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Shale Oil: Running to Stay In Place

Discuss research and forecasts regarding hydrocarbon depletion.

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Re: Shale Oil: Running to Stay In Place

Unread postby Lore » Fri 28 Sep 2012, 14:25:44

Plantagenet wrote:
Lore wrote:I'm sure the California gold rush produced lots of jobs at the time and then lots of ghost towns.


There are some gold mining ghost towns tourist traps along highway 49. But other Gold Rush towns that boomed in 1849 continue to flourish today. Maybe you've even heard of some of these towns?

Image

Capitalism often generates booms and busts. Right now there is a boom in frakking in the Bakken Fm and elsewhere in the USA. In this bad economy, the jobs from frakking are a welcome addition.


I didn't say the jobs weren't welcome, just the opposite, read my post. The point was these temporary jobs are just a brandade to a gun shot wound in employment.
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Re: Shale Oil: Running to Stay In Place

Unread postby rockdoc123 » Fri 28 Sep 2012, 14:38:20

Oh my gosh...the sky is falling, the sky is falling. What a load of bollicks. I'm sorry but the author of this article seems to think this is all new information, that somehow he found out some dirty secret or better yet it is something that the oil industry doesn't know. Nothing could be further from the truth. This is part of shale gas/oil/liquids 101, the introductory course. It has been talked about at oil and gas conferences for the past decade. It is the basis by which oil companies plan their budgets.
The decline is not surprising...most of the declines actually sit fairly well in the envelope that is used to understand EUR in the Bakken and for that matter every other shale. It is predictable and there is not a single company working in this business that has claimed otherwise. There is nothing shown here that is unusual or that worrying. Ever oil company in this business knows it is capital intensive, much more so than conventional drilling but that is offset by the predictability. The question for most of these companies is what makes more sense investing say $200 MM to get a 20% IRR at a chance of success of around 95% versus investing say $20 MM to get a 20% IRR at a chance of success of around 20%. If you have access to the capital (which the big shale players do) then the answer is pretty obvious, you take the low risk bet. Being a capital intensive business it is also important that costs are controlled as that is what speaks to return margins.

The economic analysis in this paper is by the way quite flawed. You can not mix up a bunch of wells that have different drill depths, number of fracs, type of fracs etc and quote one well cost. The $10 MM number is high and is more like what is associated with the deeper wells in other plays. It also ignores the cost control synergies that are achieved by multi-well programs and completions. The breakeven costs he comes up with of $80 - $90/bbl are quite a bit higher than the industry has been talking about. As an example Bernstein Research not that long ago quoted a value of $55 - $70/bbl as breakeven for the Bakken.
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Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Fri 28 Sep 2012, 14:41:41

Rocdoc, bring it over to the oildrum.
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Re: Shale Oil: Running to Stay In Place

Unread postby Plantagenet » Fri 28 Sep 2012, 14:46:50

Thanks, Rocdoc, for bringing your experience and knowledge on the oil biz to us here.
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Re: Shale Oil: Running to Stay In Place

Unread postby TheAntiDoomer » Fri 28 Sep 2012, 15:11:03

Thanks Rocdoc, you da man.
"The human ability to innovate out of a jam is profound.That’s why Darwin will always be right, and Malthus will always be wrong.” -K.R. Sridhar


Do I make you Corny? :)

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Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Fri 28 Sep 2012, 15:42:24

rockdoc123 wrote:As an example Bernstein Research not that long ago quoted a value of $55 - $70/bbl as breakeven for the Bakken.
I have no idea what your point is? Other than flat out wrong.

ODAC newsletter wrote:Worse could be yet to come as meaningful historical drilling data begins to emerge from more mature regions. According to Bob Brackett, an analyst with Bernstein Research, production from shale oil in the Bakken region of Montana has seen a 40% drop in production since 2006, this despite increased investment and technological improvements. He puts the decrease down to the fact that not all shale oil plays are equal — inevitably the best areas are drilled first — and anticipates the same curve will occur in the much vaunted Bakken play in North Dakota. There have of course been warnings, not least by Art Berman, and Ian Urbina at the NYT, but the popular narrative remains one of abundance.


WSJ wrote:The shale-gas production boom has led to gas prices in the U.S. falling to 10-year-lows as supply has outstripped demand, but rising shale oil output will fail to prevent a global spike in oil prices above $150 a barrel by 2020, according to Bernstein Research.


