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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 rockdoc123 » Mon 01 Oct 2012, 22:35:55

ead 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.


The issue is that he seems to be portraying this as being something that will fail because of the steep declines, the inference being the resources aren't there. What I am saying is no it will not fail. There is no argument amongst anyone who works in the industry that the resources are there, some are more expensive to get out, others have lower pressure and hence lower rates, others have a mixture of liquids, not all of which are sold at the same price. To get those resources you simply need to drill wells and frac. The industry understands the decline rates...that is how the EUR predictions are made (type curves) and most of what I have seen published by oil companies who are at risk of heavy fines from the SEC for "gilding the lilly" show the type curves are not a bad match for the "average" well. The actual peak rate from these shales will be determined by speed of drilling and total activity. At some point there will be a sawoff and you will see relatively stable production for a number of years after which it will decline. Remember that once you have thousands of wells producing at tens of barrels a day with limited decline (the nature of late life hyperbolic decline) this can still be a very substantial total production. No one has argued this isn't a non-renewable resource but the resource level is very high and if you can manage costs and oil prices stay high it can be extracted profitably. As with conventional peak economics comes into play and although it doesn't control the total supply over time it does control the rate of extraction. It isn't a panacea but as I have said on numerous occasions it can give some breathing room for partial conversion to other sources of energy.
As to investment pumping from what I've seen this is not the oil companies, certainly not the publicly traded ones doing this. Most of the over inflated numbers I have seen come from government bodies, think tanks or the free press who misinterpret what they have read. The SEC rules are quite strict around this sort of thing and the reserve reporting rules govern precisely what can and cannot be said. When a company says they tested X number of wells at initial rates of say 1500 barrels a day, that is exactly what it means. It says nothing as to what the production is in say 5 months time but if you are in the industry and understand the decline curves for that particular shale you can make a pretty good guesstimate of what the EUR for that well will be. There seems to be a very incorrect perception amongst many here that oil companies can behave like mining companies and lie about their reserves/production rates etc. In my experience this is almost impossible given the controls that have come into place since Sorbane Oxley regs and the new reserves reporting requirements of the SEC.
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Re: Shale Oil: Running to Stay In Place

Unread postby ian807 » Tue 02 Oct 2012, 10:56:43

rockdoc123 wrote:The issue is that he seems to be portraying this as being something that will fail because of the steep declines, the inference being the resources aren't there. What I am saying is no it will not fail. There is no argument amongst anyone who works in the industry that the resources are there, some are more expensive to get out, others have lower pressure and hence lower rates, others have a mixture of liquids, not all of which are sold at the same price.

I agree with you about the resource picture. My frustration in trying to get a rational analysis of where we are is the lack of credible net energy numbers. I think that we can build up a fairly accurate picture of hydrocarbon energy depletion with a year on year analysis of production quantity times net energy return on the world's oil supply (Ditto for coal, NG and nuclear energy). Finding those numbers is not easy. The closest I have come is here: http://resourceinsights.blogspot.com/20 ... cliff.html, but I have no way of either verifying the numbers or attaching them to a time axis in a meaningful way. Are you aware of any reliable sources for either?
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Re: Shale Oil: Running to Stay In Place

Unread postby Pops » Tue 02 Oct 2012, 13:22:24

Come on doc, as I pointed out in another thread, the energy cos not only "guild the lilly" but do it regularly and the SEC knows it.

Here is the story in a nutshell:
Chesapeake's rationale is clearly spelled out in company filings with the U.S. Securities and Exchange Commission.
"We believed that the winner of these land grabs would enjoy competitive advantages for decades to come as other companies would be locked out of the best new unconventional resource plays in the U.S.," the company wrote in its 2012 filing.


The reason for the glut in gas and the current "overproduction" of oil is drilling is required to prove a lease. Chesapeake is making a land grab and flipping leases to the tune of $14B this year alone.

Sounds like a bubble to me.

http://openchannel.nbcnews.com/_news/20 ... picks=true
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Re: Shale Oil: Running to Stay In Place

Unread postby rockdoc123 » Tue 02 Oct 2012, 17:55:42

Come on doc, as I pointed out in another thread, the energy cos not only "guild the lilly" but do it regularly and the SEC knows it


I think having made a statement like that you need to show some proof. And please when you show what you think is proof make sure it is post SOX (2002) where most of the strict requirements came into place. I can tell you that I have spent time not too long ago as a companies internal qualified reserve auditor. As part of that job I was responsible for signing off what was submitted to the SEC and the Board of Directors as well as what was released in press releases. This was not trivial business and I can assure you I spent many, many hours with lawyers making sure any statement made could be backed up by external audit or was qualified in some manner. The external auditors are not corruptible simply because they are now legally responsible for any audit they sign off on. Somehow you think the SEC takes a back seat with respect to oil companies. Nothing could be further from the truth, stop trade orders are issued every day, phone calls made for clarification every day. They keep a pretty decent handle on what is happening.

