April Non-OPEC Oil Output Declines

237 thoughts to “April Non-OPEC Oil Output Declines”

1. Prediction: We will never see 82,948 again. Pie in the sky.

   1. LTO survivor.

      Did you mean, 84,612 kb/d?

      1. Ovi, I am sure he meant 82,948 kb/d which is the EIA’s prediction. I agree completely with LTO Survivor. That is pie in the sky. That is not going to happen. Yes, we did see that level of production once before but we will never see that level again. That was his point.

         1. LTO Survivor,

            Do you think it likely that the 2018 12 month average will never be exceeded?

            I would disagree. I would put the probability that the current maximum 12 month average World C plus C output level will be exceeded before 2030 at about 85%.

            Perhaps you simply meant the EIA projection is optimistic, I would agree with that assessment.

            1. Sorry LTO survivor,

               It is pretty clear you say never again, I never say never. I would say the odds are low that you will be correct.

               1. Also just realized I hax missed a comment where you expect flat prodution for 3 to 4 years followed by steep decline for US.

                  Interesting. I think higher oil prices will change things. Certainly if output is as low as you expect the market will be short of oil, that suggests higher oil prices.

               2. The differences between an economist and a businessman are on display. An economist thinks a businessman will continue to invest in increased production if the average price is above a certain amount. But if you’ve actually run a business, you know that you don’t increase capacity based on short term price increases, no matter what the average price is. You are just thankful for the short term windfall, and keep BAU.

               3. Stephen Hren,

                  The neoclassical microeconomic model is elegant, but highly simplified.

                  In the real world there are many factors which influence investment decisions besides price and cost and expectations of future price and costs.

                  If you believe I don’t understand that you are incorrect. If you read opinions of oil men on other blogs such as oil price you will find there are a variety of assessments of the future by those in the oil industry.

                  LTO survivor and other oil pros at peakoilbarrel might not represent the majority sentiment in the oil industry, and even if they did, sentiment will be very different if oil prices rise.

                  The resurgance of covid19 is creating a lot of uncertainty, eventually this will pass as a higher percentage of the World gets vaccinated, perhaps by 2023. It may be a rough ride until then.

               4. Stephen,

                  LTO survivor has said in the past at $150/bo he would be willing to invest, I think he may have been exaggerating, my guess is that $100/b will change things, it certainly did for US oil output and there were not many economists funding those wells (about 84,000 horizontal oil wells were drilled in the big 4 tight oil plays from 2005 to 2021). Pretty sure it was those in the oil business.

               5. Dennis, I agree sustained $100 oil will start to dramatically increase oil production after a year or two. It just seems to me that volatility is here to stay and getting anyone other than tight oil folks to drill more will be a major challenge worldwide for the rest of the decade.

               6. Stephen Hren,

                  I agree that oil price volatility is a problem.

                  My expectation is that oil prices will rise to $100/b by 2023 and we will see volatilty between 90 and 120 per barrel until at least 2028, then oil prices might go higher through 2031 and after 2035 we might see a crash in oil prices as OPEC falls apart and big producers compete for a smaller market as demand wanes.

            2. D Coyne Wrote:
               “I would put the probability that the current maximum 12 month average World C plus C output level will be exceeded before 2030 at about 85%.”

               That seems very improbable:
               1. LTO in the US has peaked, and the majority of growth from the 2010-2020 decade was LTO. The US tapped the best LTO locations & the megadrought in the West is going to add drag to new drilling.
               2. Most of the ME is running on fumes (metaphorically). They need to invest 10s of billions just to maintain current production levels & there is zero chance for growth, unless by some miracle some very huge discoveries are made (very unlikely)
               3. Demand destruction is in full swing: Air travel has all but collapsed & will remain that way for the foreseeable future, the CCPV isn’t going away anytime soon if ever. Also a lot of people are now working from home, reducing the daily commute. Then there are the boomers that are retiring, & no longer traveling (ie sight seeing trips to the EU, or US). Then there is the Massive debt that is going to crush the global economy, probably starting around 2025-2027.

               My best guess is we will soon see production declining between 5% & 7% annually.

         2. That’s right Ron. While I believe there be more coming on line I don’t think the grap. The industry requires massive investment and I don’t think it’s coming. There has been such a recoil from fossil fuels that I just don’t know where the money and brains power/talent will come from to discover new reserves. Without the shale, we would have been short energy or the Worldwide economic growth would have been stunted by much higher prices. At the current price and more importantly the volatility it doesn’t make sense to reinvest. Sure there is OPEC capacity but I don’t think we all really know how much. Saudi Arabia and other OPEC countries are faced with depletion.

            1. LTO survivor,

               World real GDP Growth was 2.82%/year on average from 2010 to 2015,
               2010=66.163 Trillion 2010$ and 2015=76.04 Trillion 2010$, World bank

               https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?end=2015&start=2010

               Average Brent Price was $105.72/b (2020 $) from 2010 to 2015.

               People claim that things are different now and that is true. For example in 2019 World real GDP had increased to 84.97 trillion dollars (2020 $) and then fell to 81.91 trillion (2010 $) in 2020.

               If we assume World real GDP eventually returns to the 2019 level or higher (likely in 2022) and that World output of crude returns to the 2019 level in 2022, and also assume consumption is roughly equal to output, then the percentage of World GDP spent on crude was 3.47% in 2015 and would be 3.18% in 2022 if Brent prices were $105.72/bo in 2020$.
               When we convert World real GDP to 2020$ we get 2015=$90.25 trillion in 2020$ and 2019=$100.85 triillion in 2020$.

               For a similar price to 2015 in terms of percentage of World real GDP spent on crude for the assumptions i have made we would have $114/bo for Brent in 2020 $ in 2022.

               My guess is that at that price investment in the oil industry will change from today’s level and if oil supply is short, it will not be long before we see prices climb. On the other hand many reputable energy bodies (IEA, EIA, OPEC, Rystad, etc, think there will be adequate supply in 2022, so we may not see oil prices climb above $75/bo until 2023, if their supply estimates are correct. My assessment of supply in 2022 is some growth, but less than EIA STEO estimates.

               Scenario below is my expectation for tight oil through Dec 2022. Tight oil output increases by 780 kb/d from June 2021 to Dec 2022, about 43 kb/d on average each month.

               

               1. D Coyne Wrote:
                  “f we assume World real GDP eventually returns to the 2019 level or higher (likely in 2022) and that World output of crude returns to the 2019 level in 2022”

                  It won’t:
                  Global Debt is about $390 T, more than 4 times global GDP. The only reason why the world hasn’t collapsed into a severe global depression is the Trillions of money printing. But at this point money printing is just creating stagflation with no growth (dimishing returns). Even in 2019, the global economy started declining, and the Fed had to increase QE in Sept\Oct 2019 just to prevent a recession. The money printing in 2020\2021 just created shortages & rising prices (mostly because people preferred to collect gov’t unemployment checks rather than work).

                  Boomers are also retiring and will be a burden on the economy as they stop working (paying taxes) and start drawing on entitlements & pensions. Another issue with the boomers retiring as they still make up the bulk of skilled tradesman (carpentry, plumbing, etc). as the younger generations aren’t interested in those jobs. This is going to cause high costs for construction, & maintenance, as there are fewer workers available.

                  2020 might just be the economic peak as gov’t printing trillions & handed it out to the people. Even if gov’t turn to UBI or more stimulus prices for everything will go up & not have the same impact they did in 2020, before prices really started to soar.

                  I don’t think the CCPV is going away. The vaccines are ineffective & just turning the vaxxed into super spreaders. The CCPV continues to mutate making it impossible to contain. Its now in about 40% of the deer population in the US. so its now able to jump between humans & other species. If it gets into the Livestock than there is going to be serious food problem as it would force beef & pork processing to completely shutdown.

                  Looks like Jay Hanson has been right all along.

            2. LTO —
               Correct me if I am wrong, but as I recall the whole fracking this started in an era when $100 oil had been the norm for years, and people were predicting $150 or even $200.

               $100 oil did put a slight damper on demand growth, but not enough to actually cause the industry to shrink. And if prices had stayed that high, fracking would have been profitable.

               Everyone thinks he knows when and why prices go up and down, but ten years ago nobody was talking about prices falling below $100 dollars. Furthermore considering that Europeans routinely pay $6.50 a gallon to fill the tank, I don’t really see why $100 oil should reduce demand all that much.

               1. The average European uses about 18% as much fuel: very roughly 60% as many cars per capita, 60% as much fuel per km, and 60% as many km per vehicle per year.

                  High prices have a very strong impact.

               2. Alimbiquated wrote:

                  “$100 oil did put a slight damper on demand growth, but not enough to actually cause the industry to shrink. And if prices had stayed that high, fracking would have been profitable.”

                  That was in the beginning of the debt super cycle, when gov’t turned to money printing. Issue is that the money printing didn’t stimulate job growth. If you look at the Labor participation rate, it just keep on falling. Higher prices will accelerate job losses (ie demand destruction).

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

                  Less people working means less consumption. Plus the west is diving head first into the climate change agenda. in the US California has banned non EV cars after 2035 & so did the EU. The US may be exiting the ME, which will make security in the region more chaotic. Most of the ME, including KSA are scrambling to work with Russia or China for agreements for Weapons or other equipment & services previous provided by the US:

                  https://www.rferl.org/a/saudi-russia-arms-weapons-/31425164.html

                  https://asia.nikkei.com/Politics/International-relations/China-bolsters-ties-with-UAE-a-traditional-US-ally-in-Middle-East

                  I suspect we will see soon global production declines by about 5% to 7%, due to a combination of demand destruction & rising production costs. Oil prices cannot rise significantly in an economy with ongoing demand destruction.

   2. As a longtime lay observer, I’m curious to know how you can be so sure. I’ve given up trying to have an opinion on the matter, the details being so complex and out of my ken.

      1. Mike B,

         Is your question addressed to LTO Survivor?

         I would be interested in the answer as well as the man knows the oil industry well.

         1. Yes, to LTO. I have great respect for him, for you, for Ron, for Mike S., all of you. I want to hear more. Lay persons are hopelessly locked out of evaluating the situation for themselves.

            1. Geologically speaking the easy oil has been found and developed. Maybe Iran and are much less developed than their neighbors but most of the rest of the world is in decline. We added 8 million new barrels a day with the shale. This cannot be sustained. Let’s remove the shale production and how tight would this market be? The shale production fall of a cliff. Just looking at our company and the inventory is shrinking quickly and increasing production is very difficult. So what does that mean. Soon we will see a rollover of worldwide production even if all countries are producing every drop that can. Of course if the price reaches $200 per barrel the then money will return but I don’t see that in the cards either.

               1. LTO survivor,

                  If there had been no tight oil, then oil prices may have continued at $110 per barrel and other reserves would have been developed. Or oil prices may have gone to 130 or higher. More people would have purchased more efficient vehicles and demand for oil would have grown more slowly, also perhaps a faster transition to hybrids plugin hybrids and evs.

                  There are a lot of non producing reserves in the world and lots to develop. Whether there will be capital depends on many factors, but surely higher oil prices will help both to increase supply and reduce demand.

2. Post-Peak Nations. As of 2019, there were 58 post-peak nations. Below is a chart that lists these 58 nations and their combined decline since 2010. Every one of these nations is in decline.

   Dennis thinks it is silly to list Venezuela as one of my declining nations because they were once one of the world’s greatest producers. Well, Venezuela is a failed state. And failed states seldom ever recover. One fine day in the far distant future, when the world has collapsed for the lack of energy, some government may take over Venezuela and produce the billions of barrels of heavy oil under the Orinoco basin. But that will not happen in my lifetime and not likely in yours. So no, they will stay on my list and in my charts.

   One more note, these 58 nations have declined another 1 million barrels per day since 2019. They have recovered somewhat from their covid decline but they will likely recover no more. They will be likely down another half million barrels per day before the covid decline is over.

   By 2022, there will likely be another 7 or 8 nations joining this group. And some heavy hitters just might be among them, like Russia and the USA.

   

   1. Wow, that’s a decline of around 10 million barrels/day since 2010.

      1. Note that if we looked at all the increasing nations, we would obviously see a bigger increase than if we looked at World or top 20 producers, because in those lists the decreasing nations are included. Note that a significant part of the decline is from Venezuela ( about 15% ). Currently Venezuela produces about 500 kbo/d (and I agree with Ron that they are not likely to recover in the next 10 years or perhaps ever) so Venezuela cannot have another 1532 kb/d decline over the next 10 years. Note that most of Venezuela’s decline occurred from 2015 to 2019. Also in 2018 several OPEC producers reduced output because of OPEC cuts, so excluding OPEC producers (whose declines are somewhat affected by OPEC quotas) would give a clearer picture.

         Wprld output increased quite a bit from 2010 to 2019, even with the small declin in 2019 from OPEC cuts and sanctions on Venezuela and Iran.

   2. Ron

      What are your thoughts on this report?

      Rystad: Russia’s oil supply set to break COVID-19 chains

      The OPEC+ alliance’s agreement to steadily increase oil production is paving the way for Russia to shrug off COVID-19 curtailments. The country is expected to set a new monthly crude and condensate production record of 11.6 million b/d in July 2022, according to recent Rystad Energy analysis. Russian production will further accelerate, reaching a peak of nearly 12.2 million b/d in mid-2023.

      Russia’s current monthly oil and condensate production record was set in December 2018 with 11.5 million b/d. Rystad Energy’s projections point to 2023 as another peak year with annual production expected at 12.16 million b/d. The country’s short- and medium-term production growth will be driven by Rosneft and Gazpromneft’s greenfield projects.

      Russia also is expected to set new records for crude oil. Its existing monthly record of 10.7 million b/d from April 2020 will be matched by May 2022, Rystad forecast. Crude production will keep rising to a peak of 11.3 million b/d in mid-2023, before starting to decline.

      “Russian production will rise from relatively new fields—fields with early production and producing fields with 25-50% depletion rates. Operators will not be able to increase production from mature fields, as it will be difficult and expensive to bring back online wells that were shut to comply with OPEC+ output cuts,” said Daria Melnik, senior analyst at Rystad.

      https://www.ogj.com/drilling-production/article/14208726/rystad-russias-oil-supply-set-to-break-covid19-chains

      1. Ovi , BS crap . They write ” The country is expected to set a new monthly crude and condensate production record of 11.6 million b/d in July 2022, according to recent Rystad Energy analysis. Russian production will further accelerate, reaching a peak of nearly 12.2 million b/d in mid-2023. ”
         Ron has given so much evidence that Russia is now past peak that even my memory fades . Anyway I am having less and less respect for Rystad by the day . Example 12.2 mbpd in 2023 . Heck even the Saudi’s don’t claim this level . Put in file 13 .
         P.S : File number 13 is the waste paper basket in a lawyers office .

      2. Ovi, I don’t know what to think of that. How could Russia’s Minister of Energy and Rystad be so far apart? Also, the EIA’s Short-Term Energy Outlook also has Russia setting new records. They have Russian production increasing by 120 Kb/d in August and by 140 Kb/d in September. So we will know in about two weeks how close they were with their August prediction. From your link:

         The country’s short- and medium-term production growth will be driven by Rosneft and Gazpromneft’s greenfield projects.

         Rystad is counting on growth from their new fields to propel them to new heights. What I think might be the case is that Rystad is overlooking the sharp decline that apparently has just set in in Russia’s old brownfields which produce about 60% of all Russian production. But… we shall see.

         The chart below is total liquids, not C+C and is in million barrels per day.

         

         1. I agree Ron.

            They have simply taken existing production as flat and added new production. If West Siberia is starting it’s early and steepest decline phase this increase will be wiped out.

      3. Russia’s centered 12 month average production record for average C plus C output was 11254 kb/d in March 2019 using 7.3 bo per metric tonne, for most recent 12 months the average has been 10149 kb/d (Feb 2021 CTMA). If Russia increases output by 100 kb/d per month for 10 months they will be at 11418 kb/d and if they can maintain that level for another 12 months, that would be a new maximum output level. Perhaps they can return to their previous 12 month maximum of 11254, I do not know if they will be able to exceed that level. In 2018 Russian average annual output was 11115 kb/d, a bit under their centered 12 month maximum ( but only 140 kb/d). It will be interesting to see how it plays out, I expect a plateau at around 11000 kb/d for the 2022 to 2026 period, but that is just a WAG.

   3. And the US filled the gap. However they will not fill the gap again. We have been lulled into false security with the shale revolution. It was a phenomenon but not a lasting one.

   4. Colombia is missing, we’ve lost 300kbd.

      1. I notice Ron has Columbia listed below under nations not yet peaked.

      2. That chart was the average oil production change from 2010 to 2019. During that period Colombia was up 100 Kb/d. But after printing their chart, it looks like Colombia has definitely now joined the decliners.