Rock, you constantly put down Art Berman, the OilDrum and even little ole' me. It gets tiring. I am not a geologist, never claim to be, and have in fact learned a great deal from professionals like you, but especially over at the oildrum. Why don't you take you virulent attacks over there and instead lighten up on the amateurs here. It is not attractive of you.
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Re: Shale Oil: Running to Stay In Place

Unread postby Pops » Fri 28 Sep 2012, 16:32:14

rockdoc123 wrote:I'm sorry but the author of this article seems to think this is all new information, that somehow he found out some dirty secret or better yet it is something that the oil industry doesn't know. Nothing could be further from the truth. This is part of shale gas/oil/liquids 101, the introductory course. It has been talked about at oil and gas conferences for the past decade. It is the basis by which oil companies plan their budgets.

That is of course the point.

It was common knowledge at Morgan Stanley that the mortgage backed bonds they were selling would crash as well - common knowledge to everyone except the public who thought the party would never end and planned accordingly.

As you point out, the facts are what they are. The point is - actually one of the central aims of this site, is to post what that public doesn't know so they can plan intelligently as opposed to simply rehashing the latest Sky Pie Oil Co headline.
If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen we must live through all time or die by suicide.
-- Abraham Lincoln
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Re: Shale Oil: Running to Stay In Place

Unread postby rockdoc123 » Fri 28 Sep 2012, 17:01:00

I have no idea what your point is? Other than flat our wrong.

Before you make comments like this you need to consider 1. If you don’t understand what breakeven price is then why are you bothering to blather on? And 2. There are hordes of sources that speak to the $55 - $70 range , and 3. You say I am wrong and then proceed to quote something that doesn’t speak to breakeven prices.
Here are a bunch of quotes randomly pulled :
Bakken crude for June delivery at the Clearbrook, Minnesota hub was bid as low as $85.24 a barrel on Wednesday and offered at $93.69, down 6.5 percent from October levels, according to traders. For now, prices are comfortably above the $68 a barrel breakeven point for a 15 percent rate of return, according to Credit Suisse analysis.

and
Pressure pumping prices, which cover a range of costs associated with fracking a well, have already dipped by up to 25 percent in natural gas-rich basins, with signs of a knock-on effect emerging in the Bakken, according to Barclays analysts. Within the next six months, these costs could fall by as much as 10 percent in the Bakken shale, analysts at Bernstein Research estimate.
Efficient forms of fracking are also helping companies extract more oil from each well, lowering the break-even cost of production, now estimated between $55 and $70 a barrel.

http://www.reuters.com/article/2012/05/17/us-usa-shale-costs-idUSBRE84G06620120517
While West Texas Intermediate prices stand at US$91 per barrel, they had slipped to US$77.91 as recently as June, uncomfortably close to the US$55-US$70-per-barrel breakeven cost for a barrel of U.S. shale oil.

http://business.financialpost.com/2012/08/10/tempering-u-s-shale-potential/
Players in the Bakken shale report that the cost of drilling a well is between $6 million to $8.5 million and the break even price of the crude produced is estimated to be between $55 to $70 a barrel

http://www.trefis.com/stock/hal/articles/121326/occidental-bails-on-bakken-shale-play-sending-mixed-signals-to-oilfield-services-sector/2012-05-23
The wells here, which use the hydraulic fracturing or "hydro-fracking" technology, cost about $8.5 million on average to drill and complete, with break-even pricing linked to market prices at $55 to $70 per barrel.

http://www.thestreet.com/story/11678385/1/oil-giants-pour-billions-into-bakken-shale.html
Of the 20 shale oil plays Freeman looked at (he excluded the Utica and the Tuscaloosa Marine Shale for lack of data), only Oklahoma's Cana Woodford rich gas shale and the Cleveland-Tonkowa in the Texas Panhandle and Oklahoma don't break even at $65/b WTI, although they do at current prices.

