US May Oil Production Growth Surprises

195 thoughts to “US May Oil Production Growth Surprises”

1. Ovi,

   Great job. Thanks.

   Shaleprofile also estimates DUCs

   see well status and on well status dropdown pick DUCs only

   https://shaleprofile.com/blog/us/us-update-through-march-2021/

   Chart at

   https://public.tableau.com/shared/YRQHBR53M?:toolbar=n&:display_count=n&:origin=viz_share_link&:embed=y

   In May 2020 the DUCs were 6182 for Bakken, Permian, Eagle Ford, Niobrara, and Anadarko (Scoop and Stack), By March 2021 the DUC count was 4485. So over 10 months a drop of 1697 in DUC count for an average of 170 per month for all the major tight oil basins. For the Permian the DUCs were 3254 in April 2020 and in April 2021the DUC count was 2137, a decrease of 1117 over 12 months or 93 DUCs per month on average.

   In my view the shale profile estimates for DUC counts are likely to be better than the EIA estimates.

   1. Dennis

      Thanks for the info. Since I am doing the DPR report, I feel that I should report their data.

      I am wondering if the difference is that Shale Profile is just reporting oil DUCs, while the DPR reports both oil and NG.

      1. Ovi,

         Good point, I forgot DPR was reporting both, but I think we are looking at similar data because we grouped by basin and I used the same basins that you did. Shale profile reports both oil and natural gas wells in their well status tab. So I think there is just a different methodology, Enno is very careful with the data, but some of it comes late and gets revised over time, the EIA may try to guess what these future changes might be. Enno justs waits for the revised data and does not make many guesses, except in his supply projection.

2. Ovi , wow . 5 in 1 . Total US ,DPR , LTO , rigs & fracs , total world . You sir are a gem .

   1. Hole in Head

      Thanks. Lots of free time these days.

3. So we are are 11.2 mbpd from the peak at 12.89 mbpd when all cylinders are firing . How will the peak be breached when (a) CAPEX(OPM) is dead (b) DUC’s available are declining (c) rigs are not in pace with the red queen
   ? One can’t beat the laws of Physics , Geology and Mathematics . They surrender to no one .

   1. Hole in head,

      The answer is relatively simple. Rig and frac counts can increase, higher prices lead to greater profits so that future wells can be drilled using cash flow from operations (as I assume in my scenarios for tight oil). As more wells are drilled the proved developed reserves will increase and the problem of reserve replacement that some are concerned about goes away.

      US tight oil can easily return to its previous peak and likely can reach about 10 Mb/d, but definitely can get to 9 Mb/d even under very conservative assumptions about the rate of future development of the Permian basin.

      1. Dennis , you are back to your conventional arguments about price . I demolished that in the last thread . Getting bigger boats and bigger nets is not going to catch more fish because there is no fish to catch in EU waters . Mike S has demolished all your arguments . He and others like SS, Mr Kaplan , LTO ‘s , SLGeo etc have an ear to the ground . As Mike S once said about you ” have you ever seen a horizontal well ” . Reminds me of Richard Pryor when caught in bed with another woman by his wife .
         Wife : I can’t believe what I am seeing .
         Pryor : Whom are you going to believe , me or your f++++++ eyes .
         🙂 , 🙂

         1. Hole in head,

            No your argument was not convincing. LTO survivor has said the oil is there, it just needs higher oil prices. His $150/bo estimate is very conservative, Permian tight oil will be very profitable at $100/bo, at $150/bo we might see a URR of 75 Gb.

            Mike Shellman ignores natural gas and NGL in his analysis, he must assume all natural gas in the Permian basin is flared, I assure you this is not the case.

            See shale gas astimates at page below

            https://www.eia.gov/naturalgas/data.php

            In June 2021 Permian basin produced 12.5 BCF/d of natural gas. Recently natural gas prices at the Waha hub in the Permian were about $3.47/ MCF.

            So 12.5 times 30 is 375 billion cubic feet for the month of June if we multilpy this by $3/ thousand cubic feet we have 375/1000*3=$1.125 billion dollars of revenue that Mr Shellman chosses to ignore in his analysis. In addition there are about 83 kb of NGL estacted form each billion cubic feet of natural gas so we need to add 83*375=31125 kb of NGL at about $17.50/b NGL=544 million dollars of revenue. So in total we have 1.67 billion dollars of revenue per month which Mr. Shellman ignores for the Permian basin.

            I include all three revenue streams in my analysis (crude plus condensate, natural gas, and NGL). Mike looks at crude only. When I point this out he ignores it.

            1. No, I don’t ignore natural gas and liquids. Associated natural gas only matters to you, now, because in the past 4 months those prices have more than doubled and there is new hope for your dumb ass models regarding debt and the ability for the Permian tight oil sector to work off net cash flow…for the first time in history. Nobody in the real world actually gets $3 at the WH, but you’d have to work in the real world to know that.

               To quote Billy Beane, if the US shale oil sector was such a big hitter, why doesn’t it hit big? Its lost money since its inception; nothing has changed just because you THINK it has.

               I ignore YOU because you don’t know your ass from a hole in the ground about the oil business and the message you deliver about our nations hydrocarbon future, and our energy security, is misleading, wrong, and harmful. Your opinions are contrary to my 50 years of actual work in the industry and my real life struggles with decline, depletion and price volatility. You only wish to advance your own agenda, not the agenda best suited for my country and that is one of hydrocarbon conservation and debt discipline. I can only hope that NOBODY is really listening. For their own good, not mine.

               1. Is all this bitchy invective really necessary? It’s just a fucking blog for christ’s sake not some imputation of your manhood. Nothing written here is going to change anything significant by one iota. All you have to do is choose not to read it and everyone’s suddenly much happier.

               2. Thank you, George.

               3. Well I just got my fair and reasonable comment on the non-petroleum side unceremoniously deleted without warning, apparently by Ron Patterson, along with some misrepresentation/mischaracterization and invective from him, complete with a ripped out and decontextualized sentence-quote of mine from the comment he deleted.
                  While he might be having a bad day and trying to give his misery some company, and while this is ‘merely’ a blog, it is possible that people who drop in do look to it for some semblance of integrity… Well, it’s possible. LOL

                  Dennis if it is still your site (although it’s also people that make a site what it is) how about leaving Ron out of its back-end? He seems to have enough with his own.

               4. First of all, the cash flow enjoyed by most LTO companies is being subdued by hedges in the “$50’s from last year. Most PE firms force their portfolio companies to place on swaps and most lending institutions require the same therefore a lot of “would be increased cash flow is being trapped” by these restrictions.

                  I want to be clear about what I said. The only thing that can get the vast resource being left behind extracted is much higher prices like $150 oil.

                  We all could drill 8 wells per section now but the rate of return on those wells is insufficient to compete with drilling 4 wells per section. It all comes down to profitability since for the most part capital coming into this industry is vanishing. If drilling, completion and operating costs stay relatively flat and oil prices increase considerably then there well be more infill locations attempted despite the reduced bottom hole pressures. However, as it stands currently most companies have very few years left of quality drilling inventory and without appreciable price increases the domestic shale industry’s production will fall off a cliff. The only other factor could be secondary recovery but not sure if anyone has figured out how to effectively do this in Shale reservoirs.

                  PE, ESG and wokism has significantly impaired our energy security in the future. There is no silver bullet replacement for hydrocarbons no matter how much we wish it. I don’t know how all these woke 30 year olds plan to power the rest of their lives and lamborghinis but they are betting a lot on the ability of man to control climate and still maintain their expected lifestyles. Sorry 30 year olds- I am just equating your age group with wokeness.

               5. Mike,

                  I had ignored natural gas before because I hadn’t done the well profiles for natural gas. It was pointed out by a person collecting royalties in the Permian that natural gas and NGL were important so I added it to the model in the past couple of years.

                  The model gets better based on input from oil pros like you, shallow sand, and LTO survivor and I appreciate the input I get.

                  You can call me any names you wish, I appreciate the input. Thanks.

                  Do you really think the majors are paying 6.5% interest on their debt? Can I get in on that action?

               6. Mike Shellman,

                  Note that for my “dumb ass model”, I assume natural gas prices are $2/MCF and I realize this has not always been the case, sometimes the Waha hub price has gone much lower than this. What is the typical difference between Waha hub price and Permian wellhead natural gas price over the past 5 to 7 years?

                  You are certainly correct that you would know far more than me about any of these details.

                  Thank you for setting me straight.

                  Found this site that has Waha hub prices

                  https://texasalliance.org/daily-market-information/

                  Currently Waha hub price is $3.92/MCF, but in June 2021 the average price was $2.86/MCF and in May 2020 the price was $1.52/MCF, in February 2020 the price at Waha hub was 0.52/MCF which was $1.37/MCF less than the Henry hub price that month. The low point was March 2020 at 0.44/MCF at Waha, in April it increased to $1.40/MCF. Prices dropped again inthe summer to fall period to around 50 cents per MCF, prices started to recover in November 2020 ($2.14/MCF). The pandemic was an unusual time.

                  Recently, as you know, there have been a number of natural gas pipeline projects completed and the spread between Henry Hub and Waha has narrowed.

                  https://www.eia.gov/naturalgas/weekly/archivenew_ngwu/2021/06_03/#tabs-prices-2

               7. Lto survivor

                  My scenarios use four wells per section width, as I believe you suggested.

                  Pernian output has continued to increase, do you expect that will stop in the near future?

               8. Good details in this article on LTO hedging decisions

                  https://oilprice.com/Energy/Crude-Oil/Shale-Giants-Hit-Hard-By-Poor-Hedging-Decisions.html

               9. Thank you Mike. It needed saying.

               10. George Kaplan,

                   Could you check your email please?

                   Thanks.

            2. First of all, the cash flow enjoyed by most LTO companies is being subdued by hedges in the “$50’s from last year. Most PE firms force their portfolio companies to place on swaps and most lending institutions require the same therefore a lot of “would be increased cash flow is being trapped” by these restrictions.

               I want to be clear about what I said. The only thing that can get the vast resource being left behind extracted is much higher prices like $150 oil.

               We all could drill 8 wells per section now but the rate of return on those wells is insufficient to compete with drilling 4 wells per section. It all comes down to profitability since for the most part capital coming into this industry is vanishing. If drilling, completion and operating costs stay relatively flat and oil prices increase considerably then there well be more infill locations attempted despite the reduced bottom hole pressures. However, as it stands currently most companies have very few years left of quality drilling inventory and without appreciable price increases the domestic shale industry’s production will fall off a cliff. The only other factor could be secondary recovery but not sure if anyone has figured out how to effectively do this in Shale reservoirs.

               1. LTO Survivor

                  I wonder if the EIA STEO division has spoken to a number of drillers and has the information you provided above regarding swaps and collars and that is why they are forecasting US output of essentially 11,200 kb/d to be flat out to October. Production then starts to ramp up in November for some unknown reason. Maybe a lot of the swaps start coming off.

                  Also this week’s inventory report dropped the weekly output by 200 kb/d and back to 11,200 kb/d.

                  The March 2022 oil contract on the futures market is close to $70/b. Do you know any drillers willing the provide oil at $70/b next March or is that to thin a margin for them?

               2. LTO Survivor,

                  Not all tight oil companies are hedged, but I agree with Mr Shellman the tight oil companies have done a poor job with their hedges.

                  Always a problem predicting future prices, if they had decreased the $50/bo hedges would make these companies look very good, instead oil prices increased to $70/bo and they look like chumps. The companies that chose not to hedge look like geniuses now, if prices had gone to $40/bo they wold ne the chumps.

                  The money lost on hedges will only be a short term problem.

                  Can you give us any insight into what a Permian producer receives for their natural gas when Waha natural gas prices are $3.50/MCF?

                  Also I use a rough estimate of 25% of WTI price for the price of an “average barrel” of NGL, does that seem a reasonable guess? I understand these numbers fluctuate over time, but am just looking for long term rough estimates to use in a simplified economic model of future output based on a set of economic assumptions used in a discounted cash flow model. Also what would you use as a discount rate in such a model? Mike Shellman has suggested a well should pay out in 36 months (net revenue equal to CAPEX is what I think he means), this seems to correspond with a discount rate of 15 to 20%. I use an annual discount rate of 25% for my model of the average 2019 Permian well and assume a natural gas price of $1.80/MCF and wellhead oil price of $65/bo. The discounted cash flow is 10 million (well cost, full cycle) after 54 months and the well pays out after 28 months. I assume wells are shut in at 20 bo/d (per Mr. Shellman’s suggestion) OPEX is on average $13/bo produced over the life of the well, but I model OPEX per barrel as increasing over time as well ages and water cuts go up. OPEX is about $9/b for first year and increases to $32/bo when the well is shut in at 20 bo/d output level,

               3. Ovi,

                  That sounds like a good possible explanation for the STEO forecast, but I do not know when these hedges expire.

