[C8]

I get a bit testy about the loose manner in which the terms are applied as I did play a very minor role in making suggestions to the working group that created the Petroleum Resources Management System that has now gained wide acceptance pretty much everwhere in the industry.

RD- thanks for the reply on the well drilling Q that I had. I will say, as an outsider to this industry, that I find the terms used to be very confusing. I feel that other words may have been better to differentiate the types of discoveries be categorized. "Reserves" and "resources", etc. don't convey much to the average person I would guess and they sound too alike.

One thing that is maybe lost in all this, is that the oil IS THERE! It may not all be economically feasible now but it almost surely will be feasible someday, at least some of it- that by itself is important.

[ROCKMAN]

C8 - "It may not all be economically feasible now but it almost surely will be feasible someday, at least some of it- that by itself is important." Important...maybe. But no new info there. The Bakken Resources were known over 50 years ago, the Eagle Ford a little longer. In fact, the USGS number isn't even close to what some geologists were predicting for the Bakken over 40 years ago. One report was projecting 100 billion bbls. Others were predicting several time the current USGS number.

The only hydrocarbon reserves that are important to me are the ones that are economical to develop today. Of course, there are a lot more important Bakken bbls today then when oil was selling for $25/bbl a decade ago.

[Oily Stuff]

Such bickering about nothing, such big egos; my, my. Exactly why I vamonoseed TOD.

One of you asks for input from newbies then ignores it, the other quite frankly believes everybody that posts is an idiot.

Remember the t shirt long ago...reverse fault, thrust fault, engineers fault, hee hee?

Nobody is an expert in the oil and gas business. Nobody. If you think you are you have not spent enough of your own money.

[SamInNebraska]

Okay, so we have another 10 years supply of shale oil to add to the 40 years of current reserves to add to the 10 years of supply in the Orinoco still labeled as resources but certainly waiting to be reserves, and the next 10 years supply of Canadian tar sands to do the same thing, and the 30 years of supply currently labeled as resources in the kerogen of Colorado, and the USGS undiscovered and unknown of 500 billion barrels, and the reserve growth of another 500 billion, and then we can convert the hydrates into natural gas or better yet synthetic crude and make another 500 billion or maybe even a trillion barrels of fuels out of that...have I missed anything?

To be honest, adding another 10 years of possible, "currently a resource but just give it a year or three" oil into the system doesn't seem all that important. Or relevant. There is simply too much.

[rockdoc123]

D- thanks for the reply on the well drilling Q that I had. I will say, as an outsider to this industry, that I find the terms used to be very confusing. I feel that other words may have been better to differentiate the types of discoveries be categorized. "Reserves" and "resources", etc. don't convey much to the average person I would guess and they sound too alike.

Yes, definitely a problem. One of the reasons the SPE/AAPG went to the trouble of coming up with the Resource Management System was to try to insure there was a standard terminology being used. The problem is terms are used inappropriately in the press and elsewhere which confuses the issue for the man on the street. It's unfortunate. Perhaps I bore everyone with my repeated attempts to clarify the reporting terms and rules but I am hoping it arms you better to deal with all that you might read. It's pretty hard to debate a topic if you aren't speaking the same language.

[Tanada]

Okay, so we have another 10 years supply of shale oil to add to the 40 years of current reserves to add to the 10 years of supply in the Orinoco still labeled as resources but certainly waiting to be reserves, and the next 10 years supply of Canadian tar sands to do the same thing, and the 30 years of supply currently labeled as resources in the kerogen of Colorado, and the USGS undiscovered and unknown of 500 billion barrels, and the reserve growth of another 500 billion, and then we can convert the hydrates into natural gas or better yet synthetic crude and make another 500 billion or maybe even a trillion barrels of fuels out of that...have I missed anything?

To be honest, adding another 10 years of possible, "currently a resource but just give it a year or three" oil into the system doesn't seem all that important. Or relevant. There is simply too much.

Sorry Sam, but 10 years of oil extraction at the maximum rate we can get tight oil out of the ground does not mean tight oil will extend peak ten years, it just means that for another ten years we will be able to produce tight oil. Even at the crazy optimist rate of 4 MM/bbl/d of tight oil you would only be getting at most 25% of USA consumption. We are still importing half the oil we burn and that is not going to change any time in the near future.

