy demand in the US. However, global demand for energy will likely continue, as more US business relocate overseas to avoid excessive US regulation & taxes. As long as US is able to export oil prices for producers should be stable or increase modestly as foreign consumption replaces US domestic demand. I think the gov’t would want to tax revenue generated from energy exports, since the US debt is already at $22T and budget deficits will be in the $1T per year going forward for at least the next decade do to pensions, entitlements, and other gov’t expenditures.
Two ideologically neutral points about politics.
First, no one right now has any idea what issues are going to decide the next election. Prominent things in the news this far ahead of election day will likely be off the radar screen by then. Case in point, the Iraq War dominated discussion during the nomination process of 2008. Obama moved leftward of Hillary during the nomination campaign and who promised getting troops out before the other became the measurement of nomination support. After all that, the decisive issue in the election proved to be the Lehman Brothers explosion and the economy derived therefrom. That’s per the exit polls. No one had any idea what issue would decide the election even six months before the election.
Second, everything and everyone gets co-opted. The popular label is Deep State. Radical policies, and lets not use that term — rather call them policies departing from those widely embraced by Congress — no matter what the policies are they never survive Washington.
True. And a major issue before the next election could be the price of gasoline. Quien sabe?
https://oilprice.com/Energy/Energy-General/Could-Oil-Prices-Rise-By-25-Per-Barrel-In-2019.html
Not too unreasonable. Higher than most.
GuyM,
Agree, Rapier is very good. $70/b by the end of 2019 is very reasonable and actually similar to many of the major banks. The $55/b average expectation of oil executives according to Dallas Fed is too low in my opinion. Rapier is spot on (within $5/b of being correct) imo.
I think the inventory draws will be much deeper than most expect, so it could be higher.
Isn’t $35 per barrel entirely reasonable? The reasonable word is amusing. It would be far better to use the word credible.
Actually, any price is credible. Our ongoing discussion revolves around what is going to re-start shale production growth, and what is reasonable for that to happen.
GuyM,
Much depends on what ROI is acceptable for an oil company, if they require a 15% ROI, then the average 2017 Permian Basin well (average cost full cycle assumed to be $9.5 million) needs $66/b at refinery gate ($62/b at wellhead) to meet that hurdle, EUR is about 411 kb.
Watcher,
Yes poor word choice, the analysis by Rapier seems very credible.
The $35/b price is reasonable only if the oil can be produced profitably at that price. This might be the case for about 40 Mb/d of the oil produced in the World (OPEC, Russia, and some stripper wells [about 4% of US output]) at $35/b, much of the World’s oil needs at least $65/b and the marginal barrels (the most expensive barrels to produce) probably $70/b is needed for those barrels to result in a profit.
I know you maintain that price does not matter, and I would suggest you are incorrect.
blah blah
Is $35 credible? No ifs and buts. Yes or no.
No, I don’t think it is credible any more. Within probabilities statistically, but not credible. Credible meaning believable. My choice of words your attacking. I used reasonable, which for a synonym you could use rational. It’s what I meant, and defined so in the dictionaries. So, I fail to see how it is a poor choice of words.
Don’t remember if you were around a few years ago when Argentina declared the price of oil to be about 20 or $30 per barrel higher than the rest of the world. This was done because they taxed their oil production and needed it to flow.
Enshrouding credibility with some array of probabilities based on no knowledge of news events of the future can’t possibly make sense.
Any price is credible. And the really bad news for you folks is they are all equally probable.
Come now. War is the natural state of human society as proven by thousands of years. A war that wipes out most of the population of Japan is going to spike or crash the price of oil? We can’t even predict that, and that’s given presumed knowledge of an event. It would be elimination of consumption, and also great fear about the war spreading.
All prices are credible, and equally probable.
Given. But, I choose to live my life on informed decisions to make a reasonable/rational choice. Shit happens, but I’m not going to miss the boat, because I’m afraid it will sink.
Wait. What boat.
This is not an investment blog. Or it didn’t used to be.
And I posted nothing about investments. Your kinda strange.
Watcher,
So one billion US $ per barrel (in 2018$) has the same probability as $65/b (2018 US$) for the 2019 12 month average Brent oil price?
I would strongly disagree.
No
Watcher,
Is a price of $0/b credible? I would say no.
I would also say $35/b for any 12 month average WTI oil price prior to 2035 is also not credible.