         2. Tks LTO for putting things in the correct perspectives .

         3. Mike S strikes me as a man unhappy that time has passed him by. His technical expertise leaves much to be desired. He rarely contributes much past calling everyone who disagrees with him an idiot.

            1. Mr. Milder, I am actually quite happy, successful, made lots of money in shale oil and anxious to get out after 50 years or more in the industry. I am unclear what you mean by “technical expertise” given I have had WI in shale oil wells and been a conventional operator for 50 years. If you mean with statistics and the belief that past results are indicative of future performance, no.

               I have no desire to “contribute” to poor analysis and, for instance, have what I say twisted around to satisfy someone’s incessant need to be right. For instance I never called anybody names, never said OPEX costs were X and never “assured” anybody about economic limits in the Permian being 20 BOPD.

               I think projections about the future of shale oil based on a snapshot of product prices is idiotic, yes. After over a decade of being lied to about shale oil, I think my country deserves a different perspective and needs to start getting prepared, now; I have been trying to get that point across here on AOB for seven years and have grown weary of being lectured to by people who don’t know which end of a workover rig to walk to.

               We’ve never met, you know nothing about me, or my career, and your observation is, granted, also idiotic.

               https://www.bnnbloomberg.ca/shale-drillers-leave-12-billion-on-table-with-bad-bets-on-oil-1.1636020#.YQlsbDREFrw.twitter

               These derivative losses equate to 1,600 HZ tight oil wells that won’t be drilled in 2021, PDP reserves that will NOT be replaced, and $12B of LTD that will still require $660MM or so of interest to be paid this year, which essentially equates to another 88 wells that won’t be drilled. That seems really stupid to me, and puts a BIG dent in dumb projections about the future, but I am trying to be as “pleasant” as I can be about it. Sir.

               1. Mike Shellman,

                  Can you clarify what I missed? Didn’t you say that you expected Permian wells would become unprofitable at around 20 bopd?

                  You did a quick analysis of Permian wells a year or so ago where I thought you used a LOE of about $13/bo, so that is what I have used assuming your analysis was correct. LTO survivor has suggested $13/bo is not far from the mark.

                  You are correct that I have never worked an oil rig and never will.

                  In any case, I guess I have “lectured”enough, though the intention was to ask questions and learn.

            2. Mr Milder , Mike S has forgotten more about oil than you will ever learn in your life . You want take a straw poll , I am more than sure even his detractors will agree with my statement . Of course if you know more than he does then please be kind enough to share your knowledge with the thirsty folks here and enlighten us . If not , then keep lurking and learning .

            3. Tim, we are proud to have actual drillers and other people who are actually in the business, contribute to the comments. What expertise do you have that you can insult their expertise? How many years do you have in the oil business? How many wells have you drilled?

            4. Tim Milder,

               I strongly disagree. Mike knows the oil business inside and out. I have learned a ton from him and appreciate his insights.

      2. “US tight oil can easily return to its previous peak”

         Dennis I believe you said in the previous thread that tight oil would likely not meet its previous peak again but now you are singing a different tune. Hard to be believe that the Permian alone can do all this magic with Eagle Ford and Bakken sputtering. What changed in your opinion?

         1. Stephen,

            Perhaps I misspoke. I think I have said I do not believ the US will reach it’s previous peak, but that depends on what happens to US C plus C minus tight oil.

            Below is my best guess for US tight oil centered twelve month average (CTMA) is plotted for model and compared with CTMA for EIA tight oil data, for 12 month average output the final peak in 2028 is about 2100 kb/d above the previous 12 month peak of about 8000 kb/d in 2019. US C plus C minus tight may fall by more than this increase from 4549 kb/d when tight oil peaked in 2019 to 2449 kb/d when the next peak arrives in 2028. On further thought, US C plus C minus tight oil is unlikely to fall by that large an anount by 2028 in my opinion, that would be a 46% drop over 7 years or about 8.4% per year.

            So I have revised my thinking, US C+C will reach a new peak in 2028.

            1. Sorry forgot chart

               

               1. Gotcha thanks for the explanation.

4. Two scenarios for Permian basin. One is based on the USGS best guess TRR estimate of 75 Gb and when reasonable economic assumptions are applied we get a URR of 56 Gb, the maximum completion rate is 624 new wells per month for this scenario about 25% above the highest level reached to date (500 new wells per month for Permian basin based on shaleprofile.com data). The second assumes a lower TRR of 60 Gb and a maximum completion rate of 460 new wells per month and has a URR of 35 Gb.

   In my opinion the higher scenario is far more likely, others will claim the low scenario is way too high. Time will answer which is closer to the truth.

   Note that both of these scenarios assume that wells are shut in at 20 bo/d, which Mike Shellman assures us will be the case (though historically tight oil wells have produced to lower levels of about 8 bo/d).

   Chart below has scenarios, click on chart for larger view.

   

   1. Guys. I am not trying to burst anyone’s bubble. I just know only what I am experiencing. M&A is occurring rapidly because companies are running out of quality locations with their current Rig Count, need for consolidation to reduce G&A per barrel and increased production for cash flow. All in hopes a major will come buy the barrels at a great price. I don’t believe we will see rig count increase even with increased product prices. If company A is running 15 rigs and is merged with company B running 15 rigs, the result will be 20 rigs running once the rig contracts expire. The excess cash flow from higher prices will be used to reduce debt and possibly to return capital through dividends. I just don’t believe we will see a repeat of the destructive behavior we saw encouraged by cheap debt alternativesand the Private Equity idiots. Therefore the model predicting future behavior is not static and highly dependent on behavior as demanded by the marketplace… ie those few brave souls would willing to invest in this difficult space and their demands ( Shareholders)

      1. How soon do you expect to see this in the data?

      2. LTO , ” Guys. I am not trying to burst anyone’s bubble.” No need to apologise . Your facts are always eye openers . Example what you have explained about the merger scenario in your post . I am sure 99.9% are thinking 15+ 15 = 30 when actually it is 15+15 -10 = 20 . Keep posting reality so that laymen can get a better and clearer understanding of events on the ground . Tks .

         1. I will continue to share what I know. I have been in the oil business for 40 years and I have never seen such political headwinds facing this industry. The world needs oil even in a transition which is years away. I also know that oil projects take time and most of all lots of money. There will come a day very soon where we as a global community will experience energy poverty unless some undiscovered fungible energy resource will magically surface. What I have seen in the shale industry is a once predicted long horizon of drilling inventory , severed in half almost overnight. Companies believing that they had 20 years left of drilling inventory in the Permian now are faced with 6 years or less. The only game left is M&A and consolidation which in my opinion leads to flat or lower production until the inventory is exhausted which is not very long from today. Similarly countries like Russia and Saudi Arabia are struggling to maintain their production. The lack of capital being reinvested in this industry by the NOCs and the Major Companies will be felt soon rather than later. The world economy has grown rapidly post WWII in large part due to cheap, available, fungible energy and hydrocarbons for materials and enhancing food supply. Energy poverty includes lack of sufficient food, materials, and fuel for our modern world and over populated planet.

            We will come to rue the day that this industry became ruled by bankers, commodity markets, private equity firms and Wall Street. This period of hydrocarbon capital starvation in exchange for hopeful solutions to supply sustainable infinite energy for our future will result in significant misery and suffering to mankind.

            Aside from my depressing rant, those of us in the Shale industry were optimistic as oil men that we found the holy grail in the Shale oil but we as a collective group were irresponsible in our management of that resource and we destroyed way too much capital in our “irrational exuberance”.

            Look for rapid consolidation in the E&P industry because that will be the best sign indicating the industry’s realistic view of the remaining LTO reserves.

            1. As Bismark said, God as blessed the United States and the ten years of shale oil and gas was an opportunity to get the house in order. Remember the LNG import terminals being built 15 years ago? But the 10 years of extra time was wasted on a big party. But don’t worry coal to liquids will come along at $120 per barrel. If you want to extend the life of the coal reserves then used the Bergius process with hydrogen produced from power from nuclear reactors. Similarly nuclear reactors producing steam for the Canadian oil sands would stop a lot of natural gas from being wasted. For us to experience this nirvana all that is required is that everybody be a lot less stupid.

               1. We are so fucked.

               2. LTO survivor,

                  I realized it is easy to take my OPEX model and plug in the output scenario to get field wide OPEX per barrel of oil produced. The field wide OPEX=number of operating wells times 15000 plus $7.50 per barrel of oil produced times total barrels of oil produced per month. OPEX per barrel is found by dividing field wide OPEX by the barrels of oil produced each month to get the field wide average OPEX per barrel.

                  This is a very simple fixed plus variable cost model where on a single well basis 15000 per month is the “fixed cost” (think of this as a fund used for future downhole maintenance and repair) and $7.50 is the variable cost which changes based on number of barrels produced per month. For a single well OPEX per barrel is low when the well is “new” (first year or two of operation) and increases over time. For my scenario field wide, the OPEX per barrel is shown in the chart below, as you suggested costs per barrel increase over time.

                  

               3. Dennis, what the hell does that chart represent? is that barrels per day or $ per something? That is not at all clear. It looks like ” —–OPEX/bo (2021 $)” is barrels, as the “OPEX/bo” would mean OPEX barrels of oil. But nothing peaked in 2013 as your chart indicates. I cannot make heads or tails of this. Please explain.

               4. Ron,

                  Sorry, I responded in wrong place, see. comment at link below

                  https://peakoilbarrel.com/us-may-oil-production-growth-surprises/#comment-722553

               5. That was not a problem Dennis. I read the comments in the administrators “comments” page anyway and saw it soon after you posted it. Thanks for the clarification.

            2. LTO survivor,

               Great information, thank you. Note that on a field wide basis I expect OPEX per barrel produced will increase in constant 2021 dollars as well productivity decreases and proportion of older wells increases. I need a bit more granularity in my model tl see how this changes the OPEX per barrel field wide.

               1. I will get that for you

               2. LTO survivor,

                  Comment with OPEX per Barrel in 2021 $ for Permian basin field wide average from 2010 to 2041 for scenario with URR=56 Gb at link below. Sorry I put it in the wrong place.

                  https://peakoilbarrel.com/us-may-oil-production-growth-surprises/#comment-722523

            3. LTO

               Notes on this and your previous detailed comment.

               The history of the oil business, from it’s inception in the US, has small companies making discoveries and drilling with abandon. At some point, major companies buy out the small companies and manage the resources much better. I’m not a fan of the history of Standard Oil and their strongarm theft, but the results were good from the perspective of recovery. However, the oilfield is littered with fields that were ravaged to the point of wasteful demise in just a few years.

               In conventional reservoirs, right of capture and the sometimes fiduciary responsibility to protect correlative rights lead/leads to too rapid of exploitation. State sanctioned unitization mitigated the mania and waste for decades. Not a fan of regulation but the structure and precedent make for good results that otherwise might not occur. With tight oil reservoirs, in my opinion, the development could have taken place more slowly and efficiently from a recovery standpoint; not to suggest in the least that pressure depletion has and will be an ultimate driver of recovery. Perhaps leases with stringent and foolish drilling commitments aggravated the problems. Legacy HBP acreage development could have been drilled at a slower pace in the PB and DJ for sure. I’m not certain if unitization agreements universally override drilling commitments. The three units that I have operated were all well past having all of the spacing units drilled prior to unitization.

               Historically, at least in the first century of domestic production, oil was produced by oil companies utilizing financing. The shale patch appears to be the playground of financial entities masquerading as oil companies.

               Oil sands, heavy oil and bitumen (Venezuela, Columbia, SE Africa) and even CA low gravity projects are the antithesis of unconventionals, providing long cycle production which is a stabilizing force for increased recovery efficiency and price stability. It is this stability that yields greater recovery in conventional fields as well. Mike speaks to this reality nomatter one’s opinion is of his attitude, experience or heritage; it is the truth. Along with variables affecting recovery such as price and rock properties, the variable of “time” is significant, perhaps overarching.