         

3. HIH

   I’m going to try to answer your question from last post and also try keep conversation on topic. China has the worst demographic outlook on the planet. They will surpass Japan as the fastest aging population later this decade. By the end of the century their population will shrink by over a 3rd. Peak oil hasn’t even been factored into this equation. Oil demand in China is going down in a huge way with or without a move to EV’s.

   Their banking sectors is. I don’t even have a word for how bad it is. 40% of all loans on their books are non-preforming currently. But when your the CCP you control the currency inside the borders of China and you can hide the fact.

   If China backed their Yuan with gold the yuan would appreciate in value. So much that the goods produced in China that keep millions of people employed would not have a market in USA or Europe.

   Even if they did it. Try going to the central bank and ask to exchange the yuan you received as payment for gold. You’d get told no. Otherwise China would run out of gold in a week.

   1. HHH, got it . Tks .

4. 31 nations, including Iran, have not yet peaked. The chart below does not include Iran because it has declined the last few years due to sanctions.

   I averaged production for all for 2010 and 2019 and then sorted them by the amount they had declined from 2010 to 2019, just as I did the decliners in the chart above. Notice that the USA has increased almost three times that of Iraq, four times that of Canada, and almost six times that of Russia. The USA has increased production by over six times the amount Iran has declined.

   Also, notice the nations that increased the least. These nations will switch sides and become decliners within the next two or three years after 2019. I also believe the USA and Russia has a far better than even chance of becoming a decliner within the same time period.

   

   1. For completeness there may be some minor new producers coming on line in the next few years: Uganda, Kenya, Senegal, Suriname and condensate from LNG plants in Tanzania and Mozambique but they will be minor contributors. Before the covid crash it looked very much like the first half of a logistic curve.

   2. Thanks Ron,

      So increasing nations about 18000 kbpd and decreasing nations about 10000 kbpd, eventually they will balance in 2028 or so.

      1. That’s wishful thinking Dennis. It all depends on what the USA does. The USA has, since 2016, been the only nation keeping the peak oil wolf from the door.

         Many other nations will never return to their pre-covid level of production. Even some of the big producers will not reach that level again. And the USA will be one of them.

         Then there’s Russia.

         2028? Dream on.

         1. Ron,

            Time will tell, for nearly every past prediction I have made (with the exception of the pandemic) real oil output has been lower than my best guess estimate, the future may be different. When I have made those predictions in the past there are many who have claimed they were wildy optimistic.

            My response then was the same as now, we will see.

            Ron the peak was 2018, so it is production in 2018 or the 12 months that the peak occurred where the comparisons should be made.

            Top 20 producers in 2018 has ouputs listed below
            (average C plus C output for 2018 in kb/d):

            10964
            10759
            10598
            4613
            4343
            4255
            3787
            3216
            2862
            2587
            1910
            1856
            1852
            1593
            1517
            1486
            1367
            1259
            1000
            978

            Only 3 of these nations have higher output than 2018 in 2020, but in 2019 another 9 had higher output than 2018, some had lower output in 2019 due to sanctions (Iran) or because they cut output because they were following the OPEC agreement (Saudi Arabia, Iraq, Kuwait, Angola, and Algeria), so that is 17 out of 20 of these top 20 producers that have had higher output in 2019 or 2020, the 3 nations (of top 20 in 2018) who have had lower output than in both 2019 or 2020 compared to 2018 (and did not have sanctions or OPEC quotas limiting their output in those 2 years) were Qatar, Mexico and Venezuela.

            I remain unconvinced that the largest 20 producers in the World (in 2018) will not as a group be able to exceed their 2018 level of output plus offset any decline in the rest of the World.

            Note that this might not occur in 2028, that is my best guess (with a 50/50 chance it happens before or after July 2028 for the centered 12 month average of World C plus C output. It could be the peak occurs at any point between Jan 2026 and Dec 2030. It will depend on a multitude of factors such as economic conditions, transition to new technology, and the price of oil and other commodities.

   3. Ron.

      The increase is about 18000 kb/d for these increasing nations, the decrease from declining nations was about 10000 kb/d, The difference is 8000 kb/d. The US increase was 6760 kb/d.
      If the US has seen a zero increase in output, World output would have increased by 1200 kb/d. See chart for World less US through 2018 annual C plus C in kb/d.

      

5. There has been a bit of discussion about “breakeven” oil price for Permian basin tight oil wells. I assume an average well cost of 10 million dollars (2020 US$) for the average Permian basin tight oil well completed in 2019. I use a nominal annual discount rate in the analysis of 30%, the real annual discount rate would be 27.5% if we assume 2.5% average inflation rate over the life of the well. I use an Arps hyperbolic fit to shaleprofile.com data for the first 17 months of production for months 18 to month 65 for the well profile, for first 17 months I use actual average well profile data as published at shaleprofile.com. A least squares fit to minimize the square of the difference between an Arps hyperbolic and the data from month 4 to month 17 is used by using solver in libre open office calc (similar to MS Excel) is used to determine best fit. Then at month 66 when annual decline rate has reached 15%, I assume exponential decline at an annual rate of 15% until the well is shut in at an output of 20 bopd at month 145 (roughly 12 years). The hyperbolic well profile is shown below and breakeven spreadsheet at link below.

   It would be interesting for oil pros to look at this and explain where my mistakes are.

   https://drive.google.com/file/d/1Mpfq3vjv2Kdo4x1PKdVvormW4tQmtRRW/view?usp=sharing

   Arps model parameters at top of chart

   Q0=52542, D0=0.60826, b=1.10102

   For Arps hyperbolic see equation 1 at link below

   https://petrowiki.spe.org/Production_forecasting_decline_curve_analysis

   I call qi Q0 and Di is called D0

   Chart below is for the average 2019 Permian basin tight oil well profile, first 17 months only.

   

   1. Dennis , please stop beating a dead horse . Most of those here who are in the front lines have spoken . In school I remember we were given separate marks for theory and separate for practical’s in Physics , Chemistry, Botany and Zoology . Now after 55 years I know why .

      1. Just trying to understand where I have gone wrong, perhaps you could point out the obvious mistakes.

         Much of what has gone into this analysis I have learned from comments by oil pros, just trying to improve my analysis,

         assumptions:

         capital cost for well (full costs)is 10 million dollars (2020 $)
         OPEX is about $14/bo (in 2020 $) average over life of well
         well is shut in at output of 20 bopd
         annual discount rate is 30% (nominal rate, real rate assumed to be 27.5%)
         royalties and taxes are 28.5% of wellhead revenue
         NGL price is 33% of crude price
         natural gas sells for $1.80/MCF at wellhead
         For each 1000 cubic feet of natural gas produced I assume about 0.083 barrels of NGL are extracted (this is the average rate for Texas and New Mexico in 2019).

         Breakeven oil price is $62/bo at wellhead (in 2020$) where discounted cash flow (or discounted cumulative net revenue) is equal to 10 million at 78 months when cumulative oil output is 348 kbo and daily average output at month 78 is about 46 bopd. Well pays out (net revenue not discounted is equal to 10 million) at month 28 when cumulative oil output is 241 kbo, 768 MMCF natural gas and 63.7 kb of NGL.

         The well profile for the associated natural gas output of the average 2019 Permian basin tight oil well is in chart below. EUR at 140 months is 1809 MMCF of natural gas and 150 kb NGL. Arps hyperbolic parameters on chart.

         

         1. Dennis , I can’t point out the flaws in your argument , it is not my desire and also not my ability . I have no hesitance in admitting I know much less than you but I am not blind . I can see the writing on the wall . Whom do I send out to bat if my life is at stake ? Dennis or SS, LTO , MikeS , Rasputin etc . The choice is obvious .

            1. Hole in head,

               They would surely be able to get more oil produced than me.

               As I said before I have learned much from all of these guys and no doubt have much more to learn, that is my aim.

               1. Dennis , the issue is not oil production or technics , the issue is price discovery . Your statement that ” shale is going to be viable production at $ 70 ” `has been discounted by the gentlemen in the trenches . I respect your opinion but instead of dragging the matter just let it hang out to dry and see what happens . Just my two piece . Let time decide . Disclaimer : I do not agree with your assessment .

               2. Hole in head,

                  Only trying to understand their perspective in a technical sense.

                  For example Mike Shellman says a 36 month payout is needed for a well to be viable, Shallow sand uses a 60 month payout rule. A 30% discount rate is a pretty good return on investment. Typically in 10ks and such a 10% discount rate is used and weighted average cost of capital for these firms is probably around 5%.

                  Some point to interest rates (which are quite low) or dividends are the problem so those have been included in my Permian basin scenarios (7.5% interest rate is assumed which is very conservative, it is likely 2,5% too high) and 25% of net revenue plowed into dividend payments is assumed, Permian basin debt accumulated since 2010 (about 95 billion in 2020$) gets paid beck by 2024 in all of my scenarios with medium oil price assumptions (oil price no higher than $75/bo at wellhead from 2022 to 2033 and then falling after 2033).

                  I will note that calling my model “dumbass” does not qualify as an argument in my book. You seem to be convinced, perhaps others are as well.

               3. Dennis. Thanks.

                  In 2005, when oil was $50s, we were as bullish as can be.

                  In 2021, when oil is in the $60s, we are very bearish.

                  Oil producers are pariahs in a lot of circles.

                  We are finding out our production has greatly fallen in market value. Future is much to uncertain. Not just price, but regulation.

                  Wonder what oil producers are bullish? I don’t think the few that post here are.

                  I don’t think the majors are, based on stated plans. Maybe some shale producers?

               4. Shallow sand,

                  Sentiment may change with higher oil prices. Note that my scenarios assume new wells are financed from net revenue. It is possible all the cash will simply be used to pay back debt and the rest paid out as dividends an no new oil wells will be completed in the tight oil sector. Seems unlikely to me, but anything is possible.

                  So far, tight oil prodction has been holding up, so at least some wells are being completed up to this point.

                  I can certainly understand why you would not be bullish, oil prices will be going up, but we may see low prices in 2022, they will recover in 2023.

               5. @Dennis

                  I think is something in between of no new wells and every penny earned into new wells.

                  As described by LTO survivor, they already seem to cash out their best acres. Wide spacing to optimize the output of a singular drilled well, using best acres.

                  This leaves a lot of oil in the ground, but optimizes money – and shortens the remaning years of shales by a lot. And even this is only available for companies that bought good A and A+ acres.

                  After being drilled with a wide spacing, getting the rest of the oil out would require very high oil prices or a kind of national emergency. A state owned oil company, and economy won’t play a big role anymore. Kind of war economy. Better to build tramways to let people drive to work and downtown in big cities then.

               6. Eulenspiegel,

                  Note that LTO Survivor has suggested that optimal spacing is 1320 feet for Permian basin, so I adjusted my model to account for that (spacing was increased from 1000 to 1320 feet). Mike Shellman suggested wells would be shut in at 20 bo/d (or higher) so that adjustment was made to average new well EUR. Note however that in my breakeven spreadsheet a minimum of 8 bo/d at the breakeven price still earns money (though that is the limit). OPEX is at $74/bo by that point, revenue from oil, NGL, and Natural gas allows continued operation. There is no doubt some factor I am missing that accounts for why a businessman would leave money on the table (in this example about 500k of net revenue not earned by shutting in at 20 bopd vs 8 bopd.)

                  There is always oil left in the ground at the end of a fields life. If the USGS mean TRR estimate for Permian basin is correct (75 Gb), and my medium scenario with a 450 well per month maximum completion rate was also correct (depends on oil price scenario being correct which is very doubtful) with an ERR of 46 Gb, that suggests about 29 Gb of technically recoverable oil gets left in the ground. That is a guess based on lots of assumptions any (probably all) of which are likely wrong. I doubt ERR is any less than 40 Gb and it probably wont be more than 52 Gb, probably a 66% probability it will be between 40 and 52 Gb. Higher oil prices would lead to a higher ERR and lower oil prices to a lower ERR though there are a multitude of other factors.

         2. Dennis. You are theoretically correct if the industry is healthy but it is not healthy. Capital has fled the industry. This industry needs so much capital for reinvestment. The profitability of the majority of the industry has been slim and in the instance of the shale industry it has been a disaster. In order for reinvestment to take place one has to make money. Jeez even Exxon is borrowing money to pay dividends as well as Saudi ARAMCO. Please tell me how this is sustainable because it is not.

            1. LTO.

               Is the cost of P & A beginning to enter into the discussion regarding shale?

               Really, for the first time since 1998-99 crash (when we were told by the media oil would be $8-12 forever) this is really entering into the discussion regarding lease values.

               What is being lost by many here is that new oil wells are financed by the producing wells. In terms of collateral, the existing wells where I am are now worth very little. I’m stunned by how much values have dropped since 2018, when oil prices were similar to now (except of course we have just lost over $10, with more room to fall).

               Buyers are talking about the end in our field, which really hasn’t been the case in the past, because we have such a low decline rate. But great political uncertainty is here. Begging OPEC for oil while discouraging production here isn’t a good signal. I agree, the discouraging thus far is talk, not a lot of action outside pipelines. But it is real, and I expect the next D President to be far left if Biden on this issue.

               Shedding P & A has already been going on in the Bakken for awhile. It doesn’t seem like it has so much in the EFS, and definitely not in the Permian.

               I just wonder how much longer it is before we start seeing some liability shedding sales in the EFS? I assume too many locations left in the Permian to exploit before we see that?

               My point being, existing production in our field and ones nearby peaked at being valued at a range of $75-125K per barrel in 2012-14. In 2018 things turned up enough to see $40-55K per barrel. Not many sales in 2019, and 2020 nothing at all I am aware of.

               2021 some have shaken loose. One of the best leases in our area did sell for $40K. I was extremely surprised it sold, LOE of less than $10 with virtually no decline. But besides that, I am hearing $5-25K per barrel, depending on the LOE. Considering almost all production here cash flows at $50 WTI, and a lot at $40 WTI, this is stunning.

               A common discussion point with potential buyers is what the cost will be to abandon the field, less salvage. Yes, buyers should have always been thinking in those terms, but they really haven’t until this year, it seems. The price recovery from the awful 2020 hasn’t helped sentiment much.

               Finally, the young buyers have all but disappeared. As have the young workers. Used to be there were several young guys chomping at the bit, who wanted to buy just a few barrels to get a start. There are none now, unless they are generational who are taking over parents and grandparents production.

               A huge concern we now have is just how all of these wells will be plugged some day. There has been talk of a federal bailout on that even, but I really question where the labor will be to do that.

               I know my post relates to small ball oil production. So maybe the sentiment in shale is way different. I do notice rigs and frac spreads have been added.

               I just don’t think you can feel the negative sentiment unless you are in this. For USA to return to any serious growth, that has to change.

               1. Shallow sand,

                  A market with negative sentiment like this is an opportunity for a smart investor. Sounds like someone who knows what they are doing, (you) could buy some wells on the cheap and make some money down the road when oil prices rise to over $100/bo in 2023 to 2033, look to sell in 2020 to play it safe you will retire a wealthy man. Easy for the arm chair oil investor, but based on your comment it looks that way.

                  Email me when you get a chance.

               2. Dennis.

                  There is stuff for sale offsetting us that in prior years we would have bought. In fact there is some we paid more for, and sold for even more. We actually owned it, operated it at a profit for a few years and sold it at a profit.

                  But now. No way.

                  First, who are we going to get to pump it 24/7/365? We can’t ourselves. We have too much already.

                  And if we do find someone to pump it, it’s better than 50/50 the person will “twist off” at some point.

                  We had a guy that had been really good. COVID hits. We don’t lay him off. He’s now pissed, because not only could he have been sitting home making more $$, but now he’s getting no overtime because we are doing the bare minimum to get by. The month we were shut down, he was given stuff to do. He didn’t do it. Caught him sitting at home with company truck parked in his drive in the middle of the morning more than once.

                  So, terminated him. He was happy. He is now fighting with state trying to keep on unemployment. During the middle of the biggest labor shortage we have ever seen. He has sat at home almost a year.

                  This guy could pump that stuff and make $60K per year. But how can you trust someone like that? If he quits chemical, by the time you catch him, you will be in deep in down hole failures. If he unhooks the sensaphone in the injection plant, so he doesn’t get called out at 2 am if the pump stops working, you will have the EPA all over you when the saltwater starts running over the dike, down the road, into the ditch, into the creek. What if he pumps the wells with a set of binoculars, thereby missing a leak?

                  Meth arrests in 2021 are double 2019 in our county. One of the few rigs running in our field was shut down recently because two of the crew got into a fight. Meth related. I know of two rig operators who have recently went to prison due to meth.

                  The stripper fields are about to the point where you better only take on what you can personally do yourself, with maybe one hand who you can watch like a hawk.