The other 18 earn even some minimal return at $65/b WTI, and some, notably South Texas' Eagle Ford oil and condensate shales, earn quite a bit, breaking even at under $50/b WTI.

http://www.platts.com/RSSFeedDetailedNews/RSSFeed/NaturalGas/6472640
“Our Bakken shale portfolio” a representative for Statoil says, “competes very well with the average of projects across the [onshore North America] group, which would have a breakeven price of about $50-$60 per barrel.”

http://dailyresourcehunter.com/tight-oil-still-profitable-us/
Rock, you constantly put down Art Berman, the OilDrum and even little ole' me. It gets tiring. I am not a geologist, never claim to be, and have in fact learned a great deal from professionals like you, but especially over at the oildrum. Why don't you take you virulent attacks over there and instead lighten up on the amateurs here. It is not attractive of you.

Perhaps if you quit making claims that are completely wrong with an air of authority? If you're an amateur then don't pretend to have knowledge you don't. I do not "put down" Art Berman (I’ve actually met him and listened to his arguments with a few executive at a small table), what I do point out is his database isn’t anywhere near what the industry works with which limits the veracity of his claims.
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Re: Shale Oil: Running to Stay In Place

Unread postby ian807 » Fri 28 Sep 2012, 17:01:15

The fact of the matter is that oil shale or not, we're in a position of running as hard as we can just to stay in place.

Remember, it's all about net energy. If you're not getting more energy from the oil, than it takes to extract the oil, what's the point? And you have to get a lot more. It has to be enough to support extraction, refining and distribution PLUS the economic activities for which it's intended, mostly transportation.

The first Pennsylvania oil wells were getting estimated energy returns of 1000:1. In West Texas in the 1960s, estimates ran to 100:1. These days, even the Saudi's are only getting estimates of 30:1 and oil sands in Canada have nice low returns of 4:1.

Bottom line? The total net energy in first half of the conventional oil (energy return x quantity) was much greater than the total net energy remaining in the second half of the conventional oil.

Imagine a battery that lasted 10 hours, but on the first hour, you got 1000 watts, the 5th hour, you got 100 watts, and at the 10th hour, you're pulling barely a watt. That's roughly analogous to our situation with oil.

The oil is there, for sure, but we got the high net energy stuff first (i.e. light sweet crude, close to the surface). What's left is, for lack of a better word, crud. Yes, we can get it. Yes, it'll work, but it just takes more energy to get it out and refined than it used to, increasing the price and decreasing the utility forevermore. There will be price fluctuations as with any commodity, but the long term price trend-line goes up from here on out.
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Re: Shale Oil: Running to Stay In Place

Unread postby kublikhan » Fri 28 Sep 2012, 17:42:02

rockdoc123 wrote:I'm sorry but the author of this article seems to think this is all new information, that somehow he found out some dirty secret or better yet it is something that the oil industry doesn't know. Nothing could be further from the truth. This is part of shale gas/oil/liquids 101, the introductory course. It has been talked about at oil and gas conferences for the past decade. It is the basis by which oil companies plan their budgets.
The author also predicted a maximum level of production of US shale oil of around 0.7 Mb/d. If you had to guess, what level would you say shale oil production would max out at?

The author's analogy to the red queen does seem rather fitting in this context, even if the industry can still turn a profit on the wells. Or maybe like a swarm of locusts. They swarm in, drill like crazy, then move onto the next patch to keep the swarm going. Yes, perhaps the better predictability vs conventional drilling makes it profitable. But all of it seems to be a far cry from the days of yore when we were finding Ghawars and Cantarells.
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Re: Shale Oil: Running to Stay In Place

Unread postby Plantagenet » Fri 28 Sep 2012, 18:05:06

kublikhan wrote:
The author's analogy to the red queen does seem rather fitting in this context, even if the industry can still turn a profit on the wells. Or maybe like a swarm of locusts. They swarm in, drill like crazy, then move onto the next patch to keep the swarm going. Yes, perhaps the better predictability vs conventional drilling makes it profitable. But all of it seems to be a far cry from the days of yore when we were finding Ghawars and Cantarells.


There aren't any more Ghawars. Heck, there probably aren't even that many Bakkens left. 8)
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Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Sat 29 Sep 2012, 11:41:44

Pops wrote:
rockdoc123 wrote:I'm sorry but the author of this article seems to think this is all new information, that somehow he found out some dirty secret or better yet it is something that the oil industry doesn't know. Nothing could be further from the truth. This is part of shale gas/oil/liquids 101, the introductory course. It has been talked about at oil and gas conferences for the past decade. It is the basis by which oil companies plan their budgets.

That is of course the point.