               Thanks for all of your enlightenment from first hand experience with unconventionals and I hope it continues. As always, I appreciate correction and more explanation.

            4. LTO Survivor

               The financial institutions along with their political masters will soon wake up when the military doesn’t have enough fuel to complete simple manoeuvres and comes calling looking for answers.

               The end of the fossil fuel era will allow the planet to rebalance. Without sufficient growth in oil production the financing of the U.S. deficit through the petrodollar system becomes strained. If the U.S. retreats from the world, war (especially in Europe) is a given. If two thirds of the world’s population vanished. The world would be a better place for those who remain.

            5. Ron,

               The chart represents average OPEX per barrel of oil produced for Permian basin over time in constant 2021 US$. OPEX=operating expense. Over the life of a well from first flow to shut in the OPEX per barrel produced increases for an individual well. Field wide it will change based on this fact and the completion rate and how it varies over time. The model for OPEX has a fixed monthly cost of 15000 per producing horizontal well plus a variable cost of $7.50 times the number of barrels of oil produced in a month. That gives us total monthly OPEX, then we divide that OPEX by the number of barrels of oil produced in a month (crude plus condensate only) to get OPEX per barrel. This is done for each month in the chart from Jan 2010 to December 2041.

      3. Thanks LTO survivor,

         As an economist, I realize a merger should result in greater efficiency so I would expect fewer rigs may operate, but wells drilled per rig may increase and might lead to lower average well cost per foot of lateral length compared to pre-merger cost. Can you give us a rough idea of average OPEX per barrel of crude plus condensate produced in the Permian basin? I use $13 per barrel based on my understanding of comments Mike Shellman has made in the past. My understanding may have been poor because more recently Mr. Shellman has said he has never said costs were that low. He did not correct my understanding so I am looking for a better estimate from someone more knowledgeable than me.

         Thanks.

         1. We are drilling much faster and this has led to a reduction in drilling costs but the frac costs are still stubbornly high and comprise the majority of the D&C costs. Operating costs will not fall and I anticipate that on a per barrel cost will continue to rise as production falls. Perhaps with industry consolidation we will see lower G&A per barrel but Opex is only going to rise. $13 per barrel is a fair number today until we run out of drilling inventory and at that point I anticipate it will rise rapidly on a per barrel basis.

            1. LTO survivor,

               Agreed. I will try to modify my Python program so I can calculate OPEX per barrel produced field wide vs time for my scenarios. Currently I only have the number for individual wells. OPEX per barrel starts around $9/b and increases to over 30 by the end of life at 20 bopd, average over entire well life of 13.5 years is about 13 dollars per barrel of oil produced.

      4. LTO survivor,

         Note that my model assumes capital discipline, the change in behavior you point to.

         Over the July 2016 to July 2018 period the monthly completion rate increased in the Permian basin at an annual rate of 52% per year with completions going from about about 150 per month to 450 per month over that period. The scenario with larger URR that is my best guess (URR=56 Gb from 2010 to 2049) has the monthly completion rate increasing at a 21% annual rate over the July 2021 to July 2023 period and then decreasing to a 4.5% annual rate of increase for monthly well compleetions from July 2023 to July 2025.

         You assume that I assume BAU, but I do not.

         The maximum 12 month centered average monthly completion rate to date has been about 460 new wells per month in August 2019, the maximum rate for my scenario is 624 new wells per month reached in October 2026, recent monthly completion rates have been about 350 per month, this is roughly an average annual increase in completion rate from 2021 to 2025 of about 12.2%.

         Of course all of this is a guess about future completion rates which are unknown, though clearly you would be able to make a better guess than me.

         URR=56 Gb completion rate scenario for Permian basin in chart below.

         

         1. I just don’t feel as comfortable about your completion rates 2023-2024. If we are experiencing the significant well interference already in 2021, I just don’t see how completion rates go up unless prices go screaming up and if that’s the case then 2026 goes back to 200 frac spreads sprinkled through the Permian. I just don’t see the drilling inventory lasting longer than 2026-2028 unless someone will figure out how to go back into these reservoirs with a different kind of stimulation or secondary recovery method to coax more oil out of the ground. The GORs are rising rapidly. This tells the story. The gas is bypassing the oil and coming out of solution. Our mismanagement of the reservoirs predicated on production growth and payback of significant debt burdens casted our lot of leaving a “shit ton” of oil in the ground.

            1. LTO survivor,

               Consider what you knew 5 years ago and compare to what you know now. I assume you know more now than you did five years ago. Now fast forward 5 years to 2026, I imagine you will know still more then than you do now (or if you have retired, the industry will know more). It is this fact that I keep missing when I project oil output in the future. I continually underestimate future oil output by underestimating reserve growth due to increased knowledge. Now perhaps it is the case that we have reached the end of any technological progress in the oil industry, but I am skeptical.

               GOR will stabilize for a couple of years then increase slowly see chart below. It is not clear there is a lot of well interference at 1320 foot spacing, there is little evidence basin wide of average well productivity decreasing significantly. My model assumes $75/bo at well head from Jan 2022 to June 2033, in my view that is a very conservative oil price assumption.

               I use your spacing suggestion, Mr Shellman’s suggestion of 20/bo shut in for Permian wells and a OPEX assumption of $13/bo average over life of well (from day one to shut in). Obviously OPEX per barrel produced will increase as the well output decreases as maintenance and repair costs will increase and disposal costs for produced water will also increase as the well ages.

               No doubt there are things I am missing, which is where the oil pros can correct my mistakes, this is a work in progress.

               Chart below has GOR for scenario (this is the 56 Gb URR scenario for the Permian basin).

               

               1. Dennis

                  Perhaps I missed something but can you explain the rationale behind the slope of this GOR curve going forward?

                  GOR is a critical issue so assumptions should be well grounded IMO.

               2. Rasputin,

                  I model oil and natural gas output in my scenario based on well profiles and completion rate.

                  I use actual data through 2019 for well profiles, then I assume well productivity decreases after Dec 2020 and assume the productivity of both natural gas and oil decrease at the same rate in the future.

                  GOR is simply gas divided by oil for the scenario.

               3. Rasputin,

                  The units for GOR are MCF natural gas produced per barrel of C plus C produced and the chart is for the Permian Basin scenario with URR of 56 Gb presented in other threads.

5. When it comes to price you have to follow the money. In futures markets the market makers. Those who sell Puts and calls often buy or in some cases sell the underlying assets in order to protect themselves from losses. These market makers that sell all these derivatives and contracts drive price in order to protect their book. Oil is no different in this regard. There is a lot of borrowed money holding up the price of oil. And a lot more has to be borrowed to drive prices even higher.

   We can have an oil deficit or shortage without spikes in price if there is no money available to bid up price due to a collateral shortage or collateral impairment. Both equal dollar shortage as loans just aren’t made. It’s real easy to spot just watch the dollar. If it sinks then loans are being made and debt is expanding. If it’s strengthening loans aren’t being made and we have a dollar shortage.

   Average income for Americans rose like 20% due to government response to covid. So we got a cliff coming where spending falls off of a cliff. My best guess is prices are near peak.

   1. Very interesting take HHH. I agree about the economy definitely softening as the money give away programs end. It is interesting to note that congress is attempting to continue rent moratoriums. I believe the Congress also knows that when the Covid money machine grinds to a halt, then the economy will follow suit in short order hence congressional election jeopardy for incumbents responsible for this S$#t show. I also anticipate that oil prices will plummet as well as in 2008-09. This isn’t going to be pretty I fear.

   2. China has done well with controlling Covid, but they may have met their match with the Delta variant. Their penchant for strict lockdowns and their status as the worlds largest oil importer could devastate oil prices here in the next week or two if Delta looks like it’s getting out of control.

      https://www.bbc.com/news/world-asia-china-58052894.amp

6. In the post above I estimated that OPEC could add 700 kb/d in July. According to the article below, OPEC could have added 760 kb/d in July but only added 610 kb/d. If correct, this should keep the market under supplied and put a bottom in WTI at around $70/b.

   “Moving to supply, and we are starting to get preliminary OPEC production estimates for July. According to a Reuters survey, OPEC output increased by 610Mbbls/d MoM to 26.72MMbbls/d, which is the highest output from the group seen since April last year. The increase was still below the 760Mbbls/d they could have increased by (including the return of voluntary cut volumes from Saudi Arabia). Unsurprisingly, Saudi Arabia saw the largest increase over the month, with output growing by 460Mbbls/d.”

   https://think.ing.com/snaps/the-commodities-feed-opec-supply-grows-in-july/

   1. Ovi , just confirms what I have said earlier ” there is no oil sitting on the sidelines” . 610kbpd instead of 760kbpd is a 20% shortfall . This is far away from a marginal shortfall . The question is ” if not now , then when” . Prices are pretty high right now .

      1. Hole in Head

         OPEC Plus has agreed to add 400 kb/d starting in August. So I believe there is more to come. I think what you are pointing out is that they may not make the grade on that 400 kb/d each month. That will be the clue that problems are coming.

         Maybe the shut down damaged the wells.

         1. Ovi see my comment below

            https://peakoilbarrel.com/us-may-oil-production-growth-surprises/#comment-722403

            I inadvertantly put the comment in wrong place.

         2. Ovi,

            Perhaps Saudis decided not to increase their voluntary cuts all at once, but to bring on output gradually and see how oil prices react.

7. Russian oil production rose slightly in July according to Bloomberg. Using 7.33 barrels per ton, they produced 10,461 Kb/d in July. Basically, they have been about flat April.

   

8. ExxonMobil Q2 2021 Upstream CAPEX Spending Still Higher Than Earnings

   While investor optimism has returned to the U.S. Shale Patch, the economics are still a CLASS “A” CANARD. It doesn’t matter how much more water, sand, and BS is pumped down these Super-Fracks, the Shale Industry will always be known as a DESTROYER OF CAPITAL.

   We have proof from ExxonMobil’s Q2 2021 Results.

   Exxon Q2 2021 Upstream Earnings = $663 million
   Exxon Q2 2021 Upstream CAPEX = $925 million

   ExxonMobil will continue to throw Good Money After Bad in its Shale Assets. But, it seems that shareholders are happier that ExxonMobil is throwing away LESS MONEY into the Shale Black Hole to boost Free Cash Flow.

   If we go back to before the Pandemic shutdowns, ExxonMobil was throwing away $3.2 billion in U.S. upstream CAPEX Q2 2019, while earning $335 million. So… it seems that ExxonMobil is moving in the right direction.

   So… by cutting its quarterly CAPEX spending in the Shale Black Hole by nearly 75%, ExxonMobil is DESTROYING CAPITAL at a much slower and lower rate. Again, this makes Shareholders happy.

   With excellent data and wisdom from Retired Oil Reservoir Engineer, James Dietrich’s book “TOO MUCH BY HALF – The Coming Cut In Proved Oil Reserves,” the world will finally realize they have been BAMBOOZLED by Geologists who have overstated oil reserves for the past 20-25 years.

   Make sure you get your POPCORN ready for the COMING ENERGY CLIFF.

   Steve

   1. Hell, I never knew this book existed. Why didn’t someone post this link before?

      Too Much by Half: The Coming Cut in Proved Oil Reserves Paperback – July 8, 2019

      I just ordered the Kindel edition, four bucks. I will report my opinion in a few days after I have had time to read it.

      1. Awaiting .

      2. Ron,

         Here’s a bit of a critique. While James Dietrich provided some interesting data about his career in the Oil Business as a Reservoir Oil Engineer, he seemed to spend a lot of time explaining about the wonderful Hotels he and his wife stayed at and restaurants they ate during foreign consulting services.

         I wish he spent a little more time on the DETAILS of TOO MUCH BY HALF.

         Anyhow, I am planning to contact him and do an interview for my SRSroccoReport.com website if he agrees. So, he might provide some more DETAILS.

         steve

   2. “Make sure you get your POPCORN ready for the COMING ENERGY CLIFF.”

      Other than popcorn, and returning to Nixons federal law lowering all national highway speed limits to 55 mph,
      what are some steps that US could take to lower fuel demand?
      Particularly interested to hear about measures that would do least damage to core sectors of the economy.

      Careful- its a tough crowd. People thought it was ludicrous when I previously suggested that some transport could shift toward nat gas or electric vehicles.

