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Shale Oil: Running to Stay In Place

Discuss research and forecasts regarding hydrocarbon depletion.

Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Wed 03 Oct 2012, 14:26:32

Pops wrote: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/
You mean this:

About a year after EID’s statement, the USGS has released new data on all shale plays in the US and the numbers are damning. Further, they corroborate Mr. Berman’s work.

Chesapeake Energy (CHK) claims average EUR’s for the Marcellus at 4.2 Bcf. Range Resources (RRC) has claimed average EUR’s as high as 5.7 Bcf in investor presentations. According to the USGS, however, the average EUR for the Marcellus turns out to be about 1.1 Bcf.
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Re: Shale Oil: Running to Stay In Place

Unread postby seahorse3 » Wed 03 Oct 2012, 16:27:33

RD,

Why did I bring up Madoff? Bc the SEC timely stepped in to prosecute him after he lost everyone's money and his scheme couldn't be ignored. There was an internet sleuth that outed him long before, but the SEC ignored. So, what protection is the SEC? This is also the same with PFG, Knight Capital, MFG Global and the others I listed. There is nothing on the front end by the SEC to prevent this fraud, meaning comingling of accounts and fraud trading schemes, which bring the companies down. Further, despite those big failures and admittingly comingling of funds, the SEC does nothing. So, despite what few cases you cite, the facts show me at least they are incapable of enforcing rules to prevent problems, and even after problems surface, don't do anything about them. And, despite the government audit showing oil and gas companies having provided a couple of employees with drugs and sex, nothing has happened as far as I know to the companies who's actions about to public corruption. These are but a few examples. I don't see that government does anything to prevent problems, prevent public corruption, or enforce any rules or regulations.
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Re: Shale Oil: Running to Stay In Place

Unread postby Plantagenet » Wed 03 Oct 2012, 16:47:39

1. If the SEC felt that CHK or any other companies were making fraudulent claims about EUR on their wells, then it would charge them. Since the SEC hasn't leveled any charges, there doesn't seem to actually be any attempt to mislead. (note: The current SEC consists of 3 dems and 2 repubs, with a dem as chairperson)

2. Quite a number of companies are active in the Marcellus and other shale basins. Its not surprising that some companies have better EUR on their wells then others----some companies got there first and leased the best land. These companies would naturally have higher EURs on wells then other companies that got to the party late.

3. The assumption that every company should report similar EURs to every other company on their wells and that all of these EURs should be quite close to an "average" value the USGS reports for the entire region is nonsensical. The word "average" gives a clue to this----it means some EURs are HIGHER and some are LOWER then the "average" values for EUR reported by the USGS. :roll:
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Re: Shale Oil: Running to Stay In Place

Unread postby rockdoc123 » Sat 06 Oct 2012, 20:09:21

Tried to post this a day or so ago...technology seems not to cooperate with us. Funny how we count on it this much these days.

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!

Actually they have only sold about $5 billion, they have immediate plans to sell another $6 bbl but have said they would like to sell $14 in total. Devil…details.
And the important point to consider is this is precisely the modis operandi of all oil and gas explorers, everywhere in the world for as long as I can remember, whether it be conventional or unconventional exploration. You move early into a basin, secure as much acreage as possible in the trend, drill some wells and identify the best spots and then farm-out or sell the less attractive acreage once you have added value by proving the play concept. It is part of the business and hardly a Ponzi scheme.
With regards to the USGS study I find it rather humerous that individuals on this site have nothing good to say about the USGS analysis of resources/reserves until they get an answer that suits their pre-conceived notion! Let’s take a look at the USGS study and I will try to point out how it suffers from the same statistical treatment as their worldwide conventional studies do. In a nutshell they use generalities and try to disguise that with Bayesian statistical treatment….nothing up my sleeve, presto!
Here is a description of how they approached the problem:
Cumulative Marcellus Shale production data were available from Pennsylvania and West Virginia for irregular time periods. These data were evaluated using a probabilistic analysis, but the quality of the data at the time of the assessment was considered not sufficient for the construction of individual well Estimated Ultimate Recovery (EUR) distributions. This probabilistic study was presented at the Petroleum Technology Transfer Council (PTTC) Conference held in Morgantown, W. Va., in March of 2011 (T. Cook, pers. comm., 2011).


