[Pops]

Easy to say. But not so easy to figure out how this takes place in the timeline. The moves from either production or demand are slow. That means that the elasticity of the offer/demand curve is very low on the short term.

Elasticity is low but market participants don't care about the 99%, they trade on that last 1-2% of marginal production. If there is a 2% surplus capacity, price is low, but 2% shortfall?
Yeow! The price rises big time. The market knows that very inelasticity will force people to shell out more because in the short run they are locked into their habits and arrangements.

Obviously no one has a crystal ball, if they do they certainly aren't going to give a blow by blow narrative on the internet. LoL

Speaking of fortune telling, did I post that the EIA has changed methods and lowered their production figures up to 150b/d showing that the recent peak was all the way back to June? I'd guessed that the peak (local peak) would be in August and that the price would rise (to 70-80 I can't remember) by the christmas holiday.

But I had thought increasing production against stagnant/falling demand would kill the price for the last 2 years...


What category should I put my crystal ball in on CraigsList?

[Subjectivist]

How long until the next month of data is reported? I know all the big reporting agencies are on a schedule for updates but I can't keep them straight, but it has been at least three weeks since the last big update.

[Revi]

There is data up to September on Peak Oil Barrel.
http://peakoilbarrel.com/bakken-product ... #more-9748

Check out this. Very funny and hard hitting about the Bakken:
https://www.youtube.com/watch?v=jYusNNldesc

[Pops]

From Rune @ FractionalFlow.com

The underlying decline from the legacy wells is strong. The extraction from all the wells started between Jan 2008 and Dec 2014 declined by close to 440 kb (or about 41%) from Dec 2014 to Sep 2015.
...

The next 8 – 10 months LTO extraction from the Bakken will be in a steep decline, even if oil prices significantly rebounds. The future trajectory for LTO extraction from the Bakken is now driven by financial dynamics which has to run its course and a lasting, low oil price will cause serious financial stresses on most of the LTO companies in the Bakken.

Figure 01: The above chart shows developments by vintage in LTO extraction from the Middle Bakken/ Three Forks/Sanish formations in Bakken (ND) as of January 2008 and of September 2015 [right hand scale].
The color grading shows extraction by month.
Development in the oil price (WTI) black line is shown versus the left hand scale.

[ROCKMAN]

"The underlying decline from the legacy wells is strong. The extraction from all the wells started between Jan 2008 and Dec 2014 declined by close to 440 kb (or about 41%) from Dec 2014 to Sep 2015." But that’s due mostly to the high decline rate of the wells drilled since mid-2013. I suppose each one of gets to make up his definition of a "legacy well". Personally I don't consider wells drilled since mid-2013 to be legacy in nature. Those are recent wells in my book. In fact I begin thinking of wells slipping into the legacy category as those which have significantly reduced decline rates compared to their initial first few years. On the chart those would be wells drilled no sooner than Jan 2013. On the chart those wells are producing about 275k bopd. Collectively those and earlier wells are declining less than 10%/yr. One can only do a roughly estimated curve fitting but wells drilled the last few years (combined with the earlier legacy wells) look like they may level off around 600k+ bopd in a few years. Still declining of course but at a point several years down the road the decline rate will be relatively small compared to the first couple of years of their lives.

Consider total US oil production. http://instituteforenergyresearch.org/w ... Graph1.png

From 1989 to 2008 (19 years) our production from legacy wells declined from 7.6 mm bopd to 5 mm bopd before we began increasing production. That’s a 34% OVER 19 YEARS. Or simplistically about 2%/yr. Which makes sense given that during that 19 year period the average US well produced less than 20 bopd. Thus the nature of “legacy wells” in my book: very little production per well which is declining at a rather slow rate but collectively they produce a sh*tload of oil.

[Pops]

IIRC new wells are less than a month old and legacy wells are older, I assume to differentiate initial production. Not sure if that applies here, where I read it or anything else...

OK, I read it here (or at least this agrees... sorta)

Monthly additions from one average rig
Monthly additions from one average rig represent EIA’s estimate of an average rig’s3 contribution to production of oil and natural gas from new wells.

[Pops]

um, so when did legacy mean 100 year old wells in these reports?

and what good would reporting the production of a 100 year old well be again?

[Cog]

um, so when did legacy mean 100 year old wells in these reports?

and what good would reporting the production of a 100 year old well be again?

Maybe because it still produces oil?

[Pops]

Crimeny, are you guys just bored?

The post is about middle bakken

It produced zip 10 years ago

WTF spindletop? Is that some kind of Trump non-sequitur, fact-free argument against ...something?

Look at my post

See the graphic

read the caption

if you can't figure it out I can't help

[Outcast_Searcher]

From Rune @ FractionalFlow.com

The underlying decline from the legacy wells is strong. The extraction from all the wells started between Jan 2008 and Dec 2014 declined by close to 440 kb (or about 41%) from Dec 2014 to Sep 2015.
...