                  I know I will get trashed for this, but this is what I am seeing first hand. I know lower income people have been getting the shaft in the USA for a long time. It’s not bad that wages are rising. But the COVID shut down sped up a lot of malfeasance among all workers, not just lower blue collar.

                  If anyone here wants to take a crack at oil operations, have Dennis shoot me your contact info. I know of a lot of stuff for sale. 2-4 year payouts at $60 WTI. You will need to be able to post a bond. And figure out how you are going to manage it from hundreds or thousands of miles away, unless you decide to move here and do it yourself. And be ready to be written up by the state regardless of what you do, unless again you do it all yourself 24/7/365 and can address the issue immediately (so you will need a back hoe, a tractor and bush hog, weed eater and a water truck, minimum). Of course, you will also need a pumping pick up truck full of tools (Mike has an awesome cartoon he did which explains all you need) plus a four wheeler for when roads are too muddy for a truck.

                  If you want to control when your wells are pulled you will need at least a single drum rig. I am sure there are some that can be gotten cheap. Then you will need to find a hand that will show up every day. Good luck.

                  You will need a tank truck, to suck the rain water out of your dikes, if nothing else. Every time it rains you need to do that, otherwise you risk being written up.

                  Of course, you will need a place to park all this equipment. You cannot keep it on the lease. So you will need to find a shop with some land. You need a place to put your junked rods and tubing, because you can’t keep them on the lease. So you will also need a tubing trailer. If a pumping unit goes kaput, same. So you will need another trailer to haul them. Eventually the junker will come buy your scrap.

                  You will need to get security cameras, alarms and flood lights for your shop. Guarantee you will be broken into at least once, even with all of that. You cannot keep anything of value, that can be easily carried or hauled away, outside. So don’t leave your pipe wrenches laying. If you get a rig, better be able to padlock all the tools away.

                  You will need an echometer to shoot fluid levels, or be ready to pay through the nose when you need one, plus waiting. Pray the hands for the only tubing tester in the county don’t quit again, or you will need to find a testing truck, get it fixed up and find people to help pitch pipe every time you need tubing tested.

                  You will need to establish credit at about ten different supply places. They are usually good about this. Otherwise you need to carry your checkbook with you.

                  You will need to learn to call the state well inspector at least 48 hours before you have him witness an MIT. And be ready to drop everything and meet him at the well when he arrives. You also need to accept he will be on your lease at anytime M-F. He might even see you there and talk really nice, but you might get an email of a write up a half hour later. He won’t tell you that face to face. You will have 30 days to get that fixed unless you can get his boss to give you an extension.

                  I could turn this post into a book.

                  I know the numbers seem so easy sitting at a desk. But these wells don’t operate themselves. The state doesn’t care if you are an investor 1,000 miles away in a nice burb. You will be written up and if you don’t get it done, you will be fined.

                  Oh yea, and when your triplex plunger pump craps out, and costs you $20K to fix, there goes the lease profit for a few months at $60 WTI. It’s not easy to plug that into a chart or graph, when stuff like that happens. Or when lightening hits your injection plant and you call all over the countryside trying to find an electrician, are down 6 days waiting, pay $10K for a new control box install, yet pray to God thanking him that’s all it was, and that it didn’t cause a fire burning up your plant and tank battery at a cost of over $100K, not counting the weeks all of your production is shut in.

               3. Dennis.

                  I love the anecdotal, so bear with me.

                  We own surface on a lot of the places we operate. I will give you an example.

                  One tract will likely produce around $49,260 of crop share net rental income after payment of real estate taxes (but before income taxes) with soybeans at $12.50 per bushel. If this tract went on the auction block this winter, absent some economic black swan event, it would bring $1.6 to $2 million. 2-3% return for good tillable farmland is very common across the middle of USA where grains are grown. Note, I am not including the value of the oil royalty here. I’ll deal with that down below.

                  That same tract has oil wells, we operate and own 100% of WI. We just have numbers through July, so I extrapolated them out for 12 months. Barrels to the WI = 2,308. Average price at well head first 7 months $56.53. Using that gross will be $130,471. Extrapolating LOE is $85,367, or $36.99 per barrel. So net of $45,104. My sources tell me we couldn’t get more than $150-175K for this lease.

                  Now to the RI and ORI. Extrapolated there will be gross barrels of 2,798, as there is 1/8 royalty and 1/20 (5%) overriding royalty. My sources tell me the RI and ORI combined would sell for $150-250K, because the lease has a very steady production history and is low decline.

                  Of course, the RI and ORI bears no production expense. The RI and ORI bears no P&A. There is a very strong market still for RI and ORI.

                  The P & A on this lease before salvage would be $100-250K. Notice a wide range, P & A tough to estimate. Salvage is also tough, right now market is ehh, but not bad for used equipment. But when fields like this have to be P & A due to economics, I suspect the used equipment market would stink. Scrap iron only. Tanks might be a liability.

                  So here is an illustration as to how far things have fallen. Should be a heck of a buying opportunity one would think. But operations have become a nightmare.

                  Funny thing, without that WI, that RI and ORI is worthless.

                  Even more humorous, without the WI (oil) that tillable farmland value drops like a rock. At least until man figures out how to manufacture tractors, combines, sprayers, grain semi trucks, etc, that not only do not run on FF, but can be manufactured and maintained entirely without FF!

               4. Shallow sand,

                  Thanks for all that information.

                  I have never thought there was anything easy about producing oil. Obviously there are lots of details I don’t know about. It is amazing there are not many good workers where you live, maybe this is a problem everywhere in rural America. I imagine solutions require out of the box thinking.

                  Or you can close up shop, certainly sounds like a big hassle, but I bet you could find a solution.

                  Note that oil can still be imported, the US imported about 10 Mbo/d in 2008. So the farmland will be ok, though food prices will need to increase as oil prices increase or farming will no longer be profitable and yes in that case the value of the farmland will decrease.

                  I would plug those repair expenses in at average levels. That is why I use a fixed plus variable cost model for OPEX.

                  OPEX= K b times barrels produced per month, OPEX here is monthly operating expense. b is your cost per barrel when everything is going smoothly, it is the expected monthly expenses to produce whatever your monthy average output is for a given well. K is meant to cover the unexpected stuff, it is money you set aside for inevitable pump failures, tube jobs and even for eventual P and A. I would calculate K by looking at my repair bills over the past 5 years, sum them up and divide by 60 and that would be K. I would adjust if things have changed over the past 5 years, maybe I own more or fewer wells etc.

                  So the model I use assumes a smart businessman like you would set this money aside in a rainy day fund, knowing that the storm always comes. When the pump failure or whatever extra expense arises and there are probably 100 or 1000 of these I have no clue about, you withdraw money from your rainy day account and carry on.

               5. Shallow sand,

                  Under current political climate what oil price might change the sentiment for you? Say an average price for 12 months or what ever length of time would be needed to change you outlook.

               6. Dennis.

                  The problem is I don’t foresee a stable oil price. I also don’t see the political pressure easing.

                  I did say $55-65 WTI price band was what I desired. Now it would be $60-70. It really isn’t just the average annual oil price, it is sustained stable oil price. $30-100 range won’t work as well as $60-70.

                  What happens with percentage depletion matters greatly to us also. Labor issues are huge.

                  We have zero plans to drill another well. Never say never, but it has been 7 years. $100+ for 2-3 years could change that. Or we could maybe bail then too? Who knows?

               7. Dennis, respectfully, have you ever been in business for yourself? For instance, did you have a paper route when you were a little boy, have you ever owned a pizza place, or a retail store, have you ever built homes, or poured concrete for a living? You know, money out v. money in, from a check book? Did you ever have nobody to rely on other than yourself to eat, and pay the bills? For example, lets say you could not make a mortgage payment had you not at the last minute gotten paid, say to sell a used car? Have you ever been hungry?

                  Mr. Hren’s observation up hole regarding economists and businessmen is actually very relevant. You dismissed it like it was nothing. Its actually very relevant. Have you ever been in business for yourself?

                  As to the use of the term ‘oilmen” that agree with your models about the future of shale oil, on other sites, are they really oilmen, or are they free royalty owners, or petroleum engineers that once worked for Shell, or were they simply somebody who says they use to roughneck when they were kids? Or perhaps they are heavily dependent on shale oil to make a living?

                  90% of the people that I know that work IN the oil business don’t know squat about well economics. You have to be a working interest owner, a bill payer and a revenue receiver to truly understand what it takes to earn a living IN the business, not just analyze it from the safety of a key board. You understand the difference, don’t you?

                  The four people here that comment occasionally that I know are working interest owners in oil and gas wells, from a check book, you insult on a regular basis, like they’re stupid. You’ve never seen a shale oil well, I am pretty sure; you have admitted you won’t invest personal money in them (too risky); I am simply looking for a good reason why you are so much smarter than real people IN the oil and gas business.

               8. or were they simply somebody who says they use to roughneck when they were kids?

                  Well, I was never a roughneck, but in 1959 I was a roustabout for about 30 days, at $1.15 an hour.

                  Not joking, I really was.

               9. Mike,

                  No I have never owned my own business. And yes I do realize it is much more difficult to actually run a business than to create a simplified economic model of key aspects of a business. The real world is too complex to model to perfection.

                  Also I do not think I am smarter than people in the oil business, I ask questions of those who know more than me, that’s how I learn. You may be different than me in this regard.

                  I apologize for asking questions and trying to learn how the oil industry works.

                  As far as I can tell all of the insults and innuendo have flowed in one direction.

                  If disagreeing with your conclusions qualifies as an insult in your view, in that case I guess I have been insulting.

                  When someone who’s opinion I respect disagrees strongly with the model/scenario I have laid out, I attempt to explain my reasoning so that the flaws in my model can be corrected.

                  I apologize if these explantions come across as a lecture as if I believe I know more than you. Nothing could be further from the truth, I make the effort to do this in order to learn from you, or LTO survivor, shallow sand, Rasputin, George Kaplan, SouthLaGeo, and other people who have worked in the oil industry.

                  I have two sibling that have owned their own construction companies and two other siblings that own their own businesses.

               10. Thank you shallow sand,

                   It is actually surprising the price is that low. So it seems the volatility is a big issue, would $60 to $100 be ok? I expect that is what we will see from now until 2023.

               11. Shallow sand, LTO Survivor, and other oil pros,

                   Any guess what the P&A cost would be for average Permian basin wells. I am guessing expensive maybe 250 to 500k?

                   Thanks for any feedback from those who know the details of how this is done, which I do not.

            2. LTO survivor,

               See my breakeven spreadsheet and tell me where I have gone wrong.

               For Permian basin average 2019 well, I don’t see how one loses money at current prices. Yes productivity may have decreased a little since 2019, maybe 5% at most. I guess the oil industry expects lower oil prices. The industry is wrong medium term, but perhaps short-term they will be right.

               I think the futures market is a poor predictor of future oil price.

               1. LTO survivor,

                  Spreadsheet at link below for Permian 2019 average well breakeven

                  https://drive.google.com/file/d/1Mpfq3vjv2Kdo4x1PKdVvormW4tQmtRRW/view?usp=sharing

                  I also tried the breakebven calculation for a well that produced 78% of the average 2019 well. That raises the breakeven at a 30% annual discount rate to $72.80/bo at wellhead.

                  EUR of average 2019 well is 407 kbo
                  for the well producing 78% of the average 2019 well the EUR is 318 kbo. Note that my average well includes both parent and child wells, it is all wells completed in 2019, so it is doubtful that the 78% well estimate would be realistic for the average child well in the Permian basin (meaning that I expect the average child well has an EUR higher than the 318 kbo used for my estimate of breakeven).

                  Can you tell us if the parent wells you are familiar with in the Permian basin have a higher EUR than my average 2019 Permian well? I understand you cannot share too much detail.

               2. Dennis, Shallow Sand and others,

                  Dennis I odon’t fault your analysis. Your numbers are real and relatively reasonable. The one thing that we never faced as an industry is the overwhelming anti fossil fuel sentiment. The wells do make money but there is debt to repay and dividends to to support. At this price both items simply cannot be achieved. All of us in the shale industry drilled like Madmen hoping to be acquired one day by a major company or a well heeled consolidator. Some were very fortunate like Concho and were able to sell to COP or Anadarko to Oxy but most of the others are left with a pile of debt and no buyers. The market has thinned out because PE for the most part has walked away. The current malaise that exists makes it difficult to attract new capital. It may not seem like a big deal when oil falls from $75 per barrel to $62 per barrel but look at what it does to the energy stocks. They are getting clobbered. It is all about confidence. That includes confidence in the (1) price (2) costs (3) future demand (3) and political sentiment.

                  1. The price is way too volatile to inspire confidence 2. Costs are rising because of the “transitory” inflation and fewer vendors 3. All we hear about from our energy agencies is that we have hit peak demand and many believe that there exists a real solution to replace fossil fuels. We aren’t there yet and it is still decades away I believe (4) this is probably the most important and frightening factor. The political sentiment against hydrocarbons is overwhelming. It is unpopular to support fossil fuels. It isn’t unpopular to use them for everything from fertilizer to jet fuel but the mainstream media and the political agenda is 100% geared towards a carbon neutral mantra. While this really Isn’t attainable while keeping our way of life, it has still taken center stage. The main reason is the embarrassment of riches provided by Shale which has lulled the public into believing that it is a limitless inexhaustible resource and the market has been oversupplied for some time. When the world realizes that fossil fuels are not limitless and begin to diminish in supply relative to demand, the sentiment will only then begin to change and capital will come back to enjoy a higher return. In the mean time it is not unimportant to observe the entreaties of organizations like Engine One impacting XOP in a meaningful way by forcing them to reduce expenditures on discovering new deposits of oil & gas or Shell announcing a move away from Fossil Duels. These are important and unprecedented departures for oil and gas companies which have survived for over 100 years as mostly oil & gas producers. This is why when I see optimistic charts calculating much higher oil production, I become puzzled because I just don’t know where it will come from. Iraq and Iran are unstable places to be betting on to fill the gap for the lack of investment in a depleting resource. This is just my opinion but I have lived it and felt it for the past few years. We will see if I am correct in my assessment.

               3. I think LTO is right and the most important thing here is sentiment.

                  Oil prices can climb 10$ again – but when the sentiment and political support is down, that’s it.

                  One example from Germany – we have a long going anti-nuclear agenda here, starting with public protest, then the media and TV joined and finally even the conservative party.

                  If we wanted to reintroduce nuclear we would have restart at point zero.
                  We have 1 (ONE) professor left for nuclear technic, compared to over 100 for gender science.

                  So even if we wanted to build an own nuclear plant, it would be a herculean task. We can now only order one in Russia or China if we want one.

                  This is the same danger for the oil industry. No political support – less support at education, closing or thinning geolocical branches at universities, young people do other jobs. And at some point you would have to engage a chinese company with their own workers to drill up a new field.

                  The worker shortage shallow describes is systemic – first the strippers, later the newer fields.

                  Just my opinion, but I’ve seen dying industries in my career, too.

               4. Thanks LTO survivor,

                  I agree the negative sentiment towards and within the oil industry is a real problem and your assessment is no doubt accurate.

                  My expectation is that a shortage of oil supply will come to the fore in late 2022 to early 2023, lack of oil demand may occur at some point, my guess is about 2035 to 2040 as the World gradually transitions to electric land transport, but in the interrim from 2023 to 2033 we are likely to see oil prices at similar levels to 2011 to 2014 (Brent average was around $120/bo in 2020 $ over this period and WTI about $115/bo). OIl prices are likely to remain volatile, but in the range of $100 to $140/bo for monthly average oil prices. I think sentiment within the oil industry will be different in the oil price environment I envision.

                  I agree we will need the oil, before long the man on the street will realize that. As the World peaks in 2028 or so, we may see oil prices rise considerably more than $120/bo, the average price from 2028 to 2032 might be more like $150/bo, though this depends on two factors: the speed of the transition to electric powered land transport, and the response of large oil producers to higher oil prices and the move of land transport to electricity.

                  It is possible if the transition proceeds more quickly than NOCs currently envision tht they will scramble to develop their resources more quickly before their oil resource becomes a stranded asset. In this scenario OPEC falls apart and we see a market glut with large middle east producers and Russia fighting for market share. Potentially this happens as early as 2030 and we would see oil prices crash permanently to under $40/bo in 2020$, possibly as early as 2035.

                  It would be wise to have exited the oil industry before that occurs if one is a high cost oil producer. Under this type of scenario we would see US tight oil output decline very quickly.

               5. LTO Survivor, Shallow sand, Rasputin, George Kaplan, SouthLaGeo, and Mike Shellman,

                  I apologize if I have insulted any of you, or if I have given the impression that I believe I am smarter than anyone.

                  I try to present my findings in a dispassionate way without a lot of drama and when someone disagrees with me I typically try to explain my simple models so that I can see where they can be improved.

