More on Bakken Production, Choke Theory

308 thoughts to “More on Bakken Production, Choke Theory”

1. The 2014 Oil Price Crash Explained

   Ron, way off topic I’m afraid and I know Mac already posted a link here. But its been the rounds of TAE and Zero Hedge and maybe 20 other blogs. Based on Oil Drum heritage analysis from Phil Hart.

   The big news this week must come from OPEC tomorrow ….. what do the bookies say?

   

   1. The sophisticated Daniel Yergin was interviewed on CNBC this afternoon. He answered one meaningless question partially and his phone link started squealing and he was never recovered. The hosts covered it up by quoting anyone they could find who would say shale in the US operates just fine at $40. Mostly they wanted to celebrate shale output as the cause of price decline, despite nothing special happening with it starting July.

      The US boom narrative is essentially 99% dependent on shale. When it is smashed, either the boom narrative changes, or the smash is changed by Federal Reserve intervention, justified by claims that HY bond default would threaten swap trigger and global disaster.

   2. The big Gulf states already leaked that they have consensus NOT to cut. The other OPEC producers are not relevant if that’s those guys’ position.

      1. http://www.businessinsider.com/opec-announcement-preview-2014-11

         Saudi is banking on their low actual cost of production and the amount of money they hoard/waste to tide them over until they drive the frackers out of business.

         1. They have no reason not to do precisely that, but there is too much attention on them. They didn’t drive the price down. They are just taking advantage of it.

   3. No one commented on the implication of that graph.

      If there is no hysteresis — which is a very big IF — then a lowering of price will lead to a demand destruction as the crude oil production drops down the curve.

      But there is no reason to expect that hysteresis won’t appear and the production level maintains as the price drops. And they can always make up numbers 🙂

      1. Hi Paul,

         I am not sure if I understand your comment. Euan argues that the supply curve is likely to be steep and that a small decrease in World demand could cause the fall in oil prices we have seen. I believe that analysis is correct.

         I would also expect that a fall in oil prices would tend to increase World economic growth causing the oil demand curve to shift to the right and drive oil prices back up.

         That may have been what you meant, but I didn’t get that from your comment.

         1. DC,
            Well, Euan being one of those AGW deniers, it’s always hard to figure out what he is getting at. He posts a figure of supply & demand curve and expects someone to fill it in?

2. Legitimate point.

   The big flow numbers . . . may be megafracks. 50 stage semi-experimental and no way you choke an experimental. You want unfettered measurement.

   I’m gonna need a lecture on how choke increases EUR for shale. With water driven, okay, or with conventional, okay. You slow the hell down to let water flow from somewhere and hold field pressure up. But there’s no water drive here. So how does getting it out slower get you more in total? Dunno. Here’s why:

   Essentially ever EFS well at the same depth has roughly the same reservoir pressure. But how quickly that pressure (and flow) declines will depend upon the volume of the pore spaces being drained. Which is why there are EFS wells that initially produced at 500+ bopd with some ultimately producing 300,000+ bbls and others less than 100,000 bbls.

   But the Bakken is different because of the salt. You’re pouring water back down into the well now and then, and I would guess under pressure. It can refill pores. Pressure decline won’t be the same as in other fields.

   Good call tho on 28481. Don’t matter if there ain’t much oil. Where the hell is the frack water? Maybe it was 1 stage of frack?

   1. I have yet to see him, but it is said there is a major company executive (CLR or EOG) from the Bakken who posts on Bakken discussion boards. His username is “Open Choke”.

      1. I know of whom you speak. He might be an executive with Drilling Info rather than an oil company which would give him access to a lot of data I. all the unconventional plays. If he is with an E&P company, I would bet he is with EOG and is working the EFS.

   2. Hi Watcher,

      Maybe in some cases they see how the well will flow before fracking and if it is below a certain level they don’t bother with the frack, I doubt that because a lot of money was spent drilling the well.

      Or maybe they want to test the difference before and after fracking, or maybe the frack water flowed to a nearby well and got pumped out by that well. It is difficult to know.

   3. Your discussion is missing the associated gas production, gas/oil ratio, flaring regulations, ability to market the gas, and such very relevant topics. I don’t want to get people upset, but north dakota gas flaring regulations remind me of what prevails in the third world. It’s downright primitive.

3. Mike says:
   November 22, 2014 at 2:05 pm (Edit)

   Thank you, Ron; clearly a lot of time was spent on this study.

   I am aware of a new consciousness in the S. Texas shale play regarding choke management during flow back procedures. There was even a seminar in San Antonio about that very thing recently; the theory of restricting flow back rates has to do with preservation of gas to oil ratios and ultimate EUR. Reported 24 hour flow back rates in North Dakota, which I assume is also initial production (IP) rates (?), would be related directly to flow back practices anywhere in a tight oil play. So my first reaction to this data is that what we are seeing is operators restricting flow back rates intentionally as they have gotten further down the learning curve.

   But that theory gets tossed in Graph 3 where percentage of produced water is brought into the picture. Within the first few days of the wells life the water to oil ratio would, in my opinion, be pretty stable; if anything WOR would be going down, not up, as the well unloaded more and more frac water and cleaned up. Restricting flow back rates thru choke management would not cause water cuts to go up, I don’t think. Increased WOR is a function of something going on in the shale itself. That something is probably not too good.

   Mike

   Ron, I guess some of this new thread is directed at me. For the record, however, I found the IP data interesting from a number of standpoints, most of which have to do with declining IP’s coupled with what appears to be increasing water production. If the data was presented as a means of gauging a decline in well productivity in mature areas, I buy it. I would like to understand if the combination of declining IP’s and increase WOR is a function of depletion or well interference due to downspacing. Either way, as I said, it is not good.

   Mike

   1. Talk to us about flowback procedures, pls.

      1. I am tired and wanna go home but basically it is all about energy preservation; induced energy from the frac and natural energy from the ratio between gas and oil. The more conservative the flow back procedure the more gas stays in solution, for lack of a better term, and helps lift the oil out of the wellbore. There is a relationship between pressure depletion and increased water production. The actual flow back process begins with no choke, no restrictions, then as the oil to frac water ratio begins to climb the well is regulated with chokes to preserve gas energy. There is a direct correlation between GOR and EUR . The size of the frac, or number of frac stages has nothing to do with flow back methods and choke management. The drive mechanism in lots of conventional reservoirs is not water, but solution gas.

         The best Eagle Ford shale wells in the entire play are along the dry gas to condensate liquids contact. They refer to it as the condensate “window.” They are a little deeper, are a little hotter, have a little more bottom hole pressure, have a little higher nanoporosity, but the liquids are very high gravity (condensate) and they all have high gas to oil ratio. All these are traits you want in a shale well in the EF, and I believe also in the Bakken. In the EF these wells typically recover only 20% of the frac fluid and that’s it. They make no water, not yet anyway, not after 5-6 years. Many wells along the condensate window in the EF will ultimately make a million barrels or more. Up dip in the oil window, things are not so peachy sometimes, mainly for lack of GOR. Not so sweet spots I believe have higher water saturations. Not all things in life are created equal, same for shale.

         In short, flow backs are now being managed better to preserve energy, GOR, with the belief that will ultimately make a better well in the long term.

         I’ll leave you with this photo, from drillinginfo.com; this is nanopore in dense shale. It is in this tiny little puppy that all the good stuff exists, oil, gas, and not so good water, I think. When I say tiny, please look how tiny. In a square inch there are 25,000,000 nm. Its only when these little nanopores are linked up with a frac do they give up the goods. Amazing, uh?

         

         1. Very cool, but . . . what you’ve described is why rail cars were blowing up. The new reg probably has to insist on gas extraction (and flaring).

            1. No, no, no, Watcher. You are talking about high end volatiles in the hydrocarbon chain. Solution gas is blown down, separated, gone by the time it gets on a rail car. Rail cars combust when they run off the rails and hit stuff, like the ground, or other rail cars, whatever. Sparks do that sometimes.

               Dennis, thank you; I am no expert on anything. Any data is good data and I am not ready to say Ron’s IP data was irrelevant at all. I leave that up to you.

               Patience is kind of hard to come round these parts, it seems, everyone wants precise answers, real time. Life ain’t like that. Happy Thanksgiving, y’all.

               Mike

               1. Hi Mike,

                  It seemed that you explained that there might be a change in how the oil producers were choking their wells and that there is a learning curve that might account for some of the change in 24 hour IP. You assuredly did not say the data was irrelevant, but I think you might have been questioning if it in fact the data showed that Bakken wells were petering out. I interpreted it as an alternative hypothesis for the 24 hour IP data, I may have misunderstood your meaning.

                  I don’t think I have said the data is irrelevant, but I find your explanation and Rockman’s and the other production data at 1 month, 2 months and 6 months to cause some hesitation about the “petering out” hypothesis. The other data seems to suggest at least much slower decline or possibly no decline at all (through August 2014).

                  Happy Thanksgiving

               2. Pay attention to what mike writes.

         2. I like playing with scales and orders of magnitude and I know for a fact that most people have no sense of how to relate to a nano meter scale. Maybe my graphic below will drive home how tiny that pore really is. It’s almost mind boggling.
            Cheers!

            

            1. In other words or pictures, the black circle below represents the cross section of a human hair and that yellow dot in it is 2000 nm.

               

               1. So bald guys are not hired to work the Bakken because oil flow is lower from the well they drill.

               2. I guess my point kinda went over your head, no pun intended.

                  Which, btw, was that not only are the pores really really tiny but the GOODSTUFF is really hard to economically get out of the shale because most of it isn’t good stuff.

                  So basically the whole US shale energy panacea is actually another smoke and mirrors boondoogle.

                  Not to worry though, just party on dudes because the smart people are back to being able to buy those big SUVs and PUs they want without ever having to worry about paying the Piper, another pun not intended…

                  The only ones who have to worry about what the Piper will do are those who have children but that is far in the future.

                  Cheers!

               3. Thanks for this perspective on nanoporosity in dense shale. My hope in showing the photograph was that it would not go over anybody’s head, but I think you are right; folks are willing to talk about the dynamics and future of declining oil reserves in very abstract terms, quite content with not understanding much of any it other than sentence here or there on the internet.

                  To me, however, a tiny nanopore full of oil and gas in dense shale truly is scraping the last dregs from the bottom of the barrel.

               4. Thank you, Mike!

                  To me, however, a tiny nanopore full of oil and gas in dense shale truly is scraping the last dregs from the bottom of the barrel.

                  Funny you should mention that, I actually was going to use that metaphor myself but thought it would be one pun too many >;-)

               5. To me, however, a tiny nanopore full of oil and gas in dense shale truly is scraping the last dregs from the bottom of the barrel.

                  That’s what I don’t understand about media coverage. They have been so willing to write about the fracking miracle, but it doesn’t take much research or intelligence to realize that if we are trying to get oil from shale and tar sands, we’re running out of the easier, cheaper oil.

                  I’ve seen the “death to peak oil” articles, but fracking and tar sands confirm to me the reality of peak oil.

               6. Here’s an article about estimated break even prices for various oil plays.

                  http://www.businessinsider.com/citi-breakeven-oil-production-prices-2014-11

   2. Mike, no it was primarily directed at Rockman. And there were others who posted comments when it was posted on PeakOil.com. I have loved your posts and still do. Also…

      A lot of people disagree with me on a lot of things. I love such comments as long as they are not insulting and/or silly.

      1. Anybody that might have missed Mike’s highly informative reply to one of my questions in the previous post – this reply being mostly about the way rigs are leased or rented , for how long, how old most of them are, etc.should definitely go back and read it.

         I mention this because it went up sort of late and the old post was getting a little stale.

         There is insight to be gained from it in terms of how long it takes drillers and other operators in the oil fields to speed up or slow down in response to market signals.

         We are lucky to have him posting here.

         1. Wow, thank you, sir. Really. Happy Thanksgiving to you.

            Mike

         2. OFM – did you mean two posts ago (RRC numbers)?

            this post?
            http://peakoilbarrel.com/texas-rrc-november-production-report/comment-page-1/#comment-449877

            1. That reply yes.

               It throws a lot of light on how far ahead a driller may be committed so that proceeding to drill is the only real option.

               ONCE you have spent megabucks hiring the machinery -which for all I know may come with crew members as part of the rental or lease deal- you might as well run it..The additional costs are almost for sure going to be minor compared to the money already sunk into the deal.

4. Ron, it seems from a graph on the previous post that Bakken per well day one production is falling at 300 bopd/annum. Is this about correct? Is there a correlation between first 24 hour production and production rate at, say, six months? From there a stab could be made at the rate that EUR per well is falling and the month that Bakken drilling, on average, ceases to be economic.

   1. David, I have no idea if Bakken production is falling or not. All I know is that the first 24 hours of well production is dropping as the permit/well number increases. In the past that could not be directly tied to a time base because so many smaller permit numbers were still being completed. But that has started to change now. October saw a lot of higher numbers being completed and even more so in November. We will know early next year if this correlates into an actual production drop. I am expecting that it will but I am just not sure how much.

      I have been trying to find out if there is an average correlation between the first 24 hours of production and first years production but I have not come up with much of an answer yet.

   2. Hi David,

      There seems to be no linear correlation between 24 hour IP and production at 1 month, 2 months, 3 months or 6 months. When Rockman and Mike say it is complicated, they are undoubtedly correct.

      1. Thankyou to all. I do appreciate the work behind the data presented. The Bakken rig count has been steady for two years now. So at $100 per barrel it wasn’t attractive enough to attract more rigs to the play. WES453 posted a graph of sand and gravel carried on BNSF on the previous post. Sand carried over the last two years is up 50%. With the rig count flat, it would seem that wells are now accessing a lot more rock than they did two years ago.

         1. Good observation, and it aligns with the new semi standard of increasing frack stages from about 20 to about 30. 50%.

5. Ron, yes, I saw those posts on Peakoil; I even commented about “offsite” comments. A lot of comments around here are pretty damn silly; somedays’ it must make you want to go pull trees out by their roots.

   Its very complicated all this shale stuff; it can’t be googled on the internet, for sure. After 50 years of making my living in the oil business I still get stumped all the time. It would be grand if some smart shale engineers would lead us around a little, but for some odd reason they don’t seem to hang out too much on peak oil blogs. Weannies.

   Keep up the good work, sir.

   Mike

   1. Well they may start having time on their hands soon and we’ll see them then.

   2. I’m retired now, and I can’t get around much for a while. I’m not an expert in Bakken well behavior, but it seems to me Mike has a pretty good handle on this subject. If anybody has general questions and I see them I’ll try to answer.

6. Hi Ron,

   My understanding of Mike’s comments in your previous post and Rockman’s above, in combination with David Hughes comment is that 24 hour IP is not a very useful measure. Rockman explains why it can change, and Mike commented that there was likely a learning curve where older wells (lower well ID #s) may have been choked differently than newer wells (higher well ID #s). So three experts, Rockman, Mike, and David Hughes question if the trend in 24 hour IP with well ID is significant.

   In addition FreddyW and I have presented charts which suggest that at 1 month, 3 months, 6 months, and 12 months there is no apparent trend in cumulative output by date, and I also presented several charts by well # which showed very little trend for 2 month cumulative output.

   Chart below shows first month output vs well ID #, not much trend is evident.

   

   1. Dennis, we haven’t gotten there yet. Just be patient, we will know in the next two or three months.

      1. Hi Ron,

         I think we will know eventually, but I think it will be more like 12 months (at the earliest) until we can detect a statistically significant decline in new well output and think using at least the 3 month cumulative (but better would be the 6 month cumulative that Davis Hughes pointed to) is more definitive than 1 or 2 month cumulative output.

   2. Chart with 201 well centered moving average of Bakken/Three Forks 1st month output. Mean output is 8682 b, median is 7238 b and standard deviation is 7173 b. Note that not all wells start producing on the first day of the month so first month output can vary from 1 to 31 days of production. On average over long periods there is likely to be an average output of roughly 15 days in the first month.
      This adds variability to first month output on top of normal statistical variability due to geology.
      In fact the high output in September might be explained by a higher than average number of producing days for new wells in September.

      For example the average number of days of production for new wells in August might have been 7 and for September it might have been 21, if so much of the variability from August to September would be explained. I was hoping FreddyW or Enno could look at this, I don’t have the average days of production for the first month of output in August and September, but they have better access to the data (better computer skills than me). Chart below for first month centered moving average.

      

      1. In the previous post I showed 6 month cumulative output vs. month,
         the following chart shows 6 month cumulative output vs well ID# (horizontal axis).

         The linear regression is on the raw data which is not all displayed on the chart. The vertical scale is limited to better show the variation of the 301 well centered moving average.

         It is clear that from well 20000 to well 26000 there has been substantial variation in the 301 well moving average, it has moved up and down by about 7000 b or more on three occasions. Will the recent downward trend continue or will it turn up as it has several times already? Time will tell.