You use Cheseapeake as an example of someone who somehow has lied about something but they every year have around 80% of their total reserves audited which is beyond the yearly requirements of the SEC and is a huge undertaking given the actual size of their reserves and the number of projects they operate (for clarity that 20% not audited has to be audited the following year). They took a large reserve write down in the second quarter of this year because of the drop in gas prices which made a lot of the dry gas reserves uneconomic until such time as gas in storage drops and prices rise. This was done according to SEC regulations that require the use of an average price for the year on the commodity in question and would have been required by their independent reserve auditors. Of course all shale gas producers who had large amounts of dry gas took similar write downs. This is not dissimilar to what happened to heavy oil producers a few years ago when the heavy discount increased and overall oil prices dropped rendering much of their reserves temporarily uneconomic. Of course when oil prices rose again these reserves were added back into their inventory and the same will happen for the shale gas players.

With respect to their asset sales I believe your numbers are not correct. Their intention is to sell $14 billion in assets but to date they have only achieved around $5 billion. Irrespective this is not simply a land flip as you suggest. Instead CHK has added value to those lands by drilling either on the land itself and/or on adjacent licenses. It isn’t like they are picking up land, sitting around and doing nothing and then selling it to speculators at a profit. Indeed the recent $6 billion of assets they have announced they will be selling are producing assets. The buyers of those assets aren’t dopes…they will have evaluated them fully and have some idea of how they can increase production or otherwise add value. In the real estate business this would be like buying land, tilling it and building a nice home on it before you decide to sell. The buyer may think he can get more value than you did from perhaps changing crops, increasing yield, expanding the home or sub-dividing.

I also think you need to be cautious when you apply the concept of economic bubble to oil and gas. Yes too much drilling for dry gas has created a temporary glut, which results in a protracted period where intrinsic value has suddenly dropped. But the economic value was there when all of the leases were taken up (if you think companies were drilling and producing at a loss I suggest you go and read some year end filings or 10 Ks) and anyone who believes in the concept of peak oil/gas will argue that value will come back simply because there is nothing to replace it. Oil and gas of course is affected by the overall economy so it is subject to other bubbles but to me the thought of oil and gas being in its own bubble requires one to believe that the resource is not limited. Of course everyone has their own understanding of the concept
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Re: Shale Oil: Running to Stay In Place

Unread postby AirlinePilot » Tue 02 Oct 2012, 21:43:27

Appreciate the info rocdoc. What I think I pulled from this article was...and continues to be...lots of oil, good quality oil, not going to "fail" in a business sense...but...and I believe this is his point......the PERCEPTIONS that this is a panacea for larger decline are not proven. It appears they will do little in this regard with respect to global production. The point being that there are many people in both politics AND the media claiming this is some sort of savior resource when nothing could be further from the truth. I think he was actually careful to couch it that way. Just my two cents worth.
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Re: Shale Oil: Running to Stay In Place

Unread postby rockdoc123 » Tue 02 Oct 2012, 22:45:53

i'm not sure I've seen an article that declares shale oil as saving the world, but what they have been saying is it releases the US from complete dependance on foreign oil for a period of time, which I think is possible if investment levels remain healthy and the general economy doesn't conspire against everyone once again.
Personally I think this is important simply because if politicians can grasp the idea of peak commodities and relize they have been given a bit of breathing room they might be able to implement some smart spending that could not only invigorate the economy but also result in some diversification of energy supply for specific industries. Hopefully it wouldn't be money directed at the Presidents Pal's startups which the US has already had to endure.
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Re: Shale Oil: Running to Stay In Place

Unread postby SeaGypsy » Wed 03 Oct 2012, 02:43:54

The scary part of shale/ tar sands: need for Arab spring. Just been chatting with a Syrian friend. It is common knowledge among expat Syrians what is really going on in Syria and who is to blame.
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Re: Shale Oil: Running to Stay In Place

Unread postby Pops » Wed 03 Oct 2012, 07:40:17

rockdoc123 wrote:
Come on doc, as I pointed out in another thread, the energy cos not only "guild the lilly" but do it regularly and the SEC knows it


I think having made a statement like that you need to show some proof.

Most of my posts in this thread were about just that -
the-natural-gas-ponzi-scheme-t66692.html
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.
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Re: Shale Oil: Running to Stay In Place

Unread postby seahorse3 » Wed 03 Oct 2012, 07:56:25

First, I will assume shale oil is all its touted to be. Even if it is all its touted to believe, it will not get the US off of foriegn oil, far from it. We would still import about 7mbpd just to maintain the crappy economy and paltry "growth" we have right now. Second, assuming that can be considered "breathing room" for our politicians, aka paid whores, to act in the national best interest, the odds of that are called "fat chance."

