[westexas]

CA,

It's true that the recent price decline is not showing the same pattern as the prior year over year declines, but on the other hand, the prior declines, in percentage terms, were quite significant, i.e., year over year declines of 21% to 36%):

Major Year Over Year Declines in Annual Brent Crude Oil Prices since 1997:

1997 to 1998: $19 to $13 (Down 32%)
2000 to 2001: $29 to $24 (Down 21%)
2008 to 2009: $97 to $62 (Down 36%)

My point was, and is, the pattern of higher annual lows.

And the 2014 to 2015 decline appears to be the first comparable year over year decline (2013 to 2014 was down only 9%), so it remains to be seen if the average annual Brent crude oil price in 2015 is higher than the prior major decline level ($62 in 2009).

So, to recap, it's certainly true that we are not showing the higher lows pattern for any year over year decline, but there is a good chance that we will show the higher lows pattern for major year over declines, say 15% to 20% or more. Time will tell.

And to recap Lynch's prediction, the average annual Brent price for the five year period following his August, 2009 OpEd prediction was more than three times his predicted index price of the low 30's. In round numbers, Lynch predicted that the world would pay about $4 trillion for global Crude + Condensate (C+C) production for 2010 to 2014 inclusive, when we actually ended paying about $14 trillion (this is just for global C+C, the prices for refined petroleum products, inclusive of taxes, would be much higher).

But fundamentally, my difference with Lynch is over volumes, and I think that I am most closely associated with what I call "Net Export Math." Following is an excerpt from very brief January, 2006 essay on net oil exports:

http://www.theoildrum.com/node/984
January, 2006:

As predicted by Hubbert Linearization, two of the three top net oil exporters* are producing below their peak production level.   The third country, Saudi Arabia, is probably on the verge of a permanent and irreversible decline.   Both Russia and Saudi Arabia are probably going to show significant increases in consumption going forward.  It would seem from this case that these factors could interact this year produce to an unprecedented--and probably permanent--net oil export crisis.

*At the time: Saudi Arabia, Russia & Norway

It's certainly true that Saudi Arabia and Russia's production did not exactly perform like I expected (and Saudi crude + condensate annual production has slightly exceeded their 2005 rate), but I did accurately predict a major inflection point in their net exports. Saudi net exports have been below their 2005 annual rate for eight straight years (and probably nine years). Russia's net exports stopped increasing in 2007, and have been at or below 7.2 mbpd since 2007. And as expected, Norway's net exports continued to decline.

At the time I wrote my essay on net exports, Saudi Arabia, Russia and Norway's combined net exports had increased from 15.2 mbpd in 2002 to 18.6 mbpd in 2005 (total petroleum liquids + other liquids, EIA). At this rate of increase, their combined net exports would have been up to about 23 mbpd in 2013, versus their actual rate of 17.5 mbpd, even as annual Brent crude oil prices doubled from $55 in 2005 to the $110 range in the 2011 to 2013 time frame.

And we have seen a similar pattern in what I call GNE (combined net exports from the Top 33 net exporters in 2005). GNE were down to 43 mbpd in 2013, versus 46 mbpd in 2005:

[ROCKMAN]

Folks can cherry pick which previous months had what oil price. But a lot easier IMHO to see trends if we broaden the time frame a tad. The avg oil price in 2008 was $98/bbl. In 2009 it was $58/bbl. And the world consumed a little less $58 oil in 2009 than it did $98 oil in 2009. The global economy will certainly benefit from lower oil prices but it takes a very long time to materialize.

As far as the latest US production numbers they have no relationship with the current rig rate drop as a result of lower oil prices. Between the time it takes to put a well on production after the drill rig moves off (3 to 6 months) and the delay in the publicly available data (a couple of months) production today is primarily the result of drill rig activity late last summer. It will be next summer before we see the full impact of the drilling slowdown in the production rate.