         

         1. Just eyeballing it, that sudden rise between 24000 and 25000 seems to correlate with Ron’s original “First 24 Prod 200 Well Avg” chart.

            It would be interesting to overlay the charts, or calculate the ratios of first day to first 6 months.

            1. Hi ilambiquated
               I sent enno Peter’s data to Ron. Perhaps he will send the iPhone data to me.

               part of the problem may be the limited time of the ip data.

               1. IPhone was supposed to be ip.

   3. You should expect output to decline eventually. However, this depends on a series of variables. For example, let’s say the reservoir quality is decaying as they move to develop lower quality spots…this can be offset by more intensive completions (more fracs). I have been shocked by how shoddy are the gas flaring regulations (I spent the last few years working outside the USA, I would have thought they would try to regulate gas a lot smarter). The gas conservation practices can be really important. Other issues can be as simple as having more experienced personnel, or knowing where to spot a horizontal wellbore. I’m also surprised they aren’t using more well clusters. As they start learning to cluster wells they should improve.

7. Cousin Klem sea if we want answers to all these questions to email’em to the NSA since they probably have copied every speck of data the industry possesses already..

   And although they may have missed some the Chinese have probably managed to steal most of it as well.So it is probably for sale if you know the right person to ask..

   Speaking on a more serious not I expect that given a finer grained knowledge of where each well is located and exactly how it was drilled that individual companies may be able to find patterns in THEIR OWN data that indicate that choking in some particular and deliberate fashion increases the ultimate recovery ON AVERAGE- IF IF IF of course such a pattern exists.

   But IF they were to find such a pattern doesn’t it seem likely that they would keep such info to themselves?

   This sort of knowledge would be power in the hands of a company that has it in negotiating with other companies, landowners, etc, when buying and selling oil field assets.

   1. For a very long time, NASA paid 10s of thousands of dollars each year to rent warehouse space in which mag tapes of Viking and Voyager data were stored. No one ever looked at it. Weren’t funded to.

      Same is true of the NSA.

      1. Klem sez the payoff fer stealing it out of warehouses wouldn’t have been worthwhile. Lotta trouble to get trucks and big crews to do than sort of work even when you are have the cooperation of the owners.

         According to Klem ”Yer gittin bahin the times. They kin steal all that stuff now with jus a handful o’ guys drinking tea with the office girls nowadays.”

         I must admit that I am not the MAN Snowden is .

         If I had a job like his I would have been extraordinarily tempted to set up a secret organization of my own and spend my coffee break time on the job searching out data useful in making money- not by selling it to enemies but by buying and selling stocks.

         Snowden would get a statue on the mall in every town in this country if I had my way.

         Anybody anywhere who thinks any data stored on any machine that may EVER be connected to the net who thinks it is safe from the feds nowadays has another think coming.Of course nickel and dime crooks and scammers are probably safe enough for now even if the feds have the goods on them due to their being too busy to bother- concerned with bigger fish – and not wanting the crooks to realize just how much they know.

         1. He has essentially destroyed IBM. They were banking hard on Chinese growth.

            China told them they were probably an NSA conduit and would award them no new contracts.

            1. Yes, the NSA has done *enormous* damage to US exports, and companies like Google.

               Not Snowden, of course. It’s the NSA (and the security establishment behind it) that did the damage.

8. Singapore is saying $72.80.

9. Baker Hughes’ YouTube channel has some highly produced videos of their fracking technologies. This one mentions choking to hold back water in order to extend the life of the well.

   https://www.youtube.com/watch?v=2WO9FDMaArU

   “With real-time control and monitoring, you can quickly identify and choke back production from high-water cut zones in order to optimize well performance and delay water breakthrough … increasing ultimate oil recovery.”

   1. For more information:

      http://public.bakerhughes.com/multinode/

      I like the remote control nature of this technology. No need to brave the harsh Siberian winters. Now you can remotely manage your shale wells from the comfort of a jacuzzi in Moscow. 🙂

      1. That’s a banya in Surgut.

10. Asia continues at $72.xx.

    There is a lot of potential here for the disaster to unfold before the relevant people realize this is not like some other “market” where a central bank can move it at will. This is an industry, and if people are laid off en masse and defaults are declared, it’s going to be a Lehman redux where Bernanke COULD have stopped it, didn’t realize the danger, and did not act.

    The Fed COULD pay off all those HY bonds, but there is so much crap about $40 breakevens floating around that this whole thing could catch them by surprise. Come March, it may all be abandoned, shale production could be 250K down from 3 million bpd and the Russians would pick then to let the dollar crash and take oil to $200/b.

    And announce to the world that they are ready to supply the oil needs of its customers.

    1. If oil plunges low enough long enough to start causing significant fracker defaults, Russia isn’t doing anything other than imploding. That would be a major current account crisis over there. And I mean major.

       1. A country able to supply all its own critical needs domestically which is politically stable and militarily invincible need not REALLY worry about ANYTHING that depends on banking and accounting procedures.

          Money is not wealth but rather only a way of keeping track of wealth.

          The Russians will pay a heavy price in slow or negative growth and austerity at the consumer level but they just aren’t going to collapse – not unless Putin and Company misplays the cards in their hand.

          Of course at some point all players current hands must be played and the cards dealt again.

          BUT that next dealing of the cards is probably a good way off yet.

          The Russians are not in any position to have to kiss anybody’s ass.NOT YET. And probably not anytime soon.They can pass while the rest of us play out this deal which might take a year or longer.

          If they default on a debt just who is going to send the sheriff around to attach their assets? Such assets as they have outside the military reach of their own territory are basically nothing more than pieces of paper.In terms of the BIG PICTURE of countries and empires any such assets amount to about as much as a few dozen infantry men to a general in command of an army of a million men.

          My guess is that the country is remembering how tough the old timers there were and how they pulled thru WWII and times since and that nationalism and patriotism are running at flood stage. If so then they will hang in there until they get tired of this new game of twisting the nose of the west.

          That might take a while.

          The people running Russia are mostly big time cold war type spooks used to thinking in military terms. Chess terms if you will.

          Sacrifices of men and material in the thinking of such men is perfectly acceptable to them if they think such sacrifices are justified in the game of empire.

          Now some people think they are currently engaged in a naked grab for territory and resources. Others say they are engaging in a preemptive or proactive defensive maneuver it order to keep the West from encircling them in a way dangerous to their own security.

          I say it does not matter which motive is uppermost. Both are no doubt real in my own estimation.

          Putin and Company think that they are going to win out in the current power game or they would not have started the game.

          I am not sure they WILL or WILL NOT win but I am sure they aren’t going to fold anytime soon.

          1. Pretty much that. Anything they absolutely have to have they can get from China, just like the US does.

11. http://online.wsj.com/articles/should-you-buy-an-electric-car-1416777176

    For those interested in electric cars. Subscription not needed to read this.

12. From This Week in Petroleum EIA report, shale producers increased their capex in 2014 and their revenues. However they need new debt or capital increase to continue investment.
    For me there is something contradictory in this sentence “This group of companies, while profitable, still spent more on capital expenditures than they generated from operations.”
    So how to be really long term profitable while loosing money???

    1. It’s the new accounting, its all the rage across not only oil industry, but all corporate America.

       1. Well, let’s not go overboard. Companies do sometimes invest more than they generate. Capex is one of those bastardized terms that can deceive.

          A utility building a nuke can easily eat up profits with capex. The real bogosity of the term in this context is the implication that one of these wells is going to flow as long as a nuke makes power.

          1. Sort of funny you can go on and no about the end of things and still believe in corporate accounting.

             1. That’s a good point.

                It will be stages of scarcity sourced dissolution. Normalcy. A pretense of normalcy. Declaration of emergency and print money in cooperation with other central banks so that no one’s currency is destroyed. Then print some more. Then have someone else print some more. Then see the effect of yardstick vulnerability. Then — mostly — lose the ability to maintain the facade and have it become clear oil trumps central banks.

                There will be no recovery from that stage. That’s the stage when China starts diverting oil from Tokyo to Shanghai.

    2. A company can be profitable if its assets are increasing in value even if it is cash flow negative. The assets in this case are mostly mineral rights, I guess.

       Drilling an oil well is an investment. You will always lose money in the short term.

       1. so whats the short term – 3 years lets say, how long are these debts for?

          1. The debts can be rolled over. In addition to the time question banks will wonder how much oil is going to come out of those wells and at what price.

13. At one time, if you believed that the earth revolved around the sun, you were declared a heretic, grounds to be burned at the stake. Galileo recanted, he was scared the Pope would make his life miserable even more. Breathing is better than not, even if all you can do is fog a mirror.

    The Dark Ages had an origin and it involved climate change. The mini ice age made those Dark Ages all happen. The Devil cursed the people of Europe, religion rules and rules are enforced, bider God. The Church decided that the newly formed glaciers in the Alps must go, they were making life intolerable for the devout devotees of the Catholic Church. 50,000 poor souls met their maker simply for the reason they were suspected of doing anything and everything to cause Europe to descend into a 400 year long cold spell. Zero tolerance for heresy, no room for reasonable debate, once found guilty, your future was grim. There was hell to pay.

    The mini ice age changed the way people behaved in all of Europe. They really did go mad.

    Makes global warming a welcome prospect.

    You don’t make this stuff up.

    Now we’ve got oil madness going on. The markets, the numbers, the supply, the costs, the sale price, the production, the water, the drilling until hell won’t have it, the stats, the charts, the graphs, the linear growth, the continued unbridled use of the oil, the competition for the oil dollar, the millions of barrels used each day, the industries involved, all combined, drives you mad.

    RIG found a brand new 52 week low yesterday, Seadrill lost 4.50 per share or something like that yesterday.

    The outlook is indeed grim for the oil market and the price. More of it for sale, increased supply, will lower the price

    Let the madness continue.

    The permit number/well number plotted against the ip rate did indeed raise awareness. Information like that can possibly influence the price of oil. Imo, it does.

14. ”You don’t make this stuff up.”

    AT LEAST NOT WITHOUT being equipped with very fertile imagination and (I strongly suspect) a ready supply of mind altering substances.

    But as some serious scientist guy used to say , reality is not only stranger than you think, it is stronger than you CAN think. I believe he used the word imagine rather than think though.

    This brings a thought to mind. Occam’s razor is a very very useful tool but I think we rely on it to too great an extent sometimes when analyzing events that have to do with monkey minds and monkey behaviors- especially the behaviors of large groups of monkeys.

    The simplest explanation is NOT always the best explanation.Lots of things happen or do not happen because one or two people or a small group of people throw a monkey wrench into the gears of larger events or drop a match into a huge pile of tinder ready to light off a bigger fire –a war or a boom or a depression.

    1. Thorvald Thorvaldson farmed up in Norway around 950 CE, something like that. One day, he was angered by a neighbor, and he ended up killing his neighbor. Thorvald was shipped off to Iceland, the punishment at the time. Banished to live no longer in Norway, you can live, but not here. Lo and behold, Thorvald had a son named Eric, Eric the Red. Eric grew up in Iceland, became a farmer too. Eric was approached by a neighboring farmer and asked Eric to loan him a shovel, which Eric kindly did. Turned out, the neighbor wouldn’t return the shovel, Eric took the matter into his own hands, wrestled the shovel away from the neighbor, hit him over the head with the shovel and his neighbor died. Enter the justice system once again, this time for Eric.

       Eric had to stop fishing and farming in Iceland. Forced to sail to Greenland, he built a new farm, had more settlers move to Greenland, and life was once again just fine and dandy for Eric. His son, Lief, drifted for a while in his formative years and found Newfoundland. The Vikings made it to North America all because a group of farmers in Norway banished Thorvald Thorvaldson to Iceland.

       Leave it to the Norwegians to throw a monkey wrench into the gearbox and change history, but they did.

15. Watcher,

    Perhaps this isn’t a reasonable question but what is the relative size of the LTO industry? Please answer in language someone (me) who can’t understand the difference between a credit and a debit might be able to understand or relate to. For example, Bakken is x/y where x= Ford Motor Company and y equals Bakken (cumulative).

    Thanks, Doug

    1. Doug,

       Short answer, much less significant than watcher believes. Remember that Bakken and eagle ford combined is 2.4 mb/d of 76 mb/d c+c output.

    2. At current production and price level, LTO sales should be around 1% of US GDP (~$170 billion). If you want to compare to a company, this is Apple, with worldwide revenues of ~($170 billion), the 15th largest company in the world…

       1. Perfect, thanks Chris.

       2. Bakken + Eagle Ford should be around 60% of Ford Motor Company (~$147 billion revenues, 26th largest company in the world).

          1. This is an incorrect computation. The quantity of liquid multiplied by the price does not define GDP contribution.

             If a hurricane smashes a lot of windows and you fund the repairs with a gov’t deficit uptick, the GDP added is not how much silicon is required to make the glass, and you don’t subtract the silicon value in the busted windows.

             1. I did not mention GDP contribution 🙂 but compared LTO sales to US GDP. The contribution of LTO to US GDP is much higher, probably up to 5% if you count drilling, machinery, transportation… Also to compare LTO producers to a company I compared revenues, with estimation for this year from the EIA Short-Term Energy Outlook. Of course this 2014 estimated average price is going to be lower than $95.

                1. I would not venture a number, but 5% would be a HUGE drag on growth — which of course could be blamed on winter.

             2. More important, GDP is a measure of income. So you have to subtract out the costs, which are $70, I guess.

                1. Yes and no because LTO producers need transportation, drilling and many other services. These subcontractors / providers need also different services and machinery. All these LTO expenses are also contributing to the GDP.
                   I guess that the contribution is around 5% BUT these 5% will not disappear suddently. So in case of problems with high cost LTO would be around 1% GDP in 2015 and in 2016. These are only guesses.

                2. The drillers income is interesting when you look at articles like this:

                   http://www.businessinsider.com/the-problem-with-high-yield-energy-bonds-2014-11

                   15% of the high yield (“junk”) bonds issued this year were to energy companies. Their income (not their revenues) is about zero.

16. WTI at $71.xx after the decision of OPEC to leave output ceiling unchanged at 30 million barrels, and entered briefly in $70.xx.

17. Breaking news. OPEC says no oil cut. Brent down $2.84 at $74.91. WTI at $71.36.

    
    Saudis win case for no OPEC output cut

    Gulf oil producers led by Saudi Arabia on Thursday won the case for keeping OPEC output unchanged, overriding calls from poorer members of the exporters’ group for action to halt a slide in crude prices.

    Benchmark Brent crude oil fell $3 to its lowest since September 2010, at under $75 a barrel, on expectations that huge global oversupply will build up in coming months. OPEC also decided to meet next on June 5, 2015. [O/R]

    “It was a great decision,” Saudi Oil Minister Ali al-Naimi said as he emerged smiling after around five hours of talks.

    Asked whether OPEC had decided not to cut production and to roll over existing output policies, he replied: “That is right”.

    Venezuelan Foreign Minister Rafael Ramirez left the meeting visibly angry and declined to comment on the outcome.

    1. The supply problem should last until Q3 2015. Unless production decreases by choice or by geology. The main question could be: what is the remaining storage capacity? Once storage capacity is filled nobody would buy oil surplus. Am I wrong?

       1. Hi Chris,

          It is possible that low oil prices may cause the demand curve for oil to shift to the right if World GDP growth increases in response to lower oil prices. In addition there will be less investment in new drilling which will cause the oil producers to move down the supply curve and reduce output as existing wells decline. It is a dynamic response, with shifts in demand and changes in supply in response to changes in oil price.

    2. WTI just went to sub $70. Looks like the tide might be going out. Let’s see who was swimming naked!

       1. It did. And gasp, look at the GBP and Euro in complete freefall this morning, driving the dollar thru the stratosphere.

          What a coincidence!

          I gotta call this piling on.

          I believe this pegs NoDak price at $53.xxx? Hell, that’s still a $13 cushion above $40.

    3. The OPEC “decision” today is a major hit to financial markets.

       Here’s an interesting perspective:

       Junk Bond Carnage, One Company at a Time

       http://wolfstreet.com/2014/11/27/junk-bond-carnage-one-company-at-a-time/

       1. The thing is, all CLR and EOG have to do is start writing massive amounts of credit default swaps on HY bonds and get the word out to the Fed that there are trillions of such derivatives outstanding.

          The Fed will backstop all of them.

          1. So, you think the FED will push off the day of reckoning a little further into the future? That’s what they’ve been doing all along, at least since 2008. Can they do it forever? Probably not.

             1. There are politics in this. It gets complex. Fiscally, a GOP Congress will ideologically oppose a subsidy to the uber capitalist industry of oil. But then their own members from deep red states will start asking for it. This will take a lot of time to unravel.