Second, maybe the SEC does have stringent reporting requirements, it seems to be a fat chance that the SEC would enforce any violations. Since they are utterly incapable of prosecuting anyone, and have failed to prosecute virtually anyone in the last 4 years for any type of fraud, there is a "fat chance" that they would prosecute anyone in the energy business for baking numbers. Chesapeake comes to mind, but also several of the recent failed companies like MF Global, PFG Knight Capital, Worldspreads, Bernie Madoff, just to name a few. What the SEC is supposed to do, and what they are either too incompetent or paid off to do (look the other way), are two different things entirely. I have no hope that our pristine institutions will solve anything. Twelve years, three wars, $16 trillion US dollars and an ongoing crappy economy later, they have utterly failed to address a single problem.
Last edited by seahorse3 on Wed 03 Oct 2012, 08:05:27, edited 1 time in total.
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Re: Shale Oil: Running to Stay In Place

Unread postby AdTheNad » Wed 03 Oct 2012, 07:58:47

SeaGypsy wrote:The scary part of shale/ tar sands: need for Arab spring. Just been chatting with a Syrian friend. It is common knowledge among expat Syrians what is really going on in Syria and who is to blame.

Go on...
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Re: Shale Oil: Running to Stay In Place

Unread postby SeaGypsy » Wed 03 Oct 2012, 09:01:57

As I wish to sleep soundly and have a life without looking over my shoulder the rest of my life; I will leave the detail out. The same people who are able to whitewash 9/11 are now busy whitewashing the Arab spring. Despicable perverted self righteous asswipes. Bottom line is that whatever it costs to get oil out of sand (sic) is what oil will cost. There will be no abundant new supplies coming out of the ME. There will be no functional first world societies in the ME competing with American tar sands. Export Land Model revised. Fill in the blanks.
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Re: Shale Oil: Running to Stay In Place

Unread postby seahorse3 » Wed 03 Oct 2012, 10:39:56

Oil industry used sex and drugs to influence Interior Department employees.

http://edition.cnn.com/2008/POLITICS/09/10/oiil.scandal/index.html

So, why would the SEC be free from influence? Why should we assume government works or will make the right decision?
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Re: Shale Oil: Running to Stay In Place

Unread postby Pops » Wed 03 Oct 2012, 10:56:12

Half the politicians think there should be no regulations in the first place, is it any wonder that the rules we do have are not enforced?
http://www.advisorone.com/2012/03/07/ho ... funding-bo
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Re: Shale Oil: Running to Stay In Place

Unread postby Plantagenet » Wed 03 Oct 2012, 11:04:17

seahorse3 wrote:Oil industry used sex and drugs to influence Interior Department employees.

http://edition.cnn.com/2008/POLITICS/09/10/oiil.scandal/index.html

... Why should we assume government works or will make the right decision?


So true. When the government doesn't fire the DOI employees who got bribed with sex and drugs, or the incompetents who signed off on the BP Macondo well, or the clowns spending tax dollars for big Vegas or Hawaii parties at the taxpayer's expense, it just says its "OK" for the these government employees to scam the government from the inside. 8)
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Re: Shale Oil: Running to Stay In Place

Unread postby rockdoc123 » Wed 03 Oct 2012, 11:19:38

Most of my posts in this thread were about just that –

As I mentioned in that thread and another one the information Berman and others have is not the detail that the companies have or for that matter have disclosed publically. They choose to take merged production data and try to tease out information about individual well performance rather than actually going to the companies MD&A and using that data, which I have said already the company is legally required to do. In another thread I pointed out how this sort of analysis is completely wrong as it was used for a Niobara discussion.
In your Ponzi scheme post you said:
The story is actually that the booked reserves - resources - are inflated if not fraudulent, hence the title: Ponzi Scheme. Actually it gives "pump and dump" a new twist.

Sorry but at the risk of sounding impolite this is complete and utter BS. These reserves are audited by third parties such as Degolyer Macnaughton, Ryder Scott, Gaffney Cline, Sproule etc. After SOX these auditors are legally at risk for everything they sign (if they qualify reserves that are not there then the SEC can take action against them independent of the company they were representing and they also open themselves to legal action from shareholders). These audit firms have a huge amount to lose if they falsify reports given they count on business based on their reputation across the industry from companies as large as Exxon and Shell.
For those interested the revised SEC rules regarding oil and gas reserves reporting can be viewed at
http://www.sec.gov/rules/final/2009/33-8995fr.pdf
second, maybe the SEC does have stringent reporting requirements, it seems to be a fat chance that the SEC would enforce any violations. Since they are utterly incapable of prosecuting anyone, and have failed to prosecute virtually anyone in the last 4 years for any type of fraud, there is a "fat chance" that they would prosecute anyone in the energy business for baking numbers. Chesapeake comes to mind, but also several of the recent failed companies like MF Global, PFG Knight Capital, Worldspreads, Bernie Madoff, just to name a few. What the SEC is supposed to do, and what they are either too incompetent or paid off to do (look the other way), are two different things entirely.