Had an interesting conversation with a contractor that provides frontline services for the EFS players. Even worse news than with my pessimistic sense: he said the majority of operators told him they were reducing their budgeted EFS wells for 2015 by about 70%. The fall off of activity hasn't been that great yet because it takes a couple of months to slow the train down significantly. Even more shocking if true: a major EFS player, who last year paid $billions for a very large EFS acreage position which they believe had 1,100 potential locations, told him they were going to suspend 100% of their anticipated wells for 2015.

[PeterEV]

This is slide 44 from the 2015 Exxon Energy Outlook: A view to 2040:

Notice that Exxon is showing a peak in Convention C+ C around 2005; just as the peakers predicted such as Deffeyes, ~Hubbert, etc. The upward trend in C+ C supply depends upon a lot more New Conventional being added to the system. The one thing that is not shown is the cost of acquiring the increases in production. This is also a sign of Peak Oil where the percentage of those that can afford oil decreases.

[ROCKMAN]

The truly amazing aspect of that chart is the huge gains from "new conventional C+C". And it hasn't even started yet but just around the corner. ExxonMobil must have just stumbled on the Mother off All New Trends of conventional production. Of course they can't disclose where those trends are since it's a secret. Sure, there are still some big fields occasional found but that growing wedge would take hundreds of billion of bbls of "new" conventional bbls of oil. And if you notice that wedge is still showing a great bit of expansion even in 2040 so there's even more new conventional C+C being found. In fact, if you look closely, the amount of new "convention C+C" production brought in in 2040 exceeds the total amount of production today coming from biofules, tite oil, Deep Water, oil sands, NGL's and "others" combined. In fact if you look at the combined production of the these trends added to the yet to be developed "conventional C+C" reserves by 2040 we'll be producing about 3X times as much oil as we are today from the biofules, tite oil, Deep Water, oil sands, NGL's and "others" combined.

[copious.abundance]

My point was, and is, the pattern of higher annual lows.

You need to take into account inflation. $50 oil in 2014 is the equivalent of $6.25 oil in 1960:
http://data.bls.gov/cgi-bin/cpicalc.pl? ... year2=1960

And your fixation with net exports is a strawman. When the world's larget importer (the US) sees its own production going through the roof, and when places like Europe and Japan have economic slowdowns which reduce oil demand - coupled with increased efficiencies in all the above - of course you're going to see decreased net exports. You're trying to portray something that's an economic phenomenon into a geologic phenomenon, which is transparently dishonest.

[PeterEV]

The slide says that the increased output will come from "recent advances in technology." I have heard and read about maximum contact (horizontal drilling), fracking, and various types of injection such as water, CO2, and nitrogen but what do they mean by "recent advances"? The only other one I read about was an idea to use a Catepillar tractor and dig down to the source of Colonel Drake's well and mine the source. Smokers need not apply. They also must be using rubber treads, buckets, and/or blades.

The Oil Shale (kerogen) of western Colorado is the only other wild card that I am aware of and Shell is having the devil of a time trying to get it to work.

Is anyone else aware of any new technology that would suddenly open up additional conventional production in a dramatic way?

If you take out the New Conventional C+C and roll the other crude sources over in the above graph, the peak in crude + condensates is around 2025. Since condensates are not used for transportation, the peak in crude is earlier. 2018-2022?

[Byron Walter]

...Even more shocking if true: a major EFS player, who last year paid $billions for a very large EFS acreage position which they believe had 1,100 potential locations, told him they were going to suspend 100% of their anticipated wells for 2015.

High RockGuy,

I rarely post but always follow your postings... so maybe I might learn something. Anyhow I'm pretty sure I know which company that is (Canadian?). Fortunately I solid all my shares at their peak price back in June and took the gains. Unfortunately I bought it back a few months later at a much better cost basis. Well it sure looked good at the time . Live and learn.