“Is $35 credible? No ifs and buts. Yes or no.”
yes if the US & the world plunge into another major recession. Sooner or later credit cycles come to an end cause deep recessions.
Currently CBs are loading up on Stocks as they stopped selling and started buying again causing their balance sheets to rise again. This has temporarily stopped the stock market sell off.
Techguy,
It is not clear how much prices would fall in response to another severe financial crisis. Demand might slow a bit, but $35/b might not result in sufficient supply.
It is doubtful there will be a major recession near term and a much higher probability oil prices will be $65/b or more than $35/b or less (12 month centered average Brent Oil price) in the next 5 years.
Eventually a future recession (after 2030), might see oil prices at $35/b or less, my guess is after 2040, when transition to electric transport is further along.
If the Fed continues to tighten it certainly will trigger another recession. Every US recession since the 1920s has been triggered by the Fed.
That said we are very long in global credit cycle. We already see signs of a pull back with falling Mortgage applications and auto loans. LIBOR rates have increased by 100 bp in the past 10 months (Fast than CB rate hikes).
For now it appears CB reversed course by increasing their balance sheet (obviously to stop the market route). There is a strong possibility, that investors in retirement or close to retirement will sell into the current rally, since they may not risk get caught in another long term bear market. I think stocks will be flat or decline in 2019.
I think consumers are once again approaching max debt. having doubled down in debt after the 2008-2009 crisis. That’s why asset prices have exceed the 2007-2008 highs. People used debt to maintain BAU, and used the lower interest rates to maintain lifestyles. But I think they accumulated so much more debt they reached their limit, and the CBs will have to drop rates to enable consumers to take on more debt.
Also consider that many Auto manufactures have announced significant layoffs. GM, Ford & Chrysler are in the process of reducing there workforce between 5% and 12%. Usually Auto companies are the first to downsize, when consumers start cutting back on big ticket items.
Perhaps if the CB banks start dropping rate again, a major recession can be postponed.
See how my old $63 per barrel model is not that bad after all? Right now it’s a bit higher, about $70.
Fernando L,
So your model suggests $70/b for Brent in 2019?
In support of RRC, I looked up their agency expenses, and found they are less than $50 million. That’s to pay for keeping up with almost a half million oil and gas wells, thousands of operators, and multiple other duties, including taking care of a significant amount of State income. There is a grand total of about 725 employees. Hats off!
Could have 1/2 of a F35 not including Fuel.
But, they collect about 3 billion for the State, in addition to managing the wells and producers.
This one slipped by me. An increase of 100k bpd pipeline expansion from Cushing to the Coast due online February.
https://www.chron.com/business/energy/amp/Seaway-begins-open-season-on-Cushing-to-Gulf-13483718.php
https://seekingalpha.com/amp/article/4231192-enbridge-enterprise-products-get-ready-expand-seaway-pipeline-yet
Partially to cover another 50k bpd coming from the Bakken. Not much help to Cushing.
Chinese crude oil imports up +9.9% higher in full year 2018 compared to FY 2017.
The month of December up +29.9% higher than Dec 2017
2019-01-14 OilyticsData
Another big crude import number from China (2nd consecutive month of imports above 10 MMB/D). Low oil prices and startup of mega refineries such as RongSheng and Hengli is helping to keep these numbers near record levels.(Source; GAC China)
Chart https://pbs.twimg.com/media/Dw3fk2GXcAUZ_Vu.jpg
Oilytics https://twitter.com/OilyticsData
Whoa. This suggests the domestic oil production in their Northeast has fallen a great deal.
Their nominal consumption growth is about 5 to 6%. For them to be importing nearly 10% more suggest an outright oil production decline domestically of 4%. That’s rather a lot, and not projected by the Interior Ministry that I can recall.
Somewhat fortuitous in that it will serve to reduce their Trade Surplus during the current tensions.
Going to have to dig into that more deeply and determine if recent refinery development has them exporting product to local Asian consumers and thus requiring more crude influx.
China makes the top 10 list of petroleum product export at about $25B. This seems to be a few hundred thousand bpd.
This would not cover the import total. They are growing consumption and/or losing production.
“Strategic Stockpiling to Support China’s Crude Imports”
https://oilvoice.com/Opinion/22018/Strategic-Stockpiling-to-Support-Chinas-Crude-Imports
“China’s strategic petroleum reserve (SPR) depot in Jinzhou officially started filling in August 2018, bringing the existing depot capacity to a total of 249.1 million barrels”
“filling the government depot alone could add 70,000 b/d to Chinese crude demand between now and the end of 2018 and another 150,000 b/d in 2019.”