                So the Fed is there, able to do something. But sooooo many senior banking people listening to their own analysts have been told shale is good at $40/barrel (who were speaking to investors they were trying to fleece). So if the Fed asks them, the Fed will be told there’s no need to act.

                This equates to time passing. Add to it the fact that winter will camouflage everything happening in NoDak and you have further reason for delay.

                There is yet another aspect to it all. The boom narrative . . . the facade of economic normalcy would be greatly damaged if the uber capitalist industry of shale gets a Fed or govt bailout. This will create some further reluctance and delay.

                1. Wind and corn ethanol gets subsidized because they are popular in Iowa, and that’s where the primaries start.

                   But ND is much less important.

    4. Oooh, maybe the biggest part of the announcement is the June schedule. There had been talk of . . . okay, no cut, but we revisit the situation in Feb.

       KSA is taking a VERY hard line. Things do not look good for shale.

18. Huge drop in natural gas storage this week, week ending November 21st. Down 162 BCF. That is 400 BCF below the 5 year average and 346 BCF below the same week last year.

    

    1. Drawdown starts a couple weeks early..
       http://americanoilman.homestead.com/GasStorageGraph.html

       1. 7 days behind

          

19. Hi all,

    Great comment by FreddyW near end of previous post comments at link below, I also had a question that I am hoping he might of seen, but it may be too much work to find the answer.

    http://peakoilbarrel.com/bakken-sweet-spots-petering/comment-page-1/#comment-455910

    1. Thanks for mentioning it Dennis. I gave you the data for first month producing days there also. I just temporarily changed one of my methods to run calculations on days instead of oil production. So it did not take much effort at all. It shows that the number of wells are large enough for the data to be quite stable.

       1. Hi FreddyW,

          Thanks! You did a chart with 1 month output in barrels per day, did you use actual days of production for that chart or did you assume 30 days (or maybe 31 days) for each month? I don’t have the monthly data for September so I was going to estimate with your chart (I only have data through August).

          1. I consider all sorts of pause in production as part of a wells life. So I have always divided monthly production with the number of days in that month. I was to lazy to take leap year into account though. Shouldn´t matter to much anyway. If I would have divided by number of producing days instead I would have been forced to compress the x-axis also. Otherwise it would have been as if the well could produce without depleting the well the days it is offline. Better to keep it simple and I also think is closer to reality the way I calculate it.

             1. By the way the 1 month data is 1 month after completion. Here is the data for completion month (bopd):

                1/2014 309
                2/2014 267
                3/2014 325
                4/2014 290
                5/2014 286
                6/2014 342
                7/2014 321
                8/2014 244
                9/2014 349

             2. That is at least true for the production profile. But thats a good point. Divide by production days instead for days in month makes more sence for the x month after completion production. It shows more how the quality of the wells have changed rather than how much they have contributed to overall production. But for newer wells it would give a higher value if they have produced for fewer days as the decline rate is very high. So it may not exacly show what you want to see. Anyways here is the data divided by production days instead. Zero days wells have been excluded.

                1 month after completion:
                1/2014 514
                2/2014 564
                3/2014 442
                4/2014 526
                5/2014 580
                6/2014 479
                7/2014 514
                8/2014 530
                9/2014 482

                Completion month:
                1/2014 687
                2/2014 578
                3/2014 603
                4/2014 595
                5/2014 606
                6/2014 663
                7/2014 713
                8/2014 630
                9/2014 655

                1. Hi Freddy,

                   Thank you. I was not trying to suggest that one way of doing it was better than the other, I just wasn’t sure how you were presenting the data. I just give total monthly output. Thanks for that data.

                   On the data set without adjusting for days of production, do you adjust for February having 28 days, April having 30 days etc?

                   Your data shows why Sept was very different from August.

                   First month output from new wells in September was 38% higher than new wells in August, primarily because the average new well in Sept produced for an average of 21 days compared with about 14 days in August (using your data and assuming 31 days for August and 30 days for Sept in your data not adjusted for days of production).

                   Using my Bakken model I estimate that ND Bakken legacy decline in August and September was about 79 kb/d, NDIC data shows Bakken output increased by 16 kb/d in August and 53 kb/d in Sept.

                   Thus new wells in August produced 79+16=95 kb/d and new wells in Sept produced 79+53=132 kb/d. So Sept new wells produced 132/95=1.39 or 39% more oil than new wells from August. A big part of the explanation is that September wells produced for 22 days vs 14 days in August and 22/14=1.5 or 57% more days of production, the actual productivity per day of production in September was a little lower than August (by about 9%).

                   Below is a table of days of production for new wells in their first month based on FreddyW’s data:
                   Jan-14 18.6
                   Feb-14 13.3
                   Mar-14 22.8
                   Apr-14 16.5
                   May-14 15.3
                   Jun-14 21.4
                   Jul-14 19.4
                   Aug-14 14.3
                   Sep-14 21.7

                   Freddy please correct this if I have not understood your data correctly. The above table takes the monthly output in b/d and multiplies by days in the month (31, 30, or 28) and then divides by the monthly output adjusted for days of production to find the days of output for each month.
                   For August 2014 =244*31/530=14.3 days of output.

                2. Hola, Dennis:

                   I hope that Freddy can correct me if need be; I think completion techniques have changed a little in the past 18 months since I have witnessed any shale operations but let me walk you from birth of a shale well to the maternity ward, to maturity, so to speak.

                   Its rare a shale well would flow prior to frac’ing. In high carbonate wells, like MBP suggests, sometimes operators will pump acid ahead of a frac to open and clean perforations but most wells are not going to make anything until all the frac stages are pumped, the plugs are drilled out between stages, or “donuts” between stages pumped out, or sleeves open, whatever they are doing at the moment, and then the well is opened up and flowback commences up the production casing. At some point the well loads up on its own (poops out from declining GOR), or is intentionally killed (loaded with water) to facilitate running production tubing, which is much smaller OD than casing. The well then might flow some more, on it’s own, up production tubing. Then the well will die again, on its own, or is killed, and often gas lift mandrels are run in the production tubing to assist in lifting liquids out of the wellbore, or even ESP’s (electric submersible pumps). Both of those artificial lift methods work for awhile but ultimately most shale wells everywhere go on rod lift and that requires taking out and putting back in other down hole stuff. It is quite possible that a lot of the gas lift, ESP intermediate steps are now eliminated and wells in the Bakken go straight to rod lift, I don’t know. Once the well goes on rod lift all kinds of things go wrong sometimes and I think it is rare that any operator with a large well inventory in shale would have 80% of its wells producing at any one time. Pumping deep wells on rod lift is a royal pain in the ass. You can imagine the wait period for rigs and services in the Bakken when a well goes down. Each step in the life of the well, from birth to maturity, would result in periods of production decline, no production at all, followed by periods of production increase. Even production from rod lift wells can be altered for numerous reasons, and often are. My point is that trying to interpret well performance without full knowledge of day to day operations of that well is not very productive. That is not to say that changes in IP’s and the first few months of production are not as a result of sweet spot depletion and interference from other wells drilled on close spacing. You gotta be there babysitting to really know, I think.

                   In Texas we do not have to report the number of days a well is on line, or down; the reported production for the month is what it is.

                   Mike

                3. Thanks Mike,

                   I am just trying to get a rough idea of what is going on. When we take a fairly large group of wells we can get a rough idea of what the average well is doing.

                   There was a similar change in the number of producing wells in the Bakken from july to August and from August to September. We do not know how many new wells actually were brought online because we don’t know how many were down for maintenance, but we can estimate.

                   In August there were about 210 new wells and in September about 213 new wells, but production increased by only 16 kb/d in August, but by 53 kb/d in September. I am offering one possible explanation given the data I have, there is variability in both well start dates from month to month as well as variability in well productivity from month to month so we would expect there to be variability in total output each month even if the number of new wells added was the same every month (which it is not, that varies also).

                   It is no surprise to me that these numbers bounce around each month, though sometimes people attach significance to normal statistical variation. Bottom line my “explanation” of this variation from August to September is one possibility out of many.

                   Thanks for the explanation of some of the complexity of the life of an oil well.

                   Quick question on rod lift. The Bakken wells go roughly 10,000 feet deep with 10,000 foot horizontal sections (laterals?), is it mostly the vertical depth which is important as far as estimating the cost of pumping oil to the surface or is the length of the lateral also important?
                   Are the laterals drilled slightly up hill so that the oil will flow to a low point near the end of the radius and can just be “lifted” from that point?

                4. Well, it use to be wells were drilled up hill, or up regional dip, but I think not so much anymore. It makes sense that gravity would assist in some way to draining the lateral but now days it seems lateral orientation is more related to stress fractures in the rock and even where, and in what direction, you can cram them into remaining space.

                   A horizontal well cannot be pumped from the lateral or even too far into the radius; the down hole pump is usually set in the vertical section of the well. So the length of the lateral is not important in rod lift implementation.

                5. Hi FreddyW,

                   In your last comment there were two sets of numbers.

                   I assume the first is output per day where you take monthly production and divide by the days of production, but the numbers don’t match the numbers you gave in an earlier comment for days of production.
                   The second set of numbers I don’t understand at all and have simply ignored. They must be important or you would not have bothered to post them. Can you explain those numbers? Thanks. (The data under “completion month” is the data I do not understand.)

                6. I start to get confused by all the numbers flying around :). Completion month is the month the well was completed and in most cases is the month it started production. I think it was those numbers you were actually looking for.

                   I divided each well´s monthly production with its days number, then summed all those and divided by number of wells.

                7. Hi Dennis,

                   I think you have missunderstood my data. As I showed you in Ron´s other post the average number of production days are

                   8/2014 14
                   9/2014 16

                   So you don´t have to calculate that. Also 530 is from 1 month after completion. So wrong table used. I did not divide each well by the average number of days. I divided by number of days each individual well had produced. So your formula will not really work.

                   The reason September is higher for new wells is both that they have produced for 2 more days, but also because the average well produced more. But why total production was up alot in September more complicated than that. About 50% of the wells are confidential when they start to produce. I don´t know if they try to guess their production or they just don´t include those in the data. If they don´t then it takes about 5 month for all wells to be public. So for any month there are in that case new contributions from wells as far back as 5 month (although with lower production because they are older). Because 1/2 of the new wells are confidential and they produce only 1/2 month the first calender month, their contribution is only 1/4 of what it could have been. Lastly because the average well in August only produced for 14 days, they have declined less when their contributions are summed up for September. I don´t think the effect is that great, but at least some effect.

                   And yes I used 28 days for February, 30 for April and so on. Actually I think I will continue to divide by days in month and not days in production. If for example a well produced only for one day the first month, dividing by production days would be as if the well produced with 24 IP the whole month.

                8. Hi Freddy,

                   the NDIC knows what the confidential wells produce, they just don’t report it.

                   You can get an estimate of what the average well produces from the wells that are not confidential and it is probably a pretty good bet that about 99% of the confidential wells are in the Bakken/Three Forks so that gives you a well count. Then you can assume all wells are average wells to get an estimate of monthly output.

                   Good call on that second month, that is very true.

                   I don’t have access to your data, but Enno Peters lists from the month of first output, I call that first month of production and assume it is the same as the completion month (which may not be the case).

                   So what I was hoping for was the average days of production for the first month for wells in Jan, Feb, etc. (only wells producing), then if we have the average monthly output for Jan, Feb, etc.

                   Most of the difference from Aug to Sept is due to lower output in b/d in Aug relative to Sept.

                   Thanks for your help, I think with the 37 kb/d legacy decline and about 212 wells added in August and September, the 16 kb/d increase in July vs 53 kb/d increase in Sept is accounted for in part (about 60% of the difference is accounted for by the difference in first month output). The model predicts an increase in output of about 28 kb/d for August and September, the actual average increase for the two months was about 35 kb/d. It is likely that the actual wells have been performing better than the model “average well” over the past several months.

                9. I don’t have access to your data, but Enno Peters lists from the month of first output, I call that first month of production and assume it is the same as the completion month (which may not be the case).

                   I don’t understand why the first month’s production would be a full month. Wouldn’t it be from the first day of production to the end of the month? That would seldom be a full month. Or do they start from the first day of the first full month following the well completion?

                10. Hi Ron,

                    I was trying to clarify Freddy’s use of the term “completion month”, and whether that is the same as what I call “first month of production”. You are correct that a well can start producing on the 1st of the month or on the 31st day of the month and in both cases I would call it the first month of production. If the two wells were wells with similar EUR, the first month of production for a well which starts producing near the end of the month will be lower than a well that starts production near the 1st day of the month.

                    As Freddy pointed out, the second month of output would be higher for the “late in the month start” well than the other well.

                11. Ok yes that makes sense.

                    Yes the average for the not confidential wells is good enough. But the data is noisy, so more wells would have been good. And if they decide to make a certain type of wells confidential (the good ones for example) the data will be wrong. But it does not currently seem to be the case. Anyway, I encountered problems. I use https://www.dmr.nd.gov/oilgas/bakkenwells.asp to see which wells are Bakken wells. And confindential wells are added there when they become public. So it will not work on new wells.

                    Yes completion month is in most cases the same month as production start. But I will actually change and use first production month instead as it will be a bit more accurate.

                    I think you are correct in your analysis. It looks like the average well has performed better recently.

                12. Hi FreddyW,

                    I think it is safe to assume that most of the confidential wells are Bakken Wells, you could also look at the ratio of Bakken to non-Bakken for the month and if 95% of wells that month were Bakken wells, just assume 95% of the confidential wells are Bakken wells, also if all of the non-Bakken wells are from certain counties, you could eliminate confidential wells from those counties. Not a prefect system, but it is the best we can do.

                13. By the way, does anyone know what the column “Runs” in the reports here mean?

                    https://www.dmr.nd.gov/oilgas/mprindex.asp

                14. Sales. Stock tank production is reported, then the numbers of barrels sold must also be reported. The difference in production and sales is “inventory” that stays on location, in tanks, and gets carried over to the next months business. Barrels produced must eventually jive with barrels sold on the “books” so to speak. All barrels must be accounted for; mineral owners for one demand it. Can’t report barrels produced then have them mysteriously disappear.

                15. I see. Thank you Mike.

                16. Mike can correct me here, but runs will roughly coincide with barrels produced, when you have no info on output because a well is confidential, it might be a fairly good estimate (closer than assuming zero, or I have no idea).

                17. Yes interesting. There are actually figures for Runs for confidential wells and they are very similar to production. Perfect then I can include that for wells that are confidential and get better numbers for the last months. I think I will have one version with and one without. Thanks Dennis for the great idea.

                18. One negative thing. I´m drowning in data :P.

                19. Yes, almost always any way. Oil can be held over from one month to the next but in the end, production and sales should always balance. Missing barrels are a big no-no.

                    Which brings me, again, to this issue of “confidential wells” in the Bakken. I have no idea what that means. It is impossible to withhold production data from mineral ownership and sometimes there might be 400 different mineral owners in a producing unit. What earthly purpose would it serve a Bakken operator to withhold production data on any well, or ask a regulatory agency to not publish production data? There are thousands of Bakken wells up there and no secrets on the boulevard, I assure you. Please explain that to me. Folks have always said production data can be withheld in ND; I find that hard to fathom.

                    In Texas a well that is “confidential” only refers to regulatory allowances for withholding well logs and certain geological evaluation data from that well for a limited period of time. It has nothing to do with production. Every barrel of oil produced and sold must be reported as soon as it comes out of the ground, or is moved off the lease.

                20. “Folks have always said production data can be withheld in ND; I find that hard to fathom.”

                    That is exactly the case though. North Dakota law and administrative code states that nobody outside of the North Dakota Industrial Commission is allowed to see production data for confidential wells, not even mineral owners.

                    There’s a FAQ section about this on the NDIC website…

                    What does the term confidential mean?

                    When an operator requests and is granted confidential (tight hole) status for a well, it restricts our ability to release information about the well. Section 43-02-03-31 of the North Dakota Administrative Code states in part:

                    All information furnished to the director on new permits, except the operator name, well name, location, spacing or drilling unit description, spud date, rig contractor, and any production runs, shall be kept confidential for not more than six months if requested by the operator in writing. The six-month period shall commence on the date the well is completed or the date the written request is received, whichever is earlier. If the written request accompanies the application for permit to drill or is filed after permitting but prior to spudding, the six-month period shall commence on the date the well is spudded.

                    All information furnished to the director on recompletions or reentries, except the operator name, well name, location, spacing or drilling unit description, spud date, rig contractor, and any production runs, shall be kept confidential for not more than six months if requested by the operator in writing. The six-month period shall commence on the date the well is completed or the date the well was approved for recompletion or reentry, whichever is earlier. Any information furnished to the director prior to approval of the recompletion or reentry shall remain public.