It was common knowledge at Morgan Stanley that the mortgage backed bonds they were selling would crash as well - common knowledge to everyone except the public who thought the party would never end and planned accordingly.

As you point out, the facts are what they are. The point is - actually one of the central aims of this site, is to post what that public doesn't know so they can plan intelligently as opposed to simply rehashing the latest Sky Pie Oil Co headline.

Thanks for putting this important article in context, Pops. We need to work together here at PO.com to counter naked capitalism at its worst. I refuse to be part of an other members investment scam.
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Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Sat 29 Sep 2012, 13:58:44

I believe it works like this;

the operators
--drill test wells,
--identify the sweet spots,
--pull in the hapless investors,
--drill like crazy,
--pull in exponentially more investors,
--go to the beach,
--snooze,
--drink the pina colada,
--check their staples/lease,
--drill a few more,
--declare bankruptcy,
--resume staple hunt.

Or as Daniel Plainview would say
Yep, the fact that this is all being done to lure investors shows that it's yet another American Ponzi scheme at work, with the goal of grabbing as much investor funds as possible before the investors realize the finite, short-term, money-losing nature of the endeavor. This will probably go on for a few more years ... then collapse. Shortly thereafter, there will be a flurry of shareholder lawsuits against all of the now-bankrupt fracking operations. It's all quite predictable ... and it's the American Way!
There's nothing deeper than love. In fairy tales, the princesses kiss the frogs, and the frogs become princes. In real life,the princesses kiss princes, and the princes turn into frogs

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Re: Shale Oil: Running to Stay In Place

Unread postby Outcast_Searcher » Sat 29 Sep 2012, 14:59:20

Re: Recent "shale oil is all an evil investor scam" posts.

Oh I see. So that's how the doomer crowd keeps their dream of imminent collapse alive. Cover their eyes when the evidence of lots of new supply is abundant, and convince themselves that it MUST be a scam or a conspiracy.

How has that worked for you for the last few years? How has it worked for your bearish market stance?

I thought this site was about trying to actually understand what is going on re oil and related energy, so one could learn, prepare, profit (i.e. to help be prepared to have the resources you need) -- you know, that kind of productive thing.

I guess that's all far too hum-drum. Well have fun with the doom. Meanwhile the "evil" MSM makes it more and more clear that the net energy production in the U.S. is looking more and more surprisingly bullish, compared to what was expected just several years ago.
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Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Sat 29 Sep 2012, 15:42:56

Outcast_Searcher wrote:Re: Recent "shale oil is all an evil investor scam" posts.

Oh I see. So that's how the doomer crowd keeps their dream of imminent collapse alive. Cover their eyes when the evidence of lots of new supply is abundant, and convince themselves that it MUST be a scam or a conspiracy.

How has that worked for you for the last few years? How has it worked for your bearish market stance?

I thought this site was about trying to actually understand what is going on re oil and related energy, so one could learn, prepare, profit (i.e. to help be prepared to have the resources you need) -- you know, that kind of productive thing.

I guess that's all far too hum-drum. Well have fun with the doom. Meanwhile the "evil" MSM makes it more and more clear that the net energy production in the U.S. is looking more and more surprisingly bullish, compared to what was expected just several years ago.

What is your point? Do you believe tight-shale oil production will offset declines in inexpensive conventional oil reservoirs? If so, at what price? Can the world's economies support any price for petroleum?
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― Maya Angelou
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Re: Shale Oil: Running to Stay In Place

Unread postby Lore » Sat 29 Sep 2012, 15:59:36

Outcast_Searcher wrote:Re: Recent "shale oil is all an evil investor scam" posts.

Oh I see. So that's how the doomer crowd keeps their dream of imminent collapse alive. Cover their eyes when the evidence of lots of new supply is abundant, and convince themselves that it MUST be a scam or a conspiracy.

How has that worked for you for the last few years? How has it worked for your bearish market stance?

I thought this site was about trying to actually understand what is going on re oil and related energy, so one could learn, prepare, profit (i.e. to help be prepared to have the resources you need) -- you know, that kind of productive thing.

I guess that's all far too hum-drum. Well have fun with the doom. Meanwhile the "evil" MSM makes it more and more clear that the net energy production in the U.S. is looking more and more surprisingly bullish, compared to what was expected just several years ago.