China as been prepping for a major war for the past few years. Stockpile Oil is part of the plan.
“China steps up preparation for war”
https://thehill.com/opinion/national-security/413632-china-steps-up-preparation-for-war-with-whom
” Beijing has spent hundreds of billions of dollars on a massive military buildup to deter or defeat Washington in war; now, America is refocusing its national security strategy on great-power military competition — meaning China. Since China’s economy clearly is slowing and heavily in debt, its leaders might see now as the best time to displace U.S. power in the region through war.”
[Consider that China active military personnel size is about 50% larger than the USA. It would not surprise me if China is spending close, if not more than the US. Note China public military budget does not reflect its actual budget size. US increased its budget for 2019 to about $720B. Up from about $630B in 2018.]
My guess is there will be another major war in mid to late 2020s. We probably start to see China start some proxy wars with the US soon in order for China to assess US strength\tactics and the effectiveness of against Chinas new weapons.
It all will be proxy wars. No country has the power to start an invasion against a somewhat powerful nation at the moment, even not the USA. Nobody wants this all out wars.
So it’s all about proxy wars and swapping dictators in some gulf, african or south american countries. China will claim the ocean several 1000 miles around China for themselves and remove US influence in this part of the world. If it gets really dirty it will be a Vietnam like conflict.
The real showdown will between Russia and China. They have a land border – and if the Russians are not careful they soon will be a satellite state of China even with their nukes.
Peak Oil Review has much to chew on this Monday.
https://mailchi.mp/163f3fb1f9e1/peak-oil-review-13-february-48557?e=0fdd45430d
Good link LT, thanks.
“Oil exports: News that the US Army Corps of Engineers has placed a $93-million order with Great Lakes Dredge & Dock Company for the deepening and widening of its ship channel at the Port of Corpus Christi broke last week. This is the first step the federal government has made to support efforts to boost crude oil exports.”
This is a form of Federal government energy policy, in effect a subsidy to facilitate export of domestic fuel supplies. Its a choice the country makes. The money could be spent on domestic energy security, instead of oil exportation. Example- transmission lines to connect windy and sunny places (like Texas) that would enable export of electricity to domestic customers in other regions of the country (like Chicago).
Lots of choices. Winners and losers.
https://www.texastribune.org/2011/02/08/texplainer-why-does-texas-have-its-own-power-grid/
Ain’t gonna happen.
GuyM,
Interesting thanks.
It would seem that Texas power producers might want to sell excess power to other states besides Mexico, if they ever get to that point they might want to join the rest of the US .
Or they could remain “independent” and the opportunity to sell cheap solar power to other parts of the US can be left for New Mexico, Arizona, and California.
The oil and gas industry pipelines must already be subject to Federal regulation, or don’t they connect with other states?
Guess they just don’t like additional regulation by the Feds. Solar is not their deal, anyway. Wind farms are. They keep growing.
Guym- not quite, 2019 Texas is on tap to add the most new Solar and Wind generation of any state in the country. Texas is in the early stages of being a massive solar generator.
The owners of that resource ( or the State itself) may want to export to consumers outside the borders of the state, as oil and gas are exported by the state to the benefit of other owners currently.
https://www.eia.gov/todayinenergy/detail.php?id=37952
Guess you did not read the article, just the post.
Also
https://www.chron.com/business/energy/amp/Texas-wind-generation-breaks-record-ERCOT-13481063.php
I’m well aware of the outstanding texas wind power production and further potential,
And someday down the line solar will blow right past it.
The point is that at some time Texans may be wanting to be integrated with the other national grid components to sell excess power, just like pipelines for gas take that energy beyond the borders.
That may be true, but I think it would only happen if they have excess production. Historically, I don’t think there has been too much of a track record of areas producing too much electricity. If they build up in a cheaper location, old more expensive locations are bested, and are shuttered. They way I understand it, but certainly no expert on electricity.
In the meantime, they do have the capacity to add to, or take away from other grids at the flip of a switch. Texas has the third best record of states in preparation of cyber attacks.
Most states import and export electricity at times during the day and/or seasonally. The grid network does not stop at state borders, with rare exception.