The next 8 – 10 months LTO extraction from the Bakken will be in a steep decline, even if oil prices significantly rebounds. The future trajectory for LTO extraction from the Bakken is now driven by financial dynamics which has to run its course and a lasting, low oil price will cause serious financial stresses on most of the LTO companies in the Bakken.

OTOH, given the logarithmic nature of the production decline (eyeballing the colored production curves), the rapid damage is done the first two years, with most of it in the first year.

So after the next 8 - 10 months, Bakken LTO wells put into production while oil was still expensive (i.e. before August 2014) will collectively decline rather slowly, at least comparitively.

So the good news for oil bulls is there will be ongoing upward price pressure from the LTO supply side, as long as oil remains cheap enough to prohibit most LTO drilling from places like the Bakken. The bad news is since such pressure will be increasingly gradual -- it may take years for such cumulative pressure to eat through overall excess supply.

[ROCKMAN]

“…and what good would reporting the production of a 100 year old well be again?” I don’t recall saying anything about 100 year old wells. So let’s just stick with your chart: wells that are only several years old, say pre-2013, show relatively low decline rates. That’s from YOUR chart. So to answer your question: why report production from old wells: because collectively they can make up a significant amount of current production. Just as YOUR chart shows for older Bakken wells. And more important: that significant amount of older production shows much slower decline rates then “new wells”…especially so in the shale plays where new wells have significant initial production rates that last only a relatively short time. IOW legacy wells provide a much more stable production base then “new wells”.

As I said there is no regulated definition of a “legacy well”…make up whatever definition you want. But consider that your govt (according to the BLM) defines: “Legacy wells are commonly defined as wells that were drilled during two separate exploration periods” IOW all US wells drilled prior to the boom in the shale plays over the last 7 years or so would be defined as “legacy wells” by the US govt. IOW that vast majority of US oil wells are thus “legacy wells”.

But you might want to go with the EIA definition: Legacy oil and natural gas production: Charts present EIA’s estimates of total oil and gas production changes from all the wells other than the new wells. A new well is defined as one that began producing for the first time in the previous month. Each well belongs to the new-well category for only one month.” Which, IMHO, makes the term “legacy well” worthless: this month’s “new well” becomes one of next month’s “legacy wells”. IOW from a context standpoint the EIA definition has almost no utility. OTOH the BLM’s definition does capture the change in oil/NG development dynamics in a more meaningful manner IMHO.

And Outcast, ole buddy, I'll have to pick on you: "...it may take years for such cumulative pressure to eat through overall excess supply." Where is all this "excess supply" I keep hearing about: the world is currently consuming more oil than ever before in history. If "excess oil supplies" are essentially addition oil production voluntarily being kept off the market then we have less "excess supply” today then a year ago.

[Tanada]

Based upon this graph,


Bakken on December 31, 2012 was producing about 700,000 bbl/d
All those Bakken wells that were producing that 700,000/bbl/d nearly three years ago have gone through their steep decline phase and at the end of 2015 will still be producing about 250,000/bbl/d of oil, day in and day out. When I think of Bakken Legacy production this is the oil I am referring to.

So what does this mean for the future with the much slower drilling rate that has been undertaken in 2015? Here is how I see it and I welcome corrections from Toolpush/ROCKMAN/other industry experts.

A little over 12 months from now we will reach December 31, 2016 and the legacy output will include the wells IMO drilled between January 1, 2013 and December 31, 2013 that will have gone through their steep decline period by that date. Based on past performance I believe that will mean legacy output will rise from the current 250,000/bbl/d to a level of around 350,000/bbl/d.

But what about the wells from 2014 and 2015 that are still in their steepest decline rates as we enter 2016? As of October 2015 per the graph above those wells were producing about 625,000/bbl/d of the 1,050,000/bbl/d currently coming from the Bakken. If they follow the typical decline rates for the next year then at the end of next year they will be putting out about 300,000/bbl/d. Added to the legacy production by then of 350,000/bbl/d the Bakken will produce at minimum 650,000/bbl/d plus whatever new production comes into production during 2016. For the years 2012, 2013 and 2014 that new production amounted to between 200,000/bbl/d and 300,000/bbl/d. However those kind of increases were only taking place when drilling was going on as quickly as possible and prices were very high. During 2015 drilling rates have fallen steeply from a year ago and now more closely resemble rates from 2010 when the Bakken boom was just in its first flush of success. If things continue as seems likely for the next six months I believe we will settle in around 200,000/bbl/d of additional 'new' 2016 production by the end of next year.