and

Over the past ten years, the USGS has developed a series of EUR distributions for more than 20 shale-gas assessment units (fig. 8). This family of EUR distributions illustrates the total experience to date in the United States for estimated ultimate recoveries from shale-gas reservoirs. For each Marcellus AU being assessed, the geologist determines which distribution or set of distributions most nearly approximates the potential EUR distribution of the assessment units. This determination of the most appropriate EUR distribution was done along with the analysis of production data from Pennsylvania and West Virginia.

Ok, so they can’t create individual well EUR’s for the area (whereas Chesapeake and all of the other companies who operate in the area have the data to do that). So what the various press has been saying is “oh look Chesapeake is wrong and must be lying because the USGS did this study and shows the EUR/well is much lower” when in fact the USGS isn’t doing the same analysis at all….they are taking type curves from somewhere else and applying it to the various assessment areas with no discussion as to why they chose a certain type curve or what information was used to generate that type curve.

Total recovery per cell (BCFG): The geologists interpret a distribution for EUR. For example, in the Interior Marcellus AU, the EUR distribution was determined using production analogs from other assessed shale-gas reservoirs as a guide (fig. 8), following an analysis of the West Virginia and Pennsylvania data. The minimum EUR is 0.02 BCFG (standard for all gas assessments), the median EUR is 0.8 BCFG, and the maximum EUR is 12 BCFG, with a calculated mean of 1.15 BCFG.

And herein lays the smoke and mirrors that is the game of statistics. It would be fine if the entirety of the basin had similar shale characteristics, which it doesn’t. The very large range in EUR should set off alarm bells. Remember what I said above about companies like Chesapeake being early movers, tying up the basin, drilling it up and then concentrating in the best spots. When you look at the location of CHK’s more recent drilling concentration it seems to be in two areas in the central basin. And one thing that has been established is that through time average EUR per well has improved (see diagram)
Image
The improvement in EUR/well through time is a combination of concentrating in the best spots as well as improvements in the way in which they complete the well. The EUR numbers that CHK have been talking about are the improved EUR’s that they are seeing through time, it doesn’t take into account the wells that were drilled previously. The USGS study on the other hand lumps together early poorer recovery wells with the later better recovery wells giving the erroneous impression overall recovery in the basin is bad. Statistics works against you through the lumping versus splitting approach.
Another thing to consider is that through time CHK and other companies have been changing the manner in which they drill and complete these wells. Earlier wells were short radius horizontal with a single stage frac whereas the latest wells are a kilometre or more in length and have twenty or more stage frac jobs. The following chart shows the improvement that is realized through time by this process. Note the one shown is for oil but the same can be said for gas.
Image
As a consequence the USGS study which doesn’t discriminate between well length or completion effort (as they do not have the data to do this) ends up again lumping short radius single completions with the long radius multi-stage completions. Again statistics works against you through the lumping versus splitting approach.
Also it is important to note that the approach by the USGS is one in which they want to get at ultimate recoverable reserves and ignore in-place resources. The resource approach (used by pretty much everyone in industry) is to figure out how much shale gas is in-place both free and adsorbed. There is pretty decent science to support this approach and as more wells are drilled and more core data becomes available in the various plays the in-place numbers can be refined further. The USGS approach, on the other hand, ignores the fact that EUR in some of the wells analysed could be improved either through better completion techniques or a longer length horizontal section and/or more fracs. How much of that in-place can be recovered is the question, which may come down to how many wells can be drilled at what spacing and what cost before the economics disappear.
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Re: Shale Oil: Running to Stay In Place

Unread postby Subjectivist » Wed 01 Mar 2017, 19:14:08

rockdoc123 wrote: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. 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.