      1. Hickory,

         More COVID-19 Lockdowns?

         steve

         1. Steve,
            is that indeed a question, or a suggested mechanism to limit fuel demand???

            Lockdowns aren’t needed where most of the population conducts themselves according to factual science and medical technology based thinking- no belief required. To be clear- these areas have high vaccination rates. Unless a new more virulent and uncovered variant arises.

      2. My 2017 ICE gets 30 to 31 mpg @ 70 mph and 44 to 45 mpg @ 55 mph. We live in a world of cheap gasoline in the states.

         A carbon fuel tax

         1. Yeah, $5 a gallon would improve things in many ways. It wouldn’t be a good idea in the short term, but adding a few cents a month would give the economy time to react.

      3. Why not allow the oil price to go to $300 a barrel. That’ll get everyone out of their vehicles. When the masses start complaining the government can direct them to public transport.

         Home installation, heat pumps and reversing soil erosion are some of the other things we could put in practice utilising all the environmentalist on both ends of the political spectrum.

   3. Hey, let’s not get your whiteys dirty. Capex is an expense before profit and oil recovery is a capital up front business. If you listened to or read Chevron’s press conference last week, you would know the majors aren’t increasing their production in the Permian and tightly managing their Capex. It’s the independents. Which for me rises a question.

      There are few small producers here who claim the shale fields are losing pressure. The Permian shale is a huge field spanning across Texas and New Mexico. The shale is fracked to release production. What is the distance from the well bore that pressure loss is affecting?

      100 feet, 1000 yards, 10 miles, 100 miles ?

      1. HUNTINGTONBEACH,

         Thanks for the clarification that “Capex is an expense before profit and oil recovery is a capital upfront business.” I really had no idea….

         But, if that is the case, then this should provide more CLEAR EVIDENCE in ExxonMobil’s case, that Shale has been a MAJOR DESTROYER of CAPITAL.

         For Q3 2018 to Q2 2021, but omitting the DISASTROUS Q4 2020 $16.8 billion loss due to impairment.

         So, if we exclude ExxonMobil’s disastrous Q4 2020 U.S. Upstream Earnings and CAPEX, this is how the Shale Black Hole has benefited the company’s financials

         ExxonMobil U.S. Upstream CAPEX Q3-2018 to Q2 2021 = $23.8 billion
         ExxonMobil U.S. Upstream Earnings Q3-2018 to Q2 2021 = -$149 million

         So, with ExxonMobil investing $23.8 billion of CAPEX in its U.S. Upstream Sector over that period, it has provided its shareholders with a $149 million loss.

         Hence… ExxonMobil’s Shale Assets are exceptional DESTROYERS OF CAPITAL.

         steve

         1. Steve, does it matter that capital has been consumed? Has the lender noticed?
            The oil was produced, and someone paid for it.
            OK, paid a lot for for it.
            As long as someone will still pay, the players will attempt production.
            Collectively the market cap, and borrowing power of the industry is still very high.
            There are marketeers, and believers.
            And with higher prices some will be rewarded very well.

            1. Hickory,

               You bring up a valid point worth discussing. If we are considering the subject matter of “CAPITAL,” then there is GOOD & BAD Capital usage. Good Capital usage provides a decent Return on Capital Employed. Bad Capital usage provides a lousy return on capital employed.

               So… while it is true that ExxonMobil is providing Shale oil-natgas-ngls with its tens of Billions of CAPEX, it has been a LOUSY RETURN ON CAPITAL.

               Now, if someone likes to throw their money away… I have no problem with them doing it. All they have to do is call up anyone in the Shale Biz. They are desperate for investor CAPEX FUNDS to DESTROY.

               steve

               1. Steve,

                  Let’s take a tight oil focused company such as EOG.

                  I use quarterly data for net income from page linked below

                  https://www.macrotrends.net/stocks/charts/EOG/eog-resources/net-income

                  I assume tight oil became the focus of EOG starting in 2011Q1 when Eagle Ford began to ramp up output. From the first quarter of 2011 to the second quarter of 2021 the cumulative net income of EOG has been $10 billion. From 2015 to 2017 they did poorly (due to low oil prices), from 2017Q2 to 2020Q2 they had positive net income every quarter, they were negative for the last 2 quarters of 2020 and positive for the first 2 quarters of 2021.

         2. Steve,

            The number will be different at $70/bo, I noticed you picked a period with very low oil prices, do you expect oil prices will remain at that low level?

            If both OPEC and tight oil producers remain disciplined we can expect a tight oil market until that behavior changes. If we assume that disciplined behavior does not change, we are likely to see higher oil prices.

            1. Dennis,

               Maybe you are right. Let’s give ExxonMobil a little more credit. Great idea.

               So, in looking at Exxonmobil’s ramping up of Shale starting in 2016, if we include all U.S. Upstream CAPEX & EARNINGS until Q2 2021, it provides more clear evidence that Shale Assets have been a MAJOR DESTROYER of CAPITAL for the company.

               I omitted the data for Q4 2017, due to Tax Reform inflated one-quarter earnings and Q4 2020, the DISASTEROUS $16.8 billion impairment. So the data below is for Q1 2016-Q2 2021, omitting those two quarters I stated.

               ExxonMobil Q1 2016-Q2 2021 Total U.S. Upstream CAPEX = $32.8 billion
               ExxonMobil Q1 2016-Q2 2021 Total Net U.S. Upstream Earnings = -$3.9 billion

               So, ExxonMobil invested $32.8 billion, with the majority in its Shale Assets to lose $3.9 billion in Earnings.

               Now, unless my GRADE SCHOOL MATH is off… that turns out to be a LOUSY RETURN on CAPITAL EMPLOYED.

               We must remember, Shale Oil Fields decline about 48% per year. So, this CAPEX spent is being destroyed at a rapid rate, especially when we see how completely awful ExxonMobil’s earnings have been.

               Again… I don’t have a problem with Investors throwing money away in the SHALE OIL BLACK HOLE.

               It’s still a FREE WORLD.

               Steve

               1. Steve,

                  You no doubt thought Amazon would never be profitable as they burned a lot of cash for a lot of years.

                  I noticed you added a couple of more years where oil prices were low. Also include all quarters in your analysis, don’t selectively omit quarters, the tax laws are the tax laws, the oil company does not have much control over legislation that passes in Congress.

                  I will ask again.

                  What is your expectation for future oil prices?

                  If they are low (under $50/bo in 2021 US$) for most years in the future, you will be correct and tight oil will never be profitable.

                  If on the other hand oil prices average $75/bo at the well head from 2022 to 2033 as in my scenarios, then tight oil is likely (about 70% probability imo) to be profitable.

                  In my view this oil price scenario is very conservative, my expectation id that the average oil price over the 2022 to 2033 period is more likely to be $85/bo or higher at the wellhead, but may not reach LTO survivor’s $150/bo that he believes is necessary for much of the Permian resource to be extracted profitably.

               2. Dennis,

                  I don’t know if I would compare AMAZON with ExxonMobil when we are speaking about CAPITAL INVESTMENT. Why? When Amazon spends Billions on expanding its Regional Distribution Centers, these buildings last decades. So, yes… Amazon can lose money for a while, but those Distribution Centers DO NOT DEPRECIATE at 48% per year like the U.S. Shale Oil Industry.

                  Indeed… you may be correct that the price of WTIC Oil will rise in the future. No doubt, we could see much higher oil prices.

                  However, I would kindly like to remind you… when the oil price goes up higher… Do you think, Pipe, Fracking Sand, Truckers, Equipment, Well Lease Rates are going to stay low?? Of course you don’t.

                  So, if we go back to a time when the Shale Industry was getting $100+ a barrel, they were still lost money. Why? Because as the price of oil rises…. something very odd happens… SO DOES THE COST OF DOING BUSINESS in an industry that DESTROYS CAPITAL at 48% per year.

                  Maybe the next time around, if there is one, we can remember this dynamic relationship.

                  steve

               3. Comparing Amazon and Exxon. When Exxon leases or purchases a field it’s like when Amazon builds a warehouse. When Exxon develops a field it takes more assets and labor. When Amazon operates a warehouse, it takes more assets and labor. Both have a long term cost of capital to there acquisitions and than a variable cost of operations.

               4. Steve,

                  So you don’t seem to have an opinion on future oil prices, or you think they are going to decrease over the short to medium term (next 10 years), but are embarrassed to admit it.

                  Interesting.

         3. Steve, my first thought to your response to my reply was the same as Dennis above. You have selective time periods and than your reply back to him again was still selective. I know you have been around long enough to understand the price for oil has gone from under supplied with increasing prices in 2005 to over supplied lower prices today. Why? Because of shale and being over developed over the last 10 years. About 10 years ago Exxon was pumping out record 10 billion dollar profit quarters. This is the nature of the oil business. What you should be learning from your numbers is the future of the price of oil is headed up. Today, shale is the worlds marginal high cost producer. Economics teaches us in time, the marginal high cost producer costs must be recovered or go out of business. Without world shale production, I can only imagine how far the world would be into peak and how high the price of oil would be today.

            Now on the over hand, I believe it’s been 5 years since you were promoting here buying gold. Over the last 5 years gold has gone from about $1250 to currently about $1800. Less than a 50 percent increase. That same period the DOW and S&P 500 have doubled and the NASDAQ has tripled. Plus, equities pay a dividend which gold doesn’t. I’m not ready to buy your financial analyst.

            1. HUNTINGTONBEACH,

               Actually, I am surprised and shocked by your statement, “that you are not ready to buy my financial analysis.” Please forgive me if I lose sleep tonight over this matter. 🙂

               Regardless… if individuals believe gold to be that silly BARBAROUS RELIC, then they are free to buy all the DOLLARS, TREASURIES, & UNDERVALUED REAL ESTATE & STOCKS to their hearts’ desire. Please do.

               GOD HATH A SENSE OF HUMOR…

               steve

               1. Gold is a commodity with useful economic uses. One can say the same thing for oil. Freeport McMoran has quadrupled in the last 18 months in price. Exxon could and is on course to do the same from October 2020 to April 2022. Investing includes risk. Timing can be everything and we know you like to cherry pick your dates.

               2. “GOD HATH A SENSE OF HUMOR…”

                  Indeed. I was 100% in gold for many years (actually caught the bottom, but dumped NASDAQ 18 mos early; painful, still remember it ~25 yrs later; dumped it all for oil stocks last fall…which I tried never to do since it’s my business…recalling the Enron tragedies). That said, this time is different…gold won’t fulfill it’s historical role..God has something different coming:

                  “And he causes all, the small and the great, and the rich and the poor, and the free men and the slaves, to be given a mark on their right hand or on their forehead, and he provides that no one will be able to buy or to sell, except the one who has the mark, either the name of the beast or the number of his name. Here is wisdom. Let him who has understanding calculate the number of the beast, for the number is that of a man; and his number is six hundred and sixty-six.”
                  ‭‭Revelation‬ ‭13:16-18‬ ‭NASB1995‬‬
                  https://bible.com/bible/100/rev.13.16-18.NASB1995

                  Face it, these are the days when “cryptocurrency” has value and gold (God’s money) is a “relic.” That said, He who made the gold made the oil too…and he knew what would happen when supplies grew short:

                  “When He broke the third seal, I heard the third living creature saying, “Come.” I looked, and behold, a black horse; and he who sat on it had a pair of scales in his hand. And I heard something like a voice in the center of the four living creatures saying, “A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not damage the oil and the wine.””
                  ‭‭Revelation‬ ‭6:5-6‬ ‭NASB1995‬‬
                  https://bible.com/bible/100/rev.6.5-6.NASB1995

                  Trust in God, He’s good.

               3. Trust in God, He’s good.

                  Which god are you talking about? Yahweh, the god who supposedly drowned millions of people in a flood because they did not worship him? Are you talking about that jealous and vindictive god? That god who possessed the vainest of human emotions, the desire to be worshipped? Are you talking about the god who will torture unto infinity all those who do not believe that bullshit?

                  Oh, I almost forgot: “But he loves you”. (Sorry George Carlin but I just had to use your line.) 😉

               4. Gold and oil are relics but tik tok and crypto currency has real value. 🤪

               5. “ Which god are you talking about? Yahweh, the god who supposedly drowned millions of people in a flood because they did not worship him?”

                  Yep, that’s Him…but it wasn’t because they didn’t worship Him:

                  “Now it came about, when men began to multiply on the face of the land, and daughters were born to them, that the sons of God saw that the daughters of men were beautiful; and they took wives for themselves, whomever they chose.”
                  ‭‭Genesis‬ ‭6:1-2‬ ‭NASB1995‬‬
                  https://bible.com/bible/100/gen.6.1-2.NASB1995

                  Some think that implies corruption of the human gene pool…like what’s happening now.

