Donate Bitcoin

Donate Paypal


PeakOil is You

PeakOil is You

"The Shale Oil Boom" paper by Leonardo Maugeri

Discuss research and forecasts regarding hydrocarbon depletion.

Moderator: Pops

Re: The Shale Oil Boom by Leonardo Maugeri

Unread postby dcoyne78 » Fri 16 Aug 2013, 12:48:50

Rockman,

Thank you. I appreciate you looking up some of this info and presenting it here. I also appreciate you answering my (not so informed) questions and pointing it out when my scenarios look particularly foolish, eventually they might be somewhat useful as some of the holes poked in them become filled with something better than plant food. Enjoy the rest of your vacation.

DC
dcoyne78
Tar Sands
Tar Sands
 
Posts: 154
Joined: Thu 30 May 2013, 18:45:15

Re: The Shale Oil Boom by Leonardo Maugeri

Unread postby dcoyne78 » Thu 22 Aug 2013, 09:47:14

ROCKMAN wrote:DC - I did make on goof by not pointing out my numbers were for oil only and didn't include NG or ngl's. But since they tend to be somewhat proportional to the oil volumes they give one a sense of magnitude. Working on a tablet at the moment it's not as easy to run the DrillngInfo in Excel. When I'm back next week I'll try to ship you the raw data so you can cook yourself.


Hi Rockman,

I would love to see some of that Eagle Ford data when you get a chance. Also data for the Permian Basin would be interesting (number of wells broken down by horizontal vs vertical and average 12 month output of horizontal vs vertical). You had mentioned earlier that there was some horizontal drilling going on in the Permian, but my impression is that if 9000 wells were drilled last year in the Permian only about 5 % were horizontal wells. Is that roughly correct? I also realize that the EUR of the horizontal wells is probably 3 times higher than the vertical wells on average so that the total output from horizontal wells would be a somewhat larger proportion of the total. For example if 5 % of the wells were horizontal they might represent 10 % of monthly output.

If you want to shoot me a spreadsheet, I sent a PM with my e-mail address.

DC
dcoyne78
Tar Sands
Tar Sands
 
Posts: 154
Joined: Thu 30 May 2013, 18:45:15

Re: The Shale Oil Boom by Leonardo Maugeri

Unread postby ROCKMAN » Thu 22 Aug 2013, 10:51:38

DC - I try to get onto it tonight. Not sure how much P Basin data I can come up but I'll hit it after the EFS.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 9891
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: The Shale Oil Boom by Leonardo Maugeri

Unread postby ROCKMAN » Fri 23 Aug 2013, 06:44:38

DC - Didn't see a PM from you. Might been me. I haven't been able to send a PM for a while.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 9891
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: The Shale Oil Boom by Leonardo Maugeri

Unread postby TheDude » Fri 23 Aug 2013, 11:37:33

Shale Grab in U.S. Stalls as Falling Values Repel Buyers - Bloomberg

Oil companies are hitting the brakes on a U.S. shale land grab that produced an abundance of cheap natural gas -- and troubles for the industry.
The spending slowdown by international companies including BHP Billiton Ltd. (BHP) and Royal Dutch Shell Plc (RDSA) comes amid a series of write-downs of oil and gas shale assets, caused by plunging prices and disappointing wells. The companies are turning instead to developing current projects, unable to justify buying more property while fields bought during the 2009-2012 flurry remain below their purchase price, according to analysts.

The deal-making slump, which may last for years, threatens to slow oil and gas production growth as companies that built up debt during the rush for shale acreage can’t depend on asset sales to fund drilling programs. The decline has pushed acquisitions of North American energy assets in the first-half of the year to the lowest since 2004.
“Their appetite has slowed,” said Stephen Trauber, Citigroup Inc.’s vice chairman and global head of energy investment banking, who specializes in large oil and gas acquisitions. “It hasn’t stopped, but it has slowed.”
North American oil and gas deals, including shale assets, plunged 52 percent to $26 billion in the first six months from $54 billion in the year-ago period, according to data compiled by Bloomberg. During the drilling frenzy of 2009 through 2012, energy companies spent more than $461 billion buying North American oil and gas properties, the data show.
Cogito, ergo non satis bibivi
And let me tell you something: I dig your work.
User avatar
TheDude
Expert
Expert
 