                    This means that the only information the agency may release during the confidential period is the name the operator, the well name and location, the spacing or drilling unit description, spud date (when they commenced drilling), the rig contractor, and any production runs (oil sold) from the well.

                    Why can’t I get any information on a confidential well even if I own the mineral/surface rights?

                    Section 38-08-04 of the North Dakota Century Code states in part that the commission has the authority:

                    To provide for the confidentiality of well data reported to the commission if requested in writing by those reporting the data for a period not to exceed six months.

                    And Section 43-02-03-14 of the North Dakota Administrative Code states in part:

                    The confidentiality of any data submitted which is confidential pursuant to subsection 6 of North Dakota Century Code section 38-08-04 and section 43-02-03-31 must be maintained.

                    Section 38-08-16 Part 2 makes willful violation by releasing information a Class C felony. The date when information can be released for a well may be found in the confidential well list once the well has been spud.

                21. This is primarily a response to Mike’s observations regarding the confidential listing for North Dakota wells. The DMR website has a FAQ button that defines and – I believe – addresses Mike’s observations as per the conditions for ND well confidentiality. Essentially, the two states are the same in having all production (sales) publicly known, while keeping the specific geology info proprietary for six months.

                22. “All information furnished to the director on new permits, except the operator name, well name, location, spacing or drilling unit description, spud date, rig contractor, and any production runs, shall be kept confidential for not more than six months if requested by the operator in writing.” .

                    Mr. Wald, thank you. As I stated then, confidentiality only pertains to very specific well information, not production. “Runs” are sales and sales must correspond to production. Production from Bakken wells has always been an open book, as it should be.

                    Thank you, anonymous.

                    Mike

20. 365×2,500,000×70=63,875,000,000

    .6×147,000,000,000=88,200,000,000

    Either the price of cars is too high or the price of oil is too low.

    Electric cars have it all beat, you do not have to buy gas. To repeat moss: you don’t have to buy gas, you won’t need any.

    Leaf sales are at an all time high for September.

    1. Electric and hybrid car sales are sharply down in 2014. Go back a Ronpost or two for the article laying it out. American buyers have returned to SUVs and trucks. That’s what they want. Period.

       1. Paid $2.31 per gallon for regular yesterday.

          Happy motoring folks!

          The smart people are buying Priuses other high mpg vehicles…time to strike a good deal so you wave at the folks in the PuTs and SUVs and smile when fuel gets more expensive again…

          1. The smart people are buying what they want, with sub prime loans they won’t repay.

             1. We have different definitions of smart people!

       2. Not true. Electric car sales are up substantially in 2014.

          http://insideevs.com/monthly-plug-in-sales-scorecard/

          1. Sorry there fella, don’t know what insideeevs is, but I think we all know what cbsnews is:

             http://www.cbsnews.com/news/are-americans-switching-back-to-big-cars-and-suvs/

             “During the recession, consumers didn’t buy much of anything but certainly not discretionary-type vehicles like big utilities and sports cars. Yet they still wanted them,” Michelle Krebs, senior analyst at AutoTrader.com, told CBS MoneyWatch.

             Krebs noted that the new versions of large SUVs and trucks are selling extremely well, thanks to lower gas prices, better mileage and some new offerings.

             **Drum Roll**

             “Almost all of the sales growth seen this year has come from the utility segments,” Ibara told CBS MoneyWatch, “while the sedan segments have been flat (note that overall auto sales are up 5.5 percent through the end of October). Hybrid and other alternative energy vehicle sales are down almost 12 percent.”

             1. ” Eric Ibara, director of residual value consulting for Kelley Blue Book”

                Right. Why should we doubt “the director of residual value consulting for Kelley Blue Book”

                http://en.wikipedia.org/wiki/Plug-in_electric_vehicles_in_the_United_States#mediaviewer/File:US_PEV_Sales_2010_2013.png

                1. Why should you believe it?

                   Because CBS News has some semblance of a fact checking budget and whatever insideeevs is . . . doesn’t.

                   I think you’ll find that Wards Auto, the industry standard for tracking sales, concurs with his quote. All of it, including the falling hybrid and electric sales.

                   The wacko green true believers always fall afoul of actual data. It’s best to address reality. You’ll serve your cause better.

                2. The wacko green true believers always fall afoul of actual data.

                   The sad thing is, this is considered civil discourse in America.

                3. The sad thing is, this is considered civil discourse in America.

                   Well, not every one in America would necessarily agree with that. Then again, some great apes like to jump up and down, beat their chests and throw feces at other apes that are not members of their own clan in order to show their disapproval of enroachment on their territories… With human apes interacting on the internet, this occasionally can manifest as name calling to mark ideological turf and to let other members of their tribe more easily identify them. It’s probably still a bit better than urinating on the furniture, welcome to America >;-)

                4. Like the way they fact checked Dan Rather’s phony “Bush memos” before he was fired for making things up?

                   Any thinking person takes what they hear from the MSM with a large grain of salt.

                   And since your bogus “Wards Auto” data is behind a pay wall, you post it.

             2. **Drum Roll**

                http://www.statista.com/statistics/199981/us-car-and-truck-sales-since-1951/

                US car sales peaked in 1985 and US Truck sales peaked in 2005 and while there has been some recovery it might also be interesting to note that The US population in 1985 was 237.92 million and currently it stands at 316.98 million.

                1. Here’s a chart

                   

                2. Its also interesting to look a the global sales picture and it tells us that the rosy scenarios brought to us by the mass media of letting the good times roll are probably somewhat misleading.

                   

                3. Not quite sure how all that is relevant to falling electric sales in 2014. The financial Apocalypse ended history at 2008. Nothing before it matters to most things.

                4. I’m trying to set the context, which is that overall ICE car and truck sales are still a long ways bellow their past peaks. So you can’t really call that growth. They haven’t even recovered from the devastation of 2008. My guess is they never will and those who are buying SUVs and large PUs now will be very sorry soon. Gas may be under 3 dollars a gallon now but I bet prices will soar again in the not too distant future.

                   On the other hand despite sales of cars and trucks being in a global slump EVs are definitely on the up swing! Yes they are still a tiny segment of the market …

                   In July, according to the Electric Drive Transportation Association, 11,433 plug-in electrics were sold (InsideEVs says 10,533). And, EDTA says, the first six months of 2014—with 66,406 cars sold in the period—is 37 percent ahead of the same period in 2013. Compare July 2013 to July 2014 and sales are up even more, 54 percent.

                5. I bought a leaf and the PV to run it. My neighbor bought a BFPU and paid MORE than I did.

                   Now, my wife gets that sack of bananas for near nothing, and my neighbor’s wife gets the same sack for a hellova lot of bakken happy juice.

                   Some day that message will soak into enough thick skulls and then

                   the end of history.

                   BTW, Fred says sales of EV went up, Watcher says they went down. What?

21. A BIT OFF TOPIC….

    NETHERLANDS SECRETLY REPATRIATES 122 METRIC TONS OF GOLD FROM NY FED

    In what could definitely be called a stunning move, the Netherlands has announced it has repatriated in excess of 120 tonnes of gold from the vaults of the Federal Reserve in New York to the Dutch Central Bank in Amsterdam. Officially a move made to rebalance the locations where the gold is being stored, one cannot ignore the fact that the Netherlands only repatriated a large part of the gold which was stored in New York and it did not touch the gold stored in Canada and London.

    http://www.zerohedge.com/news/2014-11-23/real-reason-why-netherlands-repatriated-its-gold
    ————

    So, we have the crazy Chinese buying up nearly 2,000 metric tons of gold in 2014, while India imports near record gold and Russia continues to add gold to its official reserves amongst many other countries at a lower level.. We have no idea how much gold the Chinese Govt holds as MUMS the word.

    Now we have the Netherlands secretly repatriating 122 metric tons of gold from the NY FED with more countries to follow. The Swiss have their Gold Vote on Nov 3oth… probably won’t pass as the SNB can not allow this to pass. Basically, the poor and middle class will vote YES and the wealthy will vote NO as their wealth is based upon the SNB to continue printing and pumping up paper assets like the rest of the world.

    However, at some point in time the WHOLE PAPER SYSTEM will disintegrate… probably at the same time the Chinese officially announce they have something like 10,000-15,000 metric tons of gold in reserve.

    This will take some more time to play out… but remember this: 100% OF ALL FIAT CURRENCIES go to ZERO… bar none. Americans will probably being impacted the worst when Gold & Silver revalues.

    Times are A-CHANGING,

    steve

22. $68.89 and falling. Because the global economy is stable, and the future is bright.

    1. Hilarious comment from ZH

       “Frankly all that oil just created a lot of logistical problems, potential for environmental degradation and worker injury. Now that America is free of it, the economy will expand just as it did when it was freed from the hinderance of manufacturing”

23. BY THE WAY,

    Part of the reason for the huge $5 fall in the price of WTIC is due to this GEM sent out by the CME GROUP:

    IMPORTANT NOTICE – Effective 4pmCentral Time, after the close of the US markets on November 26th, we will be margining all clients at 100% of exchange required margins for Crude Oil, RBOB, and Heating Oil related trading. This is in response to the impending OPEC meeting, with results to be released at 9am CT tomorrow November 27th.
    ———-
    So, not only did the Saudi’s announce NO CUTS in oil production today, folks trading oil products will be margining all clients at 100% of exchange required margins for Crude Oil, RBOB, and Heating Oil related trading. This is forcing folks to liquidate their positions rather than increasing their margin requirement where they could lose A GREAT DEAL MORE…LOL.

    steve

    1. Could you explain for someone who doesn’t speak finance very well.

       1. Sam,

          Basically, traders have to have a 100% backing of their future oil products contracts. Futures contracts are based on margin. If it’s a 15% margin and the contract costs say $20,000, then they have to have $3,000 to control each contract. Now, they have to cough up the ENTIRE FULL AMOUNT…LOL.

          The CME did the same nonsense in the Silver Market back in May 2011 when silver hit $49. Matter-a-fact they had FIVE consecutive margin HIKES over a 3 week period that totally collapsed the price of Silver.

          They stated the reason was to make the silver market MORE ORDERLY. However, the opposite was the case. They CME GROUP was protecting the SHORTS which were the BIG BANKS and the LONGS got crushed.

          So, today anyone trading oil needs to have 100% backing of each contract. We will see continued fireworks on FRIDAY…LOL.

          steve

          1. OK, I understand now. Thanks.

          2. Steve,

             Interesting info about the margin call. You don’t happen to have to a link for that do you?
             What ever is happening, it is hammering the Aussie market, down 1/5% with some of our large oil and gas companies down 10%. Certainly knee jerk, as most of Aussie O&G co are LNG based, which does has some ties to the oil price but is insulated to some extent.
             When wall street opens, it will be very interesting to see how the shale plays fair?

          3. They knock down the oil price to support the world economy. World economy is in the shitters completely, and more CB stimulus could crash the system at this moment. When oil goes up again, QE5 will see the light.

             Between a rock and a hard place imho.

    2. ONE MORE THING:

       Those 5 consecutive SILVER MARGIN RATE HIKES back in May of 2011 were a record for any commodity, EVER….LOL.

       Gosh, when the PAPER MARKETS-DERIVATIVES markets finally implode, the values of hard assets such as gold and silver are going to shock people. Even the most ardent precious metal investors.

       steve

    3. I think part of the reason for the drop in oil prices also has to do with increasing amounts of alternatives. While some consider alternatives to be only a “drop in the bucket”. If you add Biofuel production, with the gasoline savings from over 2 million hybrid vehicles, 260,000 electric vehicles, and 250,000 CNG vehicles in the US. It adds up to around 16 billion fewer gallons of gasoline consumed. 13 percent of total gasoline consumption.

       1. John B,

          Sounds right at face value, but alternatives aren’t that much of a factor. Furthermore, biofuels takes natural gas and oil-diesel to grow, harvest and produce.

          Regardless… Peak Cheap Oil took place in 2005. Now all we get to do is wait and see when Expensive Oil Peaks. I got my money on 2015-2016.

          steve

          1. I would think the quantities of diesel used to harvest biofuel crops to be quite small in comparison to the quantity of biofuel produced. 16 Billion fewer gallons of consumption in the US certainly IS a factor.

             And when the oil price was racing to $147/barrel in 2008, Peak Oil proponents were quick to point out Geology as the real culprit. 6 years later, the price has dropped by more than half. If Peak Oil (geology) had been reached, the oil price should be increasing, not decreasing. However, if Peak Demand has been reached, the price should continue going down. We shall see.

             Recall that Robert Hirsch predicted we would see $500/barrel oil by 2013.

             http://www.youtube.com/watch?v=bGHpWOSsDZk

             1. what year was this?

                1. I believe that interview was recorded in 2008.

       2. And speaking of Biofuel, T. A. Kiefer of the US Air Force Air War College, in a paper entitled “The False Promise of Liquid Biofuels”, laid out factors that preclude biofuels from replacing petroleum as a national-scale transportation fuel. Kiefer states “The energy content of the final-product biofuel compared to the energy required to produce it proves to be a very poor investment, especially compared to other alternatives. In many cases, there is net loss of energy.” He concludes “…pursuit of biofuels creates irreversible harm to the environment, increases greenhouse gas emissions, undermines food security, and promotes abuse of human rights.” Kiefer, T A (Spring 2013), Energy Insecurity The False Promise of Liquid Biofuels, Strategic Studies Quarterly (US Air Force).

          I became interested in this when collecting my broken chainsaw from the dealer who told me if I kept using ethanol “enhanced” gas in my saw it would never run properly and may in fact stop running at all.

          1. I’ve been reading negative criticism about biofuels for at least the past 10 years. However in that time period, the quantities of biofuel produced continue to increase year after year, in the US, and globally.

             Reality is often quite a different thing than what some group thinks will happen.

             1. Yes, I agree. It’s becoming almost impossible to avoid the stuff, even in so-called premium quality gas (where I live anyway).

                NB comment below was supposed to follow my remark but you jumped in.

          2. Because, negative effects from Ethanol on your system don’t end at corrosion. Ethanol is an alcohol, it dries out the rubber components in your fuel system which leads to cracking/brittle fuel lines, floats, seals and diaphragms.

             1. That’s true for natural rubber seals, not synthetic seals. Alcohol has been used in racing cars successfully for many decades. The benefits are higher compression = more power. Alcohol engines also run cooler.

                1. Yeah, it’s mainly small engines that suffer.

                2. John B,

                   THE JIG IS UP. We’ve run out the clock. Not only is peak oil here, we are entering a RAPID EXPONENTIAL CLIMATE WARMING EVENT.

                   To argue, debate and bicker about the deck chairs on the sinking Titanic might be CUTE & FUN, but the Titanic is sinking regardless.

                   GOD HATH A SENSE OF HUMOR…

                   steve

                3. You will find to your sorrow if you use any relatively cheap small engine that it will likely have horrible reliability problems associated with ethanol.

                   The only solution that seems to work is to pay for premium priced brands or honest to sky daddy commercial models that cost triple what the homeowners versions cost. Nine hundred for a chainsaw versus three hundred. the nine hundred dollar saw has fuel system components that can withstand ethanol long term. The three hundred dollar models – not in my experience or that of anybody I know.

                   This is a real problem in that tieing up the extra six hundred in a tool not used very often- maybe a couple of weeks a year is not a cost easily borne given that the homeowner model used to last ten years easily.

                   The manufacturer of the commercial model can be counted on to discontinue parts within twenty years at the absolute outside so the first serious breakdown of the commercial model may well be the last in the hands of somebody like me.I use a chainsaw about as much in a year as a logger does in a week or maybe two weeks at most.

                   Even homeowners models seldom wear out in the true sense- some minor component generally fails and the tool is scrapped because new ones are cheaper than servicing old ones.

                   It is a waste of money to pay somebody forty bucks a year to tune up a push mower that costs only a hundred fifty. A new one will almost for sure run three or four year with only an oil change and a blade sharpening and under warranty at that for the first year.Some of them run ten years without any service except an oil change and sharpened blade.So I tell my friends who want them repaired that if it is going to take more than fifteen minutes plus parts to just sell it at a yard sale and get a new one.

                   My own solution is to buy new homeowners chainsaws and sell them every year as used to cut one winters wood . I find this to be the cheapest all around solution given the value of my own time even though I am an excellent small engine mechanic- dealer trained and certified on three different manufacturers at one time. All expired now of course.

                4. Yair . . . Interesting comments .

                   In my experience, since the American McCullock went out of production the only saws worth buying are Stihl or Husquvana.

                   Expensive yes but I have one little oo9 Stihl that has done probably two or three hundred hours over ten years with just a new diaphragm in the oilpump. Apparently there are more examples of this model in existence than any other saw . . . and now the moulds are worn out and they are discontinued after 25 years essentially unchanged.

                   Cheers.