[ROCKMAN]

Tanada – I thought of a way to put the USGS estimate of 7.4 billion bbls of TECHNICALLY RECOVERABLE oil in a perspective that might be easier for some folks to envision. First, the USGS states that the number is dependent upon proven production methodology. No problem: the technology to produce every bit of those 7.4 billion bbls has existed for over half a century. Simply drill a vertical well on a 10 acre spacing. That was simple tech in the mid 50’s. And the wells wouldn’t even require frac’ng even though that tech had been developed by then.

Why no fracs? The purpose of frac’ng a vertical or horizontal well it to reach out with a man-induced fracture to intersect the natural fractures that contain the oil. Most understand but for those who might not: the man-induced fracs aren’t draining oil out of the shale rock itself. Its permeability is much too low to produce oil at any meaningful rate. Those induced fractures are draining the natural fractures present which had millions of years to “bleed” the shale rock itself. But the bakken does have some interval with much better perm and the induced fracture do help their recovery. The great advantage of drilling vertical well on a 10 acre spacing is that every natural fracture in the Bakken containing viable oil production would be intersected. Hence every TECHNICALY RECOVERABLE bbl of oil would be produced.

So at about 9 million acres that would require 900,000 vertical wells. But they would be much less expensive than a horizontal well with multiple frac stages. I’ll guess $1.5 million including production facilities. Or a mere $1.35 trillion. But that’s not relevant given that fact that the USGS doesn’t use an economic thresh hold in their analysis. But let’s look at the theoretical economics anyway. Thus 7.4 billion bbls of oil would be worth $670 billion at $90/bbl. So not even reducing the cash flow for taxes and royalty the industry would only recover half of their capex. But, again, not relevant since the USGS estimate specifically says its number has no basis in economic viability.

So there you have it: maybe the USGS 7.4 billion bbl of TECHNICALLY RECOVERABLE reserves is correct. Or maybe not. But whatever the actual number might be the USGS analysis indicates they could have begun the full development of the Bakken starting a half century ago with the existing technology at that time. And recovered every ounce of those 7.4 billion bbls of oil. And thus their number would have been no less meaningful in 1955 than it is today. Which, IMHO, is not terribly meaningful.

[westexas]

On the gas side, Citi Research recently issued a report that would appear to be in substantial agreement with Art Berman's, Tad Patzek's and David Hughes' work.

I think that we have the RW (Real World) Wing of Citi and we have the FI (Fantasy Island) Wing of Citi (Ed Morse). The RW Wing estimates that we need about 17 BCF/day of new gas production every year to maintain the current level of production (66 BCF/day). This is equivalent to the three times 2011 peak rate of gas production from the Barnett Shale (5.5 BCF/day).

So, to maintain 66 BCF/day, over the next 10 years, we would only need 30 (peak production rate) Barnett Shale Plays.

An excerpt from a recent report by the RW Wing of Citi:

●Aggregated detailed well production data (HPDI) for nearly 100% of total U.S. natural gas volumes reveals that almost 2/3s of total current natural gas production is from wells drilled just in the past five years or since a host of shale plays really began to alter the U.S. natural gas landscape.

●Meanwhile, we would note that the overall U.S. natural gas production decline rate (Ex. Appalachia) accelerated in 2012 and averaged ~26% due to a higher ratio of new wells that came on line in 2011 and which posted high first-year decline rates of ~50%. With fewer new wells brought on line last year, we expect decline rates to moderate to ~24 % in 2013 and ~23% in 2014 due to a lower proportion of new wells in the U.S. natural gas production mix.

●Nevertheless, the ~23-24% decline rates imply that domestic natural gas production would need to grow by ~17 Bcf/day annually just to offset natural declines and keep current production flat.

On the oil side, if we assume a 10%/year oil production decline rate, we would only need about 10 new Bakken Plays (based on current production) over the next 10 years, in order to maintain current US oil production.

So, no problemo. Based on above estimates, we only need 30 new Barnett Shale plays and 10 new Bakken Plays in order to maintain current US oil & gas production for 10 years.

[dissident]

So, no problemo. Based on above estimates, we only need 30 new Barnett Shale plays and 10 new Bakken Plays in order to maintain current US oil & gas production for 10 years.

Numbers, numbers they make one's head hurt. Keep them away, I want to live in my happy bubble of delusion that the indefinite future is going to be just like the recent past.

