Annual Reserve Revisions Part VI: Sub-Saharan OPEC Members

George Kaplan OPEC, Reserves and Resources, Uncategorized
A guest post by George Kaplan

IOC Reserves and Production

About the only place where properly audited estimates for OPEC’s claimed reserves are available is sub-Saharan Africa, principally Nigeria and Angola, but with Congo, Equatorial Guinea and Gabon as minor players. Except for some on-shore legacy production in Nigeria most of the fields are partly owned and wholly operated by western IOCs that are required to provide accurate estimates for reserves and revisions for SEC and other financial reports.

In the 10-k or 20-f reports the estimates are presented geographically with Africa seprated out and, usually, sub-Saharan Africa separated from North Africa, which is typically lumped with the Middle East (in which the IOCs now have little direct ownership in OPEC countries). 

I have included the ten companies shown in the charts, there are, or have been, other minor players like Hess, Perenco, Devon but their contributions are small and sometimes a bit opaque (e.g. Perenco doesn’t report in the USA). Needless to say there is a big difference in the story told by the financial filings and that from the OPEC reports. For reserves the companies reported about 20% of the total claimed for the five countries in 2006, but that dropped to just above 5% in 2020. However the companies claimed 39% of C&C production in 2006, rising to about 54% in 2020. Note that there is a small amount of reserves and production in non-OPEC sub-Saharan countries, principally ExxonMobil in Chad, but not enough to make much difference. A further complication is that OPEC reports crude only whereas the companies report C&C combined  and I have include NGLs as well, as it would be difficult to completely separate them out (this actually makes the figures appear even less contradictory than they really are). 

The average remaining R/P for the companies had fallen from 9 years to 5 in 2020, whereas that given for the OPEC producers had risen to 39. An R/P of five is indicative of a mature basin and typically would be a threshold where the super-majors would be thinking about selling up and moving (though nowadays they may be asking “to what?”).

The Shift Project analysis from May 2021: “Future Oil Supply to the European Union: State of Reserves and Production Prospects of the Main sSupplier Countries,” is about the best look at the situation for future oil supplies, possibly thats ever been done. Unfortunately it only looks at countries that supply oil to the EU so notably omits Canada, Brazil, China, UAE and Venezuela. It puts current reserves for Angola at 2.5Gb and Nigeria at 6.9Gb, which are figures more closely in line with the companies’ own than OPEC’s, with potentials, including yet to be discovered reserves, at 7.9 and 15.6 respectively. Given the current level of drilling activity and the increasing wariness of any IOCs with enough technical proficiency to successfully explore the deep waters off West Coast Africa those additional barrels are a long way off yet.

OPEC Reserve Reporting

The numbers above assume that the reserves are those remaining for the quoted year. However, it is unclear exactly what OPEC are reporting when they quote reserves. The most reasonable that I can come up with is a backdated estimated of the remaining reserves at the time the country joined OPEC. If true this would give the actual remaining reserves as shown below. I don’t know what this means for Gabon as it has joined OPEC twice, and the remaining reserves for Angola are particularly small (leaving an R/P measured in months rather than years).

Note that the figures shown both as areas (URR) and lines (remaining reserves) are plotted stacked above each other, but I’ve shown the individual countries remaining estimates to the right.

OPEC, EIA, Jodi and Baker Hughes Monthly Reports

OPEC reports crude only production for its members every month. If gives data primary sources (i.e. reported by the producing companies themselves) and those from secondary sources (i.e. based on traders, shippers and user countries); these are considered most reliable and are the ones presented here. EIA and Jodi report various options: crude, C&C, NGL, all liquids. JODI only report data of their members. These organisations also report gas production, but for EIA only as annual averages.

Baker-Hughes provides monthly values for active drilling rigs, but only since 2013 has this been broken down by oil/gas reservoir type, and landward/seaward location.

Nigeria

Nigeria is in rapid decline and the absence of drilling would suggest things are unlikely to change near term. The few onshore rigs will be for relatively small wells, the large deep water rigs operated by the majors are what are needed to make a real diffrenc, and those companies aren’t showing much interest, whethwr because of the regime in Nigeria or just because they don’t think there’s much left to find I guess we might eventually discover. Nigeria is highly dependent on oil, has a rapidly growing population, nd serious environmental issues. It has a slightly more enlightened government at the moment but corruption is still quite rife. I know several immigrants from Lagos and the more rural areas, some from quite wealthy families, they all love the country but are glad to be able to raise their children somewhere else. I cna’t see anyway that telling the country as a whole to keep the oil in the ground would work even if some payment was offered and it could easily be the canary in the mine for the possible hell-scape that we get as environmental collapse meets energy collapse meets political and economic collapse.

Angola

Angola is in serious decline and the continuing decline in drilling suggests it is not going to end soon. There are few attractive development opportunities, the pre-salt plays, mirrors of Brazilian geologies have been disappointing and the largest IOCs are losing interest, especially as there are growing uncertainties about the royalty regime, local content requirements and project leasing agreements. There are bound to be increasingly frantic attempts to rearrange the deck chairs as the oil revenues decline, I should imagine discontent among the elites will be rising as getting corruption money out the country is blocked, and there is an active independence movement in the main oil province. It’s a country ripe for significant disturbances, any of which would feedback to accelerated production decline. 

Chad

Chad is the largest Sub-Saharan producer not in OPEC, Cameroon is another small, declining existing producer and Uganda and Kenya may grow as minor oil producers in the next decade and there may be condensate and NGLs coming from LNG plants in Mozambique and Tanzania . Chad considered joining in 2018 and then thought better of it or was black balled. ExxonMobil was the main player in the only major project, which has been a bit of a disaster, best not mentioned in the hallowed halls of the Spring Campus, as it had the largest write-downs from the original recovery estimates. There will be growing production from other countries in the future, and the countries may then chose to join OPEC (e.g. Uganda, Kenya, Senegal, Gambia) and here will be significant LNG supplies coming from the East Coast (Tanzania and Mozambique).

Congo (Brazzerville)

A small to medium producer in terminal decline with drilling completely dried up.

Equatorial Guinea

An absolute dictatorship supported by the oil companies; I don’t think there are property rights of any kind apart from with the president and his close associates. It is showing a rapid decline in oil, though it does have LNG. Recently there have been repeated declarations that production will be boosted followed by announcements of delays. Things are unlikely to end well, the trend down indicates there will be no income left to support continued repression measures against the populace in three to four years..

Gabon

Gabon is similar to  the others, being in terminal decline with low drilling and few opportunities. I don’t know anything about the politics or economic alternatives to oil but its population is relatively small.

The 2021 IEA oil outlook report (Oil 2021: Analysis and forecast to 2026) has Nigeria declining from 1800 kbpd in 2020 to 1600 in 2026, Equatorial Guinea steady at 100 kbpd, Congo rising to 400, Gabon steady at 200 and Angola falling from 1400 to 1100. All of which seems extremely optimistic given the above production trends, current drilling activity and general level of interest from the IOCS.

Total OPEC Production

As a part of OPEC the production from the sub-Saharabn countries is relatively small, even if they do represent almost half the remaining members. In the chart below I’ve included all countries that have been past members (Qatar, Indonesia and Ecuador have left) plus Chad and Malaysia who expressed an interest in joing but withdrew (or may have been blocked). The figures are from EIA fore crude and condensate.

Total OPEC Drilling

The number of rigs started to decline in late 2019 after a couple of years of slow rises but then crashed with the Covid crisis and has yet to show much recovery . It may be of interest that the ratios of oil to gas and onshore to offshore have not changed much over time.

Nigeria Production and Projection

Note that some months data from NNPC cannot be downloaded, I think because of software bugs, so I have had to interpolate. These could be corrected when the NNPC annual statistical bulletin is released, but this is late for this year, presumably because of Covid, though last year was unaffected. Likewise in some other data used here the OPEC ASB is late so I have had to assume a couple of figures for 2020 to be the same as 2019. (Possible related the Brazilian ANP, which usually produces good data, has not released anything since September 2020. It could be Covid, or they are all off setting/fighting fires or Bolsonaro just habitually sacks anyone competent, whatever the case the will be no Brazilian POB update.) 

Angola Projection

There are no platform-by-platform data available for Angola fields. The best estimate that I have been able to make has been based on start up dates and design throughputs for each production platform (most of which are FPSOs) and then to apply typical ramp-up times, plateau periods, decay rates and availabilities (downgraded a bit to allow for African logistics). The initial field reserves can be approximated by using a formula relating design rate to reserves to the power of 0.88 to 0.9, although this doesn’t work at all well for tie-backs, and might be an overestimate for African FPSOs, which tend to have shorter plateau periods and lower availabilities than typical offshore projects.

Even so the results have not been too bad with the main difference being that the actual first oil dates have been later and ramp-up slower than I had assumed for new projects from 2010. Angola is in serious decline and there is not much on the cards for new production (just a couple of tie-backs) or new exploration and the sub-salt areas that were expected to match Brazil have been disappointments. With the population souring, the economy heavily dependent on oil, historically high corruption and an independence movement in the main oil producing province things could seriously kick-off.

Sub-Saharan Oil Based Economies and Demographics

OPEC Population Growth

The years from 2004 to 2014 were good ones for OPEC in terms of income, despite the financial crisis in the middle of it. Even if most of the money never gets to the general population there was enough to go around to keep everybody on side and reasonably placated. The growth in oil revenues has partly driven and allowed population growth, but the demographics now have built up momentum that is not suddenly going to stop as the oil peaks and declines. Revolutions occur mainly when there is inter-elite strife and that is coming to many OPEC countries as the share of wealth available to spread around becomes insufficient to meat all parties idea of fair.

Sub-Saharan Oil Revenues

For each of these countries there is a strong correlation between GDP and income from oil extraction. It is unlikely that local economies such as these affect global oil price so it is reasonable to say that changes in oil revenue  cause a large part in the change in the exporting countries GDP. The tightest correlation is in Angola (i.e. a given annual change I oil revenue has the most predictable effect on GDP) but the strongest effect is in Nigeria where it has been almost one-for-one (one dollar of lost revenue equates to one dollar reduction in GDP).

The correlation are tighter in absolute terms than relative terms, maybe suggesting that the economies have a basic non-oil component plus a larger component proportional to the oil revenue, rather than everything acting as a multiplier on the oil income. However there are many other influences such as how to handle overall inflation compared to oil price volatility, how to include value added from local refining or petrochemical industries and the effect of oil grade pricing differences. In general, though, it can be fairly certain that losing the oil income, even if much of it never gets to the non-elites while populations continue rapid growth is not going to end well.

There is no incentive for these countries to leave oil in the ground and no way that they will voluntarily switch to renewables, which is why there are headlines like this about: Africa’s Oil Nations Push Against Global Drive To Shun Oil And Gas.

Africa’s largest oil producers do not plan to abandon oil and gas exploration and production and could consider creating a continent-wide bank to fund new projects when international banks refuse to finance new developments.

Off-topic Finish: Paul the Apostle and The Epistles

For no particular reason I have been reading the epistles of the New Testament, admittedly using the Skeptics Annotated Bible backed up with The Brick Testament as source material. 21 books of the New Testament are epistles, 13 are attributed to Paul the Apostle, but only 7 are thought to be actually by him and are considered the earliest written books in the New Testament (ca. 50-60 C.E.).  Others are attributed to John, James and Jude, but may have been by others and written well after the putative authors’ deaths. Given that three of the other books are virtual copies, one is a heavily embellished version of the same thing and one is a bad LSD trip (or equivalent drug) the letters are rather a big deal in the whole credo. 

For me, apart from the books of Ecclesiastes in the Old Testament, the Epistles are the least offensive part of the whole exercise, and more so those not written by the occasionally bonkers or half-cut Paul (a clear case of epistling under the influence, to be followed, presumably, by a lengthy bit of pistling up the wall). They aren’t particularly religious with very little supernatural cobblers. Mostly they read just as guidance, propaganda, cheerleading, cajoling and threats to keep in line a movement against the Jews, who had obviously pissed off Paul quite severely prior to the reported Damascus Road event. Whether his group was really a true apocalypse cult I’m not sure.

Paul (or his forgers) had an unhealthy obsession with circumcision (e.g. recommending that if you have a circumcision you might as well go for the full monty and chop off the whole dangly appurtenance). Presumably he was using it as a synecdoche to represent the Jews. Or should that be metonym – I guess the foreskin would be the synecdoche but, as we’re talking about the absence of one, maybe not. Absence of circumcision would also have been a fairly attractive selling point for winning followers over to his cult; hence he’d likely try to make it sound as bad as possible. (As an interesting aside the Jews actually got circumcision as part of the religion from the Egyptians, I don’t know how they came up with the crackpot idea in the first place.) 

Through all the letters there are probably more good bits of philosophy on how to live decently than bad, although still being dodgy on slaves, personal freedom and women; even the commandments get knocked down to the humanistic ones only. I think the bad bits are mostly from the forgeries, but nevertheless Christians have accepted them into their beliefs, or more likely it was necessary to add the misogyny and misanthropy and tone down the egalitarianism before it could become acceptable as a mainstream religion.

Jesus and God are kind of mystery background figures used as the ultimate threat against anyone who get too far above themselves. There’s the usual claptrap about homosexuality but it reads to me more as a caution against excessive power (e.g. powerful men raping youths with impunity) rather than repugnance at the act itself, maybe that is how the anathema started.

Overall I am more and more attracted to the idea that Jesus (at least as a real person rather than an allegorical figure) plus the coincident modifications to the Jewish god were just creations of Paul; i.e. as easily understood figureheads, with characteristics that would attract followers away from other cults or mainstream Judaism; as the ultimate law enforcers for the early Christian groups; and to engender hatred for the Jews as his murderers. 

It has been suggested that Paul suffered with temporal lobe epilepsy (logorrhea, especially on religious themes is one symptom), and I can certainly see commonality with Philip K. Dick who definitely had it. 

There are books and articles around that cover the apocalyptic views and revolutionary movements as aspects of life in the Middle East at this time so, if my interest holds, I’ll read a few of them, (mostly those that back up the opinion I’ve formed already of course). This chap is particularly interesting on the subject of whether Jesus actually existed and on the mystery cults that thrived in the Mediterranean region at that time. I read his earlier book on applying Bayesian analysis to checking historical claims, but that was less than 200 pages; his latest, On the Historicity of Jesus: Why We Might Have Reason for Doubt, is over 700 so I’m not sure if I’ll get to that yet, but there are several excellent YouTube lectures such as Did Jesus Even Exist? or Mystery Cults & Christianity (2019).

260 thoughts to “Annual Reserve Revisions Part VI: Sub-Saharan OPEC Members”

  1. Why did the US sell 7million barrels of oil from the SPR ? Any views . I know they do it regularly but any reason why now .

    1. Hole in head,

      Actually, I only agree with Enno’s estimate if the assumption of constant completon rate is correct, also note that the estimate does not include all tight oil basins producing in the US, only the largest 4 (Permian, Williston, Eagle Ford, and DJ-Niobrara). The shalprofile projection for all of US tight oil in Dec 2022 is 7053 kb/d, when a fixed completion rate from Aug 2021 to December 2022 is assumed. My low best guess assumes the completion rate will increase over that period and output will be 7559 kb/d by Dec 2022. Peak is 8731 kb/d in 2026 for this scenario which is based on LTO survivor’s assessment that drilling inventory in the Permian basin is very limited.

      If LTO survivor is incorrect, then this would be a minimum output under a very low oil price scenario, if on the other hand the USGS mean TRR estimate proves correct and drilling inventory grows as oil prices increase, we might see an ERR of 72 Gb for US tight oil with a peak of 9587 kb/d in 2027.

    3. When I read Rystad’s report I just can’t believe people actually get paid to disseminate information that’s not based in reality. I just don’t really see how the shale will produce 11.5 or 14.5 million barrels? Maybe I must have been in a different industry or something. Even if we had the same number of Drilling Rigs and Frac crews running as in 2019, I still don’t see it. I guess there must be some hidden oil zones that were bypassed or something. When the Shale public’s are priced at 5 times earnings and are starved for inventory, then I see a report like this it doesn’t make any sense to me. Maybe I am just missing something.

      We have had two rigs running continuously all year and production grew from 18k boepd to 25k boepd in about in about five months and now it is flat a a pancake for the last 90 days and by the way inventory is getting chewed up.