                  The input from all of you has been invaluable in making the models more realistic, but I am sure I have much more to learn.

                  Clearly no model will be perfect and mine is likely far from the mark.

                  Thank you all for your patience.

               6. LTO, The collapse in the share price of the E&Ps is a result of hedge funds shorting the energy sector. To illustrate the point, Reconnaissance Africa is an exploration company not producing oil or gas and therefore not tied to the commodity price. The stock has 10x within a year. But within the past 2 months the share price is down nearly 60% on good news their second drill hole encountered oil.

                  With regards to government’s anti petroleum stance I see this as the government realising oil supply won’t meet demand in the not too distant future and demand has to be dialed down. I recently saw a post by Disclosure TV which stated the Biden administration was considering banning interstate travel to tackle covid.

                  How many barrels of oil out of the 7 million per day the U.S. imports would this save if implemented?

            3. LTO Survivor,

               Imagine a relatively stable monthly oil price of 75 to 95 $/b for the 2022 to 2030 period as a what if scenario. If that were the case does the health of the oil industry improve?

               I would think capital spending would increase. Would be interesting to hear if offshore FID migbt change under that scenario.

               If such a scenario does not increase investment then oil prices will be higher.

               Demand will return to 2019 level by 2023 at latest and grow from there.

6. ZH is splashing a story of Caspian discovery. Iran has it in its sector, 3.5 Trillion cubic meters. No mention of condensate. Gotta be some. Estimated flow rate capacity — 20% of Europe’s annual consumption. Europe’s annual consumption 540 billion cubic meters. 20% of that is 108 Bcm. Per year.

   Various agreements with Russia grant Russia full control of that flow, to where and at what price. So if Iranian gas is going to Europe, it will do so under the auspices of GAZPROM. But Iran will get paid.

   Dunno how long to get production going. But 108 Bcm/year at $500ish per 1000 cubic meters. Might drop a decimal but that looks like $54 billion per year sent from Europe to Iran. Someone should check. GAZPROM will take a cut but it can’t be so much that Iran looks for another transit port.

   Annual Israeli aid from US — $6 B

   1. Watcher , too late to the party . No surplus energy to undertake the developments of such large projects .

   2. Watcher.
      18 Billion barrels of condensate.

7. HOLE IN HEAD,

   Agreed. I remember hearing ExxonMobil bragging they could make money in the Permian at $25-$30 a barrel. In the last four years, with oil prices well above that level, Exxobmobil’s U.S. upstream earnings have been horrible, to say the least.

   ExxonMobil invested $32 billion in its U.S. upstream sector to lose $3.8 billion.

   steve

   

   1. Yeah Steve , too many reject the concept of EROEI , but it is a reality . It does not differentiate and it does not take prisoners . Ignore at your own peril .

      1. Like they say, EROEI can be ignored if you don’t mind pissing money up the wall to get liquid hydrocarbons. I think most investors find this somewhat a dubious business strategy, and it now shows.

         1. Kleiber,

            Only profits matter, EROEI only matters at a societywide level, no oil man I have ever heard has said EROEI is a consideration in their business. Perhaps real oil men can comment, perhaps I have missed those comments.

            The oil business is about producing oil to make a profit, energy in vs energy out does not matter, money in vs money out is what pays the bills.

            1. D Coyne,

               You are correct that the oilman doesn’t worry about the EROI, rather, they look in terms of profits today or tomorrow. However, the low EROI of Shale Oil, Tight Oil, has left the public with a huge BILL for destroyed roads and highways.

               Because Tight oil needs 100’s-1000s of truckloads to make just one well possible, the public gets stuck with footing the bill for the repair of the roads-highways. Some counties have let the roads return to gravel because they don’t have the funds to repair them.

               Furthermore, the UNPROFITABILITY of Shale OIL isn’t a mystery. According to the 2019 Wall Street Journal article, The Unprofitable Oil Boom (LOSS OF HALF TRILLION ) , the industry has decided that the best way forward is CONSOLIDATION. So, this is what we hear now as companies merge to STAY ALIVE a bit longer while continuing to DEFRAUD investors.

               We love this TWEET by Clark Derry shown below of EXXONMOBIL’S FREE CASH FLOW over the past three years.

               I’d imagine ExxonMobil Management continues to lose SLEEP at night wishing they never bought XTO Energy. And then there is the FRANKENSTEIN called Occidental’s merger with Anadarko.

               You can always tell when a Civilization is near the end… INSANITY becomes the norm.

               steve

               

               1. Thanks, Steve, the best damn post I have read all week.

               2. Steve,

                  XOM was perhaps too optimistic, but free cash flow will tend to be negative when starting a large project and the cash flow accumulates and debt is paid back.

                  Chart below has cumulative net revenue for Permian basin from 2010 to 2025 for my 450 well completion rate scenario. By end of 2033 cumulative net revenue rises to 500 billion in 2020 US$. Interest on debt is paid at 7.5% per year and 25% of positive net revenue is paid out as dividends for model.

                  click on chart to enlarge.

                  

               3. Mikey’s revenue predictions for the Permian. Click to enlarge, print to use in the bottom of the bird cage….

                  

               4. Mike , ROFL . 🙂 . 🙂

               5. Mike,

                  GOR for Permian for my scenario. This is basin wide GOR based on average well profiles using DCA on shaleprofile data for 2010 to 2019 average wells, after Dec 2019 I assume average well productivity decreases each month that wells are completed, more wells completed results in faster decrease in average well productivity.

                  

               6. Mike,

                  For same permian scenario (ERR= 46 Gb) I assume OPEX per barrel increases as shown in chart below (again this is a basin wide average over time).

                  

            2. Mike

               I assume productivity decreases,
               Costs are in real dollars so cost in nominal dollars increase at rate of inflation, GOR increase included, scenario makes very conservative oil price assumption, prices $75 per barrel in 2020 $ from 2022 to 2033.

               Opex per barrel also increases all wells after May 2020 financed from cash flow so OPM not needed. All debt paid back with 7.5% annual interest bt 2025, dividends paid out at 25% of net revenue. Net revenue is total sales aka gross revenue minus total costs.

               Productivity of average new well decreases from 407 kb in 2019 to 330 kb in 2040 based on USGS mean TRR estimate. Total Permian ERR for this scenario is 46 Gb.

            3. Mike,

               The scenario for charts above is shown below with well completion rate (new wells completed per month) on right vertical axis. ERR is 46 Gb, peak in 2029 at 5427 kbo/d. Maximum completion rate is 450 wells per month, a bit less than the highest 12 month average to date of about 460 new wells per month in 2019.

               

               1. Dennis,

                  I get a kick out of your charts. I actually like Mike’s chart above which could be more accurate. This hampster wheel doesnt work like Exxon believes. You have more and more wells producing but at much lower volumes and slimmer profits. I never used to think that the Shale industry was a Ponzi but now I am convinced that if you cant get your money back within 12 months then one cant make money in this sector. What is the most interesting chart to me is the increasing number of wells for the next fifteen years. Whoever publishes this chart is divorced from reality. I will say it once again the remaining drilling inventory is less than six years on average. Companies are merging because they have all evaluated their future drilling inventory and they are desperate to add revenue without drilling up their inventory. However this is just a game of 3 card monte or hiding the ball so that the analysts don’t really see what is going on behind the curtain. I have seen close up what is going on behind the curtain and it is not pretty. Unless prices rise significantly this game will be exposed as just another attempt to mask the true slim economics of drilling these LTO wells. The charts are fiction even with much higher prices. Inventory is inventory and you can’t dream up more inventory unless the price is astronomical.

               2. LTO survivor,

                  The estimate is based on the USGS mean TRR estimate as I have explained in detail in the past, I won’t bore everyone with the details yet again.

                  Perhaps the USGS is way off. The same analysis for the North Dakota Bakken Three/Forks yields an ERR estimate very much in line (within about 1%) with current proved reserves and cumulative production (end of 2019 for both).

                  Note the economics for this scenario are the same as my breakeven spreadsheet, just added up basin wide, I have interest rate on debt at an annual rate of 7.5% (in reality it is likely more like 5% for large oil companies) and dividends are paid from net revenue with 25% of net revenue assumed to be paid out as dividends, new wells are paid out of gross revenue (the net revenue subtracts all costs including capital costs, so no new financing is needed).

                  Link to spreadsheet with modified Permian model ERR=27.5 Gb, shows how debt is paid back by 2025. More in line with limited well inventory story.

                  https://drive.google.com/file/d/1OrwWVxuPNkvu58A38u8rEAuDg2_R4vP3/view?usp=sharing

                  The oil price scenario for scenario above might be too optimistic. If oil prices drop quickly to $30/bo from $80/bo from 2031 to 2035, we get a scenario with about 27.5 Gb for URR with about 76k total wells completed. see link below

                  https://peakoilbarrel.com/april-non-opec-oil-output-declines/#comment-723877

                  Is there any data on the drillable locations in Permian basin?

                  Seems a lot of the info is anecdotal.

                  The chart I did on cumulative net revenue id the column to far left of spreadsheet, it takes oil, NG and NGL adds up revenue deducts royalties and taxes, capital costs for wells and infrastructure, and OPEX, ($5/b is deducted from oil price for transport cost for crude), NGL assumed to be 33% price of crude, NG sold at 1.8 dollar per MCF. Mike’s chart is funny, but if my assumptions are reasonable as you have suggested elsewhere, then my chart might be pretty accurate.

8. Article on Russia from 2020.

   West Siberia, an oil producing region in central Russia that extends from the northern border of Kazakhstan to the Arctic Ocean, continues to be Russia’s dominant producing region and contributes more than half of Russia’s total crude oil production. Most fields operating in the region are older, conventional reserves. They are facing permafrost melting and rising associated water levels, which reached 86 percent on average in 2018. According to a study from the SKOLKOVO Energy Centre, Russia’s largest active Siberian brownfields reported a 22 percent increase in drilling rate penetration from 2012 to 2016 but recorded a 5 percent decrease in total crude oil production, demonstrating how Russia’s older fields require more intensive methods to keep production growing.

   https://www.cfr.org/blog/russias-complex-oil-reality

9. Need some help guidance because the figures don’ match . We know their are oil exporters and oil importers . As of today 193 countries are member of the UN . In the last posts we have discussed about the ” savior 5 ” plus Russia , but things don’t match . I am not looking at total production , I am looking at exportable surplus .
   Exportable surplus :
   KSA 5.50 mbpd
   UAE 2.30 mbpd
   Kuwait 2.00 mbpd
   Iraq 3.00 mbpd
   Russia 5.50 mbpd TOTAL 18.5 mbpd
   I have not included Iran because they produced 2.4 mbpd in July and their refining capacity is 2,3 mbpd . However I am still willing to give them the benefit of doubt . I will add 1.5 mbpd on their account .
   So total is 18.5 1,5=20.00 mbpd . This is FREE FLOAT oil . Anybody can bid . I have not included Canada 3.5 mbpd ( all export’s to USA ) , Norway 1mbpd (all to EU ) , Angola 1mbpd( all to China in lieu of debt ), Mexico ( nett petro importer ), Venezuela ( all to China in lieu of debt ) . All this oil is pre sold and not FREE FLOAT .
   Against this FREE FLOAT available for export we have the following in the market .
   EU 14 .00 mbpd
   India 4.00 mbpd
   Japan 3.00 mbpd
   South Korea 2.5 0 mbpd
   Total 23 .00 mbpd
   We have discussed that the balance ” OPEC 8″ would not even fill a VLCC in a week . Out of the Non – Opec , I don’t see any big exporters except perhaps Kazakhstan (pure exports ) Brazil ( Exports minus imports is not a big surplus ) . A caveat . I am aware that USA is exporting 3-3.5 mbpd of shale oil . This will die as shale production declines as discussed in the several posts and comments . Some of the shale imports were political in nature , example Modi forced Reliance (Ambani) to bring in a million barrels to please Trump before his visit to India . My target is what is the exportable surplus in 2025 ??? . 193 nations depend on the outcome since we are now past peak ( all agree except Dennis ) and add decline rates then we are on a ” one way ” road to trouble . Something of notice . Fiji islands have gone dark because all their fuel was imported from Australia and now Australia is in lockdown . To add ,Australia has shutdown it’s last refinery and will henceforth be totally dependent on imports of finished products . What could go wrong ? 🙂
   I have excluded all small producers like Ecuador , Colombia , Gabon etc . You are not going to buy a house by what your son/ daughter have saved in their piggy bank .I have deliberately not included China and USA who import huge quantities against the FREE FLOAT available .

10. I still fail to understand how Rystad and the EIA have Russian production increasing to new records when the Russian Government says otherwise. Who should we believe?

    Government report suggests Russian crude output peaked in 2019 April 12, 2021

    A draft document from the Russian Energy Ministry has been the subject of considerable comment in recent days with strong suggestions that Russian crude oil output could have peaked in 2019.

    The document contains base-case projections showing oil output falling to 10.71m barrels per day in 2021 from 11.25m barrels per day in 2019.

    1. I agree with you. Based on the data of Rystad Energy, oil French experts found for the Shift Project report that on the contrary the Russian oil production will decrease of 29% by 2030. And by supposing that Russians would extract their oil shale of eastern Oural (Bhazenov formation). Perhaps, Rystad Energy takes into account the shale oil available in Siberia (Vostok project) whose extraction could effectively stabilise the volume of production but who can imagine hydraulic fracking in the local climatic conditions?

       1. Jean, the Russian Siberian shale could become economical to produce if the price of oil were to reach… say… $200 a barrel. But that would be long after everyone agreed that peak oil was well in the past and world production had dropped by at least 25%.

11. And just in case you missed this one:

    Will Russia’s Oil Production Ever Return To Record Highs? Apr 15, 2021

    According to Russia’s Ministry of Energy, the country is unlikely to return to pre-pandemic oil production levels.

    Prior to the pandemic, Russia was producing 560 million tonnes of oil, a rate of around 11.3 million bpd, hitting record levels in 2019. However, in 2020, production levels decreased for the first time in over a decade as Russia agreed to cut production alongside OPEC+ countries to help stabilize oil prices. Under this agreement, Russia decreased production by nine percent to 10.3 million bpd.

    The Energy Ministry believes that production levels will gradually increase, but not to pre-pandemic levels, reaching an estimated 11.1 barrels a day by 2029 before ultimately dropping to 9.4 million bpd in 2035.

    1. Note that Russia may not reach their pre pandemic peak, but for a 12 month average that peak was about 11.2 Mb/d, the Russian energy minister is saying they can return to 11.1 Mb/d, that is the same as Russias centered 12 month average in 2018 when the World was at its peak.

       1. Dennis, almost everyone exaggerates their production capabilities, including Russia. If they say they can maintain an 11.1 million barrel per day average, that does not mean they can really do it.

          1. Ron,

             Yes we will see how it plays out over the next 6 to 18 months.

          2. The short-term (up to two years) forecasts of senior officials from the Russian Federation should be taken seriously. What should not be done when it comes to what will happen in five or more years.

12. Oh, never mind. 😉 😉

    Russia’s Oil Reserves Will Last Through 2080 12/05/2021

    Russia’s vast oil reserves are enough to last until at least 2080 at current production levels, the head of Russia’s Natural Resources Ministry said.

    In an interview with the RBC news website, Natural Resources Minister Alexander Kozlov said Russia has the equivalent of 59 years of oil deposits and 103 years of gas reserves. The true scale of fossil fuel deposits under Russia’s soil could be even larger, but will require additional state support to accelerate exploration in hard-to-reach areas, such as beneath the Arctic permafrost, Kozlov added.

13. When I try to gauge where price is headed in near term I look around at charts of various things. I ask the question is there anything that these charts suggest that would get in the way of oil price rising further? Is it safe to be long oil? One chart stood out to me this morning. It was Japan’s stock market the Nikkei 225 chart.

    If you look at the weekly chart. Price is very close to falling through support where next line of support is 3000 points down at about 24,000. Keep in mind Bank of Japan buys stocks. Whatever would cause a 12% ish correction in this market would most certainly not be good for the price of oil.

    1. In my opinion the most import thing for the future oil price is the current falling oil price.

       The opec can’t watch this for much longer – all their projected production increase profit deep into next year is already eaten up by the lower price. And they will have to crank up drilling infill wells and more injectors – the reduced drilling was posted on this side, too. They can’t reach old production levels without the old drilling pace.

       So they are in the squeeze between a rapid falling oil price and the need to increase investing. I’m counting for them to reverse the projected increase every month – this will be the most important thing for the oil price in the next year.

       In my opinion US shale oil will be stagnant the next year, with a few 100k up or down. No big boom, but no crash, too. Finishing already paid DUCs from the boom years and drilling good land with wide spacing as LTO described.