I read back through this thread and two things stood out. First Rockdoc123 has been pretty consistent saying that most shale can be produced for $55-$70/bbl.

The other thing is Rune was way far off when he pedicted the Bakken wouldn't exceed 700,000/bbl/d. Image


That is really the thing isn't it? I was totally convinced the Red Queen sitution was going to make it impossible for shale to produce a lot of oil for a decade or more at prices we could afford.

But that isn't how it turned out at all, shale production did not collapse overnight to pre 2008 levels of production, even though the average oil price last year was only $43/bbl. Even expert Rockdoc123 didn't predict the production could stay so high for so long at such a low price.
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Re: Shale Oil: Running to Stay In Place

Unread postby rockdoc123 » Wed 01 Mar 2017, 20:33:31

But that isn't how it turned out at all, shale production did not collapse overnight to pre 2008 levels of production, even though the average oil price last year was only $43/bbl. Even expert Rockdoc123 didn't predict the production could stay so high for so long at such a low price.


somewhat of a red herring I'm afraid. If you look at a several other threads since that note was posted (in 2012 BTW) I point to the fact that breakeven costs were dropping in several of the basins due to lower costs for services. Last year on several threads I noted that breakeven costs in several sweet spots of both the Bakken and EagleFord had dropped below $40/bbl. I never predicted that breakeven costs would stay that high, I simply stated that was the number that Bernstein was coming up with, which at the time was a lot lower than many were suggesting.

It is simple economics, a company can't make money paying service companies what he did when oil prices were at $100 so he does some deals, negotiates better rates, figures out how to cut other costs and suddenly he is now making money at a much lower commodity price. It has happened before when prices dropped and when prices rise again competition for services and employees drives costs higher again.
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Re: Shale Oil: Running to Stay In Place

Unread postby coffeeguyzz » Wed 01 Mar 2017, 22:07:38

To chime in with a little perspective regarding the 1.1 Bcf per well EUR for the Marcellus ...
Using Enno Peters data (great site, shaleprofile.com), there are now 5,639 wells out of 7,091 producers in Pennsylvania alone that have ALREADY produced at least 1.1 Bcf. 80% of all wells.
This, in only a few years online.
Heck, there are Marcellus wells now producing over a billion cubic feet in a MONTH.
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Re: Shale Oil: Running to Stay In Place

Unread postby coffeeguyzz » Wed 01 Mar 2017, 22:14:41

... and just under a thousand with 5 Bcf cumulative production.
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Re: Shale Oil: Running to Stay In Place

Unread postby onlooker » Tue 22 Aug 2017, 11:20:22

http://www.zerohedge.com/news/2017-08-2 ... ale-assets
World's largest Miner is selling its Shale assets.
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Re: Shale Oil: Running to Stay In Place

Unread postby pstarr » Tue 22 Aug 2017, 12:14:05

Shale is quite simply a ponzi scheme, and should be shut down by the Las Vegas Gaming Commission.
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Re: Shale Oil: Running to Stay In Place

Unread postby onlooker » Tue 22 Aug 2017, 12:18:34

pstarr wrote:Shale is quite simply a ponzi scheme, and should be shut down by the Las Vegas Gaming Commission.

:lol: :lol:
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Re: Shale Oil: Running to Stay In Place

Unread postby AdamB » Tue 22 Aug 2017, 12:39:35

pstarr wrote:Shale is quite simply a ponzi scheme, and should be shut down by the Las Vegas Gaming Commission.