                5. “You will find to your sorrow if you use any relatively cheap small engine that it will likely have horrible reliability problems associated with ethanol.”

                   My saw is not “any relatively cheap small engine”, its a state of the art Stihl used by virtually every logger in Western Canada and ethanol destroys it — according to the local Stihl dealer.

                6. Stihl makes an electric (battery) chainsaw. But my new favorite for cutting limbs and trees up to 6 inches is a Milwaukee Hackzall; one M18 battery lasts an afternoon.

24. A little bit of holiday flavor…

    An interesting graphic showing what people appreciate the most in each U.S. state:

    http://cdn.theatlantic.com/assets/media/img/posts/2014/11/Map_Base/original.png

    I don’t see ‘oil’ anywhere…although the folks in Michigan appreciate their electricity.

    One can clearly see the ‘Bible Belt’

    TX, NM, AZ: rain, Rain, RAIN!

    Youtube? Netflix? allrighty, then!

    Food isn’t mentioned…

    1. I didn’t know Idaho was that Mormon. They are growing.

       1. Watcher,

          Ask a good Mormon about Heavenly Mother sometime.

          I’m not joking.

    2. What a bizarre list. I’d heard of pinterest, but had to look up what it is. And this is the ‘most appreciated’ thing in a state where I used to live!?! And as you note, netflix, youtube… Some make sense on some levels (people are clearly not thinking deeply about this) but someone please explain Illinois to me. Hafta wonder what the survey methods employed were…

    3. Heh, I live in Florida and think a lot of Floridians will be getting their wish sooner than they expected…

    4. SUCH SURVEYS ARE BULLSHIT pure and simple. You can get damned near any answers you want depending on THE ANSWERS YOU WANT.

       AND when you get into religious values people who are only nominally members of a religion and never observe any of it other than paying it lip service still tend to answer in religious terms.Such answers emerge automatically without thought since they are culturally acceptable and ”safe” from the interviewee’s perspective.

       As somebody pointed out nobody mentioned food – and probably not sex or booze or their inheritance or …………………………….

25. So.

    If you’re a railroad, don’t you want to start getting paid up front? Ditto trucking services? Sand makers and shippers? Halliburton and Schlumberger fracking services? You gonna provide your services now with promises of payment at the end of the month? Are you crazy?

    I think I want cash in advance, maybe 50%. Just like Russia and the Ukraine. To fund that cash in advance, the oil producers are going to have to borrow. Who is going to lend?

26. There has been a lot of talk about the price at which shale oil is profitable with the companies saying they can still produce oil down at these levels. But what really matters most is cash flow. If the shale oil drillers are going to drill they need to pay the bills. Remember, cash is king. So I decided to have a quick look at the financial statements for EOG and Continental.

    For the first nine months of the year EOG had operating cash flow of $6.5 billion. They spent $6.1 Bn on exploration. EOG realized $100 per barrel of oil through those 9 months.

    If EOG were to realize $60 per barrel for a similar nine month period then cash flow would be around $2 Bn. If EOG keep their same exploration budget then their cash flow will be negative $4 Bn. EOG do have $1 Bn cash on hand so they would have to borrow to keep the same exploration profile. EOG already has $6 Bn in long term debt. EOG have very few hedges in place for 2015 so that won’t save them.

    Continental generated $2.2 Bn over the first 9 months of 2014 and spent $3.2 Bn. Today’s lower price could take over $1 Bn out of their cash flow leaving them at negative $2+ Bn instead of negative $1 Bn year to date. Continental has $1.6 Bn in cash and long term debt of 5.8 Bn. As we know they sold all their hedges.

    I am not an expert in oil financial statements or financing, I just know my way around a set of financial statements. All of these oil companies will be short of cash to fund 2015 activities. They have said they will keep the same exploration budgets but I don’t see how they can. If they want to keep spending they will have to borrow the money but given how most of them have big debts already, that funding might be slow in coming. I think lenders will be more interested in recovering existing debts than in making new loans.

    The next question is how quickly can these companies cut back spending? Given the importance of cash flow they will be trying to do that ASAP. They have been playing call my bluff with OPEC and today OPEC raised the stakes. Continental have placed a bet on raising prices assuming OPEC backing down, what are they thinking today?

    Given that there could be a delay before companies can cut back spending they will be using up their excess cash quickly over the next few months. That will stall any future uptick in spending.

    I see this as a very clever move by Saudi Arabia. This cutback will likely put “the fear” into lenders and execs and even when the price recovers everyone will be afraid of Saudi dropping the hammer again. By then, in a year or two, Saudi will likely be full out producing and have no hammer left to play. Their timing of doing this now is very clever.

    1. Your text is well thought out, but the Saudis Didn’t Do Anything. They Haven’t Done Anything. There is some bizarre media effort to focus attention on them and they have nothing to do with any of it.

       They didn’t change production all summer and thus far this autumn. They have just been sitting there doing what they’ve done for years. All of a sudden, everyone wants to say they have “done this”. They have done nothing.

       As I just noted, if you’re a supplier you don’t want to be a lender in this environment, and that’s what delayed payment is. If you care about your business, you shut them off NOW. If there is a long term contract, find the Force Majeure clause and lean on it heavy in the phone call. NOW. No delay. NOW. If they want to keep drilling and fracking at a loss, make damn sure it’s their loss we’re talking about, not your own.

       1. Saudi Arabia did not do anything….except for actually cut the price of oil to the U.S.

          http://www.bloomberg.com/news/2014-11-04/saudis-lower-crude-prices-to-u-s-in-december-amid-shale-boom.html

          1. Look at the date of that story and how far oil had already fallen long before it was filed. This is silliness.

             1. The price cut was first reported in early November, and Saudi Arabia was publicly noting that they were content with lower prices weeks earlier. I would copy the links, but it clearly does not matter since I have placed them here in previous posts and you still posted your “silliness” above. Price has move considerably since the Saudis first noted they were content with lower prices in the middle of October.

                http://www.nasdaq.com/markets/crude-oil.aspx

                1. That link goes to something that says 2011.

                   This is a legit surrogate:
                   http://finance.yahoo.com/echarts?s=USO+Interactive#

                   The vast majority of the price decline is long before any price cut for US buyers of Saudi oil, and my recall is it was less than a $1.

                   I guess you’ve decided the Saudis dropped the price of oil. Though being content with a decline doesn’t really equate to mechanism.

    2. CLR has a little more than $150 million in cash and cash equivalents at end of Q3. I calculate market valuing company at $165,000 per boepd. Seems high. Wonder how share price will react?

    3. Gerd

       Where do you find these statements? I assume they’re 10k forms submitted to the US gov’t or something?

       1. OK so for continental I found the following 10q form. Could you walk me through how you got your numbers?

          http://investing.businessweek.com/research/stocks/financials/drawFiling.asp?docKey=137-000073283414000013-6CAANRKOK5K9HMLOS8E1Q0S4HC&docFormat=HTM&formType=10-Q

          1. I went to the companies web sites and clicked on investor relations or on Continental’s web site I clicked on the “for investors” section. Then I go to a link for financial statements or quarterly earnings center and then click on the latest quarterly results.

             For cash flow I looked at the line “cash flow from operating activities” and then capex is usally broken out in the investing section.

             I did overstate the amount of cash Continental has, I picked up the current assets line as cash. Shallow sand has the right number.

             When you manage these businesses the Income Statement is important but you live and die by the cash line. If you run out of cash the income statement doesn’t matter any more. That is why these companies will be forced to cut back exploration and drilling, they don’t have the cash to sustain current investment levels.

          2. I think you are referring to gerd. I just took market cap and added total liabilities and divided by boepd. I would note CLR has fallen off a cliff today. Quickly lost 5 billion of market cap.

27. I see this (deciding not to cut production to balance the market) as a very clever move by Saudi Arabia.

28. From all I can see so far reading this site and some msm stuff it looks like it is going to take a few weeks minimum to a few months to upwards of a year for an oil company to change course. Think large ship at sea making considerable speed. Stopping and reversing course just doesn’t happen very quickly at all..

    So- not enough time has passed yet to see how fast production will drop off as the smaller companies and the ones with higher production costs implement changing production plans.

    Some types of oil are apparently more profitable than most of us seem to think. Accounting is despite all the many rules and standards still sort of squishy a subject and two different accountants can come up with significantly different answers using the same data.

    Here is an excerpt from a Bloomberg article only a couple of hours old.

    ”Suncor lowered its cash operating costs in the third quarter to C$31 a barrel and realized prices of C$89 a barrel, Chief Executive Officer Steve Williams said on Oct. 30 during a conference call with analysts. The Calgary-based company operates four refineries in North America, which allows it to take advantage of low oil prices.”

    I read this to mean that Suncor will still be generating some cash even if they have to sell for as low as maybe forty or forty five dollars-I have no real idea what it costs them to ship their oil.So if these figures are correct Suncor will hang in there no problem and will not cut production -although they will no doubt cut capital spending.

    The big guys producing conventional oil are all probably going to hang in there and continue producing since just about all of them – maybe ALL of them- are at least cash flow positive at seventy bucks or thereabouts.. No doubt they will be cutting capex to the extent they can as fast as they can- but NOT actual production.

    So- given that nobody wants to give up market share or current cash income it is going to be a while before anybody – other than tight oil producers who must get higher prices to borrow money to continue operations- allows production to fall off much if at all.

    So it seems as if low oil prices are going to stick around until one of three things -or a combination of the three – comes to pass.

    One – demand picks up noticeably.

    Two – depletion which never sleeps cuts into production of legacy conventional oil significantly and to the extent that production falls off enough to force prices up.

    Three- tight oil producers on the debt and production treadmill close up shop in numbers sufficient to take enough tight oil off the market to force prices up.

    My guess is that tight oil producers are going to be closing their doors in substantial numbers soon -meaning within the next six months to a year at the longest. We all know how fast existing tight oil wells decline.. but we don’t seem to know how long the tight oil guys can hang in there.

    A lot of them – maybe most of them – may already have commitments for the money they have planned on spending over the next few months or a year.

    This is my layman’s take at any rate. Other folks mileage will vary.

    1. Farmerguy, I follow Suncor pretty closely. The odds of true costs being $31/b are about zero.

       Suncor’s costs are closely tied to natural gas. That’s how they heat the water to steam blast out the bitumen. I don’t know of a plummet in nat gas price over the relevant quarter. One thing that DID happen was Total pulled out of a big multi billion dollar Upgrader project and Suncor shut it down rather than fund it themselves. It is probably THOSE costs that were divided by barrels of production and eliminated from the quarter’s expenditures and enabled the claim. I’ll have to go back and look carefully, but that’s the first thing that comes to mind.

       1. I didn’t read the article as saying their total cost or real cost is in thirty one bucks but rather that their variable cost is thirty one.

          In other words the investment has been made in getting the company up and running- and management has the choice of either running it or shutting down. If they shut down then they have no income.

          If they spend thirty one bucks OVER AND ABOVE THEIR SUNK EXPENSE then they have a barrel of oil to sell is the way I read it.Their variable cost is thirty one bucks if you believe them.

          The cost of the gas they use and all other expendables and necessary repairs and maintenance wages of production crew etc would have to be covered by that thirty one bucks of course.

          So – if they only get sixty one they still generate thirty bucks per barrel in cash.

          That is probably ten or twenty bucks less than enough to cover their total investment and generate an acceptable rate of return on if of course.

          The resource in the ground is evidently so large and will take so long to deplete that they need not concern themselves with running short of raw materials except maybe for cheap gas.

          So I am willing to believe Suncor will continue to produce on a regular daily basis until – if – the price of oil gets down to around forty bucks. I say forty because I have a vague idea that their shipping costs are in the neighborhood of ten bucks or so.

          Lots of things can happen and it is not impossible that oil could dip to forty or so but imo not for more than a few weeks at most.There must be many major suppliers whose variable costs exceed forty bucks and if variable costs are in excess of selling price those producers will just shut down.

          In case any kids or adults who are unfamiliar with this terminology I will give a more easily understood example.

          Suppose you own a vacation rental cottage and you must rent it for one hundred dollars a day to earn an acceptable return. Let us say that the variable costs of renting it are twenty dollars a day- this being for sending a cleaning person and paying the real estate agents commission for finding your customers and the EXTRA electricity used by the customer etc.

          If you HAVE NO CUSTOMER you have no income and large loss. But if you can get a customer who pays only fifty bucks and it costs out of pocket only twenty of that fifty for the cleaning person and real estate agent and extra electricity then you still have thirty bucks left over which is a LOT BETTER than NOTHING left over.

          So you will rent for fifty and be glad to get it.

          But you would be better off to simply quit renting it if you had to accept only fifteen dollars a day which would actually cost you five bucks out of your pocket putting you even deeper in the hole.

          There is an exception to this general rule that should not be forgotten . You might be wise to rent to your old steady customers even at fifteen in hopes they will come back next year when times are better and pay you the usual hundred.

          If you own your cottage free and clear you would probably still be making a profit at fifty bucks a day assuming you get the expected number of customers.If you owe the bank a payment on it every month you would probably be losing money .But the bank payment has to be made customer or not.So you take the fifty. BUT not anything less than twenty unless you do it to hold onto existing customers hoping for business conditions to improve.

          This is probably a waste of electrons but you never know who may read a blog.

          If I were teaching any sort of science or business class in a public school I would definitely have such blogs as this one offered as extra credit reading in order to help teach independent and critical thinking.

          1. If nothing else such exchanges as this one prove one thing. Words need to be very precisely defined in any debate especially one involving technology and money.

             IF you were to ask ten different people what is meant by Suncors ” true cost” you would probably get at least seven or eight significantly different answers.

             Variable cost is a term that might be a little better understood so you might only get five or six significantly different answers out of ten.

             Taxes for instance fall into both categories. As a farmer I pay fixed real estate taxes and variable production sales taxes.Ditto my insurance.Part of it is a fixed cost paid if I produce or if I shut down. Part of it is for production and bought as needed. If I don’t plant I don’t need insurance that covers hail damage. My neighbors who do pick your own cherries can drop customer accident insurance policies if frost wipes out their cherry crop which they sell pick your own.

          2. Hey Farmer Mac,

             I have read your example with cottage rentals.
             Could you explain to me this: Hotel has plenty of empty rooms. I pull around 11 pm in the night. That day has another 1 hour and it is gone. So potential revenue for that day is gone forever. I still get offered from the hotel a room for $130 their usual price. Why? Wouldn’t be better to sell this room for $70 or even $50? But it never happens. So I am not sure what is the frame of thinking of oil producers when they have to make decision on producing or not producing? I am just curious. Thanks.

             1. It certainly does happen as you describe it in the case of hotel rooms more often than not.But if you can find an independent operator or you are located in a spot with plenty of hotels nearby you can often negotiate a discount. Prices tend to be a sticky when the seller thinks you are stuck and must buy immediately.And generally you are dealing with a person with NO AUTHORITY. Without authority the clerk cannot negotiate and if there is a manager on the premises who can the owner risks the manager cheating him by taking in cash bribes in exchange for low booked rates.

                In a resort area such where there are plenty of cottages the market works quite well in terms of leading landlords to price their rooms or cottages or whatever in relation to demand.

                I can stay in a nice place down in Hatteras in the middle of the winter for less than a fourth of the summer rent.

                BUT before we load up we have negotiated the rent ahead of time even though we usually stay at the same place year after year.

                A lot of other landlords in that area simply padlock their properties for the off season since they can’t even get enough rent to be bothered with cleaning and frozen water pipes and that sort of thing in the dead of winter.

                The people who sell oil sell into a wholesale market MUST take the going wholesale price.. You take what the market offers in wholesale unless you are an APPLE or some other company with relatively little competition for your special goods.

                I have always had to sell my apples in quantity for whatever the going wholesale price is. But we sell some at a roadside market and we put a price on the apples and if the customer wants some that is the price they pay as a rule. (I discount a little for pretty women and old women and any woman who flirts with me lol. )Everybody in the neighborhood tends to charge about the same price so the customer who wants only a small quantity seldom spends any time comparison shopping price.

                But the guy with the truck and a phone full of growers phone numbers can save a thousand bucks in a hurry by spending an hour looking for the grower with more apples than he can safely store- they are highly perishable after all.

                But no so perishable as the income of a hotel room not rented by midnight lol. It doesn’t even exist except as wishful thinking..

                1. Thanks Mac. You are funny, apples and flirty women 🙂

                   Yes I understand what you are saying about no authority of the clerk to negotiate. But that is not what bugs me. I am trying to figure out the logic of lets say of Motel chain like Holiday Inn (lets forget for the moment Mom and Pop motels). Why it is difficult to negotiate the price when there is a lot’s of rooms around. It happened to me on many occasions. So why the Motel chain does not offer half price after 10pm when and if there is a plenty empty rooms around that location? I still did not find any reasonable explanation? Sometimes I even think that supply and demand does not even work? 🙂
                   Same thing with airlines they will rather fly empty but not offer sizable last minute discount?