If we're talking about the same company, they cut their dividend big time which hopefully will help them weather the storm. It's going to be very interesting seeing just how production and pricing in NA play out over the rest of this year. Lots of unknowns, like whether or not Russia has really hit their peak as reported last year. And then there's the gorilla in the room, Saudi Arabia which can't tolerate these prices forever, not to mention that they are now nearly surrounded by Iranian backed Shiites that would love to mess with them and that would mean their oil infrastructure. Ditto that for ISIS.

Interestingly (to me) is that if OPEC and Russia could have reached an understanding and cut their combined production by maybe 10%, they probably would have been able to support much higher oil prices, taken a much more modest financial hit, and conserved their resource base. They gotta know that the LTO in the US isn't a long term play.

[ROCKMAN]

No...not Canadian. I hesitate to name it because I can't confirm and I also don't want to burn my source. But if true and they make an official announcement it will be a 7.8 on the Ricter scale. It would terrify the market. This company was the sweet heart of the oil patch. The NG price collapse almost killed them. They were trying to rebuild by jumping heavy into the EFS last year. Horrible timing to say the least.

[rockdoc123]

well that narrows it down....I now have a list of 5 companies that fit your criteria Rockman

[shallow sand]

My money is on Devon. Paid $6 billion for EFS acreage/production in late 2013.

They were the natural gas version of EOG.

BTW I loved EOG's quote, "we have no desire to grow oil production in this price environment." Three months ago they said low prices would not slow them down.

When the short check comes, reality sets in. The more rigs drop, the better I feel. I hate folks are losing jobs, but at it appears we may survive and that shale is just stripper conventional on a tremendous scale.

[Byron Walter]

No...not Canadian. I hesitate to name it because I can't confirm and I also don't want to burn my source. But if true and they make an official announcement it will be a 7.8 on the Ricter scale. It would terrify the market. This company was the sweet heart of the oil patch. The NG price collapse almost killed them. They were trying to rebuild by jumping heavy into the EFS last year. Horrible timing to say the least.

It's comforting to know that there's plenty of misery to go around You gotta be tough to be in the oil business. I've been an active energy trader for about six years and have made and lost bunches of bucks in that short time. Luckily I've got thick enough skin by now that I don't stress out when things get 'interesting'. My blood pressure is great and I hope yours is too!

[PeterEV]

With respect to the above graph, the 2040 New Conventional C+C top point intercepted the vertical line at 63.37 MBOD and the bottom point intercepted the 2040 line at 31.68; a production value of 31.69 MBOD. The Saudis are currently producing around 10 MBOD. This new advance technology is the equivalent of over 3 Saudi ARAMCOs.

Either they have some unbelievable advanced technology or the ghost of Dr. Goebbels is heading up their PR Department.

Do any of you in the oil patch have any inkling of an idea of what that new technology **might** be? I'm asking because there are penalties for obviously misleading shareholders. Could Exxon frac the old reservoirs to try to liberate any stranded crude or open channels for easier flow to the well heads or would this have a tendency to shut down any flow mechanisms in the reservoirs? I'm trying to ask a serious question about a serious situation on a site that sometimes degenerates into "Is too. No it isn't" prattle.

[agramante]

Spare over Production Small.jpg

Furthermore, we're not in a glut--not even close. We're in a (likely temporary) state of oversupply, at least relative to the last decade and a half or so (but certainly not relative to before that, at least to gauge by prices). It was a little bit difficult to find stats on spare capacity predating 2001, since I'm not an industry insider with access to specialized databases, but with a little bit of rooting around found spare capacity stats back to 1975 (in BP's Energy Outlook, though I had to infer them from a graph--no table), and production stats from BP's Statistical Review. This chart shows OPEC spare capacity (these days, OPEC--if you believe their stats--is the only group with any spare capacity at all) as a percentage of global oil production. If anything, the percentages in the mid-80's are on the low side, because there's basically no good information on the state of Russia's production then--what could even be counted as spare capacity as that place was disintegrating economically? But by any reasonable guess, spare capacity in the 80's as a percentage of production should be even higher than the chart shows. And what it shows is that, relative to daily production, right now the world is very short on spare capacity--i.e., the market is still pretty tight, and likely to prove far more volatile than the genuine oil glut of the 80's. I'm still not inclined to put an ounce of credence in any cornucopian sentiments, whether they be the false confidence of some sort of glut, or the straw man of "We haven't collapsed yet, so there." All of the signs--dramatically increased capex for a marginal increase in production, global economy that is still staggering due to high oil prices (even at $50 a barrel), and lack of additional capacity--point pretty clearly to the peak oil dynamic being undeniably in operation.