Brazil is hanging on to a plateau for oil, but declined a bit in November. Two of the big FPSO due at the end of 2018 have been delayed to this year. The Santos basin, where there’s most of the start-up activity, is in slight decline, partly because the FPSOs started before mid 2016 are collectively past peak but also because the Tupi (ex-Lula) pilot vessel has been taken off line. It was producing almost 50 kpbd from a single well, it will be started up now as an extended test project in a different area of the field, and should start again producing as much or more. The Campos basin is also just about on plateau because of a recent start up, but is likely to start declining again soon.
With the new right wing government, with oppression and development, will this accelerate?
https://oilprice.com/Energy/Crude-Oil/Fears-Of-US-Shale-Demise-May-Be-Overblown.html
New information, which appears to supplant old.
GuyM,
The short message seems to be that technology will solve all problems. I would reply that the technology is not cheap and applying the technology will raise average well cost.
There is some room for growth in the Permian Basin, but it will require $60-$70/b for the oil companies to make any money.
Also needed are pipelines and ports to export the light oil produced, which are at least a year away.
In the mean time Permian oil output is likely to grow much more slowly in 2019 than it did in 2018 (probably at a rate that is 3 to 4 times lower than 2018).
EIA STEO US crude oil production
October 11.54 million b/day (914 survey)
November 11.76 million b/day (forecast)
December 11.80 million b/day (forecast)
December 2019 12.32 million b/day
https://www.eia.gov/outlooks/steo/
That’s possible, but not at WTI of $51.
North Dakota Director’s Cut just out.
1,375,000+ barrels oil per day, about 17,000 bpd drop from October with 115 fewer producing wells.
Pennsylvania just released November production.
Passed 18 Bcfd mark. New record.
Coffeguyzz how high you think the Bakken can go on d day production rate?
Phatom
That is a very pertinent question for many reasons, but a clarification might be needed on your use of the phrase “can go” versus “will go”.
About 6 years or so back, 2 big outfits analyzed Bakken potential and came up with an outlandish sounding 2 million bpd or so.
(Reports may still be available online).
I think that might be high, but 1.7 million bpd might be achievable for a few years (tapering off from there for several additional decades of +MMbpd).
This is a geology/operational based opinion.
However, the price of the product will – as always – be a determining factor.
As per the Director’s Cut. Bakken wellhead was $39/26/36 bbld for Nov/Dec/today.
So … As more infrastructure (gas and oil pipelines and processing plants) are built, output could increase a bit for awhile.
If the pricing stays low, output will be constrained.
One thing that I seldom see on this site is the description of the drilling and – especially – the completion improvements that continue to evolve.
Bigger unknown to the upside is effective EOR.
There are a gorillion research projects across the globe directed at this topic alone.
Total US may be down Nov, and surely by Dec. Not following the STEO much.
https://oilprice.com/Energy/Crude-Oil/Oil-Markets-Could-See-Deficit-In-2019.html
Really?
https://www.houstonchronicle.com/business/energy/amp/Exxon-s-Baytown-refinery-to-see-big-facelift-13536835.php
Knew this had to come about. Not very timely, though. They are running out of options on heavy oil, plus XTO is heavily into the Permian.
U.S. Petroleum Balance Sheet, Week Ending 1/11/2019
EIA pdf http://ir.eia.gov/wpsr/overview.pdf
Saxo Bank chart https://pbs.twimg.com/media/DxCwfikX0AMPKYq.jpg
Oilytics 2 charts https://pbs.twimg.com/media/DxC264dXgAAz_BS.jpg
https://pbs.twimg.com/media/DxCwD9uW0AAykhR.jpg
There seems to be a bearish twist to these reports week after week (after the 86$ top in Brent in October). Finally it seems that something is happening and the market goes back to some sort of friendliness towards producers. Sharp momentum towards backwardation for Brent is a sign that OPEC+ think it is time to tighten the market. 200k/d increase in estimated US production from EIA, but only 2 days to get a reality check from Schlumberger in their 4Q report. It defies logic that the shale oil industry will not slow down with too low oil prices lasting for 2-3 months. It is just too easy to do something about it, reduce completions and a few rigs and wait for higher prices. In the mean time both OPEC policy and natural oil field decline around the world is working in the same direction; it is not difficult to predict higher oil prices coming forward. China buys crude again from the US and personally I think reports about drastically lower Iran production and exports should be questioned a bit. Oil has a tendency to find a way to the market. How much some powers will fight for low oil prices (US?, China?) and for how long, is more difficult to predict. And how high prices will go after a while is also difficult to predict. But at some point this low price party is going to bite in the form of too low supply.