       That’s just the mechanics – the oil price get’s very sensitive when the storages are nearing full or empty.

       Just my 5 cents, when no black swan is incoming.

       1. A lot of the move we seen in oil prices and elsewhere was just trader positioning before FED Jackson Hole meeting this week. Longs trimming exposure beforehand. And those who are betting on a certain outcome will try to bid prices going into it this week after the pullback.

          That meeting could be very negative for oil price depending on outcome.

14. Read an article that the number of those majoring in petroleum engineering in USA was down 60 percent from 2014 to 2019. I bet that has fallen even more.

    8% of Colorado School of Mines graduates in 2021 undergrad were in PE.

    1. Shallow sand,

       Found this from 2016, at that time they were graduating too many petroleum engineers in the US.

       https://jpt.spe.org/petroleum-engineering-graduation-rate-exceeds-demand

       A more recent article which talks about the sharp decline since 2016 (2015 and 2016 was a recent peak in PE graduates).

       https://www.energyfuse.org/petroleum-engineering-enrollment-is-in-decline-should-industry-worry/

       The article suggests higher oil prices will result in an increase in enrollment. Note that PE graduates have the highest average starting salary of any Bachelors graduate.

15. Crude Oil Surges; Rebounding After Torrid Week

    “Oil’s selloff in the past month was overdone,” said analysts at Goldman Sachs (NYSE:GS), with the influential investment bank sticking with its year-end forecast of $80 a barrel.

    1. Technically price on WTI chart is just back testing the support it fell through last week

       If it fails to get back above this broken support look lower.

16. I’m going to explain what I think the FED will do this week and why they going to do it and how it will effect the price of oil.

    FED is have a hard time keeping short term interest rates from going negative. So they want to raise short term rates without actually raising rates.

    So what I think they will do is raise the interest they are paying on reverse repo. From 0.05% to 0.10% this will force people out of T Bills and into longer dated bonds. They going to compress the long end of yield curve below 1%

    Side effect from this is a stronger dollar. Which will put downward pressure on prices.

    They going to try to tame inflation with a stronger dollar.

    1. HHH Wrote: “FED is have a hard time keeping short term interest rates from going negative. So they want to raise short term rates without actually raising rates. ”

       Thats not it. The issue is that the US treasury has not been selling new treasuries or rolling over the short term bills. The Fed wants Treasuries to buy for there QE, especially the long bond to keep the long term interest rates low (ie flat the curve) since its the only bonds that have any interest yield. Since Banks & investment institution that are restricted to AAA bonds or gov’t bonds, they turned to the Repo since they cannot buy new Treasuries. This will change when the Treasury starts issuing new bonds later this year.

       Fed is still in suppressing Interest rate mode as it can see the data that is largely ignored: The economy is not improving but getting worse.

       HHH Wrote:
       “Side effect from this is a stronger dollar. Which will put downward pressure on prices. They going to try to tame inflation with a stronger dollar.”

       Dollar continues to devalue, its just that other currencies are devaluing more than the dollar. Kinda like the smallest fat guy in a group of large fat guys. While prices for goods & services may fall a bit, I doubt they will revert back to 2019 levels. Looks like the supply chain problems are only going to get worse, as most companies are planning on raising prices this fall, including food prices.

17. Mexico just lost 444,000 bopd of production due to a platform fire.

    https://www.reuters.com/business/energy/exclusive-offshore-platform-fire-cuts-mexico-oil-output-by-444000-bpd-document-2021-08-23/

18. Ovi,

    Just came across this forecast from link below

    https://apps.cer-rec.gc.ca/ftrppndc/dflt.aspx?GoCTemplateCulture=en-CA

    Have you seen this? Seems a bit optimistic to me. Your thoughts?

    

    1. Title on chart above was mistyped it should be “Canada C plus C (kb/d)”

       1. The scenario above has about 73 Gb of C plus C produced by Canada from 2020 to 2050, if we assume output falls to zero in a straight line from 2050 output over 20 years (2070 output=0) then 2020 to 2070 output would be 99 Gb. Perhaps very optimistic would describe this scenario better.

          Note this “reference forecast” is by the Canadian Energy Regulator, I believe its function is similar to the EIA in the US. I will let Canadian citizens correct me.

    2. Dennis,

       I’d imagine if humans really want to DESTROY the environment to such a level not seen since the Late Bronze Age and Ancient Roman Empire (Billion trees cut down during peak periods), then the CANUCKS should continue to cut down those LOUSY TREES to get to the high-quality TAR SANDS OIL. We can’t stop progress… ya know.

       Indeed… it’s quite amazing how much DAMAGE humans did to their environments by Deforestation, over-farming, and Goat-Sheep denuding.

       Hardly anyone realizes that the huge Italian Pontine Marshes that were drained by the order of Bento Mussolini El Duce in the 1920s resulted from the massive deforestation during the Ancient Roman Empire.

       Who needs those silly TREES anyhow. Well, it seems that the massive deforestation that occurred throughout the Late Bronze Age and Roman Empire has been a historical case study of the connection between massive deforestation and the creations of man-made Swamps-Marshes and subsequent Malaria in modern times.

       So… I SAY… LET’S CUT DOWN MILLIONS OF THOSE LOUSY CANUCK TREES… so we can produce that high-quality TAR SANDS.

       GOD HATH A SENSE OF HUMOR…

       steve

       1. Steve , “GOD HATH A SENSE OF HUMOR…”
          If he didn’t we would all be toast .:-)

          1. HOLE IN HEAD,

             You’re probably spot on. However, it seems that the Good Lord Almighty is probably holding off for the GRAND FINALE to end once and for all, the Great Homo Sapiens Sapiens Stupidity Show.

             Unfortunately, we didn’t seem to catch the CLUES the Lord Almighty was leaving us when we decided to embark upon massive deforestation, over-farming, over-grazing and now… HIGH-TECH POLLUTION on such a grand scale that we have no idea what this stuff is going to do to us in the next 20-50 years.

             Funny, we continued to cut down trees to advance our ancient civilizations right up to the point that we caused the micro-climate to go haywire as 50 % of a Tree is water… LOL. So, not only did we destroy the MASSIVE SPONGES that held the water and mitigated the climate ALL FOR US AT NO FRICKEN EXTRA CHARGE from the Good Lord Almighty, but we also caused massive erosion and silting that closed down many ancient ports because the ships could no longer use them.

             It’s not an irony that many of the ancient ruins in the Mediterranean are in landscapes that are barren, dry and lifeless. However, this was not always the case. Cyprus, the island of copper, was once known as the GREEN ISLAND.

             So, instead of learning how much we totally F#&KED up the environment… we chose rather to DOUBLE DOWN and start extracting COAL, OIL and NATGAS until the cows come home.

             Thus, the next COLLAPSE is going to be one for heard around the GALAXIES. I’d imagine if there are Aliens, they are placing their bets now as to the DATE of the collapse.

             GOD HATH A SENSE OF HUMOR…

             steve

       2. Steve,

          Much of the Canadian oil resource will be extracted by steam assisted gravity drainage (SAGD)

          https://energyeducation.ca/encyclopedia/Steam_assisted_gravity_drainage

          Not sure if this much will be developed, as I said I believe the estimate is optimistic, but Ovi may have better insight. It would be carbon intensive and would likely require Brent oil prices over $85/bo for a year or more for development to proceed.

          1. It would be carbon intensive

             People were arguing that Canadian oil was being discriminated against, when Biden asked for more OPEC exports. Dennis’ quote explains the difference: environmentalists are targeting CA oil because of it’s carbon intensity. You may disagree with them, but there actually is a rationale for the difference.

          2. Dennis,

             I have my own money in a Canadian sagd operation, at WCS 45-55 its very high return.

             1. Baggen.

                Thanks. What do you expect the spread to be in the future for WCS to WTI, seems like it has been quite volatile.

                1. Dennis,

                   It has, i hope it will get tighter ofc with demand for wcs increasing and hopefully more pipeline capacity coming online. Think the expansion in capacity on line 3 is scheduled for this year but who really knows how it will play out.

19. Shallow sand,

    Here is a chart of nominal WTI prices with monthly average price and centered 12 month average. From Jan 2011 to Sept 2015 the average price bounced around from 80 to 110 per barrel, volatility has been with us from 2005, the pandemic was a special case which may not be repeated once we get more people vaccinated (FDA approval today may help).

    Perhaps you could live with 80 to 110 per barrel? I think we will be there soon, maybe in 12 to 18 months. In the meantime find a crew, maybe poach some good employees from the refinery, find high school graduates with good grades who chose not to go to college, require drug tests, random sample. There must be a way.

    1. Forgot chart sorry

       

20. Hi all,

    I tried a different oil price scenario with oil prices falling rapidly from $80/bo (2020$) at the end of 2030 to $30/bo (2020$) in early 2035 and then remaining at that level.

    For 450 well per month maximum completion rate scenario, the ERR falls to 27.5 Gb with about 76k wells completed from Jan 2010 to Jan 2031 (about 32k wells have been completed to date). Peak is 2028 at 5434 kb/d followed by rapid decline as fewer wells are completed.

    Oil price is an important factor in the model.

    Mistake on title, wells completed from 2010 to 2031.

    

    1. Oil price scenario for Permian scenario above.

       Also link to spreadsheet showing how debt will be paid back in Permian basin by Feb 2024, based on assumptions of model. No outside financing for new wells is needed after May 2021, all wells after that date are financed from cash flow. I have added columns to show interest payments, dividend payments, income tax payments, and have added in costs for plugging and abandonment (PA). I assumed 500 million per well, but this is a guess, I am sure oil pros would have a better estimate for the average Permian well. This idea occurred to me from reading a comment by Shallow sand asking about P and A. He of course had no input into this spread sheet, the mistakes are mine alone, just giving him credit for making me think about this explicitly in the model.

       Link to spreadsheet below

       https://drive.google.com/file/d/1G20zaukKi4q6EByXLYOyJ838BvBB7ulZ/view?usp=sharing

       

21. I really admire people who confidently predict future oil production or price. I used to be a huge fan of “The Oil Drum” back in the days. Like all peak oilers I was convinced in 2005 and then again in 2008 that oil had peaked. We thought that by the beginning of the second decade civilization will be in various stages of collapse and we will be riding bicycles (if we are lucky) by now. I still recall Stuart Staniford’s ” Nosedive in the Desert” – a masterpiece filled with lots of charts, data and detailed technical information – which argued convincingly that Saudi Arabia had peaked and a crash in its oil production had begun. Who can forget Richard Simmons’s “Twilight in the Desert”?

    And yet here we are in 2021 and most flights are full, streets are filled with traffic, and gasoline is no more expensive than it was in 2005. At least in the US parking lots are filled with oversized SUVs and pickup trucks.

    In the meantime a lot of astonishing things have happened. EVs are in the early stages of mass production and 200 mile EVs are increasingly affordable. Their price will reach parity with ICE cars by 2025. It is cheaper now to produce electricity by exposing a PV panel to the Sun than by burning coal. The cost of storage too is rapidly falling. We are maybe 2 or 3 years away from truly autonomous vehicles which will make car ownership obsolete. Maybe oil will peak someday but who will care if by 2030 90% of VMT is by autonomous EVs?

    1. And yet here we are in 2021 and most flights are full, streets are filled with traffic, and gasoline is no more expensive than it was in 2005. At least in the US parking lots are filled with oversized SUVs and pickup trucks.

       And yet we find April 2021 production down 9,321,000 barrels per day below the November 2018 level. How in hell can that happen if peak oil is just a fucking myth as your post seems to suggest?

    2. Suyog,

       I am not at all confident that the scenario above will reflect the future as we don’t know future oil prices costs, economic output, technology, political climate, etc, as well as all the unknown future developments we have not even seriously considered (such as a Worldwide pandemic which was not really on the radar in August 2019, just 2 years ago).

       A scenario is simply a what if exercise. What would output look like if the USGS mean TRR estimate is correct, oil prices are what I have assumed, costs rise at the general rate of inflation (real costs are fixed), interest rates are 7.5% annually, inflation rate is 2.5%, discount rate is 17% (nominal rate), new well EUR in Permian basin starts to decrease (for a fixed lateral length and well spacing) starting in Jan 2020, etc.

       Any or all assumptions are likely incorrect and the probability that any chart I create of future output in the Permian basin has a zero probability of being correct.

       Why? It is very simple from a statistical perspective. The number of possible future scenarios that could be created is infinite. Draw a sample of one scenario from an infinite set of scenarios and we have a probability of 1 divided by infinity which is equal to zero.

       So actually I guess I am confident that the future will not be represented by the chart above, it is simply one possible future of an infinite number of possible futures.

       1. Dennis,
          Your effort is commendable and I have learnt a lot from you and others. Please keep up the good work.

       2. This is a wonderful summary of just how difficult this subject is.

          It’s also alarming, because we’re essentially running blind against an inevitability.

22. Peak oil is not a myth. Since oil is non-renewable it’s production must obviously peak some day. However will it cause a collapse in industrial civilization as most peak oilers believe? I don’t think so for the following reasons:
    1. For starters we don’t know when oil will peak. It’s production has fallen and then risen again to new peaks in the past. A lot of smart people were convinced peak was in 2005 and then again in 2008 and so on. Not even the experts in the industry anticipated the US doubling its oil production in a few short years by producing tight oil. Who is to say that other countries don’t have tight oil or that technology will not improve and let us produce it profitably at $80-$100/barrel?
    2. I am astonished that the price of renewable energy and Li ion batteries has collapsed by 90%-95% in a little over 10 years. Are you not? The price continues to fall. I can buy a EV for $25000 today that can travel for 200 miles. Their price continues to fall as mass production begins. In a few years used EVs will be available for $10000.
    3. I am astonished that cars can drive themselves today in a sunny day scenario. Granted we are not at L4 yet but I think MobilEye will get there by 2023. This makes car ownership obsolete. When was the last time you bought a CD or a DVD?
    Combination of autonomous EVs, cheap renewable energy and cheap storage will make peak oil irrelevant.
    We just need 10 more years to get there.

    1. A lot of smart people were convinced peak was in 2005 and then again in 2008 and so on.

       You need to look at what and what type of reserves exist or are likely to exist today to draw an intelligent conclusion as to when peak oil will happen or has already happened. What people predicted in the past is irrelevant.

       1. Frugal, I agree. However that is exactly what very smart and knowledgeable people like Richard Simmons did over 15 years ago and they got it completely wrong. I also don’t recall anyone in the industry predicting tight oil revolution in the US before it happened.

          1. Yes,it’s remarkable what we don’t know.

          2. Suyog,

             You mean Matthew Simmons.

             1. Yes you are correct. I meant Matthew Simmons.

                1. SUYOG,
                   While Matt Simmons got the peak oil date wrong, he was one of the first persons to intelligently question that Saudi Arabia may not have all the oil that they claimed to have in their various oil fields. I know it peaked my interest on possibility of peak oil and many others as well.

          3. Suyog , 15 years ago the drillers and the oil industry were aware of shale oil and HZ drilling( the general public not) . What they did not know 15 years ago was a financial engineering tool called ” QE infinity ” . If you were aware of this then all here can sponsor you as the next FED chairman after Powell’s term ends . They did not make a prediction because it was uneconomical then and it is uneconomical today as the industry drowns in $500 billion of unrepayable debt . Shale play has been the burning of paper in exchange of low energy density oil compared to conventional crude . I am not complaining ( couldn’t get a better deal) just clarifying . The problem is that instead of using this extension to do some real downsizing the world went on an an even bigger bing/ fling like low cost airlines , bigger SUV’s etc .

             1. Hole in Head,
                The bottom line is that oil did not peak when most peak oilers thought it would. They were wrong (doesn’t matter why).
                If shale oil is uneconomical it is because the price was too low. Is it economical at $100/barrel? What price do we need to make it economical? If by 2025, 50% of the VMT is by EVs, do we still need shale oil? The point is that the high price of oil in 2008 created the shale oil and shale NG industry and that bought us sufficient time to transition away from oil. We are not riding bicycles today because gasoline is not available and civilization did not collapse.

                1. Suyog , ” They were wrong (doesn’t matter why). ” . It does . I will give you an example ( I can give many ) . Roger Federer made more money than Rod Laver in tennis . Laver is the only man to have won the Grand Slam twice . In cricket Sunil Gavasker made less money than Sachin Tendulkar though Sachin acknowledges that Sunil was a better batsman . Why ? Both Laver and Gavasker played when there was no professional sports . So different era’s , different measurements . I would really like to know, would Bill Gates measure up to John D if he was born in his time zone . Shale is uneconomical at $ 100 . As Ralph Nader said ” Unsafe at any speed ” . At what price is it economical ? I don’t know , all is smoke and mirrors . Helms at CLR said they were economical at $ 30 . Maybe $ 200 . Your guess is as good as mine . Lucky we are not riding bicycles . Do you want to go there ? I and most of the world doesn’t . As I said shale was a good deal ” paper burning in lieu of energy ” . Collapse is a process and not an event . Enjoy the journey .