      1. LTO Survivor,

        Tight oil has constantly surprised on the high side. I agree 14.5 Mb/d is ridiculous, probably 11.5 is too high as well, but the EIA reference case (about 10 Mb/d) is probably not far off for a peak output level, but their overall expectation for output is too high (about 115 Gb for tight oil URR), a more reasonable estimate is 75 Gb, if oil prices rise to $100/bo and don’t decline too fast due to a transition away from fossil fuel. A fast transition would lead to lower tight oil ERR of perhaps 60 Gb (as in my chart above). Less than that seems low probability to me.

        Any guess as to tight oil ERR?

        1. 11.5? Everything old like bakken or eagle ford is in terminal decline, only Permian and New Mexico left.

          Imagine the traffic jam – they have to double or triple drilling and last but not least fracking. A traffic jam with sand and water trucks all around of Texas. This isn’t making things cheaper, faster or more effective.

          LTO extraction has been done all false in my opinion. It could be done if organized on the long slow way like a mining operation. Building railways for the transports, water pipelines for disposing and fracking, water reprocessing facilities and then slowly working through the fields (you can build a field railway extension cheaper than a road being able to carry a stampede of extra heavy trucks). All financed and organized from one company with big pockets. Like the tar sand operations, they need this infrastructure, too. First spend 50 billion on the setup, then work. It would be a let’s say 1mbpd thing, but kind of constant over at least 30 years with no up and downs.

          Then things could, I say could, work much more efficient.

          Compare brown coal here. It is in a depth of 50 meters.
          Every small private company could rent a few big excavators and dig out a part of it, while pumping water. They won’t earn any money.

          But the approach was to pump a whole section of 10 square miles dry over years, then building a 500 meters long driving excavation material transporting bridge to continuous undigging one part of the coal and filling the coaled out part again.

          The chaotic approach chosen with LTO was copied from the golden age of oil – where drilling a vertical well cost was only a small fraction of the finally oil income – with no fracking cost.

  4. More be happy .
    https://oilprice.com/Energy/Energy-General/China-Announces-Major-Shale-Oil-Discovery.html
    Last paragraph of the article .
    “Yet, China has struggled to develop its huge shale gas and oil resources. The challenges arise because some of the most prolific basins are twice as deep underground as the shale gas resources in some of the most extensive U.S. shale gas plays.
    The challenging geology leads to higher well drilling and completion costs, lower margins for exploration and production companies, and, at times, mixed results in gas flows. ”
    So twice as deep as deep as US shale .
    ROFL .
    I don’t make the news , only report it . 🙂

  5. It’s interesting that nothing in the synoptic gospels appears in “Paul’s” letters. Apparently, the biography was concocted much later, which is why there is a dearth of Jesus biographical material in Paul.

    If the alleged miracles around the birth, ministry, and resurrection had actually happened, then surely Paul would have said something about them.

    But no, for him Jesus is just a spiritual entity… Later writers gave this spiritual entity a material existence, cobbling together a bunch of stuff from Judaic and Hellenic source stories.

    1. Mike B,

      The stuff on the new testement should probably be discussed in the Open Thread. Thanks.

      Note also that further comments on non Oil/gas topics might get deleted, please keep them in the Open Thread.

      Thanks.

      Also, any replies to comments that get deleted also are automatically deleted. Just the way it works in WordPress.

      If you want your comment not to get deleted do not include it as a reply to a comment that might later be deleted.

  6. This isn’t exactly oil & gas, but it might help us have better discussions. I also posted it on the “other side”, so comments or further discussion would probably go best over there:

    “When it comes to what we believe, humans see what they want to see. In other words, we have what Julia Galef calls a “soldier” mindset. From tribalism and wishful thinking, to rationalizing in our personal lives and everything in between, we are driven to defend the ideas we most want to believe—and shoot down those we don’t.

    But if we want to get things right more often, argues Galef, we should train ourselves to have a “scout” mindset. Unlike the soldier, a scout’s goal isn’t to defend one side over the other. It’s to go out, survey the territory, and come back with as accurate a map as possible. Regardless of what they hope to be the case, above all, the scout wants to know what’s actually true.

    In The Scout Mindset, Galef shows that what makes scouts better at getting things right isn’t that they’re smarter or more knowledgeable than everyone else. It’s a handful of emotional skills, habits, and ways of looking at the world—which anyone can learn. With fascinating examples ranging from how to survive being stranded in the middle of the ocean, to how Jeff Bezos avoids overconfidence, to how superforecasters outperform CIA operatives, to Reddit threads and modern partisan politics, Galef explores why our brains deceive us and what we can do to change the way we think.”

    The Scout Mindset: Why Some People See Things Clearly and Others Don’t
    by Julia Galef

  7. George,

    Your posts are so great. I really look forward to your analysis and enjoy the additional sub post at the end. Thank you for your contributions.

  8. Revolutions occur mainly when there is inter-elite strife

    George, can you point me to an authoritative (or at least useful) discussion of this?

  9. George

    You conveniently left off Ephesians 5:25 (NAS) “Husbands, love your wives, just as Christ loved the church and gave Himself up for her….”

    Last time I checked He died for her. Pretty certain that’s pretty selfless and not misogynistic.

    I came to follow this site and learn from those that comment here.

    It was fun for a while.

    I’m out.

    1. Rasputin,

      I read George’s post very differently from you. It was a criticism of the writings of the Church. You do realize that the writings in the Bible were written by men and not by God. To criticise those writings has very little to do with Jesus and what he may or may not have done and why.

      You can believe what you wish. Your comments about the oil industry have been enlightening.

      Sorry to see you go.

    2. Rasputin

      Hate to see you go. Would like to discuss things w you one on one.

      1. Rasputin,

        let me know if you are interested in talking privately with shallow sand. I can connect you guys by email.

        1. Rasputin , request don’t leave . Your explanation on what a ” mud engineer ” is was beyond what anyone even in the major’s could have given . We need ” hands on ” guys like you . There are admirers of folks like you though they may not exhibit it . Kindly reconsider your decision . Take care and be well .

    3. Rasputin,

      We all really value your input and appreciate your insight. Everyone would like you to stay involved. Perhaps religion should not be discussed on this site as it is an emotionally charged issue for some. I do not know or study the new testament as others do so I find it interesting to see one person’s interpretation but if it is offensive to one then it is offensive to all and should be shyed away from on this blog. Hope you reconsider.

    4. Rasputin – Another plea for you to stay. I am usually a lurker, but have to speak up here. God loves you, and and we love you!!!! God also loves those who hate him or don’t believe. Don’t let the actions of a few deter you from sharing truth and light. From one Christian oil man to another, let’s grin and bear the alternative views of others while we keep the knowledge flowing regarding oil and gas matters.

      Although you may feel you are in a minority, rest assured there are many of us out here who share your beliefs and opinions.

      Ron, Dennis, and all contributors on this page are doing a good deed for society by facilitating these discussions on energy, and oil and gas in particular. Your industry input is strong and beneficial to all readers. (As is EVERYONE’S input here, whether you follow Christ, or perhaps bow to the Spaghetti Monster.)

      Either way, take care and God Bless you and your family!

  10. Thanks for the another great report George. The comments on OPEC Population particularly insightful.

    Oil is going to decline in availability this decade.
    And many people have correctly pointed out that BAU (business as usual) will not be able to continue as before.
    The decline in oil could be quick and/or severe, and it behooves all of us to think of and take actions to adapt to a situation where fuel becomes very expensive and/or simply is not available to purchase at will.

    When thinking about how to live life with less fuel, the individual and country will have to make choices of priority use- What is essential/what is optional, what is irreplaceable, what is wasteful, what is for survival, what is for fun, which sectors of the economy are frivolous?

    And how will fuel in short supply be distributed? As we all know, the super wealthy will get what they want for their yachts and jets (some things never change). For the rest of us the price/market mechanism will be what determines how much we can afford to use. And it is likely that at some point government policy may be enacted to ration short supply, like it did in 1973.

    Before we encounter severe shortage in supply or escalation of prices or government restrictions on use, we will be in a time period where we can make voluntary adjustments/adaptations. We are in that period now.

    When thinking about how to live with less fuel, the personal light transport sector is the big target for change-
    “U.S. Transportation fuel consumption accounts for over 70 percent of total U.S. oil consumption, and more than 65 percent of that amount is for personal vehicles. American drivers consume about nine million barrels of gasoline per day for personal transportation—about 45 percent of total U.S. oil consumption.” US EIA

    How much of the driving is important? If gas was 7$/gallon we would find out that answer within a year.
    And if it was $7/g what would you do to adjust? Does your job depend on cheap fuel? Do you live far from work and market? Are you satisfied with living local for your produce and other food? Are you ready to give up travel during your time off? Are your relatives and friends close by?
    And, is your electric utility strong and proactive? Do you have a 220v circuit available ready for installation of a vehicle charger by your driveway? Will you be able to purchase an electric vehicle when the lines for purchase stretch to the horizon? [at the US average price of electricity of $0.11/kWh a person can travel 100 miles in an electric car for less than $3.30]

    The industrial sector accounts for about 25% of total crude oil use. Examples of industrial/non-combustion use of petroleum products include feedstock for chemicals and plastics, lubricants, asphalt. Much of this use is not optional for a modern industrial/commercial society and the use for these purposes will be prioritized by a rational country (if you can find one).

    One additional note regarding the agriculture sector- total annual on farm use of diesel and gasoline is currently about 10% less than the energy supplied by the corn ethanol industry.

    1. Hickory,

      The only thing likely to lead to a Seneca cliff in C plus C output is a lack of demand. If oil prices become very high people will switch to more efficient ICEVs, hybrids, plugin hybrids and EVs. The transition could be gradual at lower oil prices and it may accelerate at higher oil prices, but oil supply is unlikely to be a significant constraint on World economic growth.

      1. Hi Dennis.
        “oil supply is unlikely to be a significant constraint on World economic growth”
        Perhaps- Its all depends on the rate of change in the various factors.

        I do hope you are right. I have no interest in the chaos that a cliff scenario would entail. But many others do think we are in for a quick depletion scenario and they may be correct. There are so many variables that are completely unpredictable, and which could torpedo a smooth glide path downward.
        Either way most of what I raised will be relevant questions to grapple with somewhere between right now and 2040.

    2. Ron Patterson’s post in the last article about depletion rates associated with infill drilling suggests the end of the fossil fuel era is upon us. The problem is partly governmental and societal. Society as a whole has come to expect cheap hydrocarbons for everyday use. The government wants this to remain despite the obvious decline in discovery and production. In a free market oil would be $200 – $300 and no one (other than the well to do) would fill up their cars.
      But obviously we don’t have a free market as the populace make irrational demands of the government regarding resources.

      To my mind EVs are not the answer as they require an expanded energy grid which would rely heavily on nuclear or coal for power generation.

      If everyone had to ride a bicycle, they would appreciate the energy it took to heat their homes.

      1. “To my mind EVs are not the answer as they require an expanded energy grid which would rely heavily on nuclear or coal for power generation.”

        have you really though that line of thinking?
        Its happening right before your eyes, and its a good thing to get a grasp on.
        Infrastructure is what a smart country spends money on, rather than nation building in Asia.

        Which state got 57% of its electricity from wind last year? Hint- its about 1000 miles to an ocean from there.
        “More wind energy was installed in 2020 than any other energy source, accounting for 42% of new U.S. capacity. The U.S. wind industry supports 116,800 jobs.”

        Great new report on the industry (land based only) here from the US DOE-
        https://emp.lbl.gov/sites/default/files/land-based_wind_market_report_2021_edition_final.pdf

  11. Ex-fracker at Walmart reveals one risk to U.S. oil supply growth

    Interesting article on people leaving oil jobs. Reflects anecdotes posted here by a few real oil people.

    “For more than a year, Kristopher Guidry crisscrossed the Texas oil patch, fixing up electrical equipment on drilling rigs. Today, he’s studying to become a home appraiser. Abhinav Mishra was an oil engineer in some of the same fields. In January, he started an internship in Silicon Valley. And Andrew Crum, who ran digital operations for fracking outfits, headed to Kansas City, Missouri, where he joined Walmart Inc.’s supply-chain management team.

    All three men say they’ve probably left the industry for good.
    After three oil busts in the past seven years alone, they’re fed up with the stomach-churning volatility of it all. The boom years may be wonderful, but the trips to the unemployment line that follow are devastating. Besides, some workers say, the industry is on the decline now as the government and corporate America pivot to a greener future. Who wants to be part of a dying business?

    “I would have to be pretty desperate to consider going back,” said Crum, who had followed three earlier generations of his family into the oil fields.

    Of all the labor shortages that are wreaking havoc on the U.S. economy — from cashiers to chefs — few are as thorny or potentially as permanent as the one that has a grip on the oil sector. Thousands of roughnecks and engineers are, like Guidry, Mishra and Crum, wary of returning to jobs like the ones they lost when the pandemic sent the price of crude oil crashing last year.

    It doesn’t help that oil producers, trying to display a newfound financial discipline to their frustrated Wall Street backers, are hesitant to offer the signing bonuses and double-digit pay hikes that have become commonplace in other industries. Average pay in the Permian shale basin of West Texas and New Mexico remains below pre-COVID levels. All of which, analysts say, could add up to a cap on production in the Permian and other shale formations that collectively pump out more than two-thirds of all U.S. oil. Drillers may be promising to avoid rushing back into expansion mode — as part of that same pledge to Wall Street — but the lack of workers frankly gives them no choice.“If reported labor shortages continue, it would be impossible to grow production,” said Elisabeth Murphy, an analyst at research firm ESAI Energy.

    Complete article here.
    https://www.bnnbloomberg.ca/ex-fracker-at-walmart-reveals-one-risk-to-u-s-oil-supply-growth-1.1644482

    1. Ovi. Heck of a find.

      This is what I have been saying for months here.

      We finally have a rig for a couple weeks. Five tubing jobs, one rod job, one running in tubing and packer on a producer we converted to injection, and one cased hole we are plugging.

      Isn’t it something we should be able to get all of that done with one rig in two weeks or so? The benefit of 900’ well bores.

      1. Shallow sand,

        If the labor shortage continues, supply will decrease and oil prices will rise, eventually they will rise to a level that higher wages will be offered to workers so that the jobs become more attractive.

        Or that’s the theory. I would think in a boom and bust industry like oil, you would have seen this before. It seems this time seems different. If so, something different will need to be done to solve the labor shortage issue. Up to the industry to figure it out. I would know less than you how best to proceed, but out of the box thinking might to be a potential way forward.

        Best of luck.

        1. Dennis.

          There would be a lot more labor if we could figure out a cure for the meth epidemic.

          I have been racking my brain for over 20 years on that one and failing. Meth arrests here are at an all-time high.

          Secondarily, oil is located almost exclusively in rural areas, which continue to shed population. That won’t help the labor pool.

          Third, oil is a dying industry, we are told, similar to tobacco and coal.

          Our company was started by our father over 40 years ago. The third generation is not interested, nor have we encouraged them.

          1. Dennis, charge up the 3. You could be in west Texas in 3 days to give a hand. You’ll have a great trip.

          2. Shallow sand,

            You indicated you went to law school so I will assume you are a lawyer (though not necessarily).

            Can you legally require employees to submit to random drug testing, if you are suspicious they are abusing drugs? Not sure this is a solution, but I imagine not all rural youths are using meth.

            Though finding the good workers that want to remain in a rural area is no doubt a challenge.

            One has to make rural employment attractive by offering competitive wages, I would think, better wages than the local refinery to attract the best talent and to account for the harder work.

            I imagine you have thought of all this obvious stuff. I suppose you could work the field and try to bring a crew up to speed, let the young guys do the hard labor and you do the supervising, planning, etc, that’s if you can find some bodies who are not drug users.

            Plan B is to hang in there as best you can, hope for higher oil prices, then get out at an opportune time. Perhaps that is your plan.

            In any case hope things work out.

            There are obviously folks you can talk to in the business that would know infinitely more than me as they have been there done that.

            1. Hi Dennis.
              Unless it is specifically part of an employment contract, demanding drug testing after the fact is constructive dismissal- the equivalent of firing without cause (at least under Ontario law).

            2. Lloyd,

              I am not a lawyer, and am unfamiliar with distinctions between Canadian and US legal systems. Could a small employer simply include that language as part of the employment contract when hiring a worker?

              I really have no idea, it seems in the US some employers do require employees to be drug free and I assume random drug testing might be included in their employment contract.

            3. Lloyd, Dennis,

              Sadly, in 49 of the 50 US states businesses have managed to eliminate most protections against arbitrary firing. It’s referred to as “at-will” employment.

              The only protections are for protected classes like gender, race, religion, etc.