                   And your statement about buying the oil on the market. I still don’t know how most buyers buy oil. Is it on a spot price or long term contract (and the spot price does not matter that much in this case)?

             2. If they could do it in total secrecy they might, if you adjust it to take into account all the cost to clean and wear and tear.

                That’s why priceline had a useful idea, and why you can in fact stay at some nice hotels for 50% of the asking price if you try enough.

                But if everybody knows it, then there is too much game plain, waiting to the last minute, and your price realized on the rest of the rooms fall, and you get a reputation for having a lower real price

             3. Hotels do live on occupancy rates, but giving rebates to late arrivals would just encourage everyone to arrive late.

                The trick to giving discounts is only giving it to people who can prove they wouldn’t otherwise buy. For example grocery store will promise lowest prices and give you a discount if you can show ads for a store in the neighborhood offering it cheaper.

                The grocery store knows already about the other store. The point to making the customer prove it is that it limits the offer to customers who study comparative canned bean prices.

          3. Variable vs fixed? The way it would be quoted is “it takes Suncor $xxxx per barrel to extract oil from the sands”. That could be non upgraded bitumen, it could be post upgrade, it could include admin costs, it could include or exclude interest on the debt, taxes, whatever.

             It will have in it whatever they think will look good to investors if it’s an investor briefing, or whatever looks like a heavy burden if they are briefing Alberta government officials.

             One item in your text is worth adding exclamation marks to, which is why I watch SU so closely. They have product to sell. They aren’t going to run out of reserves, and they differ from damn near everyone in that regard. Govt could step in and claim they are too dirty, nat gas prices could go thru the roof, weather could smack them, but unlike all other oil companies they have reserves for as far as the calendar eye can see.

             Note also they pay a dividend. Dividends get a lot of priority. It’s not uncommon to borrow money to pay a dividend, but that usually won’t last long. With oil falling, a lot of people will get fired before that dividend gets cut, though usually one will follow the other.

             1. All good points Watcher.

                We will know that Suncor’s variable costs- WHATEVER THEY MAY BE- are greater than the price they are getting for either new contracted sales or spot sales when they start cutting back production.

                IF they shut down with oil at let us say forty and start producing again with oil at fifty then we will have good reason to believe their variable costs are between forty and fifty. But even then we can’t say FOR SURE just what their variable costs are. They might continue to sell at a price that generates negative price flow for a while in order to keep their key employees with the company for instance and to cement long term relationships with long term buyers.

                And they might wait until prices are ten or fifteen bucks over cash flow break even AFTER shutting down – just be sure opening up again is going to be worthwhile.Oil could go up ten or fifteen bucks for a couple of months and then go down again.

                The only ” right” answers to questions such as these are the ones econ professors expect to get back on classroom exercises. All other answers are necessarily approximate and should be expected to vary substantially depending on how big the managers big picture is.Is he thinking of the entire industry going busted for instance ? Or that the industry is – after recovering from a slump – going to grow again?

                It is my understanding the decisions are made mostly on the basis of what the managers THINK or GUESS might happen within the next few months to a year most of the time.But I am not a bean counter or corporate executive and do not pretend to know.I just took the basic econ courses back in the dark ages and read the financial news off and on.

                1. Ya mostly.

                   But the BAU gentle decline inclined folks usually think in terms of gradualism and that went away in 2008.

                   For this oil situation, the issue is The Suppliers. Nobody in their right mind should be shipping supplies to these guys on presumption of being paid later. Everything should be COD now. The goal has to be not squandering your money by trusting these guys.

                   “Look, we’re not paying COD. You supply what you’ve always supplied or we’ll find someone else. This oil price bullshit will be going back up just as fast as it fell.”

                   “Well, you think you can find someone else, go ahead. I’m here ready to provide you the supplies you want, but only on COD terms. I’m not a bank. I sell sand. I don’t loan money.”

                   “You think we’re not going to remember this in six months? We’ll buy the damn land and mine our own sand rather than do business with you if you demand COD. Who is your supervisor? Let me talk to him.”

                   “I own this company. Have for generations, and we’ve lasted that long by not lending money to questionable borrowers. Do you want the sand or not?”

                   “I want the sand and you’ll get paid Dec 31, end of the next month, like always.”

                   “Sorry. All you have to do is go down to the bank and borrow the money and I’ll ship it out today. What’s it going to be?”

                   “Take your sand and shove it.”

                   “Have a nice day.”

29. $68.56 Singapore about an hour pre Europe open.

    Euro and GBP both slapped lower (which raises the dollar). tra la tra la

    1. $68.17 and threatening 67s.

       Was just looking at what I’d do running those companies to keep the wheels turning. It occurred to me that the year 2 and 3 and 4 wells are flowing so little that operating costs probably drive them into the red, and I was playing with the idea of shutting them down to stop the bleeding.

       But alas, debt interest never sleeps. If they borrowed $10 million at 5% over 5 yrs, they have an annual $2.5 million loan service burden (repayment over 5 yrs is $2 mill per year plus the 500K interest (which does get smaller, but the 2 mill doesn’t). So shutting down the year 2 and 3 and 4 wells can’t work. Their debt still has to be paid and that has to come from company assets.

       So . . . the wells operate at a loss and whether you shut them down or now, you gotta pay $2.5 million/yr. Might as well shut them down and save the incremental loss?

       No. Keep them going. Borrow more to fund them (at 10% maybe) and announce to the world how you are a great corporate citizen to be doing this and all you need is a little government help.

       1. On second thought, this will never fly. The Board will veto anything like this “let’s run up 10% debt to pay salaries and look good and get govt sympathy” strategy.

          It’s a thousand times easier to shutdown and tell shareholders you are preserving their capital than it is to tell them we’re gambling your capital on a govt bailout. Wall Street would butcher that (up until the first rumor out of Washington).

    2. http://www.eia.gov/todayinenergy/detail.cfm?id=18891#

       1. Amazing chart Anonymous is anyone is still unconvinced about the role of the $ in all this I suggest you follow the above link

          1. Marcus, the reverberations of 2008 are persistent and profound.

             There is a desperate desire for the old normal to remain relevant and thus “supply and demand” becomes an altar at which many worship, because the alternative is so disquieting.

             If money is whimsically created, then supply and demand does not have to mean anything. This is a rejected concept, and therefore the dollar/yardstick change in the measure of oil value becomes similarly distasteful as a concept, and similarly rejected.

          2. As I argued some time ago, it could have happened this way: US oil imports fall, cutting the supply of dollars around the world. This causes the dollar to go up. Thanks to relatively weak demand, the oil price falls (in dollar terms, but stay the same against the euro).

             1. Ilambiquated,

                Interesting idea, but the drop in imports has happened over the last couple of years both due to a decrease in consumption & an increase in production however the recent dollar strength was a sudden move on the back of no great change in either production or consumption. The ending of QE is about the only significant recent event that could have caused the dollar surge outside of central bank intervention of a more opaque kind.

30. The automobile manufacturers are sitting on high inventories and the price of gas is too high, the price of oil is too high, they need to stay afloat more than a few marginal operators out there producing a 100 barrels per day on a couple of wells in the Bakken.

    These cars aren’t selling and the orders for new electric powered cars are off the charts and they just don’t know what to do now. The price of oil must come down and if anything the car companies will buy oil to hoard it so it does come down so they can sell ice cars until they can get up to speed on the new car orders which are all electric and they’re set up to the gills for manufacturing cars with gasoline engines which are obsolete, but they have to sell the unsold cars too so they tear their hair out and look for new ways to survive and electric is the answer.

    It just has to catch up, so long ice for short trips and that is all that is happening with the price of gas at the lofty heights it has achieved.

    Oil is turning out to be a pain in the ass for the manufacturers now.

    Leave all of that oil for large machinery and heavy duty construction. Get that D10 rolling and forget about those little cars with gas engines, they can be electric from now on.

    In October of 2006, the cumulative production in the Williston Basin in North Dakota was 3.5 million barrels per month. In September of 2014 the production stands at 35 million barrels per month.

    The well count in 2006 was at 3412, in September of 2014, the well count is at 11406. The daily production per well in October of 2006 was 33 bpd. September of 2014, it is at 104 bpd average per well.

    A three fold increase for per well production and a 10 fold increase in total production in North Dakota for all formations.

    I suppose they could cut production to zero, the trains stop rolling, the oil doesn’t get there, it’s not gone, but it’s not there either.

    https://www.dmr.nd.gov/oilgas/stats/historicaloilprodstats.pdf

    From 134,000 bpd added to the market to 1.13 million bpd added to the market, the additional oil from the Williston Basin has caused upheaval in the oil markets, the financials are going nuts for oil stocks and related industries.

    Gotta pay for the Burj Dubai too, no cut. Venezuela can eat cake.

31. In the end the folks who live in small countries that have oil to sell but little in the way of very powerful PERMANENT friends are going to bitterly regret it if they have ever mentioned eating cake.

    The Saudis for instance -unless they are a pretty damned stupid – and imo they are actually pretty damned smart- must understand that we are their friend only because we share mutual interests – which in the end are going to be temporary mutual interests.

    IF we keep having problems of a nine eleven sort as time passes after they run short of oil TO SELL TO US then there may be a political backlash in this country so powerful that we decide to bomb them as well as ISIS and associates.

    That would be a couple of decades down the road of course.Much stranger things have happened.

32. RUSSIAN OIL INDUSTRY FACING DEEP FREEZE

    http://www.bbc.com/news/world-europe-30217070

    “Prior to the sanctions, an 11.5% decline in oil production was already predicted for Western Siberia by 2020. Now it may drop much faster. And it may be difficult to find a way to substitute these losses.”

    1. We’ll have to go and check the details, but my recall is the participating companies have contracts that read “$8/barrel”. Not a % of the price. $8/barrel. Russia gets the rest because they don’t have mineral rights to landowners. Though their big players may have bought the land and changed that, in which case Russia gets their tax revs.

       The point would be the fall in price doesn’t change the money the participating companies get so there’s no reason for them to back away. The owners might want to keep it in the ground for a sunnier day, tho.

       1. Meanwhile in Canada electric vehicles sales skyrocket: The market share of the plug-in electric car segment grew from 0.03% of total new car sales in 2011, to 0.12% in 2012, to 0.18% in 2013, and reached 0.25% during the first nine months of 2014. Except with low gas prices that gutsy F-350 with twin one foot diameter tail pipes is looking cool isn’t it luv.

          1. “And they have the F-150. Admirable, if you think providing what customers want is admirable.” No way Dude, even the F-250 is a wimp’s toy up here. Even saw a F-550 one day but the cops had pulled it over — maybe because headlights were about 11 feet in the air and he was blinding transport trucks.

    2. Мы не упадем.

       1. In case you’re wondering this means: We’re Not Gonna Fall

          1. Миша (Misha), Are you a fan of the Finnish rock band Children of Bodom as in Are You Dead Yet or did that expression (Мы не упадем) come from somewhere else?

33. Did I read that right? Oil down 4.95? 68.74, whoddathunkit?

    RIG down 2.32

    Seadrill down to 14.39, off 1.60

    USO down to a new low at 26 and pennies

    HAL, Halliburton down another 4.75 today.

    It’s a panic. A rout.

    1. $68.17. Euro and GBP, of course, falling off a cliff, driving the dollar higher and helping oil kill more and more shale activity. Probably approaching zero at this point. Worth noting that the Yen is doing the same, sharply down pushing the dollar up and redenominating the good stuff downward.

       “All y’all employees here with this here oil firm. I gotta ask you a question. Do you believe in capitalism and will we choose to fold rather than take a govt bailout, or do you want to buy your kids presents at Christmas? “

       1. Probably useful to recall that Ford Motor Company posed that same question in the Board room.

          They made a decision and found a way to survive without a government bailout. They were never on the same page as Government Motors.

          Principled bunch, there.

          Never avalanched recalls, either.

          And they have the F-150. Admirable, if you think providing what customers want is admirable.

          1. What customers want is heavily influenced by the expensive advertising campaigns of the car companies. They are providing what they are telling customers they want.

             1. Fundamental rule of marketing. You can expose and cultivate a demand, but you cannot create one.

                It has been tried. “Should a gentleman offer a lady a Tiparillo?” Lots of money was spent trying to generate demand for cigars among women. Failed. No such demand existed.

                1. The goldfish can’t see the bowl from the inside.

                   The extent to which American society has derailed in the past thirty or forty years is pretty terrifying, and it is mostly from watching lies coming out of the TV.

                   Just look at some of your own bizarre outbursts, like the thing about “greens” in this thread. You were just imitating some half-wit like Glenn Beck. It was totally irrational. You seem like an intelligent guy, I’d seriously like to ask you to think about that.

                   Americans have lost the ability to think clearly. Look at the ebola panic, the Iraq war, the nicknames for Obama, the bizarre gun cult…

                   The fact is that the pickups and SUVs clogging Americans cities are worthless junk. They’re slow, shoddily built and expensive to maintain. The only reason to drive them is because you’ve been brainwashed into thinking they’re “tough”.

                   http://www.ford.com/trucks/f150/models/

                   Tough? Really? Are there any grownups in the room? Pickup ads sound like ads for He-Man dolls. You need to pretty heavily brainwashed to take that crap as anything but an insult to your intelligence.

                   Think about it.

                2. It’s true. My brain is clean.

                3. 🙂 Mine gets cleaner the more alcohol I pour onto it. Perfect cleaning fluid, I tell you.

                4. I’m a gun nut. This has a little to do with the fact that I married a Jewish girl who lost almost all her older family members in Germany.

                   I personally have no interest at all in living in a country where the guns are all in the hands of the cops and the military.

                   Anybody willing to give up his personal freedoms for a little temporary safety is begging to lose the remainder of those freedoms in the long run.

          2. Apparently Ford and Toyota are both working on trucks for the “wacko true green believers” as well.

             http://www.foxnews.com/leisure/2013/07/24/ford-confirms-hybrid-f-150-on-sale-by-2020/

             Of course Ford already has a plug-in SUV on the market:

             http://www.ford.com/cars/cmax/trim/energi/?searchid=171888534|10523849454|28432927175&ef_id=VGbLAgAABE8hSbd1:20141128232853:s

             And there’s Nissan’s new electric minivan:

             http://www.env200.com/

             Perhaps someone should inform those companies that electric vehicle sales are decreasing?

          3. Ford may not have received funds from the fed, but I do recall reading that they did get funding from some bank/slush fund operated by the Treasury. None of them are capable of surviving without dc.

    2. Approaching 52 week low.. A normal pullback after a bull run??

       

    3. WTI is now at $66.15 but that is a two day drop. Because the US market was closed yesterday they are measuring from Wednesday. While Brent traded yesterday, the $2.43 drop is a one day drop.

       Energy & Oil Prices
       Crude Oil (WTI) USD/bbl. 66.15 -7.54 -10.23% Jan 15 14:27:09
       Crude Oil (Brent) USD/bbl. 70.15 -2.43 -3.35% Jan 15 13:59:59

       1. We have a saying in Texas; “I feel like I have been shot at and missed, shit on and hit.”
          That about sums it up for producers today.

          Mike

          1. Hi Mike,

             Hopefully it won’t take long for oil prices to turn around. My guess is that within 3 months the wells already drilled in LTO plays will be fracked and very few new wells will be drilled in the mean time, the decline rates are very steep for the LTO wells so by 2015 supply will start to fall rapidly. In addition the low oil prices will tend to increase economic growth which should boost demand for oil. I doubt these low prices will last for long.

             Obviously after 50 years in the business you know this 1000 times better than me.

             I am hoping for higher oil prices, the sooner the better. It will be better for all of us in the long run.

             1. So it will be better if Russia can bleed its enemies more rapidly than not. I suppose this is better if you’re Russian.

                Bizarre thinking.

                1. Hi Watcher,

                   It will not be long (1 to 5 years) before C+C peaks and begins to decline. The sooner everyone realizes this. the sooner we can begin to adapt. A big part of this adaptation in a market economy is higher prices.

                   If people see gasoline and diesel at $10/gallon(USgal) and expect this price to rise over time, they will make different decisions about what to drive, what kind of heating system to install, etc.

                   What is bizarre is the typical American’s mindset, where fuel prices are expected to remain at around $3/gallon (in real terms) forever. The American’s love affair with the F150 will end when peak oil arrives and fuel prices rise (or fuel is rationed).

                2. Watcher,

                   I know you’re mostly joking around, but let me ask you a serious question for a moment: do you agree that Climate Change is a serious problem, that we should do something about?