                2. Suyog,

                   See my breakeven analysis for the average 2019 Permian basin well, breakeven oil price assuming breakeven means the discounted cash flow over the life of the well pays the full capital cost of the well (and any associated overhead). At an assumed annual discount rate of 30% and assuming NGL is sold for 33% of the price of barrel of crude and that natural gas sells at $1.80/MCF and well cost is $10 million, royalty and tax payments are 28.5%, and average OPEX per barrel is $14/bo over the life of the well, I get a breakeven oil price of $62/bo at well head.

                   See link at following comment (linked below) and also see LTO Survivor’s response just below that comment.

                   https://peakoilbarrel.com/april-non-opec-oil-output-declines/#comment-723819

    2. A class of oil did peak in 2008: so called conventional crude.

       What is changing is our understanding of the economic consequences of peak oil. I no longer see peak oil as an investment opportunity. I see peak oil as an investors nightmare: there is no profitable investment. Only shifting values supported by central bank policy. Flipng houses now makes more money than most jobs.

       Peak oil is about extraction costs rising faster than market prices which will lead to chronic economic contraction. The most important economic problem today is figuring out how to satisfy human needs without economic growth.

       1. All resources are limited. As prices rise, alternatives become available. In a free market, peak oil doesn’t have to mean “chronic economic contraction”. History shows it means opportunity.

          Looking forward to solar powered EV’s and clean air to breath

       2. Schinzy, perhaps conventional crude oil did peak in 2008 but it was irrelevant. We still have BAU and are in the early stages of transitioning to EVs and renewable energy.

          1. No , we don’t have BAU . Commercial airlines bankrupt Air France , KLM ,Qantas , JAL , Air India , Cathay , etc . I could continue and fill the post . Municipalities bankrupt Charleroi , Leeds etc all that had the low cost airlines . Cruise lines bankrupt Carnival , Stella etc , Boeing and Airbus are infact bankrupt kept in the ICU by bankrupt sovereigns . Unemployed 35 % in South Africa , 500 million in India , 30% in Greece ,30% in Italy , 12 million USA . Europe hides unemployment under it’s unemployment schemes . I can go on and on . We are now in phase 1 of the collapse IC which has been staved off by trillions in printed money but that is over . We are now entering the second phase of collapse which is shortages e.g semi conductors , food (UK), etc . Are you aware that Toyota cuts it’s worldwide production by 40% because it has no access to chips ( not potato ) ?
             Transitioning : I think it was a gentleman by the name of Richard Helms who said we need 20 years to transition from one energy source to another . Well we don’t have that time facility anymore . Oh , by the way the tires on the EV use 4 gallons of oil each and the roads the EV will drive on is asphalt a product of oil refining .
             Last message ” If it has not happened to you ,it does not mean it’s not happening ” . Take care and be well .

             1. Today’s tires are made from a byproduct of burning fossil fuels. It is called black carbon. Going to have to reinvent the tire.

                My guess is what ever they fine to substitute for black carbon won’t be near as cheap or abundant.

                1. Hey HHH , let us get another FED program started to do this . 🙂 , 🙂

                2. There will be enough oil for the use as chemical feedstock still in 200 years. Just not enough for everyone driving a gas car.

                   Even for planes there are possible sollutions. Boeing is looking for biofuel, and airbus for hydrogen planes. Both things will work – only less people will fly less cheap in the future. So less flying.

                   Peak wealth has been in Germany in the early 80s. One middle class income could build a house and finance 2 cars. We’re long past this. So we have “collapse” the last 40 years.

                   Some urban people already have no car because they can’t pay this. With lot’s of green propaganda this feels better.

             2. “Oh , by the way the tires on the EV use 4 gallons of oil each and the roads the EV will drive on is asphalt a product of oil refining .”

                Classic fallacy- oil is about to disappear 100%.
                In reality, as oil gets more expensive it will be used more and more for applications that are very difficult to replace, such as in the petrochemical feedstock industry or in the farming sector.
                And less and less percentage of the product will be used for applications for which there is a viable alternative- such as light transport (which is the biggest single use).

                1. Hickory,
                   I agree, the tire industry won’t save the oil industry as vehicles move to electric drive trains. That’s a pipe dream.

                   Also as solar and wind spread, there will need to be a huge overcapacity to deal with intermittency. So there will be times when there is huge overproduction of energy. One solution is curtailing production. A better idea is using intermittently available energy to produce bulk chemical from scratch instead of using hydrocarbon feedstock.

                2. That wasn’t quite my point Alim…
                   I was referring more to the short term (10-30 yrs) during which shortage of oil will result in mechanisms (especially price, but also policy) that shifts the remaining oil toward the most important uses rather than for routine transport.

             3. Hole in Head
                We had BAU until 2019. Obviously Covid seriously damaged the economy in 2020. Oil scarcity has nothing to do with it. Since 2014 oil has been cheap and below $100. Wait until 2030. Virtually all non-aviation transport will be electric and virtually all electricity will come from SWB (Sun Wind Battery). There will be no collapse caused by oil depletion.

                The peak oilers got it completely wrong 15 years ago. Not only did they fail to anticipate shale oil and shale gas, they got conventional oil wrong too. People like Simmons predicted a crash in the Saudi production which never came. How could the industry insiders and experts get it so wrong? What did they miss? What are they missing now?
                They have lost all credibility.

                By the way you sound like I used to back in 2005. LOL.

                1. Suyog , ” By the way you sound like I used to back in 2005. LOL. ” 🙂 . 2006 was when I came first across peak oil ,so I was a beginner then . We are in 2021 , a lot has changed , a lot of water under the bridge since then . Shale , QE , wars and a couple of billion humans added to the equation and now a peak in 2018 (at least till unproven ) . Anyway welcome to the blog and please continue to post since you go a long way back on the subject and contribute to the discussions . Tks .

                2. “The peak oilers got it completely wrong 15 years ago. … They have lost all credibility.”

                   “Wait until 2030. Virtually all non-aviation transport will be electric and virtually all electricity will come from SWB (Sun Wind Battery).”

                   The irony of this is just astonishing. As is the cheek.

                   You have failed to learn the lesson that they so bitterly had to learn.

                3. Mike B,
                   Technology cost curves are well known, understood, and predictable. Resource extraction is a different matter altogether and prediction is far more complicated with human factors (politics, secrecy, social unrest, government policy, etc) involved.
                   The cost of Li Ion batteries is falling by 20% per kWh per year. If at all there is a surprise it will make batteries cheaper if there is a technology breakthrough. But even without any new breakthroughs the cost of battery will be $30/kWh by 2030. At that price point a Made in China EV with a 200 mile range will cost $10,000.

                4. Suyog , China EV at $ 10000 .??? Do you follow China politics ?? Have you read Xi Pings declaration at the last meeting of the CCP ? I am sure you have not so let me fill you in .
                   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 .
                   Suggested reading ” Who will feed China ” by Lester Brown .

                5. Hole In Head,
                   You keep missing the point. If China doesn’t build the $10000 EV, Mexico, Thailand, Vietnam, India, Brazil, Czech republic or Rwanda (they are doing surprisingly well) will. They are now building Giga factories in India. Maybe the US will build it for $15000. So what? The point is that the collapse in the cost of renewable energy and storage means that in about 10 years we will no longer need fossil fuels for generating electricity or powering non-aviation transportation. And this will happen without any technology breakthroughs.

                6. Suyog , heck what are you talking about , India ???? 1.3 billion people 800 million are now living off free rations of 5 Kg of wheat / rice PER MONTH FOR A FAMILY OF 4 . That is 2/3 rd of the population . 50% of the women and children are malnourished . Gigafactories ?? Which city in India ? Please enlighten . You just picked countries by throwing darts at the map of the world . Czech republic .??? Are you aware of the demographics of East Europe ?? I lived in Budapest for 15 years . I know what it is like . Today my old associates can’t find a competent plumber , electrician , carpenter . All the young are gone . The Audi plant in Gyor (Hungary ) can’t get enough workers . Rwanda of all the places . The country where a genocide of 800000 tribals was done . Vietnam has said it has no more interest in expanding industry because they have no more land to convert from farming to industry . Mexico , Brazil then why not Tonga , Maldives and Tuvalu that will be underwater in 10 years time . You are an old timer so please verify the facts before posting ” pie in the sky ” solutions .

                7. Hole in Head,
                   I give up because now you are beginning to sound like a loony (no offense). Essentially what you are saying is that although the price of renewable energy and storage technologies will collapse we will not make the transition to EVs and renewable energy because the world has run out of land to build factories and competent people to run them.
                   Do you have any idea how utterly ridiculous that sounds?

                   Looks like you are completely identified with this idea of “collapse” which is a secular version of “rapture/second coming” that fundamentalist Christians are looking forward to.

                   Anyway RIL is building 4 giga factories in India and Tesla will build one in Karnataka.
                   https://www.news18.com/news/tech/explained-what-are-gigafactories-and-rils-big-plan-to-build-four-of-them-3887561.html

                   The genocide in Rwanda was 30 years ago. They have come a long way since then. Kigali now looks nicer than Detroit. Rwanda has the potential to become Africa’s Singapore.

                   I am done with this topic.

                8. Suyog , ok with me . Obviously you have no answers to the issues raised by me . Last parting message News 18 is a TV channel owned 100 % by RIL so it is nothing but a promotional for Mr Mukesh Ambani . Differentiate between news and propaganda . Mr Musk’s application has been thrown in the waste paper basket as he put forth heavenly demands which were too much for the govt to swallow . Be well .

                9. @Suyog: I can’t speak for Hole In Head, but the idea that we are going to continue BAU because we have PV cells, wind turbines and EVs is ludicrous on many levels. Yeah, sure, you solve for energy (let’s just assume that we magically transition without a hitch, not at all likely). What are you doing about wastes? Ecological decline? Water tables? Minerals?

                   Just about the worst thing for the species and planet: finding a cheap, abundant source of energy to exploit like fossil fuels. Pretty sure the biosphere will have something of a bad reaction to that.

                   Collapse isn’t some secular religion. It’s physics. Or, hey, tell me how we sustain 3% growth of the global economy to keep the people happy. Indefinitely. The whole world is predicated on us consuming en masse with a financialised capitalist system that very much dislikes speedbumps in asset growth. I hate to break it to you, but many in the supposedly well off West are actually living VERY precariously. The UK has food banks, for fuck’s sake. That wasn’t a thing even ten years ago, now they’re on every street along with the stench of decay as our streets falter. And this was pre-COVID. I don’t know anyone who owns a car that isn’t on PCP. There are fellow colleagues still living with their parents or renting in their 30s. Commuting takes people into their overdraft with petrol costs. But I digress. It sounds like you’re clearly in some bubble where you don’t actually know what most people are dealing with. Because it is decidedly not BAU.

                   Unless you believe in infinite growth being possible, I guess. In that case, one would think the religiosity is not with your detractors in this game, but with the person denying reality.

                10. Kleiber,
                    It usually helps to interpret the other person’s statement within context 🙂
                    All I said was that it is nearly impossible for humans to predict date of peak oil and that it is increasingly irrelevant since we are going to rapidly transition to EVs and renewable energy during the rest of this decade.

                    I never said we (humans) don’t have problems, infinite growth is possible or desirable, or any of those other things.

                    I agree with you that the standard of living of an average person living in UK, EU or NA has declined. But remember that over a billion people in Asia have been pulled out of poverty and a majority there have seen their standard of living rise. They certainly don’t see it as a “collapse” but rather call it “development”. The decline of West has nothing to do with the price of oil. It is because the West no longer has colonies and no longer has a monopoly on science, technology, and knowhow. If we somehow reverse this trend so driving becomes affordable again and your colleagues can afford to own their own homes, wouldn’t that make the environmental problems worse? If you truly desire a more healthy ecosystem then you should welcome declining living standards. After all it is human consumption that is doing the damage.

                    I feel that to some extent we can have our cake and eat it too. Cheap non-polluting energy, cheap non-polluting transportation and cheap protein (protein produced by precision fermentation will be cheaper than animal protein in 5-7 years) is good for the environment and will raise living standards all over the world too. Note that getting rid of animal agriculture (as an outcome of cheap proteins synthesized via precision fermentation) is a massive benefit for the environment.

23. Up above LTO Survivor said “When the world realizes that fossil fuels are not limitless and begin to diminish in supply relative to demand, the sentiment will only then begin to change and capital will come back to enjoy a higher return.”

    And i completely agree. Energy shortage concerns will be prioritized over environmental concerns, of course.

    What I wonder is where will that capital go? Will capital find a home in the oil industry?
    After the disaster that shale has been as an investment for so many, it seems that there will more caution, with more certainty of good return on investment expected.
    Where are the projects that are currently starved for capital, besides Venezuela and Iran?
    Are the places with oil reserve in a holding pattern awaiting $100+ oil really very significant in quantity?
    If so, it makes absolutely no sense for the oil majors to be scaling back so much, as far as I can figure.

    And sorry to point this out- If oil prices go high and are sustained, it will end up channeling a lot more capital into other forms of transport energy as well. For example, there is a car outside my window that costs $3.08 to go every 100 miles, give or take a few pennies. [Our state has the same electrical rate as the national average at $0.11/kWh. The car I refer to is a very fast midsize AWD sedan].

    The dynamics of the whole situation are going to be dramatic starting pretty soon I think.

    1. Demographics is going to play huge role in capital being available. World is heading into mass retirement. Consumption growth isn’t really on table. We will be doing good if oil ever just makes it back to $80

       Only the US and New Zealand have any sizable millennial generation. And New Zealand don’t matter.

       1. So, you think that
          – capital won’t be available since people are older in the world- [even though most capital is in fact held by those over 50, and there is a tremendous amount of capital looking for growth opportunities].
          – world demand has peaked for oil. [There are a couple other people who agree with you].
          -Oil will stay below $80. [I’d love to take the opposite side of that trade , and I will at the proper moment as best I can identify it].
          -And that only US and NZ have a sizeable millennial generation …[Seriously?]

          Not that this particular fact matters much at all in the issue I raised (where are the oil reserves located that are silently waiting for capital investment?),
          but “About 58 percent of global Millennials live in Asia, including a whopping 385 million in India—by far the largest domestic population of Millennials in the world, and accounting for 19 percent of the global generational cohort. The next largest regional concentration is in Sub-Saharan Africa, which accounts for about 13 percent of all Millennials. This is hardly surprising given that these two regions also have the greatest overall populations, but it does point to their continued importance to consumer spending and potential economic growth in the coming decades.”
          https://www.kearney.com/web/global-business-policy-council/article?/a/where-are-the-global-millennials-

          1. Let me clarify the myth of the 385 million millennials in India that are supposed to be potential carriers of growth . The 385 million are semi illiterates , illiterates , unemployed and broke with no future . A glimpse on their lives . They collect around street corners , roundabouts looking to work on a daily wages . Jobs are lawn mowing , tree pruning , white washing sidewalks / walls , loading/unloading trucks etc . Now 2 more jobs have been added sloganeering and rent a crowd by the political parties . Daily wage is $ 5.50 per hour . From 7.30 am to 10 am they are on the street corner . If they get no job then they have a “Chai” ( tea) on the corner tea stall and go home to return the next day . The only avenue open to them was the army , police and railways . The govt has stopped recruiting in all the three sectors . Army was a big recruiter but the govt cutdown because 65% of the defense budget is now taken by salaries and pensions .
             In 2000 when India was going gung ho all the MNC’s were looking at the ” Demographic dividend ” . Only Prof Amartya Sen ( Noble Prize for Developmental Economics ) warned that the ” Demographic dividend ” will be a “Demographic disaster ” if no jobs are generated . Unfortunately he has turned out to be correct . The MNC’s have cut down all CAPEX and expansion .
             Covid has exacerbated the problem . Every year 10 million enroll in schools and colleges . Last two years schools , colleges are shutdown . No classes ( only 23% have access to a laptop and internet ) . The govt gives no data . Where are these 20 million youngsters ? What happened to them ? No answers only silence .
             This is the reality on the ground .

             1. They can’t afford to have kids either. Which means the generation after them will be smaller. Less consumption. Low prices. Less demand. The money they do have will be spent on consumption not raising kids. It’s I one time thing they don’t get to do it again and in 25 years will be where China is now facing permanent population reduction. And a massive older population compared to younger population.