The 200k increase is unmitigated BS. Nov and Dec did not see much increase from 10.5, probably a decrease. So, the weekly is probably 400k over reality. So, what’s new?
GuyM,
The EIA monthly data says 11,537 kb/d for Oct 2018 and US tight oil output increased by 136 kb/d in Nov 2018, if the rest of US output was flat, that implies about 11,673 kb/d for Nov 2018 output, the four week average was about 11,700 kb/d, not that far off. Often there is a small decline in winter (as North Dakota often has lower output due to cold weather) so perhaps we well see flat to declining output from Dec to Feb as the low prices start to affect completion rate.
I think the 4 week average weekly data is somewhat useful, but it can sometimes be off by 400 to 500 kb/d, for the past couple of months the 4 week average crude output estimate has looked pretty reasonable.
Hell, ND already down 17, instead of up 31, like Oct. think about it, Texas was only up 18 in Oct.
Reading between the lines
https://oilprice.com/Energy/Crude-Oil/US-Oil-Outlook-Slammed-By-Lower-Prices.html
If Nov monthlies show close to flat, or down, there is some severe cognitive dissonance between reality and EIA short term.
Mexico’s Pipeline Theft Crackdown Inflicts Pain On U.S. Gasoline Suppliers
Tuesday, 01/15/2019 – Published by: Laura Blewitt
With Petróleos Mexicanos’ (Pemex) refineries struggling to operate at more than 30% of total capacity, gasoline pumps across Mexico are more likely to be filling up tanks with fuel imported from the U.S. than with domestic supply. This arrangement works well for U.S. refiners, who are running close to flat-out and depending on export volumes to clear the market. But now, the Mexican government has shut a number of refined products pipelines to prevent illegal tapping, and that’s had two consequences: widespread fuel shortages among Mexican consumers and a logjam of American supplies waiting to come into Mexico’s ports.
https://rbnenergy.com/no-es-justo-mexicos-pipeline-theft-crackdown-inflicts-pain-on-us-gasoline-suppliers
The new posts here were already highlighted in a bland and pleasant light blue. What is with the obnoxious and distracting *New* ? It’s like a sign for a cathouse.
Greenbub,
Someone asked for it, found the light blue hard to see.
2019-01-16 (ShaleProfile) US – update through September 2018
After all revisions are in, oil production from these horizontal wells should come in well above 6 million bo/d for September. The ~8,000 wells that started in the first 9 months of 2018 will then already have contributed ~3 million bo/d in September. Never before in the history of US shale was so much new production capacity added in 9 months. As the total decline of older wells (<2018) was over 2 million bo/d (as shown by the top of the light blue area) in this period, the actual growth rate was a little below 1 million bo/d.
https://shaleprofile.com/blog/
Both of these numbers are incredible.
Adding 3 million BOPD in nine months.
Wells completed prior to 2018 declining over 2 million BOPD in nine months.
Never has there been anything like this in the oil markets.
This can’t continue forever. I’ll bet tons of number crunching going on to figure out when the tipping point occurs. Very difficult to do with price volatility.
Other oil fields have other efforts.
Shale has to add 3mb/d new capacity per year.
Conventional fields have to add CO2 injectors / water injectors / creaming. Lot’s of drilling adding 0 capacity to nameplate, but still drilling.
And in offshore the costs are not the drilling, but the installations / platforms.
So you can’t compare this. LTO is more like strip mining than conventional oil drilling. You have to always continue operation and moving stuff there, too.
If you have a bigger lease you can compare it very good. Take one fracking team that continually finishs one hole after the other – like your trucks and diggers in a strip mine. You could name this “adding new capacity”, but it’s only an ongoing mining operation.
And like in mining, if the Diesel and tire wear for the trucks is more expensive than the ore they get out, you should suspend mining until times get better.
Note that 3 Mb/d of new wells being added results in a 1 Mb/d increase over 9 months or an annual rate of increase of 1.3 Mb/d for an annual rate of increase in capacity of 4 Mb/d=3/0.75, an annual increase in capacity of 2.7 Mb/d might roughly keep output on a plateau until the sweet spots get fully drilled up (this likely occurs by 2021-2023) at that point new wells are drilled in less productive areas and more wells need to be drilled for an equivalent increase in output to offset decline from older wells, in addition there are an increasing number of older wells so legacy decline will tend to gradually increase and maintaining a plateau in output becomes harder to achieve.