The MSM can bleat about the US exporting oil and natural gas because it never references any serious quantification of the production and depletion. The only numbers the MSM cares about are the exaggerated estimates of what is in the ground. They don't even confront the fact that production rates and reserve size are not the same thing.

[Tanada]

Tanada – I thought of a way to put the USGS estimate of 7.4 billion bbls of TECHNICALLY RECOVERABLE oil in a perspective that might be easier for some folks to envision. First, the USGS states that the number is dependent upon proven production methodology. No problem: the technology to produce every bit of those 7.4 billion bbls has existed for over half a century. Simply drill a vertical well on a 10 acre spacing. That was simple tech in the mid 50’s. And the wells wouldn’t even require frac’ng even though that tech had been developed by then.

So at about 9 million acres that would require 900,000 vertical wells. But they would be much less expensive than a horizontal well with multiple frac stages. I’ll guess $1.5 million including production facilities. Or a mere $1.35 trillion. But that’s not relevant given that fact that the USGS doesn’t use an economic thresh hold in their analysis. But let’s look at the theoretical economics anyway. Thus 7.4 billion bbls of oil would be worth $670 billion at $90/bbl. So not even reducing the cash flow for taxes and royalty the industry would only recover half of their capex. But, again, not relevant since the USGS estimate specifically says its number has no basis in economic viability.

So there you have it: maybe the USGS 7.4 billion bbl of TECHNICALLY RECOVERABLE reserves is correct. Or maybe not. But whatever the actual number might be the USGS analysis indicates they could have begun the full development of the Bakken starting a half century ago with the existing technology at that time. And recovered every ounce of those 7.4 billion bbls of oil. And thus their number would have been no less meaningful in 1955 than it is today. Which, IMHO, is not terribly meaningful.

Sounds like all we need is sustained $270.00 bbl oil and we can drain every drop from the Bakken. Whew that sure is a relief, that would put retail gasoline in the USA at hmm, about $11.55 a gallon and Diesel fuel up to $13.75 a gallon. No sweat our economy will shrug that off like its nothing, and air travel, why it would be cheaper than ever!

[ROCKMAN]

Tanada - In a way I think that's the greatest potential harm of the USGS estimate: I, you and the rest of the world will try some meatball economics to estimate what it will take to get those reserves out of the ground. But the Survey's analysis doesn't differentiate the cost. There's obviously a lot of potential at current prices given that amount of drilling happening now. But notice the Survey doesn't even try to estimate how much of those TECHNICALLY RECOVERABLE bbls at today’s prices with known technology. So how much of those TR reserves are producible under current economic conditions? Neither I, the USGS nor my dog are in a position to make that call. Thus guessing how much would be recoverable at $150/bbl or $250/bbl based upon the Survey analysis in even more unknown. But that doesn’t mean you, I and my dog won’t be tempted to cook the numbers. That’s just human nature. And IMHO the vast majority of the American people who see the Survey’s numbers will just assume we’re going to produce all that oil as we need it.

[John_A]

So there you have it: maybe the USGS 7.4 billion bbl of TECHNICALLY RECOVERABLE reserves is correct. Or maybe not.

The correct answer is not. Sort of. The 7.4 billion isn't right, the USGS knows it, and that is why they provide the estimate with probabilities. One of the few organizations which tells you the odds as well as the number, they are perfectly willing to admit they are wrong, and amazingly, also willing to tell you exactly how much.

Could be 4.4
Could be 11.4

So the real question is, can the RANGE be correct? I guess the answer would be...maybe.

[ROCKMAN]

pstarr – One thing I enjoyed about TOD were those spiffy little quotes they had at the top of the page. One went something like this: “Americans only have two modes of operations: complacency and panic.” It’s great that the shales, Bakken and Canadian oil sands have boosted our access to oil ...even though it might hurt my profit margin a bit. But those well publicized situations along with reports such as the USGS puts out must fuel that sense of complacency even more. If the future eventually unfolds as many here see it, that swing to panic might even be more severe. Headlines about refinery products being so abundant the US is becoming a significant exporter. Wall Street is setting new records all the time. More wind turbines and solar panels going up all the time. Homes sales are up. And a little thing: p/u truck sales in Texas are booming despite higher fuel prices.

I can’t help but think that many folks think there’s no potential energy problem down the road for decades. And they may be correct. But I seriously doubt it.

[John_A]

Neither I, the USGS nor my dog are in a position to make that call.