                  And, “Then the Lord saw that the wickedness of man was great on the earth, and that every intent of the thoughts of his heart was only evil continually. The Lord was sorry that He had made man on the earth, and He was grieved in His heart.”
                  ‭‭Genesis‬ ‭6:5-6‬ ‭NASB1995‬‬
                  https://bible.com/bible/100/gen.6.5-6.

                  It had nothing to do with a failure to worship.

                  “ Are you talking about the god who will torture unto infinity all those who do not believe that bullshit?”

                  Yep, that’s Him…the One Who sent His Son to die for you; frankly, I consider it a generous trade (don’t forget, He threw in eternity in paradise for those who believe):

                  “For God so loved the world, that He gave His only begotten Son, that whoever believes in Him shall not perish, but have eternal life. For God did not send the Son into the world to judge the world, but that the world might be saved through Him. He who believes in Him is not judged; he who does not believe has been judged already, because he has not believed in the name of the only begotten Son of God.”
                  ‭‭John‬ ‭3:16-18‬ ‭NASB1995‬‬
                  https://bible.com/bible/100/jhn.3.16-17.NASB1995

                  Hell is a choice, all who end up there volunteered.

                  Interesting observation though, those “millions of people [drowned] in a flood” will be “torture[d] unto infinity” … but only because He has the power to raise them to life once again.

               6. Really bad fiction.
                  Plus extra violent, and very poor character development.
                  Read Homer– much better.

               7. The gullible mind of the true believer is a thing to behold. It’s all about epistemology, what is belief and what is opinion based on fact. Human beings are believing animals. Ancient traditions, not facts, determine their worldview.

                  I cannot criticize this poor guy Roger. He believes the same bullshit half the world believes. He believes the same thing almost all my ancestors believed, including my dear dad. How can anyone truly believe such stupid ignorant bullshit? Trying to figure that out is something I am working on.

                  More on that later. And thank you Roger for explaining your worldview to me.

               8. Ron, how?

                  They indoctrinate very young with parent reinforcement and the fear of eternal damnation. I’m sure there is more to it.

                  At 15 I stopped believing. It took almost another 10 years to say the words out of my mouth. 90 percent of people are followers. I have a friend and she says she figured it out in second grade.

               9. I agree HB. But those poor bastards. If they were indoctrinated, from birth, to believe in the wrong god, then they will be tortured forever and forever for that error of birth. imagine that, screaming in torment for a trillion, trillion years, because you were indoctrinated to believe in the wrong god.

                  Can you believe that? I cannot. What kind of a mind does it take to believe that. How strong must the indoctrination be to make an otherwise intelligent person, believe such a thing? Do they not see the contradiction there? A loving god is an evil demon instead.

               10. “ And thank you Roger for explaining your worldview to me.”

                   You’re welcome Ron…and you’re welcome at my home anytime. If you’re traveling through Houston on I-10 again, look me up. I’d enjoy having a glass of wine or shot of whiskey with you.

      2. Spacing at 1320 still see pressure reduction but will yield 78% of the volume of a parent well.

         1. LTO survivor,

            Don’t you do these in blocks where 4 wells per section are completed over a short period of time?

            I have read that is the proper way to do this, it is cheaper per well and optimizes output per dollar of CAPEX spent. Can you correct me if I have misinterpreted the scientific literature?

            1. Dennis, if I understood LTO correctly. The loss of pressure is a distancing optimization issue. Between cost of each well and it’s production over time. The loss pressure isn’t effecting other leases.

               1. Huntington beach,

                  The issue is that many believe that 660 foot spacing is viable. So their estimates for total resources are roughly double what they should be. In addition many investor presentations suggest average EUR per well of about double the actual EUR. Putting these two mistakes together results in a URR that is 4 times too large.

                  I don’t make either of these mistakes, but there is no doubt my model is imperfect.

                  I rely on experts such as Mike Shellman, LTO Survivor, Shallow Sand, George Kaplan, Doug Leighton, and others to correct me where I have lost my way. I am not an expert on oil production, I know physics (BS) and economics (MA) plus what I have learned from reading scientific literature. There is always more to learn.

               2. I guess I did pretty much understand LTO’s reply. Thanks for adding a little more color to it. What I had picked up on sounded like much larger distances and were spoiling larger parts of the field.

                  BA in Business Administration with a double concentration in finance and economics. Been following oil production for 50 years starting with reading the back page of my father’s Business Week magazine.

   4. Government has a revolving door for Exxon CEOs and CFOs. At this point Exxon is run as a public company with the same disregard for turning a profit or reducing loss making activity. America needs the oil to export and Exxon is there to meet those ends.

      A very incestuous relationship.

9. https://docs.google.com/document/d/e/2PACX-1vS8H0oQSgTki5_05-8NisScaPWGSHYwtLbeKt-P0wdJQy-gL-Bic2vREj6jO7mubNmYMMAPYlQwQThW/pub
   Talking of overstated reserves . Read this old article by Prof Bardi about the supposed 200 billion barrels of oil in the Caspian Basin .

10. Ovi,

    Note the following in the Bloomberg piece.

    https://www.bnnbloomberg.ca/russia-s-oil-condensate-output-rises-amid-higher-opec-quotas-1.1635561

    An excerpt:

    It’s difficult to assess Russia’s compliance with the output-cut deal between the Organization of Petroleum Exporting Countries and its allies, as CDU-TEK’s data don’t provide a breakdown between crude and condensate, which is excluded from the deal. If Russia produced the same level of condensate as in June — about 900,000 barrels a day — then daily crude-only output would be some 9.56 million barrels, slightly above its July quota of 9.495 million barrels.

    Deputy Prime Minister Alexander Novak told reporters on Friday that the nation’s adherence to the deal would be about 100% in July.

    Russia’s compliance increased to 96% in June from 94% in May and 91% in April, the International Energy Agency said in its latest monthly report. Planned maintenance led to a drop in June’s crude-only volumes, according to the IEA.

    Under the deal with OPEC+, Russia was allowed to raise its crude-only production by a total of 116,000 barrels a day from May to July. Last month the alliance agreed to raise output by 400,000 barrels a day each month starting August, continuing until all of its halted output has been revived. That means that, starting August, Russia can increase its daily crude production by 100,000 barrels each month, according to Novak.

    My uderstanding of this text is that Russia is producing slightly above its quota so claims that they are producing “all out” or that possibly their wells are damaged seems premature, based on data available.

    Also I would note that just because the Russians have claimed they have peaked does not mean they will not return to that previous peak (12 month average peak) and then maintain that level of output for several years. In fact that is exactly what they have claimed they will do.

    I don’t have an opinion on whether they will be correct, but I am sure they are more familiar with Russian output potential than I am.

    1. Dennis

       My comment was not aimed at Russia. I found it surprising that OPEC Plus left 150 kb/d on the table. More so because SA added 460 kb/d in July. They are the one that unexpectedly in April took off an extra 1 Mb/d to really support the price of oil. They are now recovering that cut back. So if Russia and SA are on or close to their allowable, who did not meet their commitment. We will get a clue when the OPEC post comes out.

       1. Ovi,

          Yes I misunderstood your comment, sorry. I imagine everyone will not produce at the level of the quota which as you pointed out supports higher oil prices. In future OPEC meetings they may raise quotas a bit faster if there are nations not producing at their alloted quota.

          1. OPEC is on the brink of becoming superfluous. Without competition from US shale, there will be no need for production quotas and we will really see the true capacity of oil production around the world.

             1. LTO survivor,

                Depends on speed of transition to electric land transport for personal use. OPEC could keep prices high in the face of declining demand, but it is more likely there will be unrestrained maximum output in a market share war amongst large producers and a crash in oil prices around 2035, and perhaps sooner. Tight oil producers would be wise to input this into their models. They should maximize output and profits through 2025 and then scale back completions sharply to prepare for the coming crash in oil prices as former OPEC members drive oil prices to $20 per barrel in 2021 $ by 2035 or perhaps 2040 at the latest.

                1. Dennis,
                   You show too much faith in OPEC paper barrels. It’s all hat no cattle. But we’ll see soon enough. Next year, I reckon.

                   And you seem to believe that declining demand always leads to low prices. Please check how the price of asbestos has moved. Known carcinogen. Demand has plummeted for 30 years now. Any guesses where price has gone during that time?

                2. Ancient archer,

                   Declining demand will lead to decining prices if demand falls fazter than supply.

                   This is not always true, my assertion is that it will be true for oil around 2035.

                   We will see.

11. Global sovereign bond markets would be selling off if reflation was real. Central banks aren’t really central banks they are bank regulators. They don’t do money and they don’t print money. If they did print money the real economy would take off. Only commercial banks have the power to print money via loan creation. The so-called money printed at the FED are bank reserves. Which can’t leave the Fed. All QE does is allow assets not to be marked to market. Shale oil doesn’t even exist if we were to have true price discovery in all markets.

    1. ???
       I thought QE works like this:

       – The state starts one more spending program and issues lot’s of bonds
       – A bank buys these bonds with own funds
       – FED (or EZB) buys the bonds from the bank (they don’t want to go to the direct auctions) with fresh created money.

       After this: The FED owns the bond, and the state has the money to throw around. When the state pay back the bond, the money is destroyed – but this don’t happen, since the FED reinvests payed back bonds.

       In summary it’s printed money spending by the state, but a bit indirect way channeling it through a few dealers. In an middle american banana republic the printing press would be located in the basement of the president’s palace, making it visible for everyone.

       The other programs of the FED for money lending and regulation are running in parallel.

       On the other hand, everybody can print money. You just have to sign a now outdated bill of change (I think this is the right word). Then there is more money in the system – the original money and the bill, which everyone can use as collateral.

       It’s the same with banks – they take the money from my account, and lend it to someone else. So type 2 money is created. I have my account with a number in it, and another person has the money to spend. My account is now the created money. The bank only needs enough money to pay everyone back who wants to spend money from his account. And this is much much less then the sum of all accounts. When the bank can’t pay back because they don’t have enough money – big trouble.

       So they don’t really print money – they transform central bank money in lesser type of money (bank accounts in short). Normally they can multiply it round about factor 10 – that’s why inflation can get so explosive when the central bank prints too much money. And why reducing the central bank money supply is good to stop inflation, via restricting the banks to give out credits.

       But now is no more normal time. Thinning the market out of class 1 collateral is another proplem as you pointed out. This is a collateral damage of this QE method of money printing and direct state financing.

       PS: Nobody would buy these masses of italian and spanish state bonds in the EU – they would only be bought by the most bold junk bond traders. And we would have to deal with state defaults in the EU, imploding the banking system from the core by detonating the collateral.

       The same with some of your countries in the US – I don’t think their bonds would be very popular without a massive higher interrest.

       The big problems started 2007 when they stopped the Lehman crash – after this we have only a supervised artificial market left.

       1. QE works like this. Primary dealers buy treasury bonds with money that already exists. FED creates Bank reserves which aren’t really money. Sounds like money but they are really just a form of collateral. FED swaps it’s bank reserves for either treasury bonds or mortgage back securities (MBS).

          These bank reserves never leave the FED. An accounting entre is made in the Primary Banks name at the FED and credited x amount of bank reserves. NO money ever actually leaves the FED. So on FED’s balance sheet on the Liability side are the Bank reserves. On the Assets side are the treasury bonds or MBS.

          Primary dealers does have an entre on it’s balance sheet that says x amount of bank reserve. But they are park at the FED in an account. Primary dealer can’t take them out and go buy stocks or anything else with these bank reserves.

          When the government sends out checks it’s done with money that already exists. It’s mildly inflationary because your putting the money in hands that will spend it. It’s not money printing. It’s money redistribution.

          QE is nothing more than a collateral swap between the Central Bank and primary dealers. Everything that most people believe is complete bullshit.

12. I’ve had some other comments deleted, let’s see if this gets through.

    Remember, one of the key points that has been discussed over and over but still gets lost on many academic posters, is that the resources on the right side of the curve are not the same as the ones on the left. Without the capital and know how, they may never get produced at all.

    Higher prices are not a cure all, because they impact demand. This is called energy deflation and has been discussed by Steve from Virginia for years. In general, low prices are good for consumer demand, but bad for producers, and high prices are good for producers but bad for consumer demand (broadly speaking).