Adding the new, still steeply declining, and pre 2014 legacy numbers together gives me a guess of 850,000/bbl/d coming from the Bakken December 31, 2016. That puts us at the same output from Bakken that we had December 31, 2013 when OPEC started looking at market share as a serious concern. It also means the fall from 1,150,000bbl/d is not nearly as severe as the initial decline rates of wells lead many of us, myself included, to expect it to be. A loss of 300,000/bbl/d is no laughing matter, but in terms of the world market it is easily absorbed until such time as peak oil declines actually set in and cut total supplies. Also during the 2016 period the bankruptcies will accumulate and the cash flush investors or companies like the one ROCKMAN works for will be able to buy up many legacy wells for far less than the cost of new well drilling, allowing them to keep them in production for many years even as they decline slowly going forward.

[Pops]

The bad news is since such pressure will be increasingly gradual -- it may take years for such cumulative pressure to eat through overall excess supply.

I think Rune's point is that it was the hope of continued high prices through the long tail that made the bet on LTO practical.

The dynamics in play results from years of debt growth in a bid to grow LTO extraction, betting on oil prices would remain high. Meet the Financial Red Queen, who is harsher than her physical sister.

[Pops]

So to answer your question: why report production from old wells: because collectively they can make up a significant amount of current production.

Look at the post,
"Current Production" is not mentioned.
Current production has not fallen 400b/d/y.

Steep underlying decline rates in LTO the first years of production is the point - low prices slowing drilling revealing that steep decline rate is the point.

Kind of thought that was common knowledge about LTO for years but I guess not.

Opinion of what constitutes "legacy" is not relevant as the chart has a bunch of pretty colors to illustrate underlying decline rates by vintage, month and year. So lucky you, you can make up your own definition and take away whatever conclusion you want!

Seems pretty self explanatory, not least because it says all that right on the chart.

Lots more actual factual stuff about fracking, refracking, drilling cost, etc at the link if anyone is interested, which obviously most aren't.

[GoghGoner]

This is affecting the credit already and should be a major factor going forward. Out with the old and in with the new, perhaps?

Billions of Barrels of Oil Vanish in a Puff of Accounting Smoke

The U.S. shale revolution, which brought the country closer to energy self-sufficiency than at any time since the 1980s, was built on money borrowed against the promises of future output. New wells that could be drilled when U.S. oil was selling for $95 a barrel -- last year’s price as calculated by the SEC’s formula -- simply don’t pay at today’s prices, and the revolution has stalled.

[ROCKMAN]

T - Excellent summery IMHO. And as you point out the production of legacy wells, especially the ones producing relatively low rates but also declining very slowly are the CENTER OF THE WORLD for folks like out buddy Shallow. Legacy wells are, for the most part, the realm of stripper operators. These are companies that rarely ever drill a well. They simply contribute a lot of sweat equity that the bigger operators don't have to spend to keep legacy wells producing.

Again look at the total US oil production: prior to the shale boom US oil production from hundreds of thousands of legacy wells maintained a rather solid production base. Declining yes...but only a few % per year. And while everyone got excited about shale wells that came on at 1,000+ bopd they don't hold there very long. So once the bloom comes of the shale rose the country is still left with a solid and slowly declining oil production base thanks to the legacy wells and folks like Shallow that keep squeezing the last few bbls out.

Which is why US production has never fallen off the typically undefined “cliff" and never will IMHO.

[Pops]

What I can't figure out is why no one can be bothered to go to the link.

[Tanada]

Now that enough time has passed from the 2015 peak production rate I was able to suss out google to give me a graph showing the situation over the last few years in the Bakken.



As ROCKMAN predicted the production drop rate slope is much less steep than the rapid production increases that took place when oil was $80/bbl or higher.

This 'production cushion' is why the OPEC market share strategy did not put all of the fracking oil companies into bankruptcy, though it did eliminate a number of them that were cooking the books to look healthier than their cash flow indicated they actually were.

As a result it appears to me that the fracking sector of the oil industry is actually stronger than it was before the price crash, and now we have a couple major companies getting in on the act because the robust moderate decline rates post peak greatly reduce the risk for a large company.

Fracking in known viable locations is no longer 'risky' for the large oil majors, there is an accumulation of data from all the drilling the small fry did in the 2009-2015 period.

We are already seeing this in the Permian basin in Texas, the shale is so ideal that even at around $45/bbl a self financed oil company that isn't beholden to bank loans can make enough profit to go for the prize full out. Even more so, the more the self financed companies drill and prove a profit the easier it is for the bank financed companies to get the loans they need to drill competitively in this market.

Add it all together and what do you get? Soon, somewhere between $45/bbl and $60/bbl the fracking drilling rate will be high enough to offset the declines we get from legacy wells and the USA will once again have increasing oil production.

[Revi]

Good, that could offset the decline from conventional sources, or will it?