True. That is what the EIA does, using the USGS numbers. They certainly pile on enough economics to choke a horse, and they do include well depletions and declines, prioritization of capital among projects, various pricing scenarios as drivers, and so on and so forth.

[rockdoc123]

Why no fracs? The purpose of frac’ng a vertical or horizontal well it to reach out with a man-induced fracture to intersect the natural fractures that contain the oil. Most understand but for those who might not: the man-induced fracs aren’t draining oil out of the shale rock itself. I

this is incorrect. In the case of unconventional tight sandstones and carbonates it is generally the case that horizontal wells are drilled to intersect natural fractures. The fracs which are done are not as "hefty" generally because the purpose is to open up and prop intersected fractures. In shales it is counterproductive generally to intersect a natural fracture with a wellbore simply because when you try to create a new fracture you will almost certainly be unsuccessful as the increased fluid pressure will serve to open the pre-existing fracture and all of the propant will go there. I have witnessed this in a couple of cases on recorded micro-seismic from shales where fractures are not always avoidable. It is easy to see from that data and the pressure buildup data that most of the effort went into opening the pre-existing fracture and proping and in conjunction extending its length. If the only storage capacity was in natural fractures then you would only have produced a minor percentage of oil and gas from shales in comparison to what has been produced. Fracture storage is actually quite small in comparison to the storage capacity in pore spaces (note that although pores are small the porosity in shales is often around the 6% - 9% range). The whole purpose of creating multistage fracs and proping them open to create a number of channels to the borehole that create a pressure drop across the interface of the created fracture and shale pore spaces. Created fractures tend to bifurcate somewhat and form intricate pathways so when proped with a porous material such as sand or silicon beads. Hence the more fracs in a given well bore the greater the IP and generally the greater the EUR.

[Oily Stuff]

Pstarr, thank for graciously including me in your oilfield educational process but please, my 60 years in the oil and gas business is kind of like dried buggars under a conference table compared to the two rock guys. I have a high school education and started in the bottom of a ditch with a grubbing hoe. Sitting on deep, HPHT wells in the middle of the ocean, or on the boards of public companies gives you the big head; I have done some of that and got the really big head for awhile myself. I took 2 Advil and got over it. Hocking your house, your pickup, selling your favorite horse, and telling the kids they can only eat roughneck ribeye for the next few weeks, to drill a well, to put your own money where your mouth is, humbles you up in the oilfield big time.

I promise you the two big bulls in this pasture have drilled lots of dry holes, messed lots of wells up they can't explain how it happened, or can't admit to. Scientists, I have found, tend to believe truth is absolute. I have not found life to be like that and I don't believe truth is absolute in the oilfield either. Geologists and engineers often end up scratchin' their respective noggins' just like the rest of us.

I got Rockman's point about drilling 900,000 Bakken wells on 2 1/2 acre spacing, whatever it was; it was rhetorical and even I got it. On that kind of spacing they don't need to be frac'ed. I went on a job one time where a well being frac'd caused 6 wells around it to belch water for 2 days one of the 6 wells about 150 feet in the air. Rockdoc is right too, of course, tight shale oil needs to frac'd; we all get that, I am pretty sure.

Try this paper on before lunch; its a good one by a graduate student at A&M, the conveyor belt for good young, petroleum engineers. Its long but don't quit. Its also kind of a lesson in...humility.

http://repository.tamu.edu/bitstream/ha ... sequence=2

I like the part about two phase fluid flow in shale after bubble point is reached. That's important, I think. It implies that once saturated gas is depleted oil conductivity, recovery rates, gets way difficult and way muddled to predict. The guys trying to sell us on tight shale resources like the "type" hyperbolic curves with long fat, tails 30 years long. More sensible guys, IMO, have dialed it down a notch and use expotential type curves not as long. But man, come on, even this 'ol dumb ass knows we are trying to produce a shale as dense as a concrete foundation...who's to say that the way these public companies are gutting these Eagle Ford and Bakken wells ( and don't let anyone tell you they aren't gutting them ) eventually saturated gas is blown down, these wells go on artificial lift immediately and EUR per well goes into the gutter. And "down spacing" is just going to deplete bound gas at a faster rate. Howzbout complete frac closure in shale mudstone after a period of time? Maybe 10 years from now we are all going to be amazed that these shale wells simply quit; nada, zilch, el finito burrito. You'll be able to buy pumping units on Ebay.