          3. SS, thanks for your comments on Meth.

            >> 222 patients in a treatment facility were surveyed about their use of meth and specifically on why they used the drug. It was published via the Center for Social Work Research at the University of Texas at Austin.

            Participants were 18-years old or above and had used meth at least six times in the past six months. When asked what the top five benefits of using meth were, the females responding said the ability to do more housework, being able to take care of their children, losing weight, getting over depression, and increasing their confidence.

            Males overwhelmingly cited sexual benefits such as energy and overall enjoyment of sex but also listed higher energy and the ability to stay awake, the general experience of feeling “high,” using meth as a way to have fun, and finally creating positive changes in their mood.
            <<

            https://www.shadowmountainrecovery.com/inside-the-texas-meth-problem/

        2. We have never seen this before and usually in a time of recovery there is a ramp up of services but today with the ESG mandate, there is not the capital flows coming in to bring labor and services back to the field. On our new project with my new company, we can’t get casing or line pipe/ We have been told that all new steel is being committed to Amazon’s new construction of fulfillment centers around the county. This is a real current problem. I dont know if others are facing the same issues. Would like to hear.

          1. LTO survivor,

            Perhaps part of the problem is the worldwide pandemic. Seems there are a number of bottlenecks in the system causing disruption. We have not seen this kind of pandemic since 1918 and there was far less global trade at that point in history. I wasn’t around to see it, nor my father, my father’s parents and mothers parents were around, but I never discussed it with them.

            These are unusual times, of that there can be little doubt.

          2. “We have been told that all new steel is being committed to Amazon’s new construction of fulfillment centers around the county.”

            Atlas Shrugged 😉

          3. “but today with the ESG mandate, there is not the capital flows coming in to bring labor and services back to the field”

            Surprised by this interpretation of the scenario.

            First, what mandate? There is no ‘authoritative command’ to restrict capital. The majority of the investment assets under management in the USA (many trillions of dollars) are under no ESG restriction criteria- [voluntary or otherwise] and this does not even consider all of the vast private investment hoard held by the super wealthy and corporations.

            Secondly, interest rates are low and capital is readily available for all sorts of projects- courtesy of an expansive central bank monetary policy and huge investment funds eager for small but solid return on investment.

            Third, if there is indeed a difficulty for the industry to attract capital it is more likely due to past performance. As you very well know, the very success of the LTO industry production has caused a temporary relative glut with lower pricing since 2014. The stock performance of most of the US oil industry public companies has been extremely poor for the past 7 years. For example
            S&P 500 122%
            PXD negative 23%
            EOG negative 37%
            DVN negative 55%

            I suspect performance to improve from here, but no surprise that investors are wary based on the dismal return on investment since 2014. Negative return is the opposite of return on investment for the unfortunate savers who put up the money.

            I know that there is a growing sentiment to direct investment money toward non-depleting and ‘cleaner’ forms of energy, but currently it looks more like competition for capital rather than restriction being the bigger force at play currently.

            In the end, I think energy scarcity will be a much bigger driver of capital flow than environmental concerns, but there will be growing competition for capital by the electric transport industry (including development of the vast US solar reserve) which is still in its its infancy phase.

  12. @ HiH and others

    The inflation corrected oil price continously goes down. The downward trend is valid for the maxima and the time-average. The only exception is the last months, but the 6000 Billion Dollar spent by the US Government for Covid-19 subsidies can explain this.

    What is your explanation for the downward trend ?

    1. Berndt,

      Good to see you once again. Nice chart. It will be interesting to see how the oil price plays out over the next several years. It is true that the U.S. added nearly $7 trillion in debt in 2020, to prop up the GDP from being a total disaster. But, I doubt that will be replayed again anytime soon. So, again… it will be interesting to see how the oil price trades over the next 2-5 years.

      While I believe the market has under-estimated the impact of Thermodynamics on the oil industry, we still could see price spikes due to shocks in the market. But, I doubt these will be long-lived.

      By the way, are you still conversing with Arnoux?

      steve

      1. To Steve

        Steve, sorry, but the last months i had no contact to Arnoux.

        Thermodynamics and oil: Nearly all people, especially in the oil sector, have overlooked, that one important law of physics is, of course, valid for the oil industry. This will have severe consequences. And this explains the diagram above.

    2. Berndt , frankly speaking I have been thinking on the same line for quite some time . Why the price is so low in real terms after discounting for inflation ? I don’t have a clue . Maybe you can fire some shots for us to catch ?

        1. Thanks Brendt , I am going to read it over the weekend . So many riddles and lies to be unraveled in the oil industry . Tks once again .

          1. Is this paper not just the Hills Group work again which was already discredited?

            1. Kleiber,

              Yes, it is and it shows how dangerous a little knowledge is. Steve still uses (in one of his graphs), a “result” from the Hill’s group.

            2. To Kleiber,

              this is not the Hills paper. If you would know the Hills paper, you would not ask. And “already discredited” is not the right word. Please use “difficult to understand”.

            3. Kleiber and Bernt,

              —

              If it is not the Hill’s group’s paper, it is very similar to it. Both their paper and that of Bernt develop an idea that somehow the geothermal temperature gradient is linked fundamentally to the oil production process and then try to do some calculations based on estimated losses in various parts of the oil extraction process to come up with, what appears to be the Carnot limit.

              The thermal energy convected by the oil stream to the surface is unimportant, as the local cooling is soon replaced by heat transfer from the surroundings, i.e. ultimately from the earth’s core, which is the reason the geothermal gradient exists. We will not run out of this energy in the remaining time of human’s on this planet.

              —

              This linking of the geothermal gradient to oil extraction is very strange notion.

              Bernt says that Kleiber does not understand his paper. Well, it is for good reason, since the paper is not understandable.

            5. Well, back in 2014 the hills group did predict that the price of WTI would hit zero.
              And it did

            6. Hi Seppo,

              nice to hear from you. You are the guy, who has written the rebuttal of the Hills Group report.
              I will not fuzz around. Lets go directly in medias res. The Hills Groups report is filled with bugs. But now lets analyze your report and eliminate the bugs of your report.

              1, The PPS (Petroleum Producing System) is the totality of the devices, into which crude oil and water enter. Oil products and water exit it. As for all systems of the world, the second law is valid for it. Because all masses entering it are leaving it, the ingoing masses and exiting masses are equal.
              Therefor, the steady state entropy rate balance for closed volumes from Moran/Shapiro is adequate and to be used for the PPS:

              Please check the equation you use and replace it.

            7. 2. The refining process separates the fluids of the crude oil, only some of it is chemically altered. For incompressible fluids the specific entropies are the same as the specific heat capacities, So we have :

              If we concentrate on the first order terms and neclect second order terms, ingoing and outgoing terms are equal and cancel.
              Please include this in your report.

            8. 3. Because the terms cancel, we get:

              This is the same equation you show, but derived in a much more straightforward way. If the heat currents are inserted, this equation allows to calculate the entropies the PPS generates. Okay ? Next time i will explain the integration.

            9. Hello Berndt

              Let’s do this exchange off-line. I have used LaTex to get the equations into my writing since 1989 and even if it might be easier to do it in HTML today, I prefer to do write them into a LaTex document directly. We could then go through the development line by line and see where we agree and disagree. Dennis can give you my email address.

              best, Seppo

            10. Sorry, Seppo, i must do it online.
              4. The last equation can be rewritten because all heat currents end at the Earth surface, which is the reference temperature.

            11. 4. The last equation can be rewritten because all heat currents end at the Earth surface, which is the reference temperature.

            13. 6. The irregularities are the entropies generated. If they are multiplied with the temperature, the exergy which is converted to anergy by the PPS results:

            14. 7. This equation is still the derivation with respect to time. To get a function of time, an integration has to be done. The upper integration limit is the center of the time period delta t.

            15. 8. This is the exergy necessary at the time tE + delta t. In the time span between tE and delta t, the mass of crude oil produced is:

            16. 9. If we divide the required exergy by the mass, the ETP-Equation results. I prefer the term TNE instead of ETP. TNE stands for Thermodynamic Necessary Exergy. This is the exergy per unit of mass required for oil production.

              This TNE equation is the same as Equation #7 of the HG report, but with a better notation. Seppo, please replace your equation with this one.
              In my opinion, the formulas of the HG report are buggy, but the physics involved is absolutely correct. And the consequence is correct too: The exergy required today to produce oil is in the order of magnitude of the exergy content of oil. Unfotunately, the HG Group has not recognized that all this exergy is required to change the temperature of the earth crust. If they would have recognize it, much more people would understand the model. (It took me more than a year to tecognize).

              Seppo, most of your conclusions for the HG Report are as incorrect as your understanding of the formulas. The best is, you cancel your rebuttal.

            17. Berndt and Seppo,

              I sent Seppo’s email address to Berndt as Seppo asked. I will leave it to Berndt if he wants to reply to Seppo. Berndt if you would like me to give your email address to Seppo, just ask me here as I do not check the peakoilbarrel account very often.

            18. Berndt, I spent (almost) my entire career trying to satisfy computer owners that I was sure I Knew what their problem was and I was there to solve their problems. (I worked on huge mainframes, now called dinosaurs.) But we field engineers, (that’s a fancy term for “computer repairman”), had a saying: If you can’t dazzle them with brilliance, then baffle them with bullshit. I am not sure which of the two you are trying to do, but I am sure it is one or the other.

            19. Berndt: in the note on 08/30/2021 at 3:11 am

              you claim to have given an alternative method at arriving to the
              equation that relates entropy production to heat transfer.

              You say that “neglecting second order effects” you come up with the equations in that note. From an equation with 4 terms, you claim that two are equal and by eliminating them the other two are also equal. True enough! But how do you know that the first two are equal?

              After eliminating them, you come up with the balance for the “second order term”. Usually, after such terms are neglected, the main result is embedded in the terms that are not neglected. In your case the main result comes from the “second order terms”.

              So the question is. On what basis are the two terms consisting of the entropy inflow and outflow by the bulk motion neglected?

            20. To all:
              It is clear, that most people do not understand the equations nor their meaning. But they will understand, that SKs rebuttal has false formulas, and they will understand, that serious doubts about his report exist.
              But some people, skilled in thermodynamics, are able to check my formulas and the Hills report. They can now recognize some of the HGs typing errors and inaccuracies, and that the physics of the report is correct.
              In my own report (link see above) i use a total different approach than the HG uses, but get the same result.
              Seppo asks if the “approx equal sign” in #2 may be replaced by an equality.
              1. In my own report i do not need the formel #2.
              2. It is allowed to replace the “approx equal”, because the heat capacities of a mixture of fluids is the corresponding mixture of heat capabilities. Crude oil is a mixture of different fluids, which get separated by the refining process. Remark: Some of the fluids are chemically altered, that is the reason to use the “approx equal sign” in #2. The changing of the chemics alters the heat capacity. But they are similar.

        2. Berndt,

          Both short explanations are wrong.

          For #2 this would imply that the price of electricity produced with a steam turbine should be zero. Is that your argument?

          It is obviously wrong.

    3. Berndt,

      It has nothing to do with thermodynamics as it is not an input into business decisions in the oil industry.

      The explanation for real oil price trending down is quite simple, there was an oversupply of oil on the market both because US tight oil producers overproduced and because OPEC was fed up and decided to try to take back market share.

      You picked a very short time frame, also your trend on Brent for the past 11 years will not continue from 2021 to 2033.

    4. Berndt,

      The trajectory from 2020 to 2030 is much more likely to look like 2000 to 2011 than 2011 to 2021 (I doubt we will see another glut until demand starts to decrease faster than supply around 2035.)

      1. To Dennis,

        i am interested if there is another explanation for the falling trend than thermodynamics. How many people have touted in 2010 to 2014, that oil prices must go up because oil production gets more and more costly ?A thirteen year trend, which is against all of these predictions, It MUST have an explanation.

        But i see, nobody gives another explanation. HHH says, the oil price trend is unimportant, and you say the same. So nobody knows neither a different explanation, nor a better, at least in this blog.

        Some remarks:
        1. The second law of thermodynamics is the only (with a unimportant exception) law of physics which defines a time direction. It says, tomorrow is not the same as today. 2021 to 2030 will not be the same as 2000-2008. Oil prices from the last years are the only one which can be used to make a projection for the near future. So, your mentioning of oil prices from +2000 to +2010 has the same importance as mentioning the oil prices of the roman empire. They say nothing about the near future, only the last data is important.

        2. Oil prices are not determined by oil companies. The are determined by the customers of the oil companies. And if the customers of the companies do not pay what the companies wish…..the companies can do….nothing but accept.

        3. The second law can be used to make predictions for the oil prices customers are able to afford. Thats it.

        4. The only thing oil companies can do to increase the oil price is to reduce the oil at the market. And OPEC is the only association which is powerful enough to reduce by a significant amount. Look at the dark yellow dashed line connecting the oil price minima. There you see the OPEC actions.

        5. I had a lot of discussions about thermodynamics for oil production with different people. I am always astonished, that one of the most important laws of physics is totally ignored in the oil field: The law defining the direction of time. Not understanding is one thing, but to ignore it…?

        1. Brendt , yet to read your link but a question . Am I to understand that the computer boys at NYMEX have no say in setting the price of oil ? My understanding from what you have posted to Dennis is that where as the physical market sets the base price of let us say $ 70 the computer boys can only nudge it to $ 69 or $ 71 depending upon where the profit lies . Tks

          1. “Am I to understand that the computer boys at NYMEX have no say in setting the price of oil ?”

            Well, almost no say. News and emotions can cause wild swings in the price of anything, but in the end, it is supply and demand that dictates the price of any commodity.

            Think of it as a skier behind a boat. The skier can make wide swings on either side of the boat, but regardless of how wide the swings he must follow the boat. The skier’s wide swings are market rumors, news, and emotions. The boat is supply and demand. In the long run, supply and demand always dictate the price of oil

            1. Thanks Ron, for your example. This is my opinion too. But the last sentence seems to be not correct. The inflation corrected oil price in 2011-2013 has been roughly twice the price afterwards. Has demand decreased or supply increased ? How work supply and demand so that the price decay can get explained ?

            2. Berndt, in the short run anything can happen as the traders try to out-guess the market. But in the long run supply and demand always dictate the price. If the price is too high, demand will drop creating a glut, driving down prices. If the price is too low, a shortage will occur, causing prices to increase.

              That is the way it works. No other explanation is needed.

        2. Berndt,

          The second law is important at a society wide level, but not for individual products.

          Your explanation for falling oil prices if correct would suggest that electricity produced with fossil fuel should have a zero price as energy out is less than energy in. Is that what you expect?

          The price is set by the interaction of suppliers and consumers. If price that consumers are willing to pay is less than the price required to make a profit then supply will be zero. Note that for the consumer the energy used to produce the product is not part of their decision, they have no idea and could care less.

          Likewise producers are concerned with making money they are concerned with cost of production and revenue from selling their product. Energy used is only a concern as it relates to cost, no producer cares about EROEI.

          Prices for oil decreased because supply was greater than demand, it really is that simple.

          The market sends a signal to producers to reduce output through a drop in price. Also consumers will consume more at a lower price. There are large lags in response as changes in industry investment and in consumer choice in vehicles takes a few years to affect supply or demand. On top of this their are political difficulties in OPEC plus, pandemic problems, etc.

          For a thermodynamic analysis to be useful it has to look at total World energy use for every type of energy because energy is transferred between different sectors.

          If you look at Sankey diagrams you see this for the US, but I am not sure if we have these for the World.

          I

          1. Dennis,
            “Your explanation for falling oil prices if correct would suggest that electricity produced with fossil fuel should have a zero price as energy out is less than energy in. Is that what you expect?”
            I expect this for exergy (to be correct), if the
            1. electricity of your example is used as the only source to produce the fossil fuels.
            2. If one Joule of electricity produces about one Joule of fossil fuels.

            For consumer products etc. i do not expect this.

            “For a thermodynamic analysis to be useful it has to look at total World energy use for every type of energy because energy is transferred between different sectors.”

            This can be done and has been done. But i will not present the results here, to discuss it with people who do not accept that the second law is valid for oil production.

            1. Berndt,

              You have a basic assumption in your analysis that the second law of thermodynamics has some relevance to the price of oil. Oil price increases and decreases primarily because in some cases supply grows more slowly than demand for oil, leading to a shortage (at current price level) and causing an increase in price to balance the market (by increasing quantity supplied and decreasing the quantity of demand at the new higher price). This describes the Oil market from 2001 to 2011. In other cases the supply of oil grows faster than the demand for oil leading to oversupply at the current oil price level, in this case oil price falls leading to a smaller quantity supplied and a larger quantity of demand at the new lower oil price. This is what occurred during the price drop from 2014 to 2019.