34. US shale oil producers getting crushed (or more crushed):
    http://www.marketwatch.com/story/10-us-shale-oil-stocks-getting-crushed-the-most-today-2014-11-28

    Do you recall the odd spruiker and booster of said companies that used to turn up here from time to time?

    1. Yes. Good call.

35. http://www.reuters.com/article/2014/11/28/us-opec-meeting-shale-idUSKCN0JC1GK20141128

    It is highly probable that the Saudi’s have a very good idea what the actual costs of producing tight oil in the US are and think they can put some big monkey wrenches in the gears of the tight oil industry by just maintaining production.

    The only real question in my mind is how long it will take to in the words of one of the original American oil barons for the Saudis to ‘sweat ’em ” a little.My guess is anywhere from three or four more months to a year or more will pass before tight oil production starts falling off enough to really matter to anybody except the tight oil people themselves- and to the people who sell to them on credit of course or who have loaned them money.

    1. Farmerguy, the only real question is permanence.

       THAT is what I’m watching. This smash down is going sour a zillion things. After 6 months of this and total industry destruction and mass bankruptcies, would a return to $100 restart the industry?

       That is the critical question when it comes to starvation, because I suspect that absent govt involvement, the answer is no. Then KSA and Russia start to do what they must. Tie oil supply to behavior, not just price.

       You want oil? No problem. Shut down all battery research. Shut down all fuel cell research. We do not force this on you. It is your choice. Shut it down or your cities starve.

       Now THAT is the proper way to conduct business. Why in the name of God would you fuel efforts to destroy you?

       1. ”You want oil? No problem. Shut down all battery research. Shut down all fuel cell research. We do not force this on you. It is your choice. Shut it down or your cities starve.”

          I can easily visualize a thought of this sort running thru the minds of people who just might be foolish enough to try to implement it.But there is only one oil exporting country in the world that could actually get away with making a threat of this nature-RUSSIA..On second thought maybe Canada…. but the Canadians just aren’t going to pull any such tricks.

          The Russians are so situated geographically and economically that they MIGHT get away with it given that within their easily defensible borders they have everything they MUST have to maintain a business as usual life – a life on the austere side to be sure but still business as usual in terms of the lives of many millions of older living Russians.

          We redneck pistol packing Americans have a saying to the effect that God made us big and small but that Colonel Colt made us all equal.

          Russia has THE ULTIMATE EQUALIZER- the hydrogen bomb with the means to deliver it any where.We yankees might shoot down a few incoming but just one that gets thru is more than enough.

          Now as far as anybody and everybody else is concerned UNCLE and all his friends and hangers on would remember that they actually do have testicles and the response would be something to this effect -if anybody were to issue the ” You want oil …. starve” challenge.

          ” We see your oil embargo.. and we raise you a food embargo. There will not be another delivery of food of any sort to Sand Country as of noon today. The US Navy will be turning back all shipping headed your way.”

          ”We like to think of ourselves as nice people but remember that GENERAL SHERMAN figured out the realities of modern war during our own civil war over a century ago.”

          ( Sherman marched thru the south methodically burning farms and pretty much anything and everything else useful to the southern war effort.There is no doubt this early fire bombing campaign directed mainly at the civilian population and civilian infrastructure substantially shortened the war. Our civil war is referred to as the first modern war for many good reasons- first substantial use of railroads, first practical repeating arms widely used. etc.

          His troops had no good way to actually destroy railroad tracks so they built huge bonfires and put the rails in the fires which warped them up to the point of being unusable and as good as destroyed. The south had no spare rails so just a few missing meant the end of rail service.)

          ”You have a week to start loading the ships waiting outside your harbors.At the end of the week we are going to start exporting a little democracy your way.”

          ”We will start with a few bombs on your desalinization plants and your oil burning power plants.”

          ”We have more oil in our reserves than you have food in yours. You don’t have any reserves of drinking water.And nothing much in reserves of food.”

          ” You have chips enough to raise just this once.We have plenty of chips in reserve .”

          ” If you ‘make us’ then we will drop a few neutron bombs and send in a few million of our own people to repopulate your country as soon as your sorry corpses are thoroughly dried out and the danger of a plague has subsided.”

          ”We got rid of a lot of trouble makers a couple of centuries back by shipping them off to Australia. We can do the same again. These will not be the sort of Christians that turn the other cheek. We ‘l l give’m back their guns and all the ammo they can use.”

          I just read another long article yesterday about how bombing doesn’t work because it doesn’t break the will of people who are getting bombed and SUPPOSEDLY doesn’t even stop the production of war materials.

          Now it is true that the Germans were able to MAINTAIN production back in WWII while we bombed them- but had we not been bombing them they could easily have put a shit load MORE tanks and other equipment into the fight as well as putting a good many MORE divisions into the field.

          The bombing naysayers always manage to conveniently forget the fact that once we got started bombing Germany they were pretty much left without an air force to support their armies on the ground-given that they were forced to divert it to defense against our bombing campaign.

          Beyond that back in those days it took a whole bunch of bombers a whole bunch of trips to be sure of taking out just one critical bridge.

          These days it will take just one aircraft carrier flying off just ONE cruise missile to take out a critical bridge.Just one large bomber (escorted of course) in one sortie can take out an entire industrial plant that a country such as Saudi Arabia cannot hope to repair.Modern air forces can bomb right on the money to say within fifty yards and fifty yards is in the ten ring. The bulls eye. Some people say the air force can fly cruise missiles and smart bombs into a particular window rather than just hit a particular building.I expect this is true.

          So – nobody with the possible exception of the Russians can even SERIOUSLY think about just cutting off the export of oil on the grand scale.

          So what will happen in the event that they and the rest of the exporting countries keep on exporting as usual for the next few months or a couple of years?

          Well for one thing the economic stimulus of low prices will in turn result in stronger demand and prices will probably go up some for that reason alone.But there seems to be little doubt that the tight oil industry in this country will be more or less destroyed as Watcher points out – UNLESS UNCLE decides to subsidize it.

          I haven’t yet taken time to thoroughly think thru the arguments pro and con for subsidizing tight oil in the US in respect to the domestic and international political ” Great Game” as politics was once called during the British heyday.

          Here are some preliminary thoughts.

          The repuglithans are now in control of our congress and while they like to paint OBAMA as a next thing to a commie socialist he is actually taken all around very much of a business as usual politician and we must remember than both parties are in the vest pocket of big business.

          SO- our government subsidizing the tight oil industry is not out of the question but I don’t think it will happen for a practical reason. Not for a while at least.

          This reason is that there are a hell of a lot of very powerful people and corporations in this country who could care less about the tight oil industry and actually see short term advantage for themselves in it going broke.

          OUR OWN old time best insider ROCK MAN from TOD days explained it very well as has MIKE recently; the rest of the domestic oil industry would be tickled to death if a large meteorite took out North Dakota. And the people working the Gulf would be tickled if a second meteor took out the Eagle Ford.

          So – in my opinion there will be no subsidy for the tight oil industry in the short term. Maybe in the long term……………..The military industrial complex is acutely aware of the existential risks of our depending on imported oil. The people in the industry itself have a lot of political clout too. There are a lot of individuals who would support subsidies for the tight oil industry.. I suppose that in the long term subsidies for tight oil are a very real possibility and maybe even a certainty.

          The classical conventional economists have something to say about little guys in competition with the big guys when the big guys have pricing power .

          This is a very short rehash of a textbook example.

          MONSTER STEEL dominates the domestic steel industry back in the days when importing steel in substantial quantities was out of the question for many reasons. So monster says the price is ten cents a pound. Take it or leave it. The folks who needed it paid it- even though LITTLE FELLA STEEL could profitably deliver at nine cents.SO WHY didn’t everybody just buy from LITTLE FELLA?

          Well if LITTLE FELLA offered their inventory to the market at nine cents the buyers at GM and Ford would just call up and buy it all lock stock and barrel. LITTLE FELLA would lose every long term customer they had and these pissed off FORMER customers would be ordering from MONSTER the same day. NO CHOICE.

          So the way the game plays out is that so long as MONSTER has enough clout to control the price then LITTLE FELLA sells at essentially the same price with maybe just a very small discount to their regular buyers. This small discount is enough to earn their reliable repeat business and no more and need not be more than a few bucks on an order for many thousands of dollars.

          So- the domestic tight oil industry IF NOT SUBSIDIZED is finished so long as oil prices are kept below total domestic tight oil production costs by either competition or by deliberate manipulation of the price by OPEC and any other producers with the ability and desire to ”sweat ” the little guys in the words of the great granddaddy of the Rockefellers.

          But if the price goes back up far enough for money to be made in tight oil SOMEBODY will buy up the assets of the busted current operators and start up production again.If they manage to get to producing enough to aggravate the big fellas then the big fellas will ”sweat ’em” again. This sweating of them is based on the assumption that the current low price is deliberate Saudi policy rather than just simple market glut of course.

          OCCAM’s razor says market glut is an ample explanation of and for the current oil price.But while I am a big believer in the RAZOR I don’t think it always applies. This may well be a case where it applies only in part.A glut explains the price well enough but the usual ” by the rules” game has been for the Saudis to cut production to maintain price.

          Now I have not seen any speculation along THIS LINE- but the House of Saud is on the throne in Saudi Arabia for basically JUST ONE REASON- that reason being a long term sort of incestous stinky delicious commercial and military relationship with the US. If it were not for Uncle Sam they would have disappeared long ago and sky daddy alone knows who would be in control of that country now.

          By choosing ” incestous ” as a descriptive term I mean that we are sort of screwing each other and enjoying it while being too closely related economically and politically for the screwing to be considered anything but incestous.

          Everybody in the US except a few environmentalists and the domestic oil industry is very happy about cheap oil.So – I guess the rest of the American overall political family will gladly overlook the Saudis forcing a little involuntary sex on our tight oil family members.

          It may strike most people strange that I describe the US and Saudi Arabia as political family but it is nevertheless true. The fact that most of the people there hate our guts and that most of us here in this country look on them with suspicion and contempt if not with outright fear and loathing is all part and parcel of BIG GAME international politics in the early decades of the 21 first century..

          The country is a powder key with a fuse hanging out and all sorts of people ready and eager to light the fuse if only they can figure out a way to get at it.Their own domestic education system virtually guarantees an eventual internal explosion.

          History ain’t over.

          Watcher is no doubt right when he says the destruction of our domestic tight oil industry will result in some very very serious domestic economic and political problems.VERY SERIOUS PROBLEMS. Heart attack serious.

          The tight oil industry will in my opinion come back if it goes busted but the comeback will be slow and the start of it will probably be delayed until either loan guarantees or subsidies as such are put in place. One viable alternative is that a couple of major oil companies might buy the existing industry assets and sub contract field operations to the current operators.That would take care of the problems with credit scores to a substantial extent.

          But hopefully not end of the world and life as we know it problems.

          We better keep the pedal on the metal in regard to renewables.

          1. My gut feeling tells me that this short lived tight oil renaissance is smaller version of dot com/RE boom mainly engineered by deliberate banks/Fed loose policy. Let’s just create one more boom and kick the can little bit further. Buying tight oil assets by major oil companies after the recent oil price carnage would look to me like buying shares of Pets.com when they were 3 cents in 2001 on the tail of dot com. Tight oil is just another mirage.

             1. There is obviously a lot of oil that can be gotten to market at a profit at a hundred bucks or maybe a hundred twenty five in North Dakota.

                Given that a lot of the work involved has already been done such as seismic surveys , road building, engineering surveys. some pipeline and grid built already , some roads already in place etc etc then if the majors can buy in at fire sale prices they can make some money.

                1. There are lots of maintenance (=costs) involved to keep in infrastructure in good shape while the oil is sub $100. I live in harsh climate and every year roads are repaired. And you never know when the oil price will be back at the profitable level. Another problem is the staff. They will not hang out in that location when there is no work. They will move. I remember days when I was in situation to put sandwich board around my neck with “Will code HTML for food” 🙂 It’s no fun.

                2. It is true that the industry MIGHT die and never be resurrected. But oil is not going to stay cheap. Depletion never sleeps.

                   Oil will almost for sure sell for enough within a few years for the tight oil industry to come alive again.

                   I have never had to work for food as such but I have taken a helpers job in a new trade a couple of times- at a time when I held a couple of professional licenses as well as certifications as a mechanic and welder.

                   In the end I have not regretted working as a helper in new trades. I kept my eyes open and learned a lot and consider that sort of thing as getting paid to go to school.

                3. It occurs to me that there could be an issue of lease duration.

                   If these guys have to shut down, they may relinquish their leases. Then when price elevates . . . hell, if I own the land and rights, no way in hell I’m going to sign a lease for less than 4X what I signed for before — back before we knew big output is possible.

                   This further increases the restart price.

                4. And what happens if you shut down 6 months into life. I mean geologically.

                   You have to shut off flow once the onsite tanks are full of water and oil. So the liquid sits there. I’ll bet no one did any studies of long term exposure of thin oil to fracking fluid. Say a year or two. That would be pretty cool if a chemical reaction takes place and the oil breaks down into whatever.

                   It would be another of those “how can you do irreparable harm to an oil field” things.

                5. Oh and Farmerguy, the shut down energy research or starve thing obviously would be done in sophisticated fashion.

                   The next step from outright demand would be differential pricing. Countries that don’t do such research get cheaper oil. Those that do must pay a “treachery premium”.

                   It’s pretty easy to envision how you phrase things to cast the evil shroud around those “trying to backstab the people who feed you”.

                6. Mac
                   I forgot also about reclamation sites. there are 1000’s of them and it takes long time to reclaim contaminated leases and it is expensive. Who takes the liability when you fire sale lease for a $1 due to unprofitable price? You pretty much are buying debt on your books. Well I guess that is why term “creative” accounting is invented 🙂

          2. Boy, it would be a good thing for everyone if Russia tried an embargo.

             Russia would lost a lot of $, and maybe be less aggressive.

             Oil prices would rise dramatically, and consumers would move much faster to the alternatives (that are already cheaper and better).

             Oil consumption and CO2 emissions would fall.

             The future would look much better.

36. US crude drops nearly 9% on OPEC; new low likely

    http://www.cnbc.com/id/102222904#.

    “Russia’s most powerful oil official Igor Sechin said oil prices could hit $60 or below by the end of the first half of next year. Options market data show speculators betting on $65 Brent by early 2016.”

    1. Игорь Сечин: Себестоимость добычи в НК Роснефть – 4 $/баррель.

       1. Yo, Comrade, even West Siberia has to ship.

          1. Let’s attract some attention, shall we? Echelon.

       2. OK according to my wife this translates to: Igor Sechin says Rosneft’s output cost is $4US per barrel. But, although my wife is brilliant she knows nothing about oil and refuses to take this further for fear of miss-translating technical oil matters So, fair enough Миша (Misha)? Furthermore, she apologizes for any errors in the above.

          1. she agrees with translate.google.com

             But there are non zero transport costs and they do give some to Total and BP. But still, $4 is going to win a price war with North Dakota, until the Fed subsidizes.

       3. Maybe for existing wells, but they are in decline. The cost of drilling new wells in the Arctic to maintain output (see Ron’s original post) won’t be $4.

          1. Арктика, это для наших потомков.
             Добыча растет в Поволжье, в Печоре, в Восточной Сибири, Каспий, Охотское море.

          2. Извините за русский язык. Авто-перевод на браузере установлен.

             “Цена в 60 долларов за баррель нас тоже устраивает, — сказал генеральный директор “Роснефти” Игорь Сечин. — Конечно же, некоторые дорогостоящие проекты мы вынуждены будем отложить”. По его словам, “Роснефть” имеет достаточный запас прочности, потому что себестоимость добычи — чуть выше четырех долларов за баррель.

             http://www.oilru.com/news/439150/

             1. Fair enough

37. Some thoughts:

    A reason to control water flowback is also to attempt to control proppant flowback. Letting the fluid flowback to quickly (speed), or to early after completion, wont give the proppant time to set and it will flowback with the water. This will destabilize the propped fractured and decrease production over time. Also, if a ESP is the artificial lift method used sand will tear up the pump.

    No all the pores in unconventional reservoirs are nanopores. Parts of the middle Bakken, as well as many of the Permian unconventional reservoirs, have tight carbonate components with up to 6-8% porosity. These respond much better to fracs then the shales and in my opinion contribute to some of the wells with higher IPs. There is even a unconventional field in New Mexico that is being waterflooded. Tracking the net carbonate might be a way to determine some of the better performing wells in the unconventional plays.

    1. MBP, thanks. I simply wanted people to see what a nanopore looked like in dense organic shale but your point is well taken as it is my understanding that in the Eagle Ford the primary area of steering is now in the organic shale to carbonate (Austin Chalk) transition, something they call the “upper Eagle Ford.” When referring to carbonate content the shale guys now even use what they refer to as a “brittleness index.” Frac’s better, I understand. Carbonate content should be added to the list of endearing traits to have in a shale well.