And yet even you, on your regular trips to the gasoline station to prove you can't be bothered trying to save the world from your own CO2 emissions, put fuels derived from shale formations in your gas tank. This reality pstarr, this one, not that other one you spend most of your time in.
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Re: Shale Oil: Running to Stay In Place

Unread postby shortonoil » Tue 22 Aug 2017, 16:29:35

The big outfits are starting to bale on the shale miracle. Shale, ultra deep water, bitumen, and high sulfur extra heavy are going to be the first to go. Just like we projected 5 years ago.

http://www.zerohedge.com/news/2017-08-2 ... ale-assets

http://www.thehillsgroup.org
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Re: Shale Oil: Running to Stay In Place

Unread postby ROCKMAN » Tue 22 Aug 2017, 17:24:15

I don't think BHP Billiton is a good pathfinder to lead you thru shale investment considerations. Consider their decision to buy Petrohawk in 2011: Reuters- Top global miner BHP Billiton will buy U.S. Petrohawk Energy Corp for $12.1 billion in cash.

And from the day this deal closed BHP's stock started to slide. And this was when oil prices were increasing. Forget the $12 BILLION: eventually their market cap dropped $90 BILLION. One lesson to take away: a company focused on mining might want to stick with digging and avoid drilling. LOL.
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Re: Shale Oil: Running to Stay In Place

Unread postby AdamB » Tue 22 Aug 2017, 20:19:19

shortonoil wrote:The big outfits are starting to bale on the shale miracle. Shale, ultra deep water, bitumen, and high sulfur extra heavy are going to be the first to go. Just like we projected 5 years ago.

http://www.zerohedge.com/news/2017-08-2 ... ale-assets

http://www.thehillsgroup.org


And did you use your idiot spreadsheet to make that call, or the one that messes up all the units because you aren't familiar enough yourself with them to realize when you miss some answer by a couple orders of magnitude?
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Re: Shale Oil: Running to Stay In Place

Unread postby asg70 » Thu 24 Aug 2017, 18:56:02

shortonoil wrote:The big outfits are starting to bale on the shale miracle. Shale, ultra deep water, bitumen, and high sulfur extra heavy are going to be the first to go. Just like we projected 5 years ago.

http://www.zerohedge.com/news/2017-08-2 ... ale-assets


Baling? They're getting into the farming industry then? Would Santa "Clause" be involved as well? And besides that telltale sign of studipidy, someone should keep tabs on how many times you and others have been admonished not to keep linking to Zerohedge and then you go and do it anyway. If it didn't move your argument further the first time, it won't the 100th time you link there.
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Re: Shale Oil: Running to Stay In Place

Unread postby ROCKMAN » Thu 24 Aug 2017, 20:22:20

"Shale, ultra deep water, bitumen, and high sulfur extra heavy are going to be the first to go. Just like we projected 5 years ago." 5 years ago??? A little late on that call. LOL. High cost projects have always been the first to take a hit in a price bust for the last 100+ years. Double dah! Everyone in the oil patch knew a price bust was coming...the only question was when. Why does anyone think Petrohawk took the $12 BILLION and ran away like a thief in the night? LOL. Petrohawk's reincarnation, Halcon, had the same plan for the Tuscaloosa but the bust hit it too soon.

Predicting a bust in the oil patch after a price boom doesn't exactly make you the new Nostradamus. LMFAO!
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Re: Shale Oil: Running to Stay In Place

Unread postby spike » Wed 30 Aug 2017, 07:52:03

Color me confused. I can't find the apologies to Rockdoc for his sober and correct interpretation of shale oil and gas developments, as opposed to Likvern, who saw Bakken peaking at 0.6-0.7 mb/d (hit 1.2 mb/d before price collapse, growing again).
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Re: Shale Oil: Running to Stay In Place

Unread postby shortonoil » Wed 30 Aug 2017, 09:00:33

Predicting a bust in the oil patch after a price boom doesn't exactly make you the new Nostradamus. LMFAO!