              I will note that you said the recent period is the period of interest, recently oil prices have been increasing. Chart below has real Brent prices in 2020$ from Jan 2016 to Dec 2019, I assume you realize the pandemic caused an obvious drop in oil demand which caused oil prices to drop. Also the spat between Saudi Arabia and Russia in late 2019 early 2020 exacerbated the oil glut.

            2. Berndt,

              Lots of different energy inputs into petroleum production process, second law of thermodynamics applies for an isolated system. You have to consider both energy and mass flow across the pps boundry.

            3. Dennis,

              Yes, both mass and energy are important. Berndt seems ignore both: oil production has lots of non-oil inputs and outputs, including grid electricity, natural gas, hydrogen, etc.

            4. Here’s a WTI chart with the Hill’s Group’s MAP price, it starts the chart just under $140 and crosses zero in November 2021.

              They published this prediction in 2014. It’s basically what they predicted the value of oil is to the world economy. They said ‘Price’ in their model but in hindsight I think ‘Value’ is a better word for it.

            5. Bahamased,

              Yes I have seen that chart which assumes the price of a product is related to its exergy.

              It is not. If this were the case electricity produced by fossil fuel or nuclear power would be priced at less than zero. The two are not related. The exergy content of a product has little (or nothing) to do with its price.

        3. Berndt,

          Here is recent trend in Brent real oil prices (monthly spot prices through July 2021 from EIA adjusted to constant 2020$ using CPI).

          If you want to use recent data, here it is. The trend is an increase at an annual rate of 36 dollars per year. I do not expect this trend will continue at this slope, but we could see $100/bo by 2025 and perhaps $120 to $130/bo by 2028 in 2020 US$.

          1. Dennis, i am always astonished why you refer to time periods, which evidently are not relevant for the problem. You seem to have no feeling what could be of importance.
            Some time ago, a guy told me that in science of economy laws exist, which are equivalent to the first law of thermodynamics, but nothing exists, which is equivalent to the second law. Might this be the reason that you think all time periods are equivalent ?
            Blair Fix has once published a report about “econospeak”, the language of economics. and that this language misses terms which describe the real world. I will read it again.

            1. Berndt,

              So only the time periods you choose are relevant? That is funny. Is their something magical about the period you choose, besides that it confirms your theory?

              Can you explain why electricity produced with fossil fuels is not priced at zero?

              It obviously has negative net energy, maybe consumers should be paid for accepting such an inferior source of energy?

              Thermodynamics as applied to an economic system only makes sense for the entire system.

              It is also difficult to conceptualize the oil production and distribution system as an isolated system where the second law of thermodynamics could be applied. Lots of mass and energy transfer applies across any boundry one could attempt to create.

            2. To Dennis

              The theory says, that the thermodynamic effect starts to work about 2012. So it makes little sense for me consider time periods much before 2010. It makes some sense to compare the time before 2010 with the time after 2010 to see if something has altered, but using a linear fit for 2000-2021 is humbug.

              And using short time periods make no sense, at least some years should be used. Corona makes severe disturbances of the oil price, which now last for 1,5 years. After the disturbance has finished, a disturbance time period can be determined. If this period is multiplied by three or four, a adequate time span for examination results. This gives 6-8 years.

              As long as you think, the world runs by money, you are not able to understand the problem.
              To produce oil, exergy is needed. If the amount of exergy gets in the order of magnitude of oils exergy content, oil production will stop. Oil productions life can be extended using exergy from other sources, but it will stop. It can’t work anymore. All the money the central banks can create, will not help. Despite central banks can create money out of thin air, this does not help.

            3. Berndt,

              As long a on a society wide basis there is enough exergy produced for the entire system then which things get produced is a matter of consumer preference and profitibility of the producers and their interaction. This just happens to be how most social systems are organized.

              A claim that exergy determines output is clearly false for individual products.

              I notice you have failed to come up with a good explanation why electricity is produced with steam turbines. This lends itself very nicely to a thermodynamic analysis, do you still want to argue that prices are determined by exergy?

          2. Bahamas , your ” price ” vs ” value argument does not cut ice . Absolutely unsatisfactory . Maybe another try ?

            1. It doesn’t matter any more, it’s all in the history books now. The Hill’s Group reports predictions end at the end of this year so I don’t see much point in trying to change anyone’s mind about it.

        4. A simple statement of the 2nd law: “the entropy of an isolated system always increases.”

          Okay, is the Earth an isolated system? With 100,000,000 gigawatts of sunlight flowing into it continuously?

          1. Earth is an Open System. It receives incoming energy in the form of electromagnetic radiation, and it also emits electromagnetic radiation. This is why the Earth maintains a stable average temperature and therefore a (relatively) stable climate.

            1. I agree: it has very large energy inputs and outputs.

              Berndt, what do you think?

            2. As far as oil is concerned it’s a closed system within the time frame we’re talking about, the last 200 years

            3. To Nick:
              For open systems the “entropy rate balance for closed volumes” is to be applied. See the book of Moran/Shapiro.

            4. Bahamased,

              I think you have to treat oil as open and non-isolated (these refer to matter and energy flows, respectively.

              As far as energy goes: let’s say a litre of diesel has 10 kilowatt hours of chemical energy. Let’s say a litre is selling for $1: that’s 10 cents per kWh. And, let’s say you can buy some electrical power for 3 cents per kWh, and it takes 10 kWh of power to produce this diesel.

              So, energy inputs are equal to energy outputs, yet the inputs cost only 30% as much as the outputs, and such a project has a plausible chance of paying for itself (depending on other costs of course, but this is just a proof of principle).

              As far as matter goes, think of Canadian tar sands: very cheap local gas and bitumen can be used to produce expensive oil, even if the energy return on investment is low or negative.

              Make sense?

            5. Bahamas, the price went to zero but the cause was not extraction cost or temperature differential or even a buyer/seller problem . . The problem was storage . The computer boys at NYMEX got their arithmetic wrong and so the anomaly . This was a flick on the computer screen and then back to normal . Sorry , does not count .

  13. I think one thing that is actually more important than what the price of oil is. Is what will the cost of capital be for LTO producers in the future. Think about it like this. If 30 year mortgages on houses went from say 3% to 4-5% How many people can afford a house at today’s prices if cost of capital were to rise. Mortgage rates are not going to rise but that is besides the point.

    What if the average corporate bond interest rate went from it’s current 4% to say 7-8% How much economic growth could we expect to see if that happened? My point is cost of capital and future cost of capital will determine how much LTO we have in future. What happens if these LTO producers ever have to roll over their debts at a higher interest rate? Just because they need a higher price to make this work doesn’t mean they are going to get a higher price.

    If you slam borrowing cost below the rate of inflation just to keep the hamster wheel turning then the lender of the money gets to experience a negative rate of return on their capital in real terms. Capital always flows were it is treated the best.

    Oil could be $150 and borrowing cost for LTO producers could go to 3% but if inflation is 5% or way higher because of $150 oil. Then the flow of capital gets cut off. Maybe oil will flow by other means than capitalism. But until then LTO need OPM to flow.

    1. Let’s look to Jackson Hole today then. The FED controls these long terms interrest rates.

      Many speculate they will begin to taper – this would be bullish for long term interrest rates, with all effects you described. Or if they don’t, access to OPM for shale and housing will continue.

      A friend of my who studied economics thinks the longer we get QE the more we move to a socialism. More and more of the economy gets controlled by the state – In Japan the central bank (it is an extension of the state) is already the biggest stock owner, the state defines short AND long time interrest rates. And the economonic boost packages from the state get bigger and bigger (“New green deal”). For companies, the question “What dows the state want” gets more and more important than “What does the customer want”).

      I don’t need to say that a more and more state economy is a slow meltdown. Yes, they can get all the LTO – but it will cost double.

      1. I expect long term interest rates to fall towards zero because they taper and are going to force money further out on yield curve. By paying more on reverse repo. But we shall wait and see.

      2. If interest rates rise 300 basis points most of the corporations would be banktupt unless they can pass through the higher costs. This is misery caused by QE forever. Without QE, the bubble bursts and I believe with current globalization, the world would fall into a massive recession/depression. QE=Heroin. Kicking the habit may be to hard to do.

      3. “ A friend of my who studied economics thinks the longer we get QE the more we move to a socialism. “

        “ Permit me to issue and control the money of a nation, and I care not who makes its laws”. Attributed to Mayer Amschel Rothschild

    2. HHH,

      In my analysis of the Permian I assume interest on debt is 7.5% per year. After May 2021 at the WTI prices I assume (rising from $60/bo to $75/bo over next 12 months in 2020$) no new capital is needed all wells for the scenario are financed using cash flow. So your “what if interest rates rise to 7.5%” scenario is already baked into the scenario.

      1. Bigger problem could be interest rates falling below rate of inflation.

  14. Despite all the gloom and doom (and condescension) spread here, it’s worth mentioning that the sub-Saharan African countries mentioned have some of the fastest growing economies in the world. Nigeria, Congo Brazzaville Equatorial Guinea and Gabon all average well over 5% economic growth since 2000, even though the last couple of years have been rough.

    All of them have falling oil revenues, but they clearly don’t need them for economic growth. The stereotypes of Africa you grew up with haven’t been valid for decades.

    Blow the dust off the clock. Your watches are behind the times. Throw open the heavy curtains which are so dear to you. You do not even suspect that the day has already dawned outside.

    -Aleksandr Solzhenitsyn

    1. 5% growth in Nigeria means no personal income growth for anyone – the population grows with rates like this. You need much more there than 5%.
      Less than 5% will be decline and crisis.

      Only states who stall their population growth can really grow with 5%.

      1. Nigeria’s population growth is about 2.6%, so 5% growth should mean that per capita income is growing.

        General opinion seems to blame corruption and income inequality, so that the poor stay poor.

        2. Nigeria is a textbook curse of resource wealth case. The corruption led to major attacks on oil infrastructure because none of that wealth was going to anything useful for the people. See also Congo and their mining.

    2. And unless they’re living off a sense of self-satisfaction, they will be consuming resources with their newfound wealth. Why, exactly, am I to celebrate this again?

  15. Markets will take a little time to digest what FED’s next move will be. 7.5 million people fall off unemployment benefits September 6. So at the first Friday of October’s payroll data the unemployment % will be low. Market knows this. And will price in taper.

    The labor shortage shallow talks about in the oil fields is real and wide spread and everywhere you look. So wage inflation is high as it’s been in a really long time. Rate hikes will follow if wage inflation is here to stay.

    1. HHH , Powell gave a nothing burger at Jackson hole . The market went up . Just my opinion , the market will go up even if a 1000 hostages are taken on 31st August in Afghanistan . FED cannot disappoint Wall Street . Main street is dead , Wall street is the only game in town . I disagree with you on rates . Interest rates will remain low whether wage inflation or CPI or any other index . The FED has lost control . The only way out is inflation/stag inflation leading into a deflationary cycle ( permanent ) or defaults on a massive scale ( you mentioned corporate debt , bullseye ) which will again be deflationary . What does this do to oil prices ? Deflation = lower oil prices .

      1. Dollar is forming what looks to be a bullish flag pattern. Have to give it a couple more days to see how it plays out. It’s upside down on dollar index but easier to spot against other currencies. Looks like a continuation pattern of dollar strength. Today’s market reaction in my opinion is a head fake. US stocks can rise with dollar btw. Question hear is are we fixing to get renewed dollar strength or not. And that will effect oil prices one way or the other way

        The flag pole would be today’s move. Break it down into hourly charts and it’s real easy to see. With the flag forming next week.

        1. HHH , I am not a chartist so my knowledge is limited to that aspect . My thoughts are to the nature of the FED . Most of the world ( not members of this blog) think the FED is the USG . They don’t understand that the FED is owned by the banks . The FED serves itself first and then it serves Wall street . The ROW be damned . They would throw any country or organisation under the bus if it was to their advantage or if they felt threatened . I view the actions of the FED from this prism and that is the basis of my opinion . Heck , who in the world can conjure $ 10 trillion and not even blink ?

          1. I think some people assume if FED backs away from buying government debt then there is no bid. I’m not one of those people. I believe if FED pulls back then treasuries are even more bid than they are now. Heck if your a foreign central bank or financial institution and you own treasuries you can pledge them as collateral at repo market and borrow all the dollars you need at 0.25%

            I’ve seen the low bid at a treasury 10year auction as low as 0.08% remember the lower the bid the higher the price being paid. There is huge demand for US treasuries outside the FED. As they are the collateral at repo.

            Heck maybe oil companies should buy US treasuries so they too can borrow at 0.25% 😁

            1. Why should oil companies buy treasuries to borrow money? It would be a zero sum game – they will even lose when they buy a paper with 0.08% interrest to borrow at 0.25%.

              And you would have additional dept on your balance – this never looks good. Companies sell and rent back here to get dept out of their books.

              When the interrest of long term dept is again at 2,3 or 4% for the AAA then you can consider stunts like this.

              There is always a risk with long term dept – so you want a little bit of profit to cover this risk.
              Without the hedge of the FED, 10 years can crash 20% in value. Only some little bad news, like rising inflation or a political crisis (oh wait….). For example something with a lot of hostages (oh wait…).
              So you have to sit this out or sell with loss when you need the money. That’s why 10 year bonds are for the experts only.

              This buying bonds and lending is bank or insurance stuff – that’s their expertise district. Normal companies buy mostly short duration bonds to park money. It’s risk management.

      2. default=deflation=lower demand=lower oil prices. This is my only correction to your equation.

        Without inflation on Wall Street where a taco store like Chipotle is priced at 55 times earnings this economy would already be kaput. There is no alternative investment opportunity and this is illusory as we all know. Real Estate projects are being sold on a 3 cap which translates into getting your money back with debt repayment in 30 years. This is mind boggling. The only way out is ever increasing rents and home prices which is not sustainable for main street. Scary times with no solutions. This started with Greenspan and every other irresponsible Fed Chairman since who has refused to pay the piper and they all resort to QE and easy money to keep the stock market up and ridiculously over valued. We bailed out of 2008/2009 with monetary policy and now we are using fiscal policy to jump start the economy with an infrastructure bill being supported by future borrowings. This is an endless parade of ban aid solutions to forestall the inevitable. I have a masters in economics and I can tell you that all of the things I learned (which may be outdated) suggests to be this is not sustainable without GDP growing at 10% instead of 3% like we have seen over the past decade. We have run out of sound tools supported by a solid balance sheet. If the dollar wasn’t the reserve currency we would already be in bread lines.

        1. LTO Survivor,

          I think things are not as bad as you believe. I also have a masters degree in economics and double bachelors degrees in physics and economics. Inflation has been under control despite loose monetary policy, in the face of a severe economic downturn (such as 2019/2020, the proper policy is expansionary fiscal policy and lots of deficit spending. Unless one thinks that a second Great Depression is a better alternative. The free market free of government interference is a wonderful system when it works, when it doesn’t Keynesian economics is the way to go. Monetary only gets you so far, at some point it is like pushing on a string as one gets to the zero lower bound for interest rates. Some innovative policies have been devised to stiffen the string a bit. Fiscal policy is a better approach when a recession is severe, unless of course one thinks free markets will magically fix a lack of aggregate demand, thats what Hoover believed and classical economics taught. It was severely flawed as laid out in the General Theory.

        2. LTO,

          I agree with your description. As we known by their own mouths, the FED chairmen are
          willing to clean up the mess after, rather than to take preemptive action. In addition, the modus operandi, is “not on my watch”, and the can is being kicked down the street as long as it can.

          1. “and the can is being kicked down the street as long as it can.”

            That is underlying goal of all just about humans their institutions, not just the Fed.
            It becomes a more obvious tactic when things have progressed beyond a rapid growth phase, and some degree of slowing or contraction is in the cards.
            Just hope that your central bankers are good at it.
            Gives you time to adjust or solidify your position, or to simply live your life with a small measure of stability.

  16. The Permian Is Set To Thrive Through 2025Bold Mine

    The Permian Basin looks strong until at least 2025 despite challenges from Biden’s alternative energy push, with oil output climbing steadily after its dip during the 2020 pandemic, as companies rush to consolidate their assets while demand remains high.

    We are seeing the number of mergers and acquisitions in the oil-rich region of the USA level out as companies vie for the best position while demand and oil prices are at their highest in years.

    Huge SNIP

    Further consolidation within the region looks set to continue as oil and gas output has stabilised significantly in recent months, driving energy firms to act quickly to ensure their spot in the region.