Eventually decreasing new well EUR overcomes any future oil price increases so the new wells become less and less profitable. Completion rate gradually decreases to zero as profits from new wells also approaches zero.
In my lower completion rate Permian scenario (maximum of 500 new wells per month) the final well is completed in Feb 2050 and output has fallen from a peak of 5500 kb/d in 2032 to 2450 kb/d in Feb 2050 with cumulative output at 57 Gb. For the faster ramp up scenario (maximum of 727 new wells per month in 2026) the peak is 7300 kb/d in 2027 and the final well is completed in June 2049, with output at 1175 kb/d at that point and cumulative output at 59 Gb.
Shallow sand,
Just a matter of what the completion rate will be. If the completion rate increases slowly the peak occurs later but will not be as high and decline will be slower. About 5.5 kb/d for Permian for peak in 2032.
A faster increase in the number of completions per month would lead to a higher peak at an earlier date with faster decline after the peak. For the faster completion scenario the Permain peak is about 7300 kb/d in 2027.
Both Permain scenarios have an ERR of about 60 Gb with EIA’s AEO2018 Reference case for Brent oil price assumed for both scenarios. New well EUR assumed to begin decreasing in Jan 2023 with average new well EUR assumed constant at 2017 EUR level from Jan 2017 to Dec 2022 average well cost assumed to be $9.5 million (full cycle cost).
Dennis.
Just a tremendous amount of locations out there.
Why do you see 2024 being a high oil price period?
Shallow sand,
I expect US tight oil to peak.
See chart at link below that compares an IEA scenario with my scenario (red line with peak at 9.5 Mb/d in 2025).
So in 6 years US tight oil goes from 7 Mb/d to 9.5 Mb/d an average of 420 kb/d increase each year for 6 years. Most of the World increase in output lately (past 2 years) has been due to US tight oil output, which has increased by 2.6 Mb/d over the previous 24 months. World output has increased at an average annual rate of 800 kb/d each year from 1982 to 2018.
The 420 kb/d rate of increase that seems likely from US tight oil over the next 6 years will leave the World short by 380 kb/d each year or a total of 2.3 Mb over the next 6 years.
Higher prices will be needed for some demand destruction and to speed the transition to EV transport.
https://drive.google.com/file/d/1xpOnXaTmwC5FVdTPKPM86qraxSchb0VO/view?usp=sharing
New Interview with Art berman today:
Art Berman: Exposing The False Promise Of Shale Oil
https://www.youtube.com/watch?v=zkzQRiiN1Jw
Good interview, thanks.
Tech guy
If you – or anyone – chooses to spend 15 minutes, 60 minutes (as I just did) and go over Art’s interview (I read the transcript) and do some cross checking and further reading, one may realize why so much of this Peak Oil genre has been so wildly wrong for the past decade.
Using Art’s own words regarding the recent Delaware Basin assessment, one can only scratch one’s head and wonder why he uses a figure of 170,000 boe to make projections when both Tables #1 and #2 show the Wolfcamp (Upper and Lower) A,B,C along with 3 Bone Springs AUs with 167, 191, 192, 253, 232, 185, and 137 thousand barrel OIL EURs.
Say again, these are OIL EURs, NOT boe.
Spend 2 minutes or less, download the USGS pdf and see with your own eyes.
Next – to counter Martenson’s reference to BEG Director Scott Tinker’s bullish stance on increasing recovery percentage – Art makes a weird detour into the EOR realm, seemingly oblivious to recent primary recovery rates approaching 20% (25% for some Appalachian Basin operators).
And, despite a hilarious statement that technology can take decades to develop and commercialize, these upstream boys are ALREADY, DEMONSTRABLY implementing innovative completion/production processes to great effect as a simple glance at Enno’s site (well profiles) can attest.
Towards the end, Art makes one of the most outrageously outlandish statements that can only be compared the bizarre postings from that Steve guy … the statement that US gas gross supply has probably peaked/start GOING DOWN (???).
I’ll go no further but to state once again, this interview can be extraordinarily educational as to why so much of the peak oil view point has been so incorrect for so long.
Norway Cuts 2019 Oil Output Forecast to Lowest in 30 Years
Oil output of 82.2 million cubic meters, or 1.42 million barrels a day, would be the lowest since 1988. The forecast compares to actual production of 86.2 million last year, and is down from an earlier estimate of 87.2 million.
A new post is up, OPEC December Production Data, along with a new Non-Petroleum thread.