Its all a guess how much oil we can wring out of this stinkin' shale. My experience in the oil business is expect the worse. Sometimes, rarely, you will be surprised, then you end up settling for what you got. The 'E' in EUR stands for estimated.

I give the movie The World Has 10 years of Shale Oil two thumbs down and another appendage up.

Thank you for allowing me to voice my opinion.

[Graeme]

Why America's Shale Oil Boom Could End Sooner Than You Think

In 2012 those 50 biggest companies recorded $26 billion in asset impairment charges — basically natural gas reserves that were worth $26 billion the previous year became worthless because it cost too much to drill them. This led to a 58% decline in after-tax profits in 2012 over 2011.

And you’d better believe the same thing could happen to oil reserves.

It’s all a function of price. West Texas Intermediate crude has been bopping around between $88 and $98 a barrel this year and the front month futures price is at $96 this week. Its high of the last two years was $109 and its low $77. As I wrote here recently, there are plenty of reasons why oil prices should be heading up, not down.

But it’s worth thinking about what could happen to the American Oil Boom if oil prices slipped just 10-15% from where they are now. Oil drilling is generating hundreds of billions of dollars of value to the United States right now, in terms of jobs and equipment, and especially the benefit to the national balance of payments of not having to spend $200 billion a year buying foreign oil. But it must be said that when you take into account all the costs incurred in acquiring and developing unconventional oil fields today, many plays are already balanced on the knife-edge of profitability, and any down draft in oil pricing could dry up activity real quick.

What could cause prices to drop? Continued economic malaise would be the biggest trigger. The United States is muddling along through this sad excuse for an economic recovery, but with bond yields and interest rates rising suddenly in recent weeks we could very quickly see a pullback in refinancings and borrowings that could be a material drag on growth.


“If OPEC hopes to maintain any semblance of its cartel pricing power now would be the time for its members to boost their oil output, drive prices down, bankrupt marginal American producers and regain market share for the long-term,” says Ed Hirs, a lecturer in energy economics at the University of Houston, and a member of the Yale Graduates In Energy study group.

According to research conducted by that group, in tandem with Yale Prof. Emeritus Paul MacAvoy, a 1 million barrel per day addition to global oil supplies could push prices down by 10%. A 2 million bpd boost would bring it down 20%. If U.S. oil supply growth keeps up at the pace of the last two years, we could add 1 million bpd before the end of 2014.

“In short, if OPEC simply declines to reduce its own production quotas in the face of growing U.S. oil volumes, the American producers could grow themselves right out of the money,” says Hirs.


Trouble is, as these sweet spots are developed the companies have to move down the continuum of sweetness, and profitability. That costs more. Analysts at Bernstein Research wrote last month that “cost inflation continues to rise, and as commodity prices are ‘capped’ by rising supply, net income margins in the sector are now at their lowest in a decade. This is not sustainable. Either prices must rise or costs must fall.”

forbes

[Oily Stuff]

"Cost inflation continues to rise"...man, if you only knew.

In my tiny little meaningless corner of the oilfield (very stripper and very conventional) every development, production cost and marketing cost I incur has been on a steady increase for over 24 months now. In my opinion these costs exceed inflationary increases. My incremental lift cost per barrel of produced oil in the past 2 years is up 40%. Drilling costs, tubulars, cement, services; all up 40%. I associate these cost increases with demand and that is directly related to the current feeding frenzy of expensive, tight oil plays.

[Graeme]

Shell Says Shale Oil Reserves "Difficult to Find and Develop"

Here's an interesting tidbit from today's Wall Street Journal:

Royal Dutch Shell PLC on Thursday posted a 60% drop in second-quarter profit, largely because the oil and natural-gas giant wrote down the value of its North American shale assets by more than $2 billion after tax, highlighting the difficulties that energy companies face in finding new oil they can pump at a profit.

....Shell cited disappointing drilling results at its North American shale assets, which it said turned out to contain less oil than it had hoped. Even excluding the charge on those assets, Shell's earnings fell well short of analysts' expectations as the company struggled with production declines and rising costs.

I wouldn't make too much of a single report like this, but it does fall in line with other evidence suggesting that although North America has a lot of shale oil, it probably doesn't have quite the gargantuan quantities that some people think. What's more, the shale oil we do have has turned out to be fairly expensive to get at. Plus shale oil deposits tend to deplete rapidly. Bottom line: don't get too caught up in the shale oil hype.

motherjones