    In 2019, output in the Permian Basin totalled over 4.3 million bpd of oil, peaking at 4.7 million bpd in December of that year. However, in response to the Covid-19 pandemic, oil production stagnated, falling from 4.8 million bpd between January and March back to 4.3 million bpd the rest of the year. Based on recent changes in demand, production levels are now expected to reach an average of 4.9 million bpd by mid-2022, a figure that could remain stable until around 2025.

    1. Also:

      The report explains, “With more than 92.3 billion barrels and nearly 300 trillion cubic feet of untapped oil and natural gas sitting below the surface and a limitless supply of wind and solar, energy production in the Permian Basin is expected to continue to grow for decades to come.”

      1. 92.3 billion barrels of untapped oil? Damn, I completely overlooked that good news. I did the math. With those reserves, the Permian should quickly ramp up to 10 million barrels per day and could hold at that level for 25 years.

        Why cannot some kind of realism return to reporting oil reserves? Even a damn fool could not believe those numbers.

        1. Ron,

          Much depends on the price of oil, if it starts to fall after 2035 as I believe due to demand for oil falling faster than supply, then it will only be profitable to produce about 27 to 28 Gb of C plus C from the Permian basin tight oil resource. I went back and took a close look at the USGS reports on the Permian basin and if the lower output assessment units are excluded the TRR is about 52 Gb rather than 75 Gb when all assessment units are included (these are mean USGS TRR estimates). Once we include a set of realistic economic assumptions with well profiles developed using actual output data and completion rate assumptions that are reasonable and an oil price scenario that sees oil prices fall quickly from $80/bo in 2035 to $30/bo in 2039 the ERR ends up being about 27 Gb. Note that cumulative production for Permian on Dec 31, 2019 was 5.4 Gb and 2P reserves were about 20.4 Gb, thus cumulative production plus 2P reserves on Dec 31, 2019 for the Permian basin was about 26 Gb. It is likely that there might be some reserve growth as oil prices climb higher so 26 Gb would be the minimum ERR I would expect from Permian basin tight oil and the maximum could be 50 Gb under a slow transition scenario where oil demand remains high through 2040 and keeps oil prices high.

        2. In fact, a guy, who worked for an OPEC country in the past to ‘assess’ that country’s oil reserves, migrated to the US and ‘scientifically’ established the oil reserves of the Permian field that are reported in this report. This is the only rational reason to explain this estimate of the Permian field’s oil reserves. If people in the us oil community start behaving like officials in oil administrations in OPEC countries, then the situation is serious.

          1. Jean, yeah, that was my thought exactly. I thought, “the guy that made this assessment of reserves hat to be a Saudi. They must have hired someone from Saudi Arabia to assess the reserves in the Permian. This looks way too much like this estimate of proven reserves came directly from the same guy who estimated Saudi reserves.

        3. There must be a good reason they’re trying to blow so much smoke up our arses…

          1. They need that bigger fool to unload on. It’s only hard to see if you have a lot of money and think you can make double digit returns on a sure thing.

    2. Ron

      A post or two back, one of our contributors pointed out that when companies merge 2 plus 2 does not equal 4. It is somewhere between 2 and 3.

      1. That’s what I believe will happen. Companies are merging to acquire cash flow to pump up their stock price and potentially pay down debt and a dividend. The Omnipotent 29 year old analysts on Wall Street are demanding dividends. At current prices and costs, this is a zero sum game. You can’t have both. Growth and dividend in the shale. The math simply doesn’t work.

        Our company spent the past 11 years trying to get to breakeven cash flow and we are there now but achieving any meaningful growth from this point (with current prices and costs) is virtually impossible out of cash flow . If we ramped up, we would only incur more debt. Companies are consolidating to (1) Preserve Inventory (2) to reduce overhead on a per barrel basis (3) to show greater cash flow and increase the stock price. (4) The final and most important point is that this is a Hail Mary strategy to bridge to an oil price sufficient to have modest growth, pay down debt and dole out dividends. This means for right now 2 2= 3.5 rigs instead of 4 or 5 rigs. In six years there will be little to no inventory left. Just sayin. I have seen it with my own eyes in the Permian on some of the very best acreage in the country.

        After that point in time, the field is in blow down mode (unless we see economically efficient methods of EOR) and nothing good happens in blow down mode. No way to hide the true costs of producing a stripper shale well.

        1. LTO survivor,

          Also possible that the merged company might have better efficiency than the two separate companies, lower overhead per barrel produced, more wells drilled per operating rig, etc so overall lower costs per barrel produced and higher profits at any given price.

          So although rig count might decrease from 4 to 3.5 we might see the same number of wells drilled per unit time using 3.5 rigs as we saw earlier with 4 operating rigs (under two separate companies), so rig efficiency increases.

          This is what companies claim when they sell these mergers to investors, perhaps it is all just hype.

          In the mean time Permian basin output continues to rise, up by 43 kb/d in July 2021, and recent annual rate of increase about 410 kb/d using OLS on last 14 months of data (excluding big drop in Feb 2020 due power disaster in Texas).

          1. Okay. Could be the companies will be more efficient and get more wells drilled cheaper. You have may have a point. I may just be a sad sack from getting my ass kicked for the past 11 years. Maybe we will see a 3 million barrel increase by 2025 and all will be fixed. I am not being sarcastic but more like suffering from PTSD.

            1. LTO survivor for the past 12 months all US tight has risen at about a 300 kbpd annual rate. If that rate continued we wouldn’t reach a 3 Mbpd increase until 2030. I expect perhaps a peak at 8.5 to 9.5 Mbpd in 2028 followed by steep decline. I thought you had given me the idea of increased efficiency, but I must have misunderstood.

              Also note my point was that it couls be a wash were fewer rigs are employed but output remains as before but with higher profit for the producer.

              Isn’t that the rationale for these mergers?

            2. LTO Survivor,

              Of course trends can change. Perhaps at current price and cost output will be flat or down going forward. I am basing things on what I see for basinwide data from EIA and shaleprofile. My thinking is that oil prices might go up but current covid wave may make that unlikely.

              The covid crisis is starting to hurt consumer confidence so oil prices may be flat or down which would reduce output.

              Very difficult to guess how this plays out.

          2. If you smash your foot on a tube of toothpaste, we shouldn’t be surprised to see most of the contents come out in huge squirt in a relatively short period of time. This is akin to what the companies are now doing in the Permian.

            How do you BAMBOOZLE the market with SHALE-OIL-HOCUS POCUS?

            Simple… three easy steps.

            STEP 1: You use up your DUCs to provide the illusion of lower CAPEX but higher returns.

            STEP 2: You use SUPER-FRACKS by forcing as much F#@king Sand as you can down the lateral during completion utilizing 15K Wellbores with enough pressure to sandblast the internal mechanisms to become useless in a relatively short period of time.

            STEP 3: You continue to use your Revolving Credit Facility as a CREDIT CARD to pay for last quarter’s CAPEX with this quarter’s revenues.

            This is the FRICKEN CHARADE that has taken many POOR SLOBS who think they know about the oil industry HOOK-LINE & SINKER.

            We know this is true not because I say so, but because I know some pretty high up people in the industry, and the DATA in the chart below proves it in SPADES.

            So, how is the Shale Industry going to ONE-UP these 3 EASY STEPS?

            I’d imagine it would be a good time to start using some of that REVERSE ENGINEERED ALIEN TECHNOLOGY.

            steve

            1. Steve ” You continue to use your Revolving Credit Facility as a CREDIT CARD to pay for last quarter’s CAPEX with this quarter’s revenues. ”
              One heck of a business model .

  18. From George Kaplan’s excellent article above:
    For reserves the companies reported about 20% of the total claimed for the five countries in 2006, but that dropped to just above 5% in 2020. However the companies claimed 39% of C&C production in 2006, rising to about 54% in 2020.

    So these IOCs are producing 54% of the the oil in these sub-Saharan OPEC countries with only 5% of the reserves. This is strong evidence for highly inflated official reserve numbers, a common affliction inherent to OPEC countries.

      1. From your link
        While global proved reserves have been on an ever-upward trend, the more accurate 2P oil reserves have fallen steadily since 1980, the date at which global production overtook the rate of discovery.

        The problem is that most OPEC countries refuse to state whether their official reserves are 1P or 2P or something else. That’s in itself is a huge red flag — why don’t they simply tell you what type of reserves they’re talking about?

          1. Lightsout,

            If we look at 1980 reserve numbers, those were when majors were still involved so those are accurate. Then we can estimate 2P reserves using 1.7 times proved. Then we could assume OPEC reserve growth was similar to US from 1980 to 2007, about 60%. This would give us an estimate for OPEC reserves in 2005.

            1. Why do we need to do such estimates when OPEC countries could simply tell us the truth.

            2. lightsout,

              I did this for OPEC and get about 927 Gb of 2P reserves in 2005, if we assume no new discoveries from 1980 to 2005 (but we do assume 60% reserve growth) and deduct OPEC output from 1981 to 2005 (222 Gb). OPEC reported 903 Gb in 2005 for proved reserves, but they are likely 2P reserves. Note the 60% reserve growth estimate is based on US reserve growth of about 63% from 1980 to 2005.

              OPEC reserves in 1980 were 422.5 Gb times 1.7 to convert to 2P reserves is 718 Gb, then reserve growth of 60% so 718 times 1.6 is 1149 Gb minus 222 Gb of output from 1981 to 2005 is 927 Gb of 2P OPEC reserves in 2005. If we exclude Venezuela’s Orininoco belt reserves, OPEC reserves in 2020 were 954 Gb. Lets guess 25% reserve growth from 2005 to 2020 which would bring 2P reserves to 1159 Gb minus 2006 to 2020 output of 199 Gb which is 1060 Gb, so my guess of 25% reserve growth over 15 years was too high by 100 Gb or so reserve growth was actually about 24% over the 2006 to 2020 period for OPEC conventional reserves (assuming there were no new discoveries). It looks like OPEC reserves are 2P reserves rather than proved reserves.

            3. Frugal , if OPEC was to tell the truth we all would be toast . I hate lies but in this case I think I will give it a blink , blink . 🙂

            4. Dennis wrote: if we assume no new discoveries from 1980 to 2005 (but we do assume 60% reserve growth)

              Yeah, those very old supergiant fields just keep growing and growing. I have heard that if you put your ear to the ground over one of those old fields, you can actually hear them growing. 🤣

            5. Ron

              Look at the EIA data for US reserves.

              They have clearly grown from 1980 to 2005, before tight oil boom.

              Any logical reason it wluld happen here but not in OPEC nations?

            6. Dennis, you know very well that oil fields do not grow. Well, you could legitimately ask, just what is it that does grow. It is the oil company’s original estimate of oil reserves that grow. They grow because the SEC has very strict regulations concern any company quoting assets that do not exist. If any company quoted reserves that do not exist, they face heavy fines.

              So, all oil companies would be very conservative in quoting their proven reserves. They would almost always be well below what they actually have. And as the fields aged they would get a far better estimate of the actual reserves.

              Originally, Saudi oil fields were partially owned by us companies. But by the early 80s, those fields were owned entirely by Saudi Arabia. Almost immediately after Saudi took over total ownership of those fields, their estimated reserves jumped dramatically.

              Some of this increase may have been justified but not all. At any rate, there was absolutely no reason for Saudi to underestimate reserves at that point. They could not possibly be fined for overestimating reserves. And knowing the Arab cultural tendency to exaggerate, those reserves were almost certainly overestimated at that point. And they for damn sure have not grown a barrel since then. Yet as they pull more barrels out of those reserves, they never shrink by a single barrel, they always grow instead.

              And just one more point. Remember, I lived in Saudi Arabia for five years. And I am shocked that you, or anyone else for that matter, would dare compare ARAMCO with American and European owned oil companies. Dennis, do you really still believe that ARAMCO has the same reserve reporting standards as American and European companies? Damn Dennis, you know better than that.

            7. Ron,

              Yes I know all that. The question was a simple one which you did not answer.

              OPEC reserves in 1980 were subject to SEC rules as much of the production was JV with IOCs and NOCs. So I start there. The typical 2P to proved ratio is 1.7, when we use this estimate for US 2P reserves from 1980 to 2005 we find that the estimates increased by about 63%, as I have said, just look at the EIA data, or link below.

              https://peakoilbarrel.com/us-oil-reserve-growth-2/

              I ask a second time, why would you expect that OPEC reserves would not grow from 1980 to 2005, just as US reserves did?

            8. I ask a second time, why would you expect that OPEC reserves would not grow from 1980 to 2005, just as US reserves did?

              Dennis, that is exactly what I explained in my post above. OPEC reserves, just like Saudi reserves, are controlled entirely by a pencil. They just write down what they want them to be. In the USA, public company reserves are governed by SEC regulations. OPEC national oil companies have no governing body controlling what they can report and what they cannot report.

              They just report whatever they damn well please. US companies cannot do that. If you do not understand that this is the answer to your question then I know no other way to explain it.

              Below is a chart of what Saudi Arabia claims is its proven reserves. In 1988 their reserves suddenly jumped for no apparent reason. Since then they have produced about 88 billion barrels, yet their reserves have not decreased at all, even though no major oil fields have been found since then. In fact, their reserves seem to increase a little each year.

              Question: Is what you are calling reserve growth, the replacement of every barrel produced with growth of a replacement barrel in the ground? Because that is exactly what is happening with Saudi Arabian oil reserves.

              If not, then just what are you referring to when you say Saudi, and other OPEC nations who do the same thing, are experiencing reserve growth?

            9. Ron,

              In 1980 the OPEC proved reserves were subject to SEC rules same as US reserves.

              I took OPEC proved reserves in 1980, converted to 2P reserves (multiplied by 1.7) then assumed reserve growth from 1980 to 2005 of 60% (a bit less than the US rate of 63% over the same period). The OPEC 2P reserves would be 927 Gb, a bit more than reported reserves by OPEC in 2005. Note that OPEC reserves as reported are 2P reserves not proved reserves (after the jump in the 1980s shown in your chart). Proved OPEC reserves in 2005 would be 545 Gb. This assumes reserve growth in OPEC nations is the same as in the US. It might be more or less, we do not really know.

              It is the 2P reserves that matter as Jean Laherrere has tried to drive home over the years. “Proved reserves” are a useless number.

            10. “Proved reserves” are a useless number.

              Hell, that’s been my argument for years, especially where OPEC nations are concerned. What matters, that is, what we should be paying attention to, are decline rates, estimated depletion rates, and water cuts. In other words, stuff they cannot lie about.

            11. Ron,

              Knowing what the depletion rate is depends on an estimate of initial recoverable resources which relates back to 2P reserves. If we do not know the reserves we cannot make a good estimate of depletion rate. We can look at decline rate for nations that are in decline and guess at what the future rate might be and make assumptions about nations with increasing output and when they might begin to decline. The main point by Jean Laherrere, which I agree with, is that 2P estimates are a better measure of what might be produced in the future. Where I disagree with Mr. Laherrere is that he assumes there is an equal likelihood that 2P estimates will be revised either lower or higher in the future. History shows that the likelihood of increases in future estimates of 2P reserves are much more likely than decreases, that is the reason that US estimates of reserves increased by about 63% from 1980 to 2005 ( this increase in the best guess engineering estimate of proved plus probable (2P) reserves as technology and geological and geophysical knowledge improves over time is called reserve growth). Reserve growth might explain in part why Jean Laherrere’s best estimate of World C+C less extra heavy oil increased from roughly 1800 Gb in 1998 to about 2800 Gb in 2018.

            12. Knowing what the depletion rate is depends on an estimate of initial recoverable resources which relates back to 2P reserves.

              This is true. But unfortunately, most national oil companies simply lie about their proven reserves. We really have no idea what their 2P reserves actually are.

              History shows that the likelihood of increases in future estimates of 2P reserves are much more likely than decreases, that is the reason that US estimates of reserves increased by about 63% from 1980 to 2005

              Dennis, do you still insist that national oil companies can be compared to US oil companies who must obey SEC rules and regulations? Of course, history shows that SEC-regulated companies usually increase reserves. That is a real no-brainer. But I will guarantee you that the exact opposite will be the case with national oil companies. That is another no-brainer.

            13. Ron,

              Do you understand that people like Jean Laherrere have access to older estimates from OPEC before IOCs lost any ability to access and report on technical reserves in OPEC nations? We can take those estimates and assume the same reserve growth that has occurred in non-OPEC nations has likely occurred in OPEC nations as well. Jean Laherrere uses a variety of methods to estimate resources and does a very good job of it.