    So you can supply all of that high expensive oil you want, there isn’t going to be the auto and truck and plane demand for it. So boom turns to bust, oil prices come crashing down again. There is no goldilocks price.

    Eventually, oil exports will decline and remaining oil will be nationalized and under price controls. Count on it. Export land model is still true, EROEI is still true, depletion is still true. None of this changes with “shale oil makes money at $100 and reserves keep increasing” or whatever else you wish to peddle to new and uninformed readers.

    1. Dolph , both of us are on the same wavelength . More are coming out of the woodwork and realizing that the oil age is now on a short fuse . Lies of the industry are catching up .

    2. Dolph,

       It all sounds good,but real world data does not support the argument.

       I have consistently underestimated future oil output since 2012. My current scenarios may be different, only future data will answer that question.

       Note that my current scenarios have very similar URR ( about 50 Gb larger, 3050 vs 3000 Gb) to those of Jean Laherrere. He has also tended to underestimate future oil output, but has been doing so since 1998 (1800 Gb for World URR) in 2018 his estimate was about 3000 Gb.

       You may dismiss reserve growth, but it is very real, just look at US data from EIA.

       Export land model makes dubious assumptions about demand.

       EROEI only matters for all energy sources at a society wide level, there are no decent analyses which do this.

       QED

13. Portion of a comment posted by Dr Doom on Wolf Street . Need not say more .
    “As a chemist from the oil patch I still talk to mud engineers that ain’t dead yet. Fracked wells will start cycling into zero production due to depletion from porosity collapse. Fracking Do overs ain’t happening .If the Fed will give them free money they will frack a grapefruit. Outside of the Fed good luck.”

    1. Hole in head,

       Everyone thinks they are an expert. Chemists know chemistry and know it well. Do you think they can do heart surgery?

       Obviously not.

       They cannot do the job of a petroleum engineer any better than an accountant. Perhaps slighty better, but a geophysicist would have a much better idea, though would know less than the petroleum engineer imo.

       1. Dennis , the chemist only REPORTED on a comment made by a ” mud engineer ” . Now what is a ” mud engineer ” in the oil industry ? It could be a geologist or it it could be the foreman who does the cementing job on the oil well , but definitely some one with his fingers on the pulse . IIRC , someone brought up this subject about porosity problem in the shale basin long time ago . I remember it was in the context of re fracking wells . Request any of the “oilmen ” to clean the spill . 😉

          1. HIH, Dennis

             A mud engineer deals with drilling fluid, typically mud. The name goes back to the early days but the mud much more complex these days. A mud engineer can make or break a conventional well and sometimes literally save your life. They work to control filter cake; the thin veneer of mud that lines the drilled wellbore preventing damaging mud invasion. They manage mud weight to control inflows or lost circulation. In many instances this is a balancing act of great import. They control viscosity which affects circulating downhole pressure. They maintain mud composition to mitigate formation damage by the swelling of certain rock constituents. Mud is the primary purpose is well control and the removal of the drill cuttings from the well while performing the other tasks.

             While I have no experience with the planning of wells where the mud engineer was involved I must believe that some representative of the mud company is involved in the process of complex wells. That being said, at some level of mud engineering, the knowledge of rudimentary geology is necessary at the minimum.

             Reading trade journals for years on end even I am familiar with formation collapse in both conventional and unconventional rock. Fracked pliable shale may deform around the proppant. Deep, high overburden weight might crush insufficiently strong proppant. Wonderful, high perm, unconsolidated sand in vertical wells can collapse following depletion to damage the ability of fluid to flow through the sand as before. Some wells even produce the formation sand.

             I would rather talk with a mud engineer about formation collapse as one who is close to the loop and involved professionals than I would their accountant. Personally, so much of my education has derived from listening to and asking questions of the pros in the field or on rigs; by osmosis. As an aside, I’ve know many engineers from notable universities and/or major oil companies that wouldn’t ask a question if being tortured because they already know everything. Humility is a key operating attribute and I beg for informed response. Some comments, IMHO, are made to solicit responses even if not stated explicitly.

             Time for me to shut up and listen.

             1. Rasputin , I can read you loud and clear . Even a ” dumbkoff” like me now understands the important role that a ” mud engineer ” plays in getting the oil out of the ground so that I can eat strawberries 24/7/365 . Muchos Gracias , Dank U well . Appreciated .

             2. Thanks Rasputin.

             3. I ran off a mud engineer once. He had the KCl at 1% when it was planned to be at 3%. As a result we spent 12 hours jarring on pipe.

                1. Only 12?

             4. Rasputin. I’m glad you post here.

                1. Shallow Sand

                   I am truly honored and humbled that you would feel that way and go further to tell me so. This opportunity to listen and speak is a privilege that I don’t take lightly. It just seems appropriate to fill in a blank or two every now and then.

                   Thank so so very much.

                2. +1

14. Beyond methane and oil extraction, could it not be necessary to begin thinking (for the oil workers, for instance) about prospecting, understanding, collecting, extracting, I don’t know, emissions of natural hydrogen? I mean, the production of environmental hydrogen with radiolysis in the crust of water, oxydation of mantle rocks with water and so on. People are arguing severely with the evaluation of the remaining oil ressources or the futur of modelized or not oil production. Perhaps, it could be necessary to turn over a new leaf. http://elementsmagazine.org/2020/02/01/new-perspectives-in-the-industrial-exploration-for-native-hydrogen/
    PS : I didn’t post this in the open thread non petroleum because it is specified that no post about oil and natural gas must be published in this thread and well, natural hydrogen is a natural gas, some sort, no?

    1. From the link:
       “ There has been a persistent idea in the petroleum industry that native hydrogen does not exist. This paradigm is clearly a response to the scarcity of H2 in the millions of wells drilled for oil and natural gas in sedimentary basins.”

       Yep, I concur….and, more from the link:

       “ Academic research over the last three decades has begun to accumulate a significant number of observations of seeps of native hydrogen, together with abiotic methane (e.g., Smith et al. 2005; Etiope and Schoell 2014; Prinzhoffer and Deville 2015). Two main geological environments are involved: (1) Precambrian crystalline shields, (2) serpentinized ultramafic rocks at mid-ocean ridges and within land-based ophiolite-peridotite massifs.

       I’m not a geologist, so please correct me as needed…primary porosity of said two environments is zero, no? If so, simplifies risked reserves estimate.

       Plenty of folks looking for new targets to drill…but, unless the banksters throw tens of billions at it, no one will touch the concept. Of course, the wild eyed dreamers do keep the industry interesting:

       “Hydrocarbons and inorganic gases have been analyzed in the drilling fluid of the Gravberg-1 well, Siljan Ring, Sweden, which represents the first commercial exploration for mantle-derived methane.”

       https://www.sciencedirect.com/science/article/abs/pii/0009254188901180

       Of course (for the TAMU alum), it could just be another “cold fusion” discovery:

       “ may result from abiogenic synthesis from inorganic carbon species in the granite, or may be synthesized, during drilling operations, from organic precursors in the drilling fluid”.

       1. Roger.
          If you read the your bible more carefully then you will find the answer.
          I would tell where, but that would ruin the thrill of discovery for you.

          1. Hickory,
             As long as it doesn’t involve Zion Oiland Gas, I’d love to know your understanding of the Bible.

             Any verse to edify?

             1. Roger.
                I’ll keep it simple.
                People are here for an exploration of reality, and not to hear about anyones belief system.
                No thank you.

       2. It’s an old publication and they seem to not believe themselves at the abiogenic origin of the methane detected : ”Low concentrations of hydrocarbons from granite intervals are rich in unsaturated hydrocarbons, and may result from abiogenic synthesis from inorganic carbon species in the granite, or may be synthesized, during drilling operations, from organic precursors in the drilling fluid.”

15. Up above Steve asked “More COVID-19 Lockdowns?”

    No.
    Now that we have have effective vaccines for over 6 months that is unnecessary.
    People who remain vaccinated should be free to go about their business,
    except they should 100% excluded form public places with strict enforcement [like that for keeping minors out of bars]
    No lockdown needed.
    Whether or not the unvaccinated should be allowed in hospitals is question that is more difficult to answer.

    1. Who do you think is paying for the unnecessary hospital visits of the unvaccinated ?

       Let me give you a hint: the insurance companies are passing the cost on to the guy looking at you in the mirror. Complete FUBAR

       1. Yep

16. If you want a new drilling target, consider geothermal:
    https://www.cnbc.com/2021/02/16/chevron-and-bp-back-renewable-start-up-focused-on-geothermal-energy.html

    I wish I could invest in that … now.

    Or, if your eyes are bigger, forget about drilling all togeather:
    https://corporate.exxonmobil.com/Energy-and-innovation/Advanced-biofuels/Advanced-biofuels-and-algae-research

    The gold standard of renewables:
    “Oil from algae can also potentially be processed in conventional refineries, producing fuels no different from convenient, energy-dense diesel. Oil produced from algae also holds promise as a potential feedstock for chemical manufacturing.”

    I am invested in that…indirectly.

    1. By now, it’s a loss of investments. We must wait the results of fondamental research such as those carried out by the BIAM (Institut de biosciences et biotechnologies d’Aix-Marseille in french ) scientists who are deciphering the biological and genetic mechanisms of hydrogen and hydrocarbons production by algae and who are researching genetic modifications to enhance the yield because producing at high yield hydrogen and hydrocarbons is not the job of these organisms but to live.

    2. 10K bpd is tokenism.

       Lambda overwhelms everything.

       1. 10 K bpd is “proof of concept” … If they can do that … 10 MM BOPD is likely on the table shortly (within a decade?) thereafter.

17. HB, Ron, Hightrekker

    You have stooped to a new low and I hope that Dennis grants me some latitude to speak to this affront to Roger and millions, some of who may lurk on this site. This problem seems to repeat itself here and is a distraction and off-putting enough for me and possibly others to find somewhere else to study.

    The other day a familiar comment, this time from George+Kaplan, decried acrimony and another ad hominem attacks. Ron bluntly stated that MarkIngraham was gone; for what I don’t know. Mike rails about idiots not getting things. But this series of comments attacked the essence of Christians; that which is truly existential and there’s no correction. Have you no discretion? Have you no shame? All Roger did to light this fuse was to quote Scripture, not to attempt to convert anyone. If in disagreement it should have stopped right there. In response, Roger’s only mistake was to speak honestly to atheists who will not be convinced; who have not ears to hear nor eyes to see. Our role is to reflect grace. My true journey started when so many people afforded me grace after a lifetime of having used and abused them. They witnessed to me that which was undeserved as Christ bestowed undeserved grace upon all of us. All we have to do is accept and He does what we could never do. Staying mired in the misunderstood, misinterpreted and violent Old Testament will never yield true understanding and result in the gift of grace.

    I walked away from this blog last Fall after some of the same derisive commentary became the order of the day. Somehow, oil analysts and prognosticators were theological critics after being political pundits all on the heels of being novel coronavirus experts. Somewhere in all of that the true discussions about the factors involved in peak oil scenarios was lost in the weeds. Before I left I had a brief exchange with Nick that in days gone by would have been a vitriolic savaging but it is only by God’s grace, that after the life I’ve led, that peace and grace was the order of the day. That is a witness and not part of my base nature I can assure you. I was gifted with a magnificent intellect and fast mind that was damaged a few years back but still afforded me the wisdom to chose and not be indoctrinated as one who is mindless.

    Please refrain from the temptation to vent on Roger, me and so many unidentified others while concurrently undermining you own credibility and character as individuals.

    Now, may we get on with peak oil discussions and all the attendant trappings and leave the browbeating behind?

    1. Rasputin your right. Roger shouldn’t have injected Christianity into the conversation. A child of god should have known better. It was like red meat for a bunch of devil worshiping sinners. You know, like when Adam’s snake got the scent of Eve’s cherryapple. Can you really blame us, we don’t know better. Besides, cruelty is Trumpian. I’m so confused. Can you forgive us ?

    2. Rasputin,

       I agree it is in bad taste to ridicule people for their religious beliefs. Some people have as much or more faith in their Atheism than many Christians, but somehow miss this irony.

       These questions are better to be not discussed at Peak Oil Barrel as they generate no light, but plenty of heat. They simply anger many people.

       It is too bad people don’t realize that.

       1. Yes, I agree. It is in bad taste to ridicule people for their religious beliefs. I may sometimes do that but I always reget it afterward. My dad and mom were deeply held fundamental religious beliefs. They believed the Bible literally. I have told this story before but I will tell it again for the benefit of those here who have not heard it.