                1. HHH , they will have kids , afford it or not . Society structure is such . As someone said ” Woman literacy is the best condom ” . In India woman illiteracy is about 70-75 % so no reprieve . Too many problems there, so I will sign off on this . I have another question . In my opinion the FED will not / cannot raise interest rates and will not/cannot stop money printing . If it does any of the two there will be an overnight crash . It’s only route is now inflation/stag inflation which will then end in a long term ( for ever ) deflationary cycle . What do you think happens to oil price in such a case ?
                   P.S : Taper talk is only jaw boning . An excuse will be found not to do it . Even if they do it on paper they will create a SPV or something to continue with money printing . Powell is in position to stand against the trio of Biden, Yellen and Pelosi .

                2. I think the more important thing the FED will do is raise the interest rate it pays for “cash” in reverse repo market. And they are going to do it to put a floor under short term interest so they don’t go negative. Money market funds will start parking their cash at FED instead of buying short term debt or T bills from US treasury. Since interest paid at reverse repo will be better than owning short term debt.

                   Pushing everyone further out on duration curve. Putting downward pressure on Long-Term bond.

                   It going to be dollar bullish as dollars get locked up in banking system. It’s deflationary. Might see a dollar shortage outside US I’d look towards Europe in particular.

                   Taper is going to happen. 7.5 million people lose both federal and state unemployment benefits on September 6 so a lot of people will be taking a job. FED will taper and something somewhere will break over next 6-8 months or less.

                3. HHH , I know the FED is going to raise interest rates on the repo . i also agree with you on both the points first the flow of dollars to the USA from the ROW and also Europe is the place to watch where the turmoil from the FED’s action will surface . You haven’t answered my question . What does it do to oil prices in the scenario that I have laid out . The raising of interest rate on the reverse repo is a done . The FED cannot say ‘no’ to money printing if the Congress ( Pelosi & co) pass trillion dollar infra and stimulus legislation . Powell is up for reappointment , he has to get in bed with Biden, Yellen and Pelosi . No interest rate hikes and letting off the pedal on the printing press .

             2. Correction , the wages are $ 5.50 PER DAY and not per hour .

                1. So HHH and HoleinHead-
                   you guys are saying that you have absolutely no idea where the capital starved undiscovered or underdeveloped big reserves are (outside Iran and Venezuela)?

                   I suppose Canada has a lot in tar sands, but they seem to have enough capital for the development and production at this time. And oh yeh, there is Russia. I heard they are in pretty decent capital shape currently, but my info on that is merely hearsay.

                2. Hicks , there are no economically undeveloped and undiscovered resources on land . The majors and NOC ‘s are not crazy to go into deep-water and Arctic to seek oil . All is mapped with the current satellite , seismic , sonic and 3 D technologies .
                   Regarding Canada sands they have their own set of problems that will put a natural cap on their production . ESG , pipeline constraint , environmental activism , political pressure are just a few . Russia has peaked . The Big Guy at Rosneft and the Minister of petroleum have stated so . If you are thinking about the Brazhov shale . Forget it , it will never be devolped .

                3. I was actually hoping for a reply about this question from someone with knowledge of the oil industry. So it will remain an unanswered rhetorical question it appears.

                4. Hickory
                   Suggest you read up on the emerging Vostok project coming out of Russia’s arctic region.
                   Numbers thrown out suggest ~50 Billion barrels of oil with the terms ‘reserves’ and ‘resources’ used interchangeably. I suspect that number may apply to Original Oil in place.

                   China just announced the presence of hydrocarbon shale in its Daqing feild with ~8 Billion barrels of oil potential. Again, the recoverable amount is subject to speculation.

                   Little is mentioned of Brazil’s offshore pre salt resources.
                   Steady development looks to produce ~1.3 mmbd by 2025.
                   Total OOIP said to be around 8 bbl.

                   Interesting status of the Bazenhov. It produced at a rate of ~20,000 bpd in 2020.
                   Gazprom Neft plans on increasing its output from the current ~2,000 bpd by tenfold by 2025 as its development costs continue to drop.
                   Stated recoverable size of the Bazenhov oil varies from 120 Billion to 440 billion barrels.

                5. I think there is plenty of evidence that QE and large government spending isn’t inflationary. They have been doing it in Japan for 30 years. Not a whole lot of inflation there. Look at how large % wise the ECB balance sheet is to their collective economies. % wise it’s a good bit larger than the FED’s. Not much inflation their either.

                   QE tanks the velocity of money as it traps dollars in the banking system. QE is deflationary. We would need central banks that can actually print money or legal tender to have runway inflation. They use forward guidance and interest rate expectation because they can’t actually print money. If they could print money there would be no need for all the other BS that the do. They’d just print the money and be done with it. QE is basically a Bank ledger. And so are the IMF’s SDR’s neither is real tender legal money that anybody can take an go make a purchase or pay a debt off.

                   I’d don’t believe a lot of inflation would come from this purposed 3-4 trillion dollar spending bill. Don’t believe it would have a huge impact on oil price. Might even be negative for oil price because of how QE works.

                6. HHH: You’d be correct, since the inflation rate would have been far higher than it is already. What you’re seeing is basically down to the pandemic and other effects causing supply constraints, among other things. QE doesn’t impact such metrics, and the TARP would have caused waves back in 2008 were it the case.

                   In the UK, as with a lot of other places, we’ve a record number of job vacancies, yet also need 100,000 HGV drivers to be able to continue keeping shops stocked. Come Christmas, bad things will happen.

                   We still have the semiconductor issue, which is nowhere near being resolved since capacity cannot be just brought online in a few months.

                   And you still have the actual virus impacting on places around the world.

                   But raising interest rates will be just as stupidly damaging as it was pre-GFC. It will absolutely tank the economy and do nothing to allay fears of inflation if it’s down to physical supply, not money sloshing around.

                7. @HHH

                   It’s not inflationary, because inflation is measured with normal people demand. And this flood of money does’t arrive there.

                   It inflates asset prices. Houses, stocks, bitcoins, art, antics – everything valueable is rising. And that’s why QE can’t be stopped anymore. The FED tried before “taper tantrum” – but they now now they get the mother of all stock(and houses…) crashs with the unwinding of margin speculations when they stop the music. Margins and real estate credits will not be paid back, and the banking system will implode. So they keep QEing.

                   Now they just speak about tapering – perhaps they manage to taper a bit. But QE to 0, I don’t think this is possible anymore(without a currency reform).

                8. EULENSPIEGEL,

                   Ask yourself how does QE inflate asset prices. When no actual money ever leaves the FED. It’s not billions or trillions of dollars leaking out of the FED into asset price. QE forces everybody into risky assets because you can no longer find yield in “safe” government bonds. If your a short term investor you made plenty of money in bonds as yields sank towards zero you make capital gains as price of the bonds goes up. That is largely over as not much more room for yields to fall. Not much assets appreciation left to do in bonds unless negative interest rates are in the cards. Which FED doesn’t want for good reason as US treasury bonds, notes and bills are the collateral underlying the entire monetary system.

                   Most of the Eurodollars or dollar denominated credit that the world outside the US uses. The collateral used to make these loans is US treasury bonds ,notes, and bills. Did you know they rehypothecate the same collateral they admit up to 6-8 times? In reality it’s double that. So you have the same collateral being used for if you go by just their numbers 6-8 loans.

                   This is how dollar shortage shows up in a hurry outside US when loans are defaulted on or collateral becomes impaired.

                   What is happening at the moment is US treasury has shrank it’s TGA account down to pre-covid levels. They aren’t issuing near as many bonds, notes, and bills at moment.

                   So there is less collateral available to make new loans. There is a whole lot of collateral parked on central bank balance sheets due to QE that is not available for making loans. QE locks up collateral. QE is a problem not a solution.

                   No safe way for them to exit though. It’s guaranteed something breaks. But continuing on same path is also guaranteed something breaks.

                9. Coffee , Hicks asked for undiscovered and undevolped reserves . That is meaningless without a price . The plays you have listed have been posted here earlier also and all were termed as ” uneconomical ” by the readers .The keyword are ” economical or uneconomical ” . At $ 65 WTI all are uneconomical . Maybe $ 150 on a sustained basis ??.

24. Got some hedging quotes this morning.

    A calendar 2022 $59 WTI put costs $6.09 per barrel.

    A calendar 2022 $53 WTI put costs $4.07 per barrel.

    When we bought puts in 2003 and 2004 we were paying $1 /- for calendar year puts for the following year.

    For example, if we hedged 3 contracts per month for a calendar year, that would be 36,000 barrels. Our premium paid up front was $30-40K. If we wanted to do the same now it would be $144K-216K, depending on how much protection we wanted to buy.

    Of course, oil price hedged matters, $53 WTI was the lowest on the sheet, but I assume you could go much lower for a cheaper premium.

    I assume this is evidence of increased volatility in oil prices?

    1. You must be careful your definitions.

       Volatility now means prices going down. Stability means prices going up.

       Though that fits your scenario and maybe that’s what you meant. A more extreme expectation of lower prices.

       1. Watcher, you must be careful with your definitions. That is not at all what volatility or stability means.

          Volatility means prices are bouncing up and down like crazy. In other words, prices are very volatile. Stability is the very opposite, prices are steady, not jumping up and down like crazy. But moving up or down at a slow steady pace.

          A volatile market causes option prices to inflate. Options in a steady market go at a much lower price.

       2. Watcher

          Volatility is just that; without the inferences of subjectivity regarding those who would profit from high prices, or more precisely, greediness.

          This industry has been my home and livelihood for over 40 years and I can say without pause that price movements either way bring havoc to my world and that of other small producers. Obviously when prices fall we profit less. When prices rise too much, every shoe salesman in the world gets into the “oil business” and messes up the system from stem to stern. Money, services, supplies, logistics, regs, you name it, are altered to fit the jiggy new drillers and their money fountains. When the price suddenly drops and many of those guys disappear or are absorbed the system doesn’t reset to previous conditions. I call it the ratchet effect. In the early 2000s, I had several discussions with industry contacts about the mess that prices increasing from $30 would create. Call me Nostradamus!/s Surely every industry has the same issues.

          Volatility is effectively instability not instant gleeful profit.

          1. Oh for God’s sake, just google it:

             Market Volatility Definition:

             Volatility is often measured as either the standard deviation or variance between returns from that same security or market index. In the securities markets, volatility is often associated with big swings in either direction.

             Volatility does not mean either profit or loss, it can mean both. In a volatile market, the risks are much higher and the profits or losses can be much greater.

             1. Yes exact this.

                To get it for normal people: It is much more expensive to get an storm damage insurance for a house build on the florida keys where is a hurricane every now and then, compared to San Francisco. Here earth quake insurances are much more expensive as in New York.

                And options are insurances – the holder has to be paid for the risk.

                A storm house insurance is kind of put. If you buy one, you get the right “Sell this storm destroyed house for the price of a new one”.

          2. Great post!!

       3. I would qualify it as uncertainty rather than volatility. It would be interesting to know the relative price of calls with respect to 15, 20 years ago as well. Of course, one should look at the relative price of the call with respect to the price of oil. 20 years ago $50/barrel was considered a very high price.

    2. In 03 and 04 WTI was trading in the the 30 to 40 dollar range. About half of the current range. A little miss leading. That being said, peak oil with no alternative was the narrative back than. Not true today, EV’s are now an alternative. Plus, there is now high cost shale to suppress peak fears. Competition adds to invoitility.

       In the world of free markets and capitalism there are losers. It’s part of the risks that come with being an entrepreneur. You don’t always need to be able to out run the bear, just your best friend.

    3. Shallow sand,

       Keep in mind inflation. $100 in 2003 dollars is the same as $140 in 2020 $ so 40k in 2003 would be about 56k today. Also prices were less volatile in 1993 to 2002 period so perceived risk was lower.

       1. Dennis.

          I know not apples to apples due to inflation.

          Just using some real world stuff here, feel like I can contribute in that way.

          I may not seem too smart, but I did graduate from a fairly difficult undergraduate program and a fairly decent law school.

          I also have been in many high pressure situations during my real career. I call them “nut-cutters.”

          Helps me in golf. I play in a evening league and some tournaments at our golf course. Between real job pressure and working interest oil pressure, I do not feel golf pressure. Kind of enjoy putting the heat on people who haven’t been where I have, in a for fun way, of course.

          Be happy people like Mike, Rasputin and LTO Survivor post here. They know the US onshore oil industry. George K and S La Geo the same for offshore. There have been others from time to time that have showed up. I bet all have been through some nut cutters. I am sure other posters here have, in their particular fields.

          I’ll just keep trying to give some real life stripper examples, and hope people know that I am usually aware of things like inflation, etc.

          Finance 235 was a tough class. I did get a C . The rest of my finance classes were A or B.

          Funny thing, I got a C in FIN 235 because my Chinese TA panned my analysis of Occidental Petroleum. He gave me a freaking C-. Maybe I didn’t do all the quant stuff like he wanted it, but my conclusion was “Sell.”

          Look at the chart on OXY since 1988. Barely doubled your money in nominal terms. What would that be in real terms since 1988? Of course I am not including dividends. Tons of places one could have done better! LOL!!

          1. Shallow sand the oil business has been a lifelong endeavor of nut cutting experiences but I wouldn’t have traded anything for my career. I have enjoyed the really decent and smart people I worked with and learned from in pursuing my passion of looking for, sometimes discovering and producing millions of barrels of buried treasure. While my company just sold, I recently raised some money with some very bright young guys to develop a gas field in Texas and looking to buy another opportunity in Oklahoma. I really enjoy the oil field vibe because it is not about quants or models but truly about passion and learning.

             I think much of the value or lifestyle we have enjoyed in the 20th and 21rst century is owed to cheap abundant fungible fossil fuels. Energy=economy. I sincerely hope those who post optimistically about EVs and solar and batteries are spot on regarding the coming transition to clean, abundant cheap energy. I humbly bow to those advocates on this site who have far greater knowledge than me regarding alternative energy.

             My input is focused solely on oil and gas and what the predominant issues confronting managers, CEOs, Investment bankers, politicians etc with respect to the fossil fuel industry. My concern is really not about future production chart predictions or price predictions as much is it is about the limitless oil myth that is continually perpetuated and promoted by those who believe that it is merely a function of price which will automatically create more reserves out of thin air or believe that there is another deposit like Gahwar just waiting to be discovered. The shale revolution just stalled the inevitable peak oil theory and I believe we are much closer to that day than anyone wants to fully accept. My concern is for humanity and it’s ability to cope with a world of a depleting pool fossil fuel while attempting to transition to the proposed new green energy initiatives. There will be a cost and I am not confident that we are prepared for the sacrifices ahead. I am however optimistic and hopeful that breakthroughs will come about in the Alternative energy industry sooner than anticipated.

             1. LTO SURVIVOR,

                I appreciate the insights into your industry. I have also spoken and communicated with several individuals who have been in the oil industry for nearly 50 years. All have the same opinion about shale oil.

                It seems unconventional oil has shifted the peak and decline curve to be much steeper as well as the massive infill drilling. So, as even Ron has stated, we are heading towards the SENECA CLIFF. And, I don’t think the world has any idea what that looks and feels like.

                As for the transition to GREEN ENERGY, if there was ever such a thing, it has just a much of a chance of happening as the U.S. increasing shale oil production by another 8 mbd.

                The one thing that seems to be missing from the SMART FOLKS pushing the GREEN ENERGY transition is that it takes a massive amount of OIL-NATGAS-COAL to run the High-Tech Global Supply Chain that allows the market to manufacture WIND-SOLAR-GEO-BATTERY TECH.

                I love to see these new articles on how much Battery-Pack Power will be added to the Grid. A Battery provides ZERO POWER. It’s just another cost to switching to intermittent Wind & Solar.

                My analysis, for whatever it’s worth, shows that instead of using our last bit of OIL-NATGAS-COAL to transition to a more low-tech efficient way of living, we have gone in the total opposite direction by ramping up GREEN ENERGY that is an ENERGY BLACK HOLE, very similar to Shale Oil.

                GREEN ENERGY is just going to make the COLLAPSE of the Global Economy occur quicker than it would have if we didn’t use it.

                steve

                1. Steve, I will spare the capitalization and bold fonts, so as to not be ‘yelling’ at you.

                   I understand and agree with your concern about the dependency of industrial civilization on fossil fuel. We do part ways on the idea that developing the vast PE [perpetual energy] wind and solar reserves of this country is going to make a collapse condition occur more quickly.
                   At minimum, the development of theses reserves and the deployment of EV for light transport can extend the oil ‘lifespan’ for decades if we get serious about it- if we would like to extend this grace period. We will need all the grace period time we can get in order to adjust to a lower energy way of living.
                   I understand that you may see that as a threat since your story is all predicated on rapid depletion/collapse.
                   Nonetheless, the big utilities of the country [NEE for example] seem to be understanding the situation and are starting to take the first baby steps in developing a system which will enable parts of the country to keep rolling, and which will help leave residual oil production over the next couple decades for much more important uses than light transport. Regardless of what you or I may think.