The facts seem to disagree with you. In 2012 to date the SEC has brought Actions against 13 companies for Ponzi schemes, 7 companies for Foreign Corrupt Practices Act infractions and 11 companies for insider trading enforcements. In 2011 those numbers were 15 actions for Ponzi schemes, 20 actions for FCPA infractions and 57 actions for insider trading enforcements. The numbers were similar for 2010. Few of these actions have been against oil companies although in April of 2012 the SEC went after SinoTech Energy for overstating the value of their drilling equipment inventory and lying to the investors about the use of funds from an IPO. As well in May of 2012 they went after the former CEO of Tri-Valley Oil Corp for insider trading. In 2011 they sought action against Brian Fox for fraudulently inflating revenue and assets related to his Powder River Petroleum company (a SOX reporting violation).
More specifically related to the issue of potential overstatement of shale gas reserves in 2011 the SEC subpoenaed several resource companies, Goodrich Petroleum, Quicksilver Resourcs and EXCO in order to investigate compliance with SOX and the revised petroleum reporting standards. This investigation was done at the request of the State Department who were concerned that the reserve numbers were large and companies might be circumventing the rules. In all cases the SEC found that the companies were in compliance. The revised version of the petroleum reporting rules leaves little in the way of leeway with respect to what does or does not qualify as proven or probably reserves….the definitions are now quite tight, which wasn’t the case previously and created some issues.
I'm also not sure what you mean by your reference to Madoff. He was sentenced to a 150 year prison term after the SEC investigation which also brought in scores of other perpetrators. To my mind they were doing exactly what they should be doing.
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Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Wed 03 Oct 2012, 12:08:17

rockdoc123 wrote:As I mentioned in that thread and another one the information Berman and others have is not the detail that the companies have or for that matter have disclosed publically. They choose to take merged production data and try to tease out information about individual well performance rather than actually going to the companies MD&A and using that data, which I have said already the company is legally required to do. In another thread I pointed out how this sort of analysis is completely wrong as it was used for a Niobara discussion.
The Rune Likvern article is based on individual well performance collected by the North Dakota Industrial Commission from 4 319 wells in the Bakken formation. All the analysis/charts in the Likvern report is based on a significant sample of these wells.
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Re: Shale Oil: Running to Stay In Place

Unread postby rockdoc123 » Wed 03 Oct 2012, 13:02:17

The Rune Likvern article is based on individual well performance collected by the North Dakota Industrial Commission from 4 319 wells in the Bakken formation. All the analysis/charts in the Likvern report is based on a significant sample of these wells.

and as I said previously that study did not discriminate between horizontals of 100 m and horizontals of several km, single stage light fracs or large multi-stage fracs, nitrogen versus slick water, sand versus silicon propant...etc. etc. The issue is the devil is in the details that the companies have, which is why their analysis is more rigorous.
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Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Wed 03 Oct 2012, 13:30:24

rockdoc123 wrote:
The Rune Likvern article is based on individual well performance collected by the North Dakota Industrial Commission from 4 319 wells in the Bakken formation. All the analysis/charts in the Likvern report is based on a significant sample of these wells.

and as I said previously that study did not discriminate between horizontals of 100 m and horizontals of several km, single stage light fracs or large multi-stage fracs, nitrogen versus slick water, sand versus silicon propant...etc. etc. The issue is the devil is in the details that the companies have, which is why their analysis is more rigorous.
Why should the study discriminate? That is not the point of the study. That is you point. The point of the study is that the sweetest producing areas in the Bakken are in decline. Recent drilled wells decline at a faster rate then wells drilled previously.
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Re: Shale Oil: Running to Stay In Place

Unread postby Pops » Wed 03 Oct 2012, 13:47:34

Doc, you didn't comment on that last post from Rogers that quoted the USGS, Wood Mackenzie, etc. It's generally about gas but seems on topic, basically the difference between PR and fact – which of course is the point.
http://energypolicyforum.org/2012/09/02 ... for-shale/
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Re: Shale Oil: Running to Stay In Place

Unread postby Pops » Wed 03 Oct 2012, 13:56:28

Oh and you're right, CHK has sold a total of only $11B in assets – it only said it was going to sell $14B worth...
And I believed them, LOL!
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