          When I was about seventeen, or somewhere around that age, I sauntered up to my dad and asked him: “Dad, how did them kangaroos get from Australia over there to where Noah’s Ark was? And how did they get back?” Dad jumped up from his easy chair like he had been shot out of a cannon, stuck his finger right in my face, and yelled: “Son, that is the word of God and that is not for you to question!”

          But I still wanted to know, but I never asked my dad a religious question again. But I still respected my dad. But I did not respect his beliefs because I soon figured out they were total bullshit. I respect people because they came by their beliefs the same way Dad came by his. People deserve respect because they are not responsible for their early indoctrination. But beliefs are a different story. Some beliefs are respectful and many are not. Believing in a god who ordered the genocide of millions of people is not a respectful belief. Believing in a god who tortures people unto infinity for not believing he is god is not a respectful belief. Let me quote John Stuart Mill:

          . I will call no being good, who is not what I mean when I apply that epithet to my fellow-creatures; and if such a being can sentence me to hell for not so calling him, to hell I will go.
          John Stuart Mill:
          An Examination of Sir William Hamilton’s Philosophy.

          1. Ron

             When the great flood came, the whole land mass was one. America was stuck to Europe/Africa. Australia was attached to the southern part of India. The world separated later. Hope this helps you become a believer again.
             😁😁😁😁😁😁😁

       2. During a change of career I tended bar for five years. There’s only one thing you can’t tolerate from your patrons to ensure all have a good time, and that’s intolerance or lack of respect for other patrons. That’s why Mark Ingraham 7 had to go. He was a sociopath who wouldn’t let a conversation happen without butting in. But don’t make fun of people for quoting the bible. That just makes you look insecure in your atheism.

18. Seems we have veered off course a bit.

    WTI is dropping back below $70.

    There is a labor shortage in the oilfield that isn’t going away.

    These two factors will make the 1 million +/- annual increase in USA production that we saw very difficult.

    That’s even before we get into the geological factors discussed by Mike, LTO Survivor and Rasputin.

    1. That’s the pork cycle in full action now.

       Low oil prices prepare even higher ones – when this 1 mbpd extra from shale is missing, prices can soar next year.
       Other new deep salt project get delayed perhaps, or state oil companies invest slower. States need money for corona and I think several will cut back investing in their fields. At least the long time investing that has no results in a few months.

       With your labor shortage the grow story is over anyway.

       We have no oil industry here in Germany – but a collegue has postponed renewing his roof a full year. No labour available, construction companies are just waving aside his 100,000€ order. Looks like your problem. He has even this money free on his account – no haggling with credit lines but still no way.

       1. EULENSPIEGEL

          Maybe the roofers have gone to that area in Germany that was flooded about a month ago.

          1. This was already before the flood – now I think it’s one year longer to wait….

    2. Shallow Sand there won’t be the kind of growth we saw ever again in the shale unless oil prices go to $150 and the rig count and frac spreads triple in the Permian or elsewhere and at that price possibly the powder river basin and then that growth would only be for 2-3 years and the following 4rth year the inventory will be gone and the production will fall by 30-40% coupled with the rig count and frac spreads down as well.

       1. Don’t forget the TMS…should be good for a couple of years somewhere North of $120.

19. New Mexico’s oil Rises signalling a Modest Shale Recovery

    Interesting comment at end by Chevron

    “Chevron Corp. which has sizable acreage in the New Mexico, expects its Permian output in 2021 to be comparable to 2020 despite announcing that it would be adding more rigs and completion crews through the rest of this year.”

    MORE RIGS AND MORE FRACS AND NO INCREASE IN PRODUCTION???

    (Bloomberg) — New Mexico’s oil production surged to a record in May highlighting the Permian Basin’s role as the shale industry sees some recovery from the pandemic.

    The southwestern state produced about 4% more crude in the month to reach a record 1.22 million barrels a day, according to U.S. government data released Friday. It also topped North Dakota, to become America’s second-biggest onshore oil supplier. New Mexico has churned out more than North Dakota for three straight months, the longest stretch since 2008.

    New Mexico’s rising status as a key supplier reflects its cost advantage. U.S. oil and gas companies have been judicious in raising output after many producers pledged to cap spending and focus on returning more capital to shareholders. To that end, the Permian’s New Mexico is being favored over North Dakota, where higher production costs have historically curbed profits.

    The promises on capital restraint are likely to hold further production gains in check, even with higher oil prices providing an incentive to expand. In its latest earnings report, Chevron Corp. which has sizable acreage in the New Mexico, expects its Permian output in 2021 to be comparable to 2020 despite announcing that it would be adding more rigs and completion crews through the rest of this year.

20. Expert Quote of the Day-
    “the global economy will continue to run on oil and natural gas throughout the 21st century and far beyond anyway.”

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

    1. Technically speaking he is right, but what he and others won’t let on is that it will be a markedly contracted economy.

       Nothing goes away completely. It just gets worse and worse with every passing year. The endgame is of course very low to nonexistent exports, nationalization of remaining production, and price controls along with rationing. Every last drop will eventually be produced and burnt, but not in the manner you think. It will be used just to keep the delivery trucks and police/ambulance etc. going a bit longer, after even the rich have abandoned their Lambos and jets. But you, my dear reader, like myself, will be stuck in place.

       That’s why relocalization is such an important concept in preparation. You just cannot count on supply coming into your area. So you better be close to there’s still “stuff” whether it be water, food, land, energy, etc. still to be had. Countries with the following trifecta of doom are screwed without hope: growing population, low agricultural capacity, and low domestic energy production.

    2. Hence Energy Poverty =poverty

       Good ,bad or indifferent the economic growth of the modern world was made possible by by cheap, abundant, fungible (key word) energy. The oil producing nations of the world acted rationally and mostly irrationally.Had the price stayed high enough to reflect the actual scarcity of this reserve/demand then we would have not had the light speed economic growth but more time to solve the coming era of energy poverty. Political pressure to keep oil prices cheaper than water induced demand to a point that it is just not sustainable. Technology will certainly help as the “office” world may become extinct with zoom and the fingertip transfer of data but if the world demand ever reaches December of 2019 again, then we are doomed.

       Those who think there are plenty of places in the world that have yet to be explored for hydrocarbons due to harsh environments or by inferior geological information will be disappointed. Sure there is the Arctic Reserve, deep salt, better geophysical tools and models but there are no more Gahwar-like pools of oil.

       The recent price volatility in an industry that requires massive amounts of long term capital not short term PE capital has destroyed the industry coupled with the political headwinds of climate change seals the fate of our hydrocarbon energy future. No one has the heart or stomach to play a game that is so risky in terms of geological and mechanical success coupled with economic success obliterated by one and two year boom and bust cycles and now the final nail of politically expedient adversity.

       Commodity markets destroyed this business because they reflected current supply and demand without taking into account future availability of the product. The oil in place number prognosticated by the mathematical equations may be correct but the ability to retrieve that oil over time and especially at the later end of the life cycle of that extraction increases in cost exponentially.

       This is what we are seeing in the Shale basins as we have just created thousands and thousands of future stripper wells. Independents discover, followed by Majors who develop followed by smaller independents who can eek out a Living by keeping those stripper wells going as long as possible. The shale cycle is no different except compressed due to the speed at which these wells become stripper production.

       1. LTO Survivor. Keep posting. I appreciate your posts.

          When I look around I constantly am reminded by how much we are still dependent on oil.

          I cannot predict the future. If I could I would have sold out in 2013 and put all the money in tech stocks. So maybe the people who want to leave it in the ground have figured out something I am not seeing.

          1. To Shallow sand, LTO Survivor, Rasputin, and he who has asked that I not use his name,

             Thank you all for sharing your extensive knowledge of the oil industry.

             1. Your welcome, Dennis. Try to remember most of the things you want to know about the oil and gas business, nobody knows for sure. Its dark and hard to see down there.

                Don’t be fooled by the ‘predictability’ of mass manufacturing HZ tight oil wells the past decade and all the money thrown at that endeavor. Nothing In the oil and gas business EVER stays the same for very long. In the end, Mother Nature ALWAYS gets Her way.

                1. Mike,

                   Thanks, I agree.

                   On a side note, I had a telephone conversation with LTO survivor today. He is extremely knowledgeable and I probably learned more in a 15 minute conversation with him than many hours spent reading, he is a true gentleman to take the time to speak with me. Obviously I cannot share any details of the conversation to protect his privacy.

                   I imagine I would feel the same way if I ever had a conversation (by phone or face to face) with you.

                   In any case I have learned a ton from you and I appreciate all you have taught me. My very humble thanks.

                2. Dennis

                   Did you learn anything that would improve your model?

                3. Ovi,

                   Yes there were suggestions which I will try to implement. Many of the things he told me were reiterations of some of the comments he has made here. But a few details were filled in and he put it all together in a conversation that made it clearer to me. He is a very good communicator and seems like a great guy, very humble for such a successful businessman.

21. Shale Drillers Leave $12B on Table

    (Bloomberg) — Shale explorers are facing almost $12 billion in losses this year from bad bets on oil after a global rally, according to BloombergNEF.

    Of the 50 U.S. drillers surveyed by BNEF, Devon Energy Corp., Pioneer Natural Resources Co. and Diamondback Energy Inc. are on track to rack up the steepest losses, with more than $1 billion in underwater hedges apiece. The sector as a whole hedged almost one-third of estimated 2021 output and the practical impact is that they are locked in to reap about $5 less than the American benchmark crude, West Texas Intermediate.

    “One of the negatives of this quarter has been some horrible hedging; guys locked in at $42 a barrel,” Paul Sankey, the veteran oil-industry analyst and founder of Sankey Research LLC, said during an interview on Bloomberg TV.

    Hedging helps producers of raw materials mitigate the risk of major price fluctuations and lock in relatively stable cash flows. But the practice carries the risk of leaving money on the table during bull markets.

    The losses haven’t been limited to crude drillers. EQT Corp., America’s biggest natural-gas producer, irritated investors last week by boosting hedges at a time when the commodity also is surging. The company already has booked a $1.3 billion non-cash second-quarter loss on swaps and options contracts.

    1. If a producer hedged at a price lower ($42 quoted in this article) than the market price turned out to be, who is the entity that makes the big money on the transaction? Who offers the hedge?

       1. Hickory, sell hedges are done with futures or sometimes puts. An oil producer sells a contract that commits him to sell, at the contract price, which in this case was $42, one thousand barrels of oil when the contract expires. Of course, he can sell as many 1000 barrel contracts as he desires. If oil is then selling at $30 a barrel he still gets $42 a barrel. But if oil is selling at $70 a barrel, he still gets only $42 a barrel.

          Hedging with puts is slightly different. In this case, a hedger, that is an oil producer, buys a put that guarantees him the right to sell 1000 barrels of oil at a given price. Say the put price is $50 a barrel and the price of the put was $4. If the price of oil, at the expiration date of the put is $40 a barrel, he still gets $50 a barrel. But he really gets only $46 a barrel because the put cost him $4. The good part about puts is if oil is selling at $70 a barrel, he simply lets the put expire worthless and sells his oil his oil for $70 a barrel. But he really gets only $66 a barrel because he loses the price he paid for the put.

          In the case of the futures contract, the buyer of the contract makes the money if the price of oil is higher than the futures contract price when the contract expires. But the buyer of the contract loses the money if the price of oil is lower than the contract price at expiration.

          In the case of puts, the seller of the put loses money if the price of oil is lower than the put price at expiration. (That is the contract price of the put, not the price paid for the put itself.) The oil producer can “put it to the put seller” at the contract price of the put, even if the price is lower. But if the contract price of the put is lower than the price of oil, then the put expires worthless and the put seller pockets the $4 price of the put. ($4000 for 1000 barrel put contract.) But even if the put seller loses money, his losses are cut by $4000 for each put because he always keeps the price of the put. And a put buyer always loses the price he paid for the put regardless of the price of oil at expiration.

          1. Hmm..thanks Ron.
             Tough road to navigate (was going to say- tough game to play, but its no game).
             It seems like there is a winner and loser on each trade.
             And the ones handling the transaction must always win.

       2. One more thing about hedging with options. A seller hedges with puts. He has the right, but not the obligation, to “put it to” the put buyer at a given price. A buyer hedges with calls. He has the right, but not the obligation, to “call it from” the seller at a given price.