              As far as I know he still believes the engineering best guess for 2P reserves is as likely to increase as decrease, unfortunately we do not have these estimates for NOCs. Perhaps in the future estimates of 2P reserves will decrease as you suggest. I only think this happens as oil prices start to fall if there is a lack of demand for oil relative to supply. In an oil price environment where wellhead oil prices are around $40/bo or less I expect we will see downward revisions in 2P estimates as much of the currently reported oil reserves become stranded assets. There are a lot of oil resources that will never be developed because they will not be profitable to produce at $40/bo or less. This will become apparent after 2035 or so.

  19. For all the clucking about degrees, below…I graduated in the top ten of my high school class; there were eighteen of us. My PhD stands for post hole digger. So there !

    Unconventional shale oil in the US is bought and sold on WTI related postings, not Brent. Here is an historic look at WTI oil prices over the years. Anybody here claim he or she predicted the price of oil correctly over the past 15 years?

    Now imagine taking a 13 month trend for Brent beginning April 2020 and extrapolating that out to a point where one can vehemently predict completed wells in the Permian Basin go from 275 per month to 450 (because of price) and $160+B of public and private debt is paid back in the next 28 months. Well, it happens here, on average, about four times a day. Is this really helping anybody feel better about the “credibility” of the peak oil production theory?

    Rigs don’t create better wells, they drill holes in the ground. Nothing at the moment is being gained by drilling wells faster; most of the time they cause completion and production problems, later. M&A rarely creates better synergy or economics for a company; they occur to replace declining PDP and do nothing more than shift debt from one company to another. Wells are not getting better (slightly in the Bakken); they are getting worse and that rate of productivity decline will increase. Core areas are being drilled to death. D&C and OPEX costs are going sky high in the shale space and will get higher.

    This is just reality. Volatile product prices is NOT the answer for shale oil; only more CAPEX from OPM and the cost of that CAPEX. Ignore the charts and think for yourself; shale oil has never made money and free cash flow is NOT the same as profit, its current existence (at the expense of reserve replacement) is simply reducing past losses.

    1. Over at our central bank there is a room full of highly intelligent PHD economist. But not one single banker that understands how money works and flows through the real world. They use mathematical models for everything they do. And as smart as these people are they are also completely and utterly incompetent and can’t figure out why their models don’t work in real world.

      Mathematical models are a good conversation starter. But I put more confidence in what the banker or the oilman are telling me than a mathematical models which often overlook how stuff actually works in real world.

      Peak oil is hardly on anybody’s radar. It doesn’t crosses the minds of 99% of investors or people who manage money. Nobody talks about it. So I do appreciate Dennis’s work here to carry that conversation even if I for the most part disagree with his thinking.

      1. HHH , “Over at our central bank there is a room full of highly intelligent PHD economist. ” Disagree , what they need is a one handed economist . As FDR said ” Get me a one handed economist , I am sick of those who say on ” on one hand ” we will have this and ” on the other hand ” we will have that . 🙂

      2. HHH, “Peak oil is hardly on anybody’s radar. ” My first discovery of peak oil was in 2006 . In the last 15 years I have been working to spread the message ( acknowledge I along with others got the peak wrong , but was Malthus wrong or early ??) . In the last 15 years I have met only two persons who were peak oil aware ,surprisingly both below 25 years and both belonging to families involved in farming . Tragedy of the commons ???

        1. I think that of the few that are aware. The majority of them believe life won’t change too much. We will just switch to EV’s and go on about our way as if it don’t really matter all that much.

          The narrative is strong. You have high profile people like Elon Musk saying all of China could be run off solar and batteries. He is a great sales man. But he is selling a future that’s in la la land.

          Reality is in China is. Demographically and peak oil or no peak they are likely a failed state 20-30 years from now. No amount of EV’s or running just off solar and batteries is going to change this. Depopulation is something nobody is prepared for.

          There is a reason why politicians always talk about an promote growth. Because without growth it doesn’t matter which ism you live under. Be it capitalism, socialism, communism, or fascism. Without growth debts are not payable. Borrowing from the future doesn’t work without growth.

          The world we live in is growth at all cost.

          1. China is. Demographically and peak oil or no peak they are likely a failed state 20-30 years from now.

            So you feel that China will collapse, even if there is no problem with energy supplies?

            1. Demographics are already set in stone Nick. Any lack of energy would just accelerate what is already baked into the cake.

              Guess what Nick a solar and battery EV future also depends on growth. Economic growth and population growth. We can all be driving EV’s and still collapse Nick.

            2. Hmmm. So you feel that Demographics will cause China to collapse.

              Could you expand on why that would be?

            3. Sure I can expand on it. They have a shrinking labor force which will only accelerate rapidly from here. If you run a business that exports from China you’ll be looking elsewhere shortly due to lack of workers. Jobs. Leaving China in large numbers over next 2 decades.

              You’ll have a tiny younger population in comparison taking care of a massive older population.

              CCP days are numbered. Because quality of life falls off a cliff from here. So I call removal of current government a collapsed state. It will be done violently. What China is or isn’t after that will be anybody’s guess.

              This what a shrinking population brings. When government lacks the ability to step in and fix things they get overthrown.

              But if you throw peak oil or lack there of oil on top of what currently exists.

              Most of Asia is going to burn.

              Good luck with the peaceful everybody just accept how thing are and we all go live in our own Green Utopias.

            4. @Nick G: Not to speak for HHH, but China has a massive and rapidly ageing population, more so than Japan. They have resource issues relating to water, and an economy that is heavily predicated on exports and real estate bubbles (the latter being a thing people have predicted popping for literally decades now).

              Their aspirations through building up their military of late and the B&R initiative belie an otherwise precarious position for the CCP. There is internal strife already fomenting through the lack of thought put into the lifestyles the new generation wish for. Long gone are the days of 996 work (which was recently outlawed), and instead we have Lying Flat as a mantra to rally the disillusioned youngsters who don’t want to burn out working to earn more stuff at the expense of their freedoms.

              China’s shifted the goal posts on growth too, since they must know that the days of double digit expansion in GDP are also a fixture of the past now. Without massive growth, people will not put their ire aside at the Party because now they can buy an American EV or a Swiss watch or British cheese. They will, instead, think long and hard about how to correct for the authoritarians running the country into the ground from their perspective.

              There are headwinds that China really cannot deal with even with the power and autonomy of the CCP. Last thing they need is a fossil fuel crisis on top of that.

            5. HHH, I call bullshit to must have growth. Humans will adjust. It might mean a generation of depression, decline in population and lower standard of living. Half the world is already there. Growth has never been a guaranty. Your spoiled.

            6. Don’t worry though because China will back it’s currency with gold and become the worlds new issuer of reserve currency. And dethrone the petrodollar. 🙂

              HB do you see the smiley face. It was a joke. I just told you how i thought China would collapse. lol

            7. HHH, Ya, right! Gold. Your living in the past. Better yet. I’ll give you three sea shells for that pig.

              Try next time a smiley face with little heart eyes. I know what that means.

            8. China’s demographic problem is actually everybody’s problem. Germany exports of machinery to China. Australia exports of Iron ore and coal. New Zealand exports of dairy products. The list is long.

              None of this stuff sounds very bullish for the price of oil either.

            9. HHH, Kleiber. Thanks.

              China’s fertility rate, at 1.69, is significantly below replacement. But lot’s of other countries have rates that low or lower: S. Korea (.86), Ukraine (1.23), Spain (1.24), Japan (1.36), UK (1.65), Russia (1.50), Italy (1.27), Germany (1.54), etc. The US is only a bit higher at 1.80.
              https://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependencies_by_total_fertility_rate

              Why do you feel that China will have more trouble than others?

            10. HHH, One man’s miss fortune is another man’s opportunity. Free markets

              Nothing new here

            11. That official fertility rate for China can be taken with a grain of salt. I’ve seen reports that it’s actually lower than S. Korea’s. And most of the countries on that list are in deep shit as they are mostly export led economies that have to import raw materials and turn them into finished goods for exports. As they have no market to sell to internally.

              But don’t worry HB just told me everybody will adjust.

            12. That official fertility rate for China can be taken with a grain of salt. I’ve seen reports that it’s actually lower than S. Korea’s.

              Could you link to one or two of those reports?

            13. I have heard a lot about the aging population issue, but when you look at the population pyramids, Japan clearly has a building problem, but for other countries it doesn’t seem so clear cut.

              People older than 60 comprise 25% of the USA and 16% in China,
              People younger than 30 comprise 39% of the USA, and 37% in China.
              Age 30-50 is 25.6% in the USA, and 31.2% in China.

              For fertility rate, births per woman, the USA has 1.8, China has 1.57.
              For comparison Canada is 1.6, and is relying on immigration,
              China has ‘government incentives’ to increase the birth rate.

              https://www.populationpyramid.net/china/2019/

            14. Nick G ,”But lot’s of other countries have rates that low or lower: S. Korea (.86), Ukraine (1.23), Spain (1.24), Japan (1.36), UK (1.65), Russia (1.50), Italy (1.27), Germany (1.54), etc. The US is only a bit higher at 1.80.”
              What saved West Europe from a demographic collapse was the collapse of the Soviet Union in 1990 . 10 million able bodied youth moved from East Europe to West Europe . All well trained in vocational jobs and ” handy harry ‘ as we call them . Go to an Aldi and 50% of the cars have East European number plates . This has hollowed out Eastern Europe which is now facing a demographic collapse of its own .
              Country Pop 1990 Pop 2019
              Bulgaria 8.7 m 7.0m
              Hungary 10.3m 9.5m
              Romania 23.9m 19.4m
              Latvia 2.7m 1.9m
              lithuania 3.7m 2,7m
              Estonia 1.6m 1.3 m
              Ukraine 52.18m 44.39 m
              Not all Ukrainians moved to the West . Some also went to Russia , but go to a truck stop in the Benelux and one can find several Ukrainian truck drivers employed by Western companies and similar on a construction site .
              Demography is destiny .

            15. Xi stated clearly that the next five years the party will not focus on growth but income redistribution . Xi clearly sees the rising inequality as a threat to the rule of CCP . Action taken 5 biggest real estate groups which were worth billions and loaded with debt were forced into restructuring . The restructuring was not Wall Street style . The promoters had to hand over their shares to the state for nulla , nil and then made statements in the media that they will cooperate with the state to fulfill the ideals and path set by the “supreme leader ” . Hey , when was the last you heard from Jackie Ma (Alibaba) . When Xi says jump you don’t ask ” why ” you ask ” how high ” . This is only the start . Second China is exhausted demographically that is why they have started a third child policy . China has learnt it’s lesson . The CCP will now concentrate only on the following objectives :
              1. Food for the Chinese people . The floods and swine flu have played havoc .
              2. Prevention of another virus pandemic .
              3. Cut down on pollution . The CCP has closed down steel plants . However they are doing contradictions by opening up more thermal power plants .
              4 . Strengthen the military because the thinking is that a war with USA is inevitable .
              5 . Arrange to boost their semi conductor manufacturing , beg , borrow ,steal .
              6. Last and most important keep a tight grip on power by the CCP .
              All the rest has now taken backseat . China growth story is over . Yes , it will still be the cheapest source of goods but to expect a Chinese miracle 2.0 is a pipedream .
              CCP will retain power at all cost , kill a couple of thousands , no problem . Tiananmen and HongKong are examples . Add this potpourri to what HHH has posted and one can realise how fragile and vulnerable China is .

            16. @Nick G: You’re missing some other vital inputs. Looking at fertility rate tells one as much about the situation as looking at oil production, but not looking at decline rate.

              The death rate in China is also growing. There are more burdens on families to look after the number of people retiring and becoming infirm, things that take a large amount of time and money to deal with and were traditionally kept within family units. The Three Child Policy has been ridiculed because it, as any bureaucrat idea will come across, assumes you can turn a spigot and get more children to unstick the situation at the drop of a hate. Many women are most assuredly not liking the image of being new baby making machines after such disastrous policy on family planning in the past. Many don’t even want to have large families, or cannot afford to even if they wanted.

              China already has a huge labour shortage because of their idiotic One Child Policy of the past. Make no mistake, their stellar growth was fuelled by human labour and fossil fuels, and they are now looking at serious supply issues for both.

              On top of that, their demographic is making the difficult move from working class to middle class, where they need to get off relying on exports and have strong internal consumption. The problem is that they then lose the many workers they need to do those jobs that make them an economic powerhouse. The world’s workshop cannot afford now to have tens of millions become service industry workers and consumers, just like the world couldn’t have everyone become artists, entrepreneurs, and bankers etc. without fossil fuels and the Green Revolution enabling a much reduced labour need for farming.

              This is all already baked in. Nothing the CCP do now will have a hope of addressing any of this, much like their water problems, it’s all pomp and circumstance to cover up the fact that, despite what many may think, the Party is not able to magically plan an efficient and productive future any better than most modern democracies.

            17. The death rate in China is also growing.

              I don’t see that in publicly available statistics: death rates are low, and life expectancy is increasing.

              There are more burdens on families… move from working class to middle class

              Yes, China has several transitional problems, but they seem to be the standard growing pains: I don’t see any evidence that they’re worse than other countries or bad enough to threaten the country’s stability.

            18. @Nick G: Sorry, that death rate comment should be that it will be higher than births in the not too distant future, not that it’s rising.

              As for the other problems, the CCP seems to think they’re quite serious to address. There’s been a big push to deal with the Lying Flat movement and, as I stated above, the real estate and demographic shift along with resource use are quite large problems.

              China has been used to growth rates that are simply unsustainable. They either adapt to a more relaxed reality, or they suffer rampant dissent when things don’t carry on as wished.

    2. To all readers , Mike S just turned seventy . I raise a toast . Keep plugging .

    3. Mike,

      My scenario assumes WTI rises to $75/bo maximum, in 2019 based on shale profile data there were 459 wells per month completed on average in the Permian basin. As to debt levels my model suggests about 95 billion of total debt in the Permian basin (this is E and P companies only for the Permian basin). My model assumes drilling and completion costs are constant in 2020 $ (in nominal terms they would rise at the rate of inflation). I also assume average new well productivity decreases and that OPEX increases and that GOR increases. I assume annual interest rate on debt is 7.5%, and that dividends are paid out at 25% of net revenue.

      I also include a rough estimate of income taxes and plug and abandon costs (I use 500k per well average, you would no doubt have a better estimate). The entire basin is treated as one big project as if run by a single company when estimating income taxes, obviously a big simplification and I am not an accountant and have probably estimated that badly ( the tax loss carryforward rules have become more complex of late).

      Spreadsheet at link below for scenario with 350 well completion rate, ERR=27 Gb, 75k wells completed.

      Oh and if we assume debt is 165 billion at the end of 2020, then the scenario suggests all debt would be paid back by mid 2025. Perhaps my model underestimates total debt, not sure where Mike’s estimate comes from. My estimate assumes zero debt in Dec 2009 and debt starts accumulating at the start of the model in Jan 2010.

      https://drive.google.com/file/d/1deLcgetNu0tjjhDxrkT7NAImZfpLCZyN/view?usp=sharing

    4. Mike,

      Degrees matter little I agree. You certainly know far more than me about how oil is produced and how to run a business. Of the public amd private debt you cite for Permian basin, how much is public and how much is private and how was private debt data collected?

      1. Dennis , debt is debt . Maybe servicing cost may differ , but it has to be repaid along with interest . Public debt is not a free lunch .

        1. Hole in head,

          In this case I am talking about publicly traded companies vs privately held corporations, Mike gets that. Just trying to figure out where to get the privately held company debt data as there would not be 10Ks or 10Qs to look at. I guess this can be found in proprietary data bases, probably the IRS has the information, but I don’t think they can release that data to the public, also there are bankruptcy filings which are probably public, but if a privately run oil and gas company has never filed for bankruptcy, I don’t know why they would reveal any of this information so I would think it would be unavailable.

      2. We think 65-70 to 35-30; there are services who provide private debt data. Count the number of Permian operators on SPC and their well inventory. Almost everyone IN the Permian drug with them debt from other plays and must now rely on Permian production to deleverage that debt. Infrastructure and product processing, including produced water gathering, treatment and disposal built by producers under different associated entities must be paid for with production revenue. We spent a lot of time on debt estimates…if you don’t believe me, I don’t care. I could ask where you came up with the low number you use in your models, but I don’t care.

        Not a businessman, you assume every shale oil operator in the Permian can, or wants to get out of debt ASAP, within 28 months, but refinancing has pushed out maturity dates to the late 20’s now, even longer. Loan covenants, product commitments and hedges, etc. require these guys not take their foot off the gas any longer than they are told to…they’ll wait as long as they can to pay debt, hoping for higher oil prices, like you. Good luck with all that.