                   For the record, despite concerns about global warming Natural Gas will be a key component of the energy systems for as long as it can be produced at a reasonable costs, as I see it. I think some places are making a mistake of retiring peaker nat gas electric facilities too quickly. Like counting your eggs before you’ve found a good basket.

                2. “GREEN ENERGY is just going to make the COLLAPSE of the Global Economy occur quicker than it would have if we didn’t use it.”

                   Spot on Steve, as usual.

                   Unfortunately most seemingly can only grasp proximate causes and effects. Hard for me to understand in truth how people cannot see further, how seeking an even higher embedded-energy techological solution to the problem caused by high energy density technology is folly. Total failure to understand a host of simple fundamentals, like net calorific gain or loss for one.

                   Most people, especially the techno-delusionists like Mr Klaus Schwab, will not recognise the world by 2035.

                   Buckle up kids, it’s gonna be a wild ride.

                3. I totally agree. Sometimes we feel like Winston Churchill must have felt when trying to warn Neville Chamberlains government about appeasement. No one wants to listen about peak oil and no one really believes that it exists. Most believe that us “oilys” have a trick up our sleeve and will bring on enough new oil to satisfy any future demand. China understands peak oil and is doing everything they can to secure longer terms sources including deals with the Iraqis and Iranians.

                   The Shale industry has brought on large volumes of oil very quickly but the Seneca Cliff is coming sooner than any understand. Companies that sell off assets to pay down debt as quickly as possible may live to fight another day but when I see that the Public Shale companies are selling for 4-5 times EBITDA less debt, I think that the valuations are pretty accurate and it does not paint a very rosy for long term supply.

             2. LTO Survivor.

                Thanks for the insights you provide.

                I wouldn’t trade the experiences I have had either.

                I also do not want to make it seem like I do not appreciate all of the people I have met and worked with in all facets of life. I truly do and I firmly believe over 95% of people deep down are good people.

                My labor rants might be misleading. Well intentioned but somewhat misguided policies during COVID didn’t help. But, I have watched over the past 25 years the blue collar worker take hit after hit. There are so many people who could be living productive lives here and throughout rural America who aren’t due largely to illicit drug dependence.

                We have a little less than 20K population in our county. A large number are 65 . Over 2,000 are under 18 or in college. So excluding them , it is horrific that we will have over 300 people arrested on felony charges in 2021, with over 95% of those arrests related in some way to meth. Those in the know estimate over 1,000 adults in our small county will use meth in 2021.

                Rigs stacked here is just a small problem resulting from this. We now have over 1/2 the students in our schools living in poverty, yet there are employers here begging for workers.

                I don’t know if you are experiencing the same issues in the shale field communities. I assume you are, given the book I just read recently giving a first hand account of the Bakken oil boom.

                That book is The Good Hand by Michael Patrick Smith. I have recommended it here before.

                1. @shallow

                   Some of the problems are of the anti drug politic and mindset.

                   Does the anti drug politic helps against drugs? No. Drugs are cool, and dealers advertise them to everyone. There are always plenty of drugs.

                   Does taking illegal produced drugs, sometimes poisonous because of primitive production, help? No…

                   Legalice the stuff, give access to clean drugs (Pervitin has been 30 year long legal here) – and make them uncool and do anti-drug education.

                   These 300 people in jail could work – and when they need the stuff they could take clean one.

                   And people who want drugs will always take them – Doesn’t matter if it is meth or moonshine whisky or magic mushrooms.

                   By the way, Pervitin was invented to work long and hard, blue collar work or military. All armies in the world still use it for special jobs.

                2. thanks Shallow sand I look forward to reading it.

             3. LTO survivor,

                I try to create realistic future scenarios so that peak oil will be taken seriously. When predictions about future oil output are consistently underestimates, then peak oil is not taken seriously.

                Unfortunately my “wildly optimistic” (this is Ron’s favorite description of almost all estimates I have made in the past) have consistently proved to be under estimates of actual production.

                An early post I did on the Bakken from 2014, see figure 5 in post for my best guess at that time.

                https://oilpeakclimate.blogspot.com/2014/02/north-dakota-bakken-scenarios.html#more

                It turns out I underestimated how long Bakken average new well EUR would remain at the 2013 level or higher, I assumed new well EUR would start to decrease in 2015, but in fact new well EUR increased through 2018 for North Dakota Bakken/Three Forks and the peak (so far) was in 2019 at 1476 kb/d. My current best guess for Bakken/Three Forks ERR is about 8.5 Gb, based on USGS mean TRR estimate and reasonable economic assumptions. This ERR estimate is roughly equal to cumulative production on Dec 31, 2019 and the proved reserves estimate on Dec 31, 2019 (total cumulative production plus proved reserves on that date was about 8.8 Gb). My best guess ERR estimate is about 8.5 Gb, perhaps a bit conservative though much depends on future oil prices which are unknown.

                Note that the Permian basin estimate uses very similar methodology. Of course it is possible that the USGS did a better estimate in 2013 for Bakken/Three Forks than the Permian basin estimates in 2016 (Midland Wolfcamp), 2017 (Spraberry), and 2018 (Delaware basin Wolfcamp and Bonespring).

                Will will know more as the future unfolds.

          2. I re-read my post and want to make one thing clear.

             I referred to the ethnicity of my TA for the reason that the University I attended had and still has a large Chinese student and instructor population. Back during my days there, Chinese professors and TA’s had a reputation of being no nonsense, tough but fair.

             In fact, I had a Chinese TA for a US History class. She was also tough, fair and brutally honest about how little we knew of US history compared to what we should have known coming into the class.

          3. Shallow sand,

             Sorry, I know you know about inflation, I just wanted to make the comparison explicit, I like to work in real dollars (or constant dollars for some year) just to take inflation out of the equation.

             When we do for your example we find that indeed the price for hedges has increased by a facot of 4 in real dollars indicating exactly your conclusion.

             I think you are very smart, sorry for having given the opposite impression.

             1. No problem, Dennis.

                I have communicated enough w you that I should have known that. You are what I’d call a “numbers guy” through and through.

                Also, I suspect my educational background and achievement pales to many posters here. Seems there are some very smart ones.

                Plus, have to admit I have forgotten so much of what I learned. I was a lot more interested in other things at ages 17-24.

                1. Shallow sand,

                   Your posts are among the best at peak oil barrel in my opinion. Based on what you have written here I would say you are damn smart. Grades in school are a poor measure of real world intelligence in my opinion.

                   I apologize for coming across as a know-it-all, relative to you, Mike Shellman, LTO Survivor, George Kaplan, SouthLaGeo, and Rasputin, I know very little. You guys are the teachers, I am the student and I am trying to get a better understanding of your industry.

                   Thanks.

25. Right now real rates of return are negative in US. Average corporate junk bond yields about 4%. While inflation is 5% if you use government numbers. That is a real negative 1% return on capital. That’s a problem that higher priced oil will not help. Again I think they will address inflation with a stronger dollar since interest rate hikes are not very desirable.

    FED has to protect corporate debt here. They don’t have a choice. And before anybody says they can just buy corporate bonds. First it illegal they need congress to change law. Second just say they did buy corporate debt and brought average yields down even lower say 3%. We’d need inflation to be well under 3% then. Or they’d have the same problem.

    If there is a true black swan out there it’s corporate debt.

26. Jeffrey Gundlach on the U.S. dollar potentially losing its sole reserve currency status

    https://redirect.is/t56wfsu

    28 trillion in debt and counting but everything is okay and peak oil is just a myth…

    1. Your link is broken. Try this one:

       Jeffrey Gundlach on the U.S. dollar potentially losing its sole reserve currency status

    2. He did not mention peak oil. You just made that shit up. Don’t try to use the authority of someone else in an attempt to promote your own bullshit ideas.

       1. Gundlach also failed to mention that if US fails to go deeper into debt then there aren’t enough US dollars made available outside US for world to function properly. As our debt is the collateral used to make the loans that create the dollar’s that the world functions on.

27. There appears to be a number of opinions here that agree that shale is a money losing proposition. Does this also include the Permian? As far as the EIA sees it, production in the Permian continues to rise at an average rate of 42 kb/d/mth since April. At this rate, it could almost equal the March 20 high of 4,235 kb/d by September.

    

    1. Nevertheless the big picture…. not much is happening.

       

       1. Ron,

          Correct, overall tight oil output has been pretty flat, though output has been higher than my model. The output may rise more quickly as oil prices rise, if completion rate also rise.

          As always trends can change to higher rates of increase or they can change direction as in early 2015 or early 2017.

28. Ron/Dennis

    Production is still rising at an average rate of 22 kb/d/mth since April. Not great but not exactly trivial.

    The question I forgot to ask above was the following. In July, according to the EIA, 263 wells were drilled and 393 were completed. So 263 were drilled and completed and an additional 130 DUCs were completed. What happens when the DUCs are finished in about 18 months. Would July production in the Permian and overall been in decline if there were no DUCs to complete. Is the EIA data giving the impression of false hope. Maybe Dennis’ model could shed some light on this.

    1. So 263 were drilled and completed and an additional 130 DUCs were completed.

       Well, that is a little misleading Ovi. The same wells that were drilled were not necessarily completed. In fact, it is likely that most of them were not completed, they just became new DUCs. Every well that was completed was, before completion, a DUC.

       Almost certainly many DUCs will never be completed. Their core samples will show that it would be uneconomical to complete them. So it is hard to say when they will run out of DUCs. But you can bet that the DUCs that are now being completed are the most promising ones.

       1. Ducs always exist because it usually takes at least 6 weeks to get the completion tools and equipment in place to finish the well. One thing is for sure, as long as there are more completions than wells drilled in a month, the number of ducs will be consumed. If there were no ducs at all and 263 completions occurred during each month, the production would be falling. One hundred extra completions per month should yield on average 900 barrels of oil per day per well. However the timing of those completions during the month and the date of first production varies from well to well and so I would anticipate the extra 100 ducs add at least 25,000 bpd per month. In other words if the completions were steady at 263, we would already be seeing a monthly decline already. Our company has been completing on average 3 wells per month and this is keeping our production flat to down at 25K boepd.

          With consolidation and mergers we should expect to see less wells drilled.

          1. LTO Survivor

             Thanks for the info.

    2. Ovi,

       Output would decrease if only 263 wells per month were completed.

       Enno Peters has a supply projection at shaleprofile.com based on rig count ( this projection assumes a stable inventory of DUCs). For 4 major tight oil basins (Permian, Williston, Eagle Ford, and DJ-Niobrara) he estimates 450 completions per month at current rig count for these 4 tight oil basins. Output would be 6316 kb/d in Dec 2022 according to this projection, output would fall from today’s level assuming no change in rig count in these 4 basins. Note that the estimated of output from these 4 basins was 6550 kb/d in June 2021 at shaleprofile.com, peak was 7779 kb/d for these 4 basins in Nov 2019.

       https://public.tableau.com/shared/5YNSMC67N?:display_count=y&:origin=viz_share_link&:embed=y

       1. Dennis , if I see the graph posted by Ron regarding ” All Shale ” he has peak pegged at 8.3 mbpd in Nov 2019 . 6.3 mbpd in Dec 2022 will be quite a fall considering Enno is using optimum inputs with flawless and seamless execution . What do you think ?

       2. Dennis

          I did not understand why there was such a difference between Enno and the EIA LTO projections. Looks like the difference is the DUCs. Learn something new every day.

          I new DUCs helped but did not have a sense on how critical they were.

          Does your model incorporate running out of DUCs over the next 12 to 18 months?

          1. Ovi,

             No I assume more wells will be drilled as DUC count falls to the level needed for 6 months of inventory, lets say 450 wells per month is the projected future rate of drilling and 6 months of inventory is considered adequate, that suggests anything below 2700 DUCs in the Permian would lead to higher horizontal oil rig counts to allow 450 wells per month to be drilled. In May 2021 shaleprofile has the DUC count in the Permian at about 2100. If the completion rate is 350 wells per month (that is the assumption of my models for the rest of 2021) that works out to exactly 6 months of DUC inventory. So perhaps drilling rate will increase. If not output will decrease.

             1. Ovi,

                I suggested 6 months, but realize now that LTO survovor said 6 weeks not 6 months, so let’s say 2 months of inventory would be the minimum, for the Permian this would be perhaps 700 to 1000 DUCs, in May shaleprofile had the Permian DUC count at about 2100, so perhaps an excess of 1200 DUCs above minimum needed. At 350 completions per month we would be at the minimum by late September unless drilling rate increases. I expect either completion rate will decrease or rig count will increase and think it more likely we will see an increase in rigs and spuds.

29. To partially answer my question and show why I asked is shown below in the chart for the Permian.

    The 292 kb/d output increase in August would be reduced by almost 1/3 because 1/3 of the new wells were completed DUCs. So the 292 kb/d output increase would be reduced to 195 kb/d from the drilled and completed wells. This would result in a net output drop of 48 kb/d in July because the overall decline was 243 kb/d.

    Is this the real truth? Drilling and completing wells in the Permian is not enough to increase overall production?

    

    1. Though I am not a fan of the EIA and “indications” about the future, even 30 days out, you seem to have this sorted out correctly, Ovi. Clearly DUC’s are distorting the big picture; some analysts even go so far as to suggest well productivity, or even rig “efficiency” has improved dramatically recently, because they are not able to back out the role that DUC’s have had in monthly production increases. They then extrapolate that as a trend that might affect future production. You are ahead of the pack if you can see this fallacy.

       Once DUC’s are gone, and they will be much sooner than 12-18 months, the tide will be out on the current state of shale oil. We’ll then begin to see that two of the most important metrics in analyzing the long term sustainability of a play is reserve to production ratios and reserve replacement ratios. In shale oil there is almost a 1 to 1 correlation, the decline of shale oil is so dramatic.

       So, the short answer to your question is no, its not surprising to me that once DUC’s are out of the picture the Permian will labor to keep production levels flat. I don’t think it can. I AM surprised, shocked, actually, that the EIA implies the current base decline (of existing wells) in the Permian is 2.9MM BOPD per year. Yikes. I need to look into that. If that is actually correct, we will be in deep doo-doo very soon.

       In the absence of knowing exactly where future CAPITAL will come from to develop hypothetical EURR, its meaningless to guess about the future of oil just because it may, or may not, be in the ground. Its not Mt. Everest that gets climbed, or extracted, simply because its there. In America it takes capitalism, profit, to get it out of the ground. With regard to shale oil, short of $120 oil, sustained, it will always take credit/debt.

       And, as to EURR, we’re going down hill in all of America’s shale oil basins save the Permian, and the Permian is clearly, CLEARLY, getting tired already. There is a reason for that…

       https://www.oilystuffblog.com/single-post/running-out-of-room

       1. POB folks, you have to take a look at Mike’s link, above.

       2. Yeah, thanks, Mike. Fantastic work, great article. Here is the link again, with the title. This could be the topic for an entire post. I will have more to say about it later but right now I have a Dr.’s appointment and must run.

          Running Out of Room

       3. Mike

          Much appreciated.

    2. Ovi,

       Yes that is correct, more wells will need to be drilled as DUCs decrease.

       See shaleprofile projection for permian basin with no change in rig count (278 completions per month)

       https://public.tableau.com/shared/TGZPT6H5R?:display_count=y&:origin=viz_share_link&:embed=y

       

       1. Dennis

          So it will take 5 years of drilling in the Permian to get back to the current peak.

          1. Ovi,

             If rig count remains at the August 2021 level for 5 years in the Permian basin, then yes.

30. Stranded .
    https://www.wsj.com/articles/alaska-oil-permits-blocked-by-federal-judge-11629346302

31. New posts will be up in next few hours. Probably about noon US Eastern Time.

32. Mike,

    Yes I expect completion rate will increase as oil prices increase and rig count increases over time.

    An alternative scenario with completion rate in Permian basin at 350 new wells per month. All Permian basin tight oil company debt is paid back by July 2024 for this scenario, that’s about 35 months. This scenario assumes oil prices decrease at about $12/bo per year starting in 2035.

    Also it is fairly consistent with a lack of well inventory with about 8000 more wells completed in total tahn an assumption of 6 years of inventory at previous maximum 12 month rate of 460 new wells per month.

    ERR is 27 Gb. Cumulative Permian output plus 2P reserves, assumed to be 1.7 times proved reserves is about 25 Gb.

    I expect the drilling inventory will increase as oil prices increase in the future so this scenario is likely much too conservative. Also the completion rate is unlely to be limited to 350 new wells per month as this scenario assumes.

    

33. New posts are up

    https://peakoilbarrel.com/annual-reserve-revisions-part-vi-sub-saharan-opec-members/

    and

    https://peakoilbarrel.com/open-thread-non-petroleum-august-26-2021/

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