          The buyers of puts and the sellers of calls are the market investors, or more correctly gamblers, who sit at their desks and try to outsmart the market. If they guess right they make a fortune and if they are wrong they go broke.

          Ditto for the futures buyers and sellers who are not actual producers or consumers of the product. They are the marketplace gamblers. Many of them are actually floor traders who buy and sell many times an hour, trying to make pennies on each exchange. But most are home gamblers, trading from their computers.

          Forgot to add. You do not have to be a producer to buy a put or a consumer to buy a call. Any armchair gambler can buy or sell a put or a call. It is that one side carries a higher risk, but also a higher profit potential than the other.

          Do not confuse these people with computers. Automatic computer trading is done with equities, not commodities, and is an entirely different kettle of fish.

22. I looked into buying 22 calls for WTI and in the money calls or what the market thinks you can buy the oil for is so expensive that oil has to rise 15 dollars just to break even. It is a fools play. The market is pretty smart. Even though the futures suggest a lower price next year, to buy it at that price is super expensive meaning a lot of folks actually believe it is going higher.

    I have enjoyed this site for years and only recently began to contribute. I truly appreciate all of you and even chuckle at some of the spats. I am grateful to all of you and the knowledge and articles you share. It actually helped me in making some of my hedging decisions when I was CEO/President of the company I founded 3O years ago and just recently retired from. So while the tiffs sometimes stir some emotions of anger it is all of you that make the site work and so compelling. I very much appreciate Ron Patterson who is a wonderful human being and Dennis Coyne as well for helping tirelessly to maintain the site. I hope we continue to be respectful and kind to each other as we debate, feed and nourish each other with the shared passion of telling the world the true story of peak oil and other energy related topics. It is far more important for the survival of the human race than the man/woman/them/they on the street can even comprehend.

    Hope all of you have a nice evening.

    1. We in Europe trade most time option warrants from banks.

       Here one, WTI call base 70 (at the money), run time to dezember 22. WTI must climb round about 7$ until then to make money – at least not 15 $. I don’t know where you can buy this from the USA.

       https://www.onvista.de/derivate/optionsscheine/SG-CALL-LIGHT-SWEET-CRUDE-OIL-FUTURE-WTI-CL-NMX-ELECTRONIC-20221200-70-0-1-16-11-22-DE000SD5BRS7?custom=c

       With the derivate finder from this website you can search for them – run time, strike, base (WTI or Brent).

       For information – these warrants are money only. No oil delivery or such stuff.

    2. LTO Survivor,

       The volatility for WTI and Brent is very high, so even though the futures are trading at a significant discount to the spot, you will pay a lot for options. There is no point going long oil through calls on Brent/WTI – it’s too expensive because of the high implied vol. Going long futures might be a better way though you will be exposed to the downside risk (pretty minimal, I think) but more importantly more capital requirements. For oil, however, given the implied volatility, going long futures is much better than a call option.

       Another way to get exposure to oil is to go long oil stocks. And surprisingly, the volatility on XOM and CVX options is low, I think too low given the volatility of oil is very high. Surprising, but that opens up an opportunity. If you can do that, it might make sense to look at call options on Exxon and Chevron. You will get exposure to a rising oil price, there is no downside risk and you are paying relatively less for options because the volatility of these stocks is very low.

       Currently, you can buy a June 2022 expiry XOM call option at strike $50 for $9.0. So, basically, the stock needs to be higher than $59 in June 2022 for you to make money. Currently, XOM is trading at $57.7. So, the call option is damn attractive, I think.

       1. Guys , I do not dabble in oil , financial markets or any such thing, so just an opinion . As we stand today two opposing forces are at work . Rolling lockdowns which are pushing down demand and supply side problems ( not yet exposed to the public but known to the folks here ) . With rolling lockdowns it is extremely difficult to forecast a price . UK opens , USA shutdowns , Japan opens , China shutdowns , China opens , EU shutdowns . Currently we might as well have monkeys throwing darts . Who am I to comment after all oil was $ 147 and also – $37 . ? Better I get my glass of Single Malt . 🙂

    3. Thanks LTO survivor,

       Really appreciate you taking the time to speak with me.

23. I am going to toss a ball , let us see where it goes . Some bullet points .
    1 . There is now a consensus (yes a few holdouts ) that the world peaked in 2018 .
    2 . There is now a consensus (yes a few holdouts ) all the major producers Russia , USA and Opec 5 are past peak .
    3. Shale oil is now a ” sunset ” play .
    4. USA peaked in 2019 .
    5. The price of oil will not touch $ 100 on a sustained basis (+6 months in continuation )
    6. ELM will trigger unintended consequences that we do not know of just like the ” war on terror ” .
    7. Anything or any addition or subtraction to my bullet points is most welcome . Agree or disagree let us churn the mixture . Let the games begin .

    1. 2. OPEC 13 is post-peak. That’s as far as I am willing to go right now. But you are probably right.

       5. I think oil will easily hit $100 a barrel, just not in the near future. But a decade after peak oil, oil will get very expensive. Oil over $100 will be the rule, not the exception.

       6. ELM ??? What the hell is that?

       1. Export Land Model .

          1. Oh yeah, I completely forgot about that. However, that creates a contradiction in your list. The Export Land Model, if it becomes a serious problem, will drive oil prices way above $100 in importing countries.

    2. I agree Russia may have peaked in 2019, less sure about US, will depend on the price of oil.

       Disagree that sustained $100/bo will not occur, in fact if OPEC is toast. and Russia and US as some believe. I would expect we see WTI at 100 plus for 2024 to 2030, note thiz is average price, there will be volatility no doubt. ELM will likely not be a problem, market will work.

       One man’s opinion, future scenarios are infinite, choosing a correct scenario from this infinite set has a probability of zero.

       1. Dennis, Ron , regarding ELM I used the words ” unintended consequences” which encompass social unrest, sovereign failures even war . Your views . Maybe Dennis would know how to carry the posts on this thread to the new post coming in the next 24 hrs . Would be a good start . I am not very computer savvy .

24. Hi all,

    New posts will be up in about 24 hours.

25. Some have expressed concern about reserve replacement for PDP reserves in the Permian basin. I recently updated the 2019 average Permian well profile using DCA (Arps hyperbolic) with exponential tail at 14 % annual decline rate. I get a well profile with 411 kbo shut in at 20 bopd after 146 months. This new well profile for the average 2019 well increases the URR for my Permian scenario to 57.5 Gb (from 56 Gb earlier), a new natural gas profile for 2019 was also found leading to slightly higher GOR for May 2021 of about 3.9 for field wide Permian basin.

    The Permian scenario is used to find PDP reserves for the modelled output. I find that PDP reserves are added at a greater rate than produced oil until 2031 when too few new wells are completed to replace reserves (it occurs at the peak of the PDP reserve curve in chart below). PDP reserves are in Millions of barrels of Crude plus condensate and PDP=proved developed producing. The PDP reserve to production ratio (similar to R/P, but PDP is typically less than proved reserves) is shown on right axis for this URR=57.5 Gb scenario. Note that this scenario is likely optimistic due to lack of viable drilling inventory in the Permian Basin at the oil price I have assumed, it is likely higher oil prices will be needed for such a scenario to become reality.

    

    1. The only reserve to production ratio (R/P) I was taught was PDP R/P. Probable unconventional resource reserves are no longer proven, they are dependent on future capital to move from probable to proven. That capital is no longer available to the shale oil sector. That sector cannot function without credit.

       SPE reserve categories, for instance, were established some 75 years, based on a different industry than exists today. They are antiquated and need to be changed. 2P is no longer a gimme. You continue to hope higher oil prices make your models work. That is a mistake.

       URR should always have an E in front of it for estimated, followed by a * that stands for dependent on available capital…how much of other peoples money remains available to the shale sector to drill more wells.

       Because RRR is now way less than 100%, the “window” for paying down debt, reducing $8B a year in interest payments (public and private), making lenders happy and willing to throw good money after bad, is very short before PDP declines and along with it, production, and along with THAT, revenue. Watch what happens 12-18 months from now. RRR is way more important than the shale oil industry wants to talk about. RRR is actually… a secret.

       There was a lot of cash flow 2Q21 but cash flow is not the same as profit, a few quarters of cash flow does not make up for a decade of losses, and cash flow is not “free” when you are paying interest on long term debt.

       Because of pressure depletion, rising GOR, declining well productivity, loss of credit, public sentiment AGAINST oil, the rising cost of regulatory compliance, frac source water and groundwater issues, skyrocketing D&C costs, skyrocketing OPEX, etc. the RRR of unconventional shale oil needs to be about 150% or more, for even short term sustainability. The annual base decline rate in the Permian alone is now over 2MM BOPD. In other words each year it looses 40% of its previous years production.

       https://www.oilystuffblog.com/forum/forum-stuff/show-me-the-money

       1. Mike,

          I use PDP reserves divided by production, based on your posts at your blog. The scenario includes interest payment on debt (7.5% annual interest rate is assumed) , uses an annual discount rate of 25% to evaluate profitability and after May 2021 all new wells are financed from cash flow, no new debt required. The maximum oil price for the scenario is $75/bo for WTI, based on a conversation with someone knowledgeable in the industry, this may be a very conservative oil price assumption.

          The PDP reserves are based on new wells completed in the future (as assumed by the scenario. The reserve replacement ratio is not currently less than one, PDP reserves are growing, though less rapidly than at a higher completion rate. Industry consolidation and greater capital efficiency of larger entities is likely to lead to increased completion rates especially as oil prices continue to rise. Eventually PDP reserves will decrease in the Permian basin, at a low oil price (under $60/bo in 2021 $ for WTI) this will happen sooner than in a higher oil price environment.

          Typically the conventional usage is URR, I assume everyone here knows that it will always be an estimate, cumulative production is fairly well known up to the end of 2020, any output after that is an estimate (as of today).

          1. OVER 75% of a shale oil wells (E)UR (PDP) is produced in the first 36 months of its life; over 50% of all HZ tight oil wells in America now produce less than 40 BOPD with terminal decline rates of OVER 10% annually; the remaining PDP on those wells is nil. PDPR/P in most US shale basins is less than 3.5. Some way worse than that.

             Unconventional tight C C production in America is down 1.5MM BOPD from its high 14 months or so ago. The HZ rig count is roughly HALF what it use to be. CAPEX to drill shale oil wells is HALF of what it use to be. Scott Sheffield, for instance, says publicly his company, the biggest in the Permian, only spends HALF of what it use to on new wells.

             You say, however, reserve replacement ratios are still 100% and, to be clear, the Permian shale sector can pay over $170B of public and private debt (can’t model total Permian financial performance just to pay back part of its LTD) completely off in 2 1/2 years and become, for the first time ever, financially self sufficient and recover what was it, 51G BO more EURR? No problems, providing Brent is $75 and stays there.

             I am saving all this, you know.

             1. Mike,

                Thanks for the correction PDPR/P is around 2.9, dumb mistake on my part, I was using monthly production instead of annual production. Reserve replacement ratio is about 1.12 for May 2021 for Permian basin. The ERR for my scenario is about 55 Gb and cumulative Permian output is about 6 Gb so about 49 Gb left to produce.

                I am aware what the well profiles look like, my well profiles have about 65% of output produced in the first 36 months, I use a terminal decline rate of 15% and assume wells are shut in at 20 bo/d. I use an Arps hyperbolic fit to shaleprofile average annual well profile data, I assume 15% exponential terminal decline after the hyperbolic reaches that decline rate. For the average 2019 Permian well my well profile EUR is 405 kbo, and 265 kbo after 36 months.

                1. Mike corrected chart below for PDP reserves in millions of barrels and PDPR/P (corrected).

                   

26. Oil fell 1.75% today after a good US jobs number posted for month of July. Both total jobs added and unemployment % beat expectations. People believe Fed will tighten monetary policy sooner now, Good new was bad news for oil today. While the Fed can’t print money. One thing they do have control over are the short term interest rates. Any tightening of monetary policy is a big negative for oil prices.

27. New posts up

    https://peakoilbarrel.com/bakken-summary/

    and

    https://peakoilbarrel.com/open-thread-non-petroleum-august-7-2021/

28. A question @Ovi : in the chart about OPEC crude oil production forecast with the STEO, the production is by month. However, when I look at the STEO of EIA for OPEC, it is given by quarter. Could you, please, tell me where the monthly data of the STEO for OPEC crude can be found?

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