It's actually running pretty true to prediction. Conventional oil has essentially peaked in 2006, give or take a year, and now domestically we're trying to backstop it with expensive unconventional oil that's proving to be costlier to extract as time goes on. It's rather laughable on here how people so often confuse reserves with actual recoverable supply.

Furthermore, according to the MSM our net energy produced, for fossil fuels, is really an accumulation of refined gasoline, diesel and other oil-based fuels for export. On the other hand we are still the world's largest net importer of oil. That would indicate to me, that the gig here, is really just making money being the middle man.
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Re: Shale Oil: Running to Stay In Place

Unread postby ian807 » Sat 29 Sep 2012, 18:26:39

Outcast_Searcher wrote:Re: Recent "shale oil is all an evil investor scam" posts.

Oh I see. So that's how the doomer crowd keeps their dream of imminent collapse alive. Cover their eyes when the evidence of lots of new supply is abundant, and convince themselves that it MUST be a scam or a conspiracy.

It's not a scam. It's desperation. We need that oil, even with its lousy net energy and it's higher cost. Throwing it into the aggregate mix of the world's oil market makes the aggregate net energy drop and the price spikes more gradual. It buys us some time to adjust. That's all. We need all the time for adjustment we can get.
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Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Sat 29 Sep 2012, 19:39:30

ian807 wrote:
Outcast_Searcher wrote:Re: Recent "shale oil is all an evil investor scam" posts.

Oh I see. So that's how the doomer crowd keeps their dream of imminent collapse alive. Cover their eyes when the evidence of lots of new supply is abundant, and convince themselves that it MUST be a scam or a conspiracy.

It's not a scam. It's desperation. We need that oil, even with its lousy net energy and it's higher cost. Throwing it into the aggregate mix of the world's oil market makes the aggregate net energy drop and the price spikes more gradual. It buys us some time to adjust. That's all. We need all the time for adjustment we can get.

I believe that outcast is still pissed off that the liberals/environmentalists have a leg-up on peak oil awareness, and so the message (that planetary limits can actually hinder industrial-human happiness) makes them rant and get angry. This suggests that all that back-to-land mentality (so common, like 40 years ago) is probably correct. yikes. Wha' happen'd? :lol:
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― Maya Angelou
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Re: Shale Oil: Running to Stay In Place

Unread postby AirlinePilot » Mon 01 Oct 2012, 17:09:57

Read the article mentioned. Read all the posts here...rocdoc, I think you are missing the gist of what Rune was driving at. As we have a few years of data now on actual production, things just dont seem quite as rosy as the oilco's/investment pumpers seem to have touted a few years back. Sounds kind of familiar. I think his main point is..sure you guys can make money..provide a few jobs..but how long does this go on? At what point do we start realizing that each time we do one of these booms..Bakken, Eagle Ford, ANWR, offshore..etc......that we move further and further into the pardigm he is showing us. That paradigm is an acknowledgement that no matter how many resources we throw at oil production..manpower, capital, equipment, rigs, etc.....we seem to be running into the wall quicker each time.

It sure doesn't mean we should not do it, nor that the companies doing it wont make a whole bunch of money at it. The issue at hand is when do we wake up and realize its not going to matter how hard we try we wont be growing oil production anymore. For me this is the crux of a large problem the western economies are grappling with. Growth is impossible without cheap energy. We are screwing the pooch by not being a whole lot more aggressive in moving towards something NOT so dependent on fossil fuels and crude.

The article is simply pointing out the facts of decline in these well/resource types. We need more of this and less investment pumping. As someone else said here, there will be no limit to the shenanigans perpetrated on unwary investors as long as that is possible. The hype surrounding this resource has been nothing less than monumental...at least acknowledge that.

I see this article as "some" proof we continue looking for a dwindling supply of stepping stones on a desperate journey for BAU.
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Re: Shale Oil: Running to Stay In Place

Unread postby Plantagenet » Mon 01 Oct 2012, 17:35:33

We are going to have to use fossil fuel resources to transition to non-fossil fuel energy sources.

Its good that Bakken and other shale oil sites and the new abundance of NG is providing us with a last chance to get at more fossil fuels.

Its bad that there still is no credible plan from Obama or the other people in DC to use this opportunity to transition to non-fossil fuel energy sources.

"Its a brave new world"
---President Obama, 4/25/16
"Il bel far niente"
---traditional Italian saying
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