        1. Mike,

          Thanks. Happy birthday! My oldest brother also turned 70 this month.

          That explains some of the discrepency. I was not accounting for debt accumulated on other tight oil plays that may have been transferred to the Permian basin.

          Do you really believe that $75/bo for WTI is an unreasonably high estimate for oil price? That is the number I use in my scenarios. Yes the operators could choose not to pay down debt, the scenario shows that it is possible to pay off the debt, but they could choose to complete more wells or to pay higher dividends.

          In the past I thought you had given a rough estimate of all-in costs for the average Permian well at about $10 million, I may have remembered incorrectly. If so what would a better estimate be?

          Also I do costs in inflation adjusted dollars so nominal costs would rise at the rate of inflation. Let’s assume average annual inflation rate is 2.5% per year and average WTI cost is about $75/bo, you have said D C costs will increase, any guess as to how much that would be if we assume lateral length, proppant use, water use, frack stages all remain constant int the future for the average Permian basin well?

          On paying back debt, note that it is possible that debt ws refinanced to take advantage of lower rates of interest. I am simply showing to those who do not like debt that the debt could be paid back, either the loans could be paid back early or refinanced to a shorter term loan if a business chooses to do so, perhaps because investors are demanding better balance sheets and lower debt to income ratios.

          As far as pedal to the metal capex spending, 350 new wells per month for the Permian basin is hardly that, the centered 12 month average completion rate was over 350 wells per month from late 2017 to late 2020 for the Permian basin. Even pretty low oil prices would enable that level of capital spending, in fact 450 new wells per month was a level that was maintained as a centered 12 month average completion rate for all of 2019 when the average oil price was about $57/b (WTI nominal price).

          Any other oil pro feel free to chime in if Mike chooses not to guess.

          The low number in my model can be found from the spreadsheet, it is debt from the Permian basin only and assumes debt is zero on Dec 31, 2009 before the start of the model, it may well be wrong.

          1. Mike,

            What is the total debt for all tight oil plays? It is quite difficult to estimate what part of debt goes with which basin for IOCs unless one makes a lot of assumptions. Trying to piece that together for 650 separate companies would be more than I could accomplish.

            If the 160 B plus debt estimate is Permian basin only, but some debt originated in shale gas plays or other tight oil plays, what proportion is Permian only debt?

            A big piece of XOM debt in tight oil and gas comes from overpaying for XTO in 2009. Other majors may have made similar mistakes.

        2. Mike,

          Someone in the oil business told me it is smart to pay off debt earlier rather than later, the scenario treats the entire Permian basin as a single company, run by a smart businessman like the oil professional who suggested this strategy. She becomes CEO of Permian Tight OIl Inc in June 2020.

          A decision is made to refinance any longer term debt so that al of it can be paid back as quickly as is feasible while drilling enough wells to replace reserves while it is profitable to do so.

          By increasing OPEX to $17.25/bo (average over the life of the basin) and increasing well cost from 10 to 10.5 million (in 2020 $), debt increases to a maximum of $130 B for the Permian basin in early 2021, debt is paid back more slowly with all debt paid off by October 2025 for a scenario with a maximum completion rate of 350 new wells per month and maximum WTI Price of $77/bo reached in late 2025 (I assume $3/b Brent/WTI spread), Brent maximum is $80/bo in 2020$.

      3. Hey, I wish I hadn’t thrown the degrees out there.

        Part of the problem we have w labor in the USA, too many who won’t be working in trades due to degrees.

        I know people even in my little county who out degree me and barely work. I also know several guys who barely graduated high school but busted their rears, have a ton of common sense, and have amassed 7-8 figure net worths.

        It was regretfully just a flip response to Dennis pointing out to me that there had been inflation from 2003-21, and nothing more.

        1. Shallow sand,

          Any insight you might have on D and C cost increase estimate, full well cost for Permian, and P and A cost for Permian basin well with 9000 foot lateral. I use 10 million for average well all in cost, basically I added 500k for costs over D and C for tanks, gathering lines, pads, injection wells and other stuff I don’t know about. For P and A I assume 500k per well. I don’t have D and C cost rising above Inflation rate assume 2.5% annual rate of inflation, maybe 2.5% extra at WTI at 75 per barrel in 2020$?

          I am thinking your guess would be far better than mine.

        2. I’m use to being looked down upon because I don’t have a degree. When smart engineers and economists screw up producing properties, I buy them and make a fortune. I spent years fixing engineer’s well control problems while they stood on the road a half mile away and watched, to scared to get any closer.

          The intellectual and moral ‘high ground’ people feel they hold over others because of education, or spiritual, or political beliefs is almost always a function of insecurity or narcissism. Months ago one of POB’s “favorite sons” railed mercilessly on a man who had lost his mother and was seeking comfort thru God. He was berated and actually chastised for the way he treated his mother as she died. Who does that? Worse, who allows that to stand on a public forum? The same gentleman recently called ALL conservative Republicans white supremacists.’

          Rasputin is a good hard working operator, an engineer who uses his own money and has blisters on his hands. He’s forgotten more about the oil business than anybody here EVER knew, or ever will know. But his spiritual beliefs are important to him. He’s gone. For what reason, exactly? Its suppose to be, it USE to be a place for debate about hydrocarbons. Now, on one side its about ignoring real oil men and throwing predictions against the wall in hope that one will stick someday and he can say I told you so; on the other side its about some slick, city dude telling everybody they don’t need oil at all, its evil stuff that needs to be “gone ASAP.” Its social media in America, I guess. Yahoo!

          1. Mike –

            “I’m use to being looked down upon because I don’t have a degree.”

            Mike, I’ve always appreciated your comments but to be fair I think the oil and gas game comes down to a team effort. As a long ago retired geologist/geophysicist I think I’ve played a useful role finding and outlining exploration targets; I have NEVER seen the operators and roughnecks as less important than us in finding and exploiting reserves. Hell, even lawyers are (probably) useful on occasion. BTW feeding mosquitoes larger than helicopters while setting out seismic arrays to look for oil under the tundra and being away from your family while being stuck on a ship in the Arctic for months is not for the faint hearted either. 😉

          2. Mike,

            You are not ignored. I repond to every comment you make. I even attempt to be polite, though you take offense when asked any questions.

            Most people learn by asking questions.

            I have learned a lot from you, but mostly through a conversation. Sorry you find that offensive.

            Perhaps no response to your comments is your preference?

            If so say so and I won’trespond to comments clearly directed to comments I have made.

          3. I’m use to being looked down upon because I don’t have a degree.

            Yeah, I am guilty of that Mike. I often look down on those with a lesser education than I. But I brag anyway. I am no academic slouch. I gradgated 12th grade, with a B average no less. ☺️

          4. SPROUSE – “After my mom reached her 90’s, she got more and more depressed saying she didn’t want to live anymore as it became increasingly difficult for her to perform ordinary tasks. All we could do is reassure her that only God is able to decide when our time to go is.”

            HB -“Religion is just a cowardly excuse for selfishness. A 90 year old depressed because of ordinary tasks and he couldn’t do anything. Sprouse is a failure to his mother and humanity.”

            https://peakoilbarrel.com/open-thread-non-petroleum-june-26-2021/#comment-720220

            Mike said- “man who had lost his mother and was seeking comfort thru God. He was berated and actually chastised for the way he treated his mother as she died.”

            Mike, when an American soldier is wounded on the battlefield. His brother soldier next to him doesn’t stop and pray for him. He risks his own life and retrieves them for medical aid. When a child’s 90 year old mothers is struggling with “performing ordinary tasks” and all that child can do is pray for their mother. That’s disgraceful, lazy and selfish. Religion is just being used to justify the child’s neglect of their mother.

            ******

            “Are Republicans the Party of White Supremacy?

            “Those who cannot remember the past are condemned to repeat it” – George Santayana

            There was a time when the memory of the hideous behavior of the 1930s “America First” committee was enough to keep any decent politician away from that moniker. Whether memory or decency has faded from the Republican political class is a question I leave to others.

            I am simply gobsmacked that for even a moment (let alone about 24 hours) there was a GOP caucus taking the name as its own – and stunningly, tarring the brand more than any 1930s isolationist could ever do. Not only did Marjorie Taylor-Greene, Paul Gosar, Barry Moore, Louie Gohmert, and Matt Gaetz repeat the ignorant appeasement of their predecessors; they added to it an unalloyed racism that was beyond the pale even 90 years ago.

            Don’t let the panicked reaction from GOP On High be a distraction. The “America First” caucus may have been scotched, but the idea was more evidence that the GOP defines “American” as anyone who looks and thinks like they do – and no one else. The language in their would-have-been “policy platform” (find the link yourself; it’s all over Twitter) is a toxic brew of dog-whistles, racist call-outs, and historical errors. I’ll address them one at a time.”

            https://bearingdrift.com/2021/04/17/are-republicans-the-party-of-white-supremacy/

          5. Mike,

            I let other people express their opinions, I do not agree with everything written here.

            I would prefer that people not talk about religion or atheism at all here. But I am not going to screen every comment that appears.

            1. Agree with you Dennis . You have more than enough on your plate . Tks .

      1. Dawn, everybody’s been up all night pumping. Some of those guys will be up three nights in a row frac’ing one well. The sand bin filler-upper wormed out and probably fell asleep. Shit happens, no big deal, but yes, sort of metaphoric.

    6. Laredo Petroleum has fcf of $125m. In a recent conference call they stated fcf could reach $250m next year. The company has $1.3bn debt and recently took out an $400m unsecured note due in 2029. Laredo reserves: 24% petroleum, 36% gas condensates, 39% natural gas.

      Why is Laredo not profitable when it should be?

  20. Tight oil will increase with higher oil prices. But the world peak we saw in 2018 had a decade of high spending CAPEX that preceded it 2005-2014. Dennis is expecting another world peak in the late 20s. But CAPEX in the preceding decade (2015-2024) to this timeframe will be about half to two thirds of what it was 2005-2014. His Permian predictions may end up being accurate, assuming we get some long stretches of $100 oil in the next few years. But no one else anywhere is spending money these days to produce oil later this decade. And this lack of CAPEX is why oil most likely won’t reach a new peak, and certainly not in 2028.

    Currently spending is still down 25% from 2019, which was well below 2014:

    https://www.marketwatch.com/story/global-oil-gas-capital-expenditure-remains-25-below-pre-pandemic-level-report-says-271629457434

  21. Russian Crude Oil Trade Shrinking 28/08/2021 Bold mine

    The Russian crude oil export trade has been yet another reason of frustration for tanker owners, as a dismal 2020 is now been followed by an even worse 2021 so far. In a recent weekly report, shipbroker Banchero Costa said that “2020 was overall a very negative year for crude oil trade. Total loadings in the 12 months of 2020 were down -6.2% y-o-y to 2032 million tonnes, according to vessels tracking data from Refinitiv. 2021 so far is faring even worse. In the first 6 months of 2021, global seaborne crude oil trade declined by -8.9% y-o-y to 964.8 mln tonnes”.

    According to Banchero Costa, “what’s worst is that so far there is no sign of things turning a corner. The first quarter of 2021 recorded a -12.0% y-o-y decline to 478.1 mln t. In April 2021 trade was even more disappointing, as crude oil loadings were down -16.2% y-o-y from the same month in 2020, at 162.0 mln t. In May 2021, things might appear as if they were stabilizing, as loadings were down only -1.2% y-o-y compared to May 2020, as well as up +3.3% month-on-month, at 167.3 mln tonnes. In June 2021, global crude oil loadings were 160.3 mln tonnes, which was nominally +4.9% y-o-y compared to June 2020, BUT it was down -3.1% month-on-month from May 2021, and -11.7% from June 2019”.

    Note: Average Russian C+C production in 2020 was 10,274 Kb/d and in 2021, so far, it is averaging 10,347 Kb/d.

    But there is good news ahead. The EIA’s Short-Term Energy Outlook has Russian total liquids increasing by 120,000 barrels per day in August and by another 140,000 barrels per day in September. We will know in 4 or 5 days just how accurate that prediction is.

    I am putting my reputation on the line here. I am saying Russian oil production will be down in August, not up by 120,000 barrels per day. Okay, it could be up, but if it is, it will be a tiny amount. Nothing close to what the EIA (and I might add Rystad energy) is predicting. But the odds are greater that their production will be down slightly rather than up slightly.

    If their production is up by anything close to 120,000 barrels per day, I will eat crow.

    1. Ron,
      Since Aug 2020 Russia’s output has increased by only 587 kb/d, about 53 kb/d each month on average, during the Dec 2020 to April 2021 period Russian output increased by about 400 kb/d or roughly 100 kb/d on average. I agree that a 120 kb/d increase seems unlikley, though there was one month (March to April 2021) where output increased by 212 kb/d. It seems unlikely that if 120 kb/d was achieved for a month that it could be sustained.

      1. Dennis, those increases were from the very low covid cuts. We see the same type of chart for all large producers. Almost everyone bottomed out around May or June of 2020. But now, except for about four OPEC nations, they have gone back to producing what they can. Though most could, for sure, produce more if they could get CAPEX back to where it was pre-covid. But with reduced CAPEX, just about everyone is producing flat out. And any recovery from where they are now will be extremely slow, if at all.

        My point is, those huge increases in Russian production were just recovering from the covid cuts. They are in no way an example of what Russia could do today.

        The chart below is from the EIA’s Short-Term Energy Outlook. They have Russian liquids increasing by 120,000 barrels per day this month and 140,000 BPD next month. That’s 260,000 BPD in two months. That is just not going to happen. Of course, that is all liquids and not C+C but there would not be a lot of difference.

        I stand by my prediction. August Russian production will be flat to down. If it is anywhere near the EIA’s prediction I will eat crow.

        Below is Russian total liquids with the EIA’s projection. I consider that a joke. What is your opinion of that prediction?

        1. Ron,

          I think Russian output will match what the Russian energy .inistry predicts over the next 18 to 24 months. EIA is likely too optimistic. Much will depend on future oil prices. The EIA oil price forecast is quite low, if their oil price prediction is correct their output prediction will be too high.

        2. Ron paper linked below has a recent Russian Energy Ministry estimate, which I think is likely too optimistic long term.

          https://www.spglobal.com/platts/en/market-insights/latest-news/oil/041421-russia-aims-to-boost-oil-exports-before-reaching-output-peak-in-2027-2029

          Excerpt:

          At the same time, Russian crude production capacity is forecast to hit 693 million mt, or 13.9 million b/d, in 2029, which “can be produced in favorable economic conditions or if the homeland orders it,” the ministry’s oil refining department head Anton Rubtsov said.

          If Russia fails to adapt financial instruments over time or its economy stagnates, Russian crude output risks not ever returning to 2019 record levels of 525.5 million mt.

          Another article

          https://tass.com/economy/1325853

          excerpt:

          The OPEC coalition’s recent agreement to steadily raise oil production is paving the way for Russia to slowly shrug off Covid-19 curtailments. The country is on track to set a new monthly crude and condensate output record of 11.6 million barrels per day (bpd) already in July 2022, a Rystad Energy analysis reveals. Russia’s oil machine will then accelerate further to a peak of almost 12.2 million bpd in mid-2023,” the company said in a statement.

          Russia’s current monthly oil and condensate production record of 11.5 million bpd was set in December 2018. Rystad Energy’s projections point to 2023 as a peak year also at an annual production level, expected at 12.16 million bpd.

          Therefore, Russia’s annual crude and condensate production in 2023 will stand at about 600 million tonnes. The previous annual record of 568 million tonnes was set in 2019.

          1. Dennis, I have been closely following Russia’s Minister of Energy’s press releases for about three years now. This one is more of the same. They are always warning that unless they get a more favorable tax environment, their production is going to hell.

            Tax breaks, investment key to support crude production until 2035
            And:
            Going forward, production levels will depend on the amount of investment and tax incentives, as well as Russia’s commitments under the OPEC+ deal.
            And:
            Tax breaks and technology investment will be critical not only for supporting production at mature and hard-to-recover fields, but also to develop the Arctic region.

            And of course, if they don’t get those tax breaks:

            If Russia fails to adapt financial instruments over time or its economy stagnates, Russian crude output risks not ever returning to 2019 record levels of 525.5 million mt.

            I have read it well over a dozen times Dennis. This is nothing new.