[Pops]

In order for capacity to be called "spare" it must be not entering the market. IOW, someone somewhere needs to close a valve. Right now most of the taps are flowing wide open, hence 1-2mmbopd of excess production filling every tank farm and floating bilge.

So 1-2mmbopd of non-producing capacity, plus 1-2mmbopd of overproduction equals 2-4mmbopd of effective spare capacity.

It ain't cornicopia, it is just plain old addition, LOL

[Pops]

I just read somewhere that one of the unique things about this glut in the shales is a tight well doesn't access a reservoir, the area it drains is only as large as the extent of the fractures.

If there are 5-10-20 different companies all trying to suck a reservoir dry, which one is going to stop when the price falls? Right, none. It is a zero sum game, there is only so much oil in that play so if you snooze you loose.

Not so a tight well, each is a world unto itself, no one is going to come along and steal your lunch so yo can choke it back or not even frack it and let it sit and the oil will still be there next week.

I'm sure there are probably technical considerations but from the competition standpoint I think that might be a big deal.

--

Here it is, courtesy of H. Hamm

[ROCKMAN]

Pops – Exactly. I guess it’s been a while since we went over Reservoir Engineering 101. Yes: by industry standards the EFS, for instance, is not a reservoir and as such it isn’t even a “field”. It a “formation” that is productive in a defined “trend’. While it’s true that all the wells aren’t producing from a single reservoir, you do have to protect yourself at times when another company drills close to your lease line. The fractures on you lease MIGHT be partially drained by that offset operator.

But the regulatory spacing requirements tend to make that a not very common situation. In many cases each EFS well could be considered an individual “field” producing from a single reservoir (those fractures are classified as a “reservoir”). Thus when you chart the decline in the trend you’re actually charting the decline of thousands of individual “fields”. And given the high decline rate of those “fields” new fields need to be continually developed to maintain the production level of the “trend”.

Even the term “tite” isn't used very properly. The shale matrix, from a practical stand, isn’t tite…it doesn’t flow any oil at all. OTOH the fractures are anything but “tite’: they represent some of the highest permeability to be found. Which is why hz shale wells have such high initial flow rates. A silly comparison but it’s valid. You have two water tanks…one holds 1,000 bbls and the other holds 100 bbls. You punch a 1’ wide hole in the smaller tank and the water rushes out fast…but not for very long…maybe a minute or so. But you do have an initial high flow rate just like a hz shale well. Now punch a ½” hole in the bigger tank: the water comes out much slower but will flow for many hours if not days. Thus the distinction between unconventional reservoirs (like fractures) and conventional reservoirs (like porous sandstones and limestones). I’m drilling in a conventional reservoir trend where there are still wells producing that were drilled in the 1940’s. Not much rate, of course, but still oil coming out of well heads that were installed 70 years ago. An EFS well OTOH might reach that same production level in 5 or 6 years.

[Pops]

Much easier to measure consumption that capacity I'd think and we know consumption isn't down.

I think big boats can carry 2mmbbls, this says one company has 65mmbbls capacity

At some point you either accept someone's number (with whatever discount for probability) or you simply tell yourself they are all lying, they are all out to get you and your imagination is the true reality.

But you know what that is called ...

[Keith_McClary]

I just read somewhere that one of the unique things about this glut in the shales is a tight well doesn't access a reservoir, the area it drains is only as large as the extent of the fractures.

You could call it in situ shale mining and crushing.