       1. Fairly important stuff as regards the discussion months ago about clay and bendability in the Russian shales and their consequent unfrackable nature.

          1. Watcher, not all of those Russian shales are “bendable”. There are major facies changes so they’ll chase the stuff amenable to fracking (or not).

             1. Nod.

       2. Hi Manbearpig,

          Can you give me an estimate of the average water per frack stage? I have read estimates of 7 acre-feet for an average frack job in the Bakken, that is about 54 kb of water and if we assume 25 frack stages that would be 2.2 kb/ per frack stage.

          Over time in the North Dakota Bakken the number of average frack stages per new well have been increasing and let’s assume by 2012 the average had reached 40 frack stages for the average new well completion. If the estimate of 2.2 kb/frack stage is correct then the average water used per well completion would have gradually increased from 54 kb/well to 88 kb/well. Could this be one partial explanation for the apparent increase in average water cut per well from 2008 to 2014?

          FreddyW has presented some great charts showing water cut increases. See link below.

          http://peakoilbarrel.com/bakken-september-production-data/comment-page-1/#comment-437287

38. Gulp.

    I see closing price for WTI at $65.99.

    I believe that puts Bakken sweet at about $49.xx? Merry Christmas.

    1. Yeah, I think even Dennis will have trouble putting a positive spin on things at that price. 🙂

       1. Hi Doug,

          I have already presented scenarios with low prices that in Ron’s judgement were too pessimistic! That was for $80/b at the refinery gate (roughly the Brent price).
          Currently Brent futures (Jan 2015 contract) are at about $70/barrel.

          I did a quick North Dakota Bakken scenario with oil prices at $71/b and remaining at that level in 2014$ permanently. The peak is around 1.1 Mb/d in late 2014, annual decline rates reach 35% in early 2016 and moderate to 12% in 2020. Chart below

          

          1. Scenarios? Why isn’t there just one, presented 6 months ago? If you’re going to do 10 or 20,000 of them, why not just output a stream of unidentified numbers?

             1. Hi Watcher,

                What did you expect oil prices to be 6 months ago. The point is that oil prices matter, and are difficult to predict. The scenario presented 6 months ago assumed the AEO 2014 reference price would be roughly correct, I expected that prices would be higher than that rather than lower.

                I was wrong. I did not expect that oil demand would be so sluggish. And I thought declines elsewhere in the World would offset any gains from LTO output, also wrong.

                When there is new information, such as the data that Enno provides (which I did not have access to 6 months ago) or a 30% fall in oil prices, I update the scenario.

          2. На саммите OPEC шутили, что скоро 40$ будет хорошо. А у Вас 71$ за баррель.

39. Я могу напечатать на английском языке, которые Google Translate на русский язык, копии и вставьте российский сценарий

    1. Yeah, probably just a stunt.

40. Well… looks like we have some more OIL PRICE VOLATILITY. Thank god this hasn’t impacted the Broader Stock Markets as the Fed had to come in and BOOST prices in the last few minutes of trading.. LOL. Christ, what a lousy excuse for a market we have today.

    It’s almost embarrassing to call myself an American when I watch scenes of Shoppers lying on the floor during Thanksgiving sales holding onto a TV box screaming that “ITS MINE.” Americans will deserve what’s coming.

    This current oil price volatility also took place during the 1960’s. The average price of WTIC fell from $1.90 in 1961 to $1.80 for the remainder of the decade…. how did we ever survive that kind of volatility.

    At some point, ADULTS are going to wake up to the fact that the STOCK & BOND markets are the biggest piece of garbage Ponzi scheme in the world. Americans seem to be suffering from a collective BRAIN DAMAGE.

    steve

    

    1. Berkshire Hathaway was up 654 dollars yesterday and closed at 223,065 usd, 1005 dollars under the all time high. Up about 100,000 dollars from a few years back. Tough to beat that, you can’t. You cannot make this stuff up.

       BRK

       Those oil tanker car contracts must be solid and tight. Plenty of trains with oil still going to be there in the future. Market share not a problem, I guess.

       The share price for BRK was about 8,000 ca. 1987.

       It’s a paper market, not even close to real. It was in 1929, 1893, 1873, 2008, all in the ether. It is done over and over again. Damage is done one more time, looks that way.

       1. Up about thirty times in somewhat fewer years..

          Impressive but not spectacular by recent standards.

          1. I have numerous friends who have done as well or better with houses both living in them and renting them out.

             I helped one friend buy a house for nothing down thirty years ago that had a payment comparable to rent a couple of miles away in a comparable house.He still lives in it for NO payment now and it is worth three hundred large.

             By the third year he had to spend less money per month that for comparable rent in the West End of Richmond Va and by the time his house was paid for his piti payment was only a third of what he could be renting it for.Inflation and population growth combined to enable him to make what amounts to a half million bucks for borrowing money to buy that little house and staying put.

             Our total involvement in buying amounted to less than a weeks actual work on our part.I helped him pick out a house after talking him into it and he filled out the loan app and that just about took care of it.

41. Mrs. Hamm must have sold all of her shares today.

    1. Clever

42. Seems like our system is having a bit of a problem maintaining equilibrium.

    Anyone for a horse in the Senate?

43. The Fallout begins:

    http://www.marketwatch.com/story/the-energy-sector-may-be-the-next-big-trade-2014-11-25
    “The energy sector has easily been one of the worst-performing sectors. Whether you are looking at the large-cap integrated oils or the drillers, the carnage has been absolute. A 30% decline in the drillers in less than half of year is a testament to just how bloodied the group is. But where there is pain, there eventually will come relief. The key is to be patient enough until the supply/demand equation starts to turn and the formation of bullish patterns develop.”

    Wicked dynamics surfacing, Here at POB we saw it coming, but perhaps the train is early. US gov reaction to “the carnage” will be “very interesting”. Consolidation to accelerate? Standard Oil all over again – or no , we have friends in the kingdom. Exemption of Health Care from US Antitrust laws fuels an unnecessary crisis. Prenuptial in the Baker-Hughs marriage? Seems like terms of merger may have been very different had it been crafted a week later. BH HQ US based – HAL based off shore, ??, Hot-button with some on the hill. Some gov’s exposure is reduced now that long term unemployment insurance benefit expired assuming reductions in workforce.

44. http://www.nytimes.com/2014/11/29/business/energy-environment/free-fall-in-oil-price-underscores-shift-away-from-opec.html?_r=0

    “Since the economically crippling oil embargo of 1973, every American president has pledged to seek and achieve energy independence. That elusive goal may finally have arrived, at least for the foreseeable future, with the failure of Saudi Arabia and its 11 oil cartel partners in the Organization of the Petroleum Exporting Countries to agree to a production cut that would put a brake on plummeting crude prices.”

    ** REPEATING : Energy independence may finally have arrived **
    Clueless of the upstream complexity & costs that prevents LTO from fueling much of the world as we know it, or ?

    1. Based on the most recent four week running average data, the EIA shows that US net crude oil imports were 6.8 mbpd, which would be 43% of the crude oil processed daily in US refineries (total net imports on a total liquids basis were 4.9 mbpd).

       And from the NYT article (emphasis added):

       Energy experts caution that there is no guarantee that the United States will permanently keep its new powerful edge on world markets. Eventually, low oil prices will drive down production in higher-cost fields, drive marginal companies that are deeply in debt out of business and encourage major companies to slow down their investment in new wells. Several companies have already shaved their 2015 exploration budgets.

       The implication is that given appropriate price support, it’s possible that the US would “Permanently keep its new powerful edge on world markets.”

       1. It’s so amusing to see the degree to which the text is kept gentle.

          “drive down” “encourage major companies to slow down their investment” “shaved”.

          As opposed to . . . let’s see . . . ** higher cost fields, which is most or nearly all of shale, will be wiped out if these prices persist. This is likely true regardless of the size of the leaseholders. There will be no investment in new wells because there will be no money available to invest, unless it is borrowed, and that requires finding a lender. **

    2. And we may have energy independence for the “Foreseeable future?”

       As noted above, we currently have to (net) import 43% of the crude oil processed daily in US refineries.

       But for the sake of argument, let’a assume that we get US C+C production up to about 16 mbpd, which would put US net crude oil imports at zero (on a total liquids basis, this would probably make the US net oil exporter). And since virtually all of this increase in production would come from high decline rate tight/shale plays, let’s assume that the underlying decline rate from existing production increases to at least 15%/year.

       In order to indefinitely maintain 16 mbpd, with a (conservative) estimated decline rate of 15%/year from existing production, in round numbers we would need around 2 mbpd of new production, every single year, just to maintain 16 mbpd. Or, in other words, all we would have to do is to put on line the productive equivalent of the peak production from the North Slope of Alaska (2 mbpd) every single year, year after year.

       1. At 15%/year, we would actually need 2.4 mbpd of new production to maintain 16 mbpd, so we would to put on line need North Slope peak production every year + 400,000 bpd. Or, we would need–every year–roughly the productive equivalent of Mexico’s current production or total current North Sea production.

       2. Should read: At 15%/year, we would actually need 2.4 mbpd of new production to maintain 16 mbpd, so we would to put on line North Slope peak production every year + 400,000 bpd. Or, we would need–every year–roughly the productive equivalent of Mexico’s current production or total current North Sea production.

45. Article on Vox claiming OPEC is engaging in an oil price war with the U.S.

    http://www.vox.com/2014/11/28/7302827/oil-prices-opec

46. Another article about falling oil prices on the Upshot:

    http://www.nytimes.com/2014/11/29/upshot/oil-prices-are-tumbling-heres-who-wins-and-who-loses.html?rref=upshot&abt=0002&abg=1

47. Washington Times article from IEA:

    http://www.washingtontimes.com/news/2014/nov/25/falling-energy-prices-could-cloud-us-production-bo/?utm_source=RSS_Feed&utm_medium=RSS

    Statement at the end of the article is a hoot: “While the report predicts increased energy use, it also noted the a half-billion people in the world will likely still not have access to energy by 2040.”

    Those are some magic people…

48. “Finally, the idea that human population history has been characterized not by a series of stepped dynamic equilibria but rather a saw-tooth pattern of periods of rapid growth interrupted by infrequent but serious crashes has become increasingly recognized as an alternative explanation for near-zero growth through much of human prehistory.” ~ James L. Boone

    At this stage, I’m unsure I would want to be focusing on EV’s and the like, not when this time it’s global; when we essentially eat oil; and when we don’t understand or know how to do anything for ourselves anymore– things as rudimentary as with regard to food, clothing and shelter.

    Seems that this year has seen an unusual frequency of geopolitical effects, or perhaps I have simply been keeping closer tabs.

    Keep your eyes on the governpimps.

    Choke.

49. By far the best MSM piece yet on the current oil price situation:
    http://www.telegraph.co.uk/finance/oilprices/11262690/Why-black-golds-low-prices-wont-last-long.html

    Miles ahead of any other analysis I have seen.

    1. Except it is wrong. No reason to think there has to be a near term bounce. Nothing special happened in supply or demand since June so why would it bounce for the same reason?

       Price won’t go up until the unsubsidized shale industry is wiped out. What is very hard to understand is what happens if it IS subsidized.

       1. I suggest you read it again rather than blarging in:

          ”At $70 for a barrel of oil, an awful lot of shale producers – particularly relatively small outfits that have driven much of the increase in US production from 7.5m barrels daily to 10m over the past four years – won’t be able to operate.

          Many of them will default on their borrowings, potentially dealing a serious blow to America’s “shale revolution”.

          His time scale is ‘mid 2015’ – 7 months plus away, and his point IS that destruction to the shale oil industry will be the catalyst.

          Also he rightly identifies the surge in the US$ as being responsible for much of the initial oil price fall – as this is something you have been banging on about I would have thought you would have had the good grace to recognise he has that right.

          1. He wrongly identifies cause, and since his cause is wrong, there’s no reason shale destruction must increase price.

             1. Elaborating. Janet Yellen didn’t say or do anything special in June/July. The rate of QE attenutation was already well defined and at that rate it would terminate in the October time frame. So he has this wrong. She didn’t start the ball rolling. The end of QE was already defined

                But I’ll give him points for the effort required to ignore the supply and demand theme.

                This is a lot of US jobs in question here. When the magnitude of the devastation starts to get headlines, we’ll hear governments make noise. I am curious, still, about the UK shale drumbeat and what has happened to it recently.

50. Seen this somewhere before.. some Harvest colours.

    

51. On Sand Ridge: I have watched the stock for several years, never could figure out why the valuation was where it was, had no business being a six seven dollar stock, and yesterday is closed at 2.81 down 99 cents.

    The carnage will continue.

    1. Fundamentals ended in 2008. Suncor is down 21% on the carnage. The market itself hasn’t fallen.

       The various boats will lift and drop mostly with the tide.

       1. At the ultimate level of economic understanding the fundamentals never change except as the theory is refined.

          The facts have changed.

52. Someone upthread noted CLR doesn’t have much of a cash position. Just looked at EOG and I see 1.4B on the books, encumbered by a levered free cash flow of negative -750 million. Meaning, the cash is needed to deal with the fact that operational cash flow isn’t sufficient to cover debt service.

    The point? I’m attacking the “small guys will get bought by big guys” concept. The big guys don’t have the money to do it.

    Now, recall Bank of America was forced by Bernanke and Hank Paulsen (Secy of Treasury) to acquire Countrywide Mortgage. That was one of the shadiest of things that happened in 2008. The BoA CEO was sued by shareholders for doing it and he claimed Bernanke and Paulsen threatened him. Then . . . he died before the case went to court.

    And so, if things get ugly, the inconvenient fact that EOG doesn’t have the money to buy these small guys may not be sufficient reason for them to refuse to do so.

    1. Exon and Chevron are big guys in Oil. Gold in Sacks is a big guy in banking.CLR and EOG are wannabees in comparison.There are plenty of take over artists out there with billions at their disposal who may not know anything about oil but you can bet they know how to read a set of books . The real books- not the cook books- will be entered as evidence.

       At firesale prices the industry is a whole new ball game. The new owners- if there is an industry fire sale- will not be burdened with any EXISTING debt.It will be extinguished one way or another in bankruptcy court.

       So-IF one dollar is all an existing flowing well is worth -then that is what it will sell for. The old legal phrase ” one dollar and other good and valuable considerations” can be interpreted and has been interpreted often as ” one dollar and the previous owner gets the valuable consideration of leaving this courtroom without worrying any more about the millions he lost.”

       (One of my best friends is a lawyer who specializes in real estate and bankruptcy and we talk farming and law when we go fishing.)

       Nobody will bid on a tract unless they THINK it has real value. OF course that value may not actually exist, or it might exist only in the form of an opportunity to resell it to a sucker.

       BUT my guess is that a recently drilled well that is going to produce at least let us say fifty thousand barrels over the next year or two will bring a few bucks.

       The well a thousand feet away producing ten barrels a day- now that one may go for a dollar to somebody who has set up a corporation in order to gamble that oil will go up to the point they can make some money on ten barrels a day for however long the well will last…….. UNLESS the new owner must post a bond for the cost of properly closing the well. In that case it may become the unwanted property of one or another government- a city county state or UNCLE.

       IF the folks appointed to manage the sale are competent they will set up a process to screen bidders for financial muscle essential to taking over a tract — one way or another.There are various ways this can be done but I am not well enough acquainted with them to say any more than that they exist.ONE way is to require that the bidders post a bond to ensure they can’t walk away leaving a mess for the judge to be bothered with again next year.

       AND they will bundle the worthless tracts with wells that must be plugged at once or very soon with wells that are good producers.This will ensure that there are buyers for all or most wells assuming there are still some wells making good production.ENOUGH wells making good production.

       The rules are as cut and dried as the rules of any game.The judges are the referees.The results when the lawyers play are variable as in any game.

       1. Hi Glen,

          Excellent analysis. This will sort itself out. The shale industry is not as important as some people think. The reduced prices for fuel will cause increased economic activity which will balance the reduced economic activity in producing LTO. Locally this will be bad for Texas, and North Dakota, but for the country and World as a whole the economic effects are likely to be positive. Then oil demand will rise while oil supply falls and prices will rise, probably in 6 to 12 months, though oil prices are tough to predict.

53. The point about variable choke sizes is that production practice introduces another variable, beyond pure geology or petrology. If each operators just blasted away at maximum flow rate from day one, then there would be a valuable trend to discern. However, since operators vary in their approach, perhaps starting with a restricted choke for 180 days while flowing pressure drops in a controlled way and then opening up that choke for the remaining production period, analysis of average flows and production per well should assume the gradual introduction of well management as a partial reason for lower production.

    Unfortunately, the real story will need to rely on comparison of production per well over the first 12 months to discern a reliable trend.

Comments are closed.