Maybe you can spare us some of your platitudes, and obfuscations. The graph below was put up before the price collapsed. The date is on the graph. We were one of two analysist in the industry that projected the decline. You weren't the other one! You were following the herd, and claiming that prices were going up forever. They didn't, haven't, and won't.

http://www.thehillsgroup.org/depletion2_020.htm

The shale industry has never had a positive cash flow from its production, and has never turned a profit. It has existed on the monetary policy of the FED; ZIRP and massive liquidity injections. When that ends so also will the shale industry. Shale is not a substitute for conventional crude because it takes 3 to 5 barrels of conventional to process one barrel of shale. Its API gravity is too high to be processed without the blending of conventional. Every refinery in the world is set up to process about 33° crude. The light ends just don't cut it by themselves.

https://www.peakprosperity.com/blog/110 ... ng-debacle

Shale has already run its course. No new equity issues are being put out by the industry. They screwed the investors already by issuing new stock; and diluting the the asset value of the existing stockholders. No one will buy the stuff. Shale is now running on HY bonds. That will end when wells that decline by 60% the first year are looking at another 2% on their bonds. You had better find another horse to plug; this one died at the gate.

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Re: Shale Oil: Running to Stay In Place

Unread postby rockdoc123 » Wed 30 Aug 2017, 11:31:15

The shale industry has never had a positive cash flow from its production, and has never turned a profit.


What a load of bollicks. The latest E&Y study on the top 50 companies indicates that statement is incorrect. Those companies saw combined positive results of operations for 2012, 2013, 2014 even when you include non-cash intangibles such as DD&A and impairments (reserve adjustments due to price). When you look at cash only measures (i.e. revenues – (production costs + exploration expense + G&A + abandonment) positive cash flows were seen for 2012 through 2016 on an amalgamated basis. This study includes a number of the successful exclusive shale players such as Range resources, Pioneer, EOG, Chesapeake, Cabot, Consol, Continental etc. Also if you don’t understand the industry you can’t possibly understand the investment strategy. Range Resouces as an example saw positive operating cash flow from 2007 through 2016 is only after CapEx spending to drill additional wells for future production that their yearly free cash flow was negative. Other measures of profitability for Range Resources such as Return on Equity, Return on Invested Capital were all positive from 2007 through 2014.

It has existed on the monetary policy of the FED; ZIRP and massive liquidity injections. When that ends so also will the shale industry.


Please explain how that works in your mind? Oil and gas companies receive their equity and debt from financial institutions who may take part in the actual purchase of shares, bonds, and other debt instruments but mainly sell those interests to the public. The lack of equity and debt issuance in the O&G industry over the past couple of years has nothing to do with FED activity but rather is a measure of risk averse investors. The above mentioned E&Y study includes debt coverage in its assessment of the top 50 companies. There are obviously some companies that aren’t in good shape (as there always have been) and their assets end up in the hands of a company better capable.

Shale is not a substitute for conventional crude because it takes 3 to 5 barrels of conventional to process one barrel of shale. Its API gravity is too high to be processed without the blending of conventional. Every refinery in the world is set up to process about 33° crude. The light ends just don't cut it by themselves.


And for the umpteenth time, this is also BS. There are a number of refineries in Europe that were set up to process light to super light sweet oil. They process North Sea crudes with API > 37 and North Africa crudes with API above 40. As well (also mentioned several times on this site) there are several refineries in the US currently being commissioned or refitted specifically to deal with light crudes. The US can also increase light crude shipments to Europe where they can replace shortfalls created by falling North Sea production and intermittent drops in North Africa crudes due to security issues. I also linked to a study that addressed exactly how the US can deal with extra light crude. In short, it is not a problem.

It seems that you keep repeating incorrect assumptions no matter how many times you are corrected. That means one of two things…either you don’t understand any of this and just repeat crap you read from suspect blogs or you think that if you repeat incorrect assumptions enough times that people will just give up pointing out you are wrong and you will have somehow won. Either way, it doesn’t look good on you.
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