      2. The Ministry of Natural Resources and the Ministry of Energy of the Russian Federation will offer additional incentives to increase oil production
        August 31 / 08:49

        Moscow. Based on the results of the inventory, the Ministry of Natural Resources and the Ministry of Energy of the Russian Federation will assess the existing tax conditions and give proposals for additional stimulation of oil production. This was announced by the head of the Ministry of Natural Resources Alexander Kozlov.

        According to him, in July 2021, the department sent a report to the government with the results of the inventory of hydrocarbon reserves for onshore and continental shelf deposits with reserves of over 5 million tons as of January 1, 2019.

        “Now the state balance of mineral reserves includes 2,716 deposits. In the industrial development of 1,940 deposits with recoverable reserves of 22.8 billion tons,” Prime quotes him.

        At the same time, the head of the Ministry of Natural Resources added that the estimate of recoverable reserves for 708 most significant fields has been clarified.

  22. George,

    First, thanks for your posts! They’re generally well written and obviously the result of a significant amount of thought and effort. However, I was disappointed with your “Off-topic Finish” this time – it doesn’t reflect the same level of professionalism you normally apply to oil and gas.

    In fact, I’ve got to call BS on the opening sentence: “For no particular reason I have been reading the epistles of the New Testament ….” Really? TV broken…bars closed…nothing better to read? It gets even better though, “admittedly using the Skeptics Annotated Bible backed up with The Brick Testament” as source material. So why it “admittedly” … you know why, because instead of reading the New Testament your source material is … well, as you describe it, it’s “admittedly”. I do thank you for including the cartoons though – they certainly attest to the level of “admittedly” upon which your assertions are based.

    So, what’s the purpose? Why all the mocking and cutting humor at the expense of your Creator? Frankly, it’s obvious—when an unsaved person picks up a Bible (or in your case an “admittedly bible”) there’s only one reason – conviction by the Holy Spirit (John 16:8-11). Yes, there actually is a particular reason; it’s a good thing though, His ultimate purpose is to lead you to faith in Christ.

    Here’s what it boils down to, God seeks our love and therefore gives us free will (forcing someone to love you isn’t really love), even knowing most people will reject Him under the pain of Hell. Now there is a point in time where “every knee will bow … and every will tongue confess that Jesus Christ is Lord” (Philippians 2:9-11)—but it isn’t today.

    So, you’re free to reject the Holy Spirit’s conviction … parroting worn discredited arguments and arrogantly mocking things you clearly do not understand … if it helps soothe your convicted conscience. Think about it though – rather than seeking out some “admittedly sources” why not just read it for yourself and decide? I have it on good Authority anyone who seeks with a sincere heart—which you “admittedly” are not – will find (Matthew 7:7-8). Open up the gospel of John and see if it rings true to you.

    1. Roger,

      Any particular reason why the New Testament would be a better source? They are words written by people, just because someone claims they were inspired by God, does not make it so.

    2. ROGER —

      “The word God is for me nothing more than the expression and product of human weaknesses, the Bible a collection of honourable, but still primitive, legends which are nevertheless pretty childish.” Albert Einstein

      Came to pretty much the same conclusion when about ten years old. Seventy years later I’ve never seen any reason to change this view.

    3. So, what’s the purpose? Why all the mocking and cutting humor at the expense of your Creator?

      Good question. I’m sure that there are many different answers for different people, but two that seem important to me:

      First, many people were raised within religions which they now reject, but they’re still trying to process how they feel about it. They may feel hurt by the experience of being raised in the religion; they may have been hurt by rejection by the community in which they grew up (when they informed that community that they no longer agreed with it’s ideas).

      2nd, even if you disagree with someone, it’s important to understand their ideas, including the contradictions within those ideas. I’ve studied Islam, Buddhism and other religions, because most of the world believes in them.

      Make sense?

    4. Roger, you may want to think a bit harder about what you wrote:

      “God seeks our love and therefore gives us free will (forcing someone to love you isn’t really love), even knowing most people will reject Him under the pain of Hell”

      Forcing someone to love you is not real love. If my son or my wife refuse to love me and I threaten to lock them in a dungeon and torture them for the rest of their lives, and then they change their minds and say they love me, do they really? Do you love your God or are you just scared of spending eternity in hell? There’s really no way for you to piece it apart. I don’t consider this scenario free wil, sir.

    5. ” at the expense of your Creator?…God seeks our love ”

      I do not want anyone telling me about a creator or some version of a godhead.
      Those ideas they may be fine for them, but I am person who takes their right to individual thought and reality-testing seriously. It is one of the basic human freedoms, along with the right to die on your own terms.

      So please don’t try to recruit me, indoctrinate me, or in any way force me to buy in to your idea of a god.
      And I don’t appreciate the presumption of my acquiescence to the story.
      It would be kind to ask first.
      And if you did I would politely decline.
      Once should be enough.

      1. It is a direct hit on Port Fourchon La. That is an oil port with several refineries. About 20% of US oil goes through Port Fourchon. Expect prices to rise tomorrow morning. Don’t yet have any idea what effect Ida will have on GOM oil production. But it will be significant, for sure.

          1. Port Fourchon – elevation above current sea level is
            0-15″ for most of the facility according to satellite mapping.

            If you drive 49 miles inland you get to a town 10′ above current sea level (as of yesterday).

            2. “Ida is predicted to track over one of the most critical industrial areas in the U.S.: the industrial corridor between Baton Rouge and New Orleans. Not only is the region home to dozens of key petrochemical sites, and crisscrossed by important pipelines, it also has three of the fifteen largest ports in America: the largest bulk cargo port in the world, the Port of South Louisiana, which lies along a 54-mile stretch of the Mississippi River; the nation’s largest export grain port, the Port of New Orleans; and the Port of Greater Baton Rouge, the nation’s 10th-largest port. These three ports handle 55-70% of all U.S. grain exports to the world, supplied by barges moving downriver.”

              https://yaleclimateconnections.org/2021/08/intensifying-hurricane-ida-a-significant-threat-to-key-infrastructure/

            3. In case you’re like me and want to know the worst case scenario, it’s this:

              Ida will puncture a hole in the side of the Mississippi River levee system that shortcuts the river through the Atchafalaya Basin, a route that is 200 miles shorter than it’s current path to the Gulf. This would most likely be an insurmountable problem in terms of restoring its original flow if it were to occur. All the ports downstream including New Orleans would be rendered useless, and all farm exports from the US would be cut off for years if not forever…

              https://biotech.law.lsu.edu/climate/mississippi/Fisk-1952/fisk-1952-report.pdf

  25. OPEC+ could reconsider output increase, says Kuwaiti oil minister

    KUWAIT, Aug 29 (Reuters) – The increase in oil output agreed last month by OPEC+ nations could be reconsidered at its next meeting on Sept. 1, Kuwait’s oil minister said on Sunday.

    The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia, collectively known as OPEC+, will meet on Wednesday to discuss the previously agreed increase of 400,000 barrels per day (bpd) for the next several months.

    “The markets are slowing. Since COVID-19 has begun its fourth wave in some areas, we must be careful and reconsider this increase. There may be a halt to the 400,000 (bpd) increase,” Mohammad Abdulatif al-Fares told Reuters on the sildelines of a government-sponsored event in Kuwait City.

    Economies of East Asian countries and China remain affected by COVID-19 and caution must be exercised, Fares added.

    If this Covid problem continues and continues to mutate to other strands, it could play havoc with the world economy for years to come. The world may never be the same again.

    1. Ron was the first person on POB to give warning to the emergence of this pandemic. Approx at the time when that big emergency hospital tent building was going up in Wuhon.

      And now “If this Covid problem continues and continues to mutate to other strands, it could play havoc with the world economy for years to come”

      Get used to vaccinations, if you are lucky enough to have access.
      Many countries haven’t had much yet.

    2. Ron , I have been trumpeting since long that pre covid is not coming back with a lot of push back . Where are we today ? Five continents . Arctic is ice . South America , Africa dead . Australia / New Zealand cut off . Asia , China India 1/3 rd of the world population in coma , the second wave has now hit Malaysia , Indonesia , Vietnam, Thailand with vengeance . Europe in coma kept alive by money printing . North America , US has its own problems with finance and now on top the political arena is going to get heated with the Afghanistan withdrawal . We are up the creek without a paddle . The virus mutates , the vaccine does not . We have now Alpha , Beta, Delta and Lambda variations and this will continue . Your last line is correct but with a little variation ” The world will never be the same again ” . Last minute , the virus has already heaved havoc on the economic system , too late now , only await further deterioration .

  27. WTI futures had a gap in price open to $69.25 Surely due to hurricane in gulf. Near term chart wise. Most likely threat to further upside for WTI would be US stock market. The trendline support that come off March 2020 lows that all traders watch is one of the steepest trendlines I’ve ever seen an in order for price not to fall below this support prices have to really take off from hear and go much higher. So risk is to the downside move. It could be as little as a 5% move but it would still weigh in on oil prices. And maybe stocks get ramped this week and hold trend. I wouldn’t bet on it though.

    1. At the moment they are closing the gap – they play it to the down side. I think there will be a ramp up later, when damages are counted and reopening delays will show.

  28. More Consolidation in the Bakken.

    Enerplus announces sale of non-strategic interests in the Williston Basin

    The sale consists of the Company’s Interests in the developed Sleeping Giant field in Montana and the southernmost portion of Enerplus’ North Dakota position in the Russian Creek area. The Interests do not include any future drilling locations in Enerplus’ identified Williston Basin drilling inventory. Enerplus’ working interest(1) production from the Interests averaged approximately 3,000 BOE per day (77% crude oil and natural gas liquids) in the second quarter of 2021 and includes approximately 244 net wells. Estimated 2022 net operating income associated with the Interests is approximately US$22 million based on a US$60 WTI oil price.

    The sale of our legacy position in Montana and the Russian Creek acreage in North Dakota, properties which were not attracting capital in our portfolio, brings significant value forward and accelerates our debt reduction plans,” said Ian C. Dundas, President and CEO. “We now estimate that we will achieve our $400 million debt reduction target by the end of the first quarter of 2022, based on the current commodity price environment. While debt reduction remains our priority, we believe our shares are trading in an attractive price range, and as a result, we plan to direct approximately 10% of the sale proceeds to incremental share repurchases.”

    So they got $38,333 per flowing barrel or $471,335 per well. Are these reasonable prices? Interesting that these wells were not attracting capital.

    https://boereport.com/2021/08/30/enerplus-announces-sale-of-non-strategic-interests-in-the-williston-basin/

  29. Ovi,

    Analysis is difficult with the limited information, we don’t know the crude NGL proportions so we would need to guess at that, maybe 65% crude and 12% NGL and 23% natural gas. Oil pros could make better guesses than me.

    If we assumed NGL was zero, that suggests about an average output of 9.5 bo/d for these wells, if NGL is more than zero then crude output per well decreases.

    Mr Shellman has suggested for Permian basin wells anything less than 20 bo/d for an average 2019 horizontal well with a 9000 foot lateral is unlikely to be profitable at $60/bo at the wellhead (I may have that wrong, that is my interpretation of his comments).

    If these wells are similar to Permian basin wells (and I know nothing about these 244 wells), then they might be overpriced.

    1. Dennis

      Just thought that some of our “in the know real oil people” might have some idea. I see many times numbers for the cost of flowing barrels. In this case one would have to look at the decline rate. I suspect though it would be at the low end. The oil/gas split is reported in the article

      “. Enerplus’ working interest(1) production from the Interests averaged approximately 3,000 BOE per day (77% crude oil and natural gas liquids) in the second quarter of 2021 and includes approximately 244 net wells..”

      1. Ovi,

        Note that the split between crude plus NGL and gas is given, my point is that we need to also know the split between crude and NGL to analyze properly. NGL sells at about 30 to 40% of the price of a barrel of crude.

        I agree oil pros would probably know the split and could do a back of napkin analysis in their head.

        If we assume the NGL can be treated as crude, that the output declines at 15% per year, royalty and taxes are 28.5% per year and the wells are shut in at 2 bo/d and ignore natural gas in the analysis (assume price of natural gas is zero at the wellhead) then the wells are fairly valued at an annual discount rate of about 30%. Note that average output of crude (assuming NGL output is zero) is about 9.5 bo/d for these wells.

        Some oil pros have suggested horizontal tight oil wells might be shut in at 20 bopd or less, that suggests these wells sold at too high a price, though perhaps I misunderstood that comment. One knowledgable person said 20 bo/d and another suggested 25 bopd, it seems they would not be in the market for a well producing less than 10 bopd, if it is a horizontal tight oil well.

        They can correct me because somehow I understand what they write incorrectly or they change their mind, not sure which.

        1. I think it is unclear what the sellers gross working interest and net revenue interest is regarding the net 3,000 BOEPD. Without this we can’t know gross production per well.

          However, I also think most of these wells are in Montana. Montana shale wells are mostly more than 10 years old. These wells tend to make less than 30 BOPD. They also make little to no water.

          Therefore, if one can avoid down hole failures, it might be possible to make money on such wells at $60 WTI.

          That, of course, requires the wells to be owned by a small company with very low overhead. Not a public one.

          Montana production statewide is under 50K BOPD. It is a stripper well state.

          1. Thanks Shallow sand,

            I think there are only around 177 wells this company has a working interest in in Montana output is 1788 bopd, with 4147 Mcf/d of NG (0.7 boe/d). So the other 67 wells in North Dakota would produce about 1200 boe/d. So about 10 bo/d for the montana side and perhaps 13.8 bo/d on the North Dakota side (if we assume NGL is zero). This for data through April 2021 at shaleprofile.com. You are correct (as always) that the newest of the Montana wells started flowing in 2011. All started producing between 2003 and 2011, peak was 14 kb/d in 2006 (and now the wells are down to 1.7 kb/d).

            1. Dennis.

              I think the ND wells might be better. I looked them up on subscription service. There are likely non-operated working interest owners in the ND wells.

              They still aren’t making a lot, mostly under 2,000 BO per month with many under 1,000 BO per month.

              This got me to thinking about Parshall, which was one of the first major areas of the ND Bakken. Many prolific wells there. In June averaging just 25 BOPD per well. Part of the reason for this is there are many SI wells. The wells numbered below 20,000 are generally making under 20 BOPD.

              Is there any reason to think this won’t be the fate of the entire Bakken?

            2. Shallow sand,

              Eventually all the wells will be shut in, when that occurs will depend on many factors including the price of oil, eventually the Bakken will become a field of stripper wells, this is true of all the tight oil basins. most of the wells will produce for around 15 or maybe 20 years at most and then will reach economic limits.

        2. An interesting analysis to try. Track down the average last 6 months of production for every well plugged/abandoned in the WIlliston basin. Knowing the time frame of those last 6 months, multiply produced volumes against the royalty deduction you believe is representative to get net barrels and mcf. Multiply by commodity price in those months to get average net monthly gross revenue. Assume that this represents a volumetric sub-economic result, based on the resulting plugging and abandonment. Surprisingly, that $/month answer for proven sub-economic behavior was similar for horizontal and vertical wells.

  30. OPEC August oil output rises, but outages limit gain – Reuters survey

    The Organization of the Petroleum Exporting Countries has pumped 26.93 million barrels per day (bpd), the survey found, up 210,000 bpd from July’s estimate. Output has risen every month since June 2020, apart from in February.

    OPEC and allies, known as OPEC+, have been easing record output cuts agreed in April 2020 as demand recovers. OPEC+ meets on Wednesday and, with oil up 40% this year at almost $73 a barrel , is expected to stick to its policy. read more

    “Given the current level of oil prices and the possibility of increasing oil demand, OPEC+ is likely to adhere to its previous decision,” an OPEC+ source told Reuters.

    The OPEC+ agreement allows for a 400,000 bpd production increase in August from all members, of which 253,000 bpd is shared by the 10 OPEC members covered by the deal, OPEC figures seen by Reuters show.

    https://www.reuters.com/business/energy/opec-august-oil-output-rises-outages-limit-gain-reuters-survey-2021-08-31/?rpc=401&amp;

    1. Ovi,

      Thanks.

      Note that a number of OPEC nations covered by the quotas are likely to not be able to raise output to their quota levels such as Nigeria, Angola, Algeria, and a few of the smaller producers. This may explain OPEC being about 43 kb/d below the quota level, if the Reuters estimate is accurate. Some of the lower output is due to Iran and Libya having lower output (they aren’t covered by quotas) and also Nigeria had problems.

        1. Hole in head,

          Some months are worse than others. last month was worse than usual.

    1. New Mexico seems to be the only growing state.

      So where is the growth to 14+ million BOPD going to come from?

Comments are closed.