Posts: 4896
Joined: Thu 06 Apr 2006, 02:00:00
Location: 3 miles NW of Champoeg, Republic of Cascadia

Re: The Shale Oil Boom by Leonardo Maugeri

Unread postby pstarr » Fri 23 Aug 2013, 11:52:31

So in face of the Red Queen dilemma and the end of the drilling frenzy, when do we see fracted-shale plateau and decline. Anybody care to go out on the limb and possibly incur derision down the road? I say a year. Any better guesses? Come on man up. 8) I'll be here in a year. I'll eat my crow? How about you?
There's nothing deeper than love. In fairy tales, the princesses kiss the frogs, and the frogs become princes. In real life,the princesses kiss princes, and the princes turn into frogs

“Bitterness is like cancer. It eats upon the host. But anger is like fire. It burns it all clean.”
― Maya Angelou
pstarr
NeoMaster
NeoMaster
 
Posts: 25021
Joined: Mon 27 Sep 2004, 02:00:00
Location: Behind the Redwood Curtain

Re: The Shale Oil Boom by Leonardo Maugeri

Unread postby ROCKMAN » Fri 23 Aug 2013, 12:29:16

Pstarr – The article is a little confusing to me. I think they are referring to the sale of producing wells and not drilling leases. Which actually would represent just the opposite of the dynamic they seem to be offering. Production acquisition runs opposite of drilling activity. Production acquisition, the other half of asset divestiture, booms in anticipation of a down turn. OTOH when companies are doing well drilling they tend to sell fewer producing properties for a good reason: their value is too high. Unless I knew a company was in financial trouble I wouldn’t waste 5 minutes evaluating an offer to sell any oil production today. Especially with the recent increase in oil prices.

It’s no different than the real estate market: when are you going to have to pay too much for a house: during a recession or booming economic times? If oil prices were to slide to, let’s say, $75/bbl for an extended time then there could be some good deals to be had from companies having trouble with their debt load and drilling obligations. The only way to justify paying for production at today’s prices would to have some outstanding drilling upside that goes with the deal. If someone wants to buy oil production based upon expectations of higher prices alone they are foolish to buy physical wells. Much better to just buy oil future contracts. You can’t turn around and sell an oil field in 24 hours when you start seeing your investment go sideways on you. Futures you can dump and stop the bleeding right away.

Bottom line: if they are only talking about the sale of producing oil properties slumping then that’s a red flag for optimism by the companies drilling and producing. OTOH if there were a surge in the sale of producing shale fields that would be a clear sign of trouble ahead for the companies IMHO. Either they are running out of sweet spots to drill and/or they can’t handle the debt load. For instance it been reported that Chesapeake’s balance sheet is looking better these days. But look at the details: analysts have reported that 2/3 of their improvement has come from liquidating assets and only 1/3 from new operations. I stopped counting over a year ago when CHK had sold over $25 billion in assets at that point in order to just keep the doors open and operations going forward.

In the oil production acquisition biz the same winning philosophy applies as with other commodities: buy low…sell high. That’s tough to do when an investment is selling for top $ as oil producing wells are doing today.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 9891
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby rockdoc123 » Fri 23 Aug 2013, 14:42:18

Bottom line: if they are only talking about the sale of producing oil properties slumping then that’s a red flag for optimism by the companies drilling and producing. OTOH if there were a surge in the sale of producing shale fields that would be a clear sign of trouble ahead for the companies IMHO. Either they are running out of sweet spots to drill and/or they can’t handle the debt load. For instance it been reported that Chesapeake’s balance sheet is looking better these days. But look at the details: analysts have reported that 2/3 of their improvement has come from liquidating assets and only 1/3 from new operations. I stopped counting over a year ago when CHK had sold over $25 billion in assets at that point in order to just keep the doors open and operations going forward.


You do realize that this was CHK ‘s plan from the outset? The idea was that this was the only way a small entity such as CHK could hope to come up with the large capital required to fund full shale gas developments. They took on a large debt but also took huge land positions. Their strategy was always to be first in, pick up a variety of acreage, drill and prove up the best trends. They have kept the best trends in all of the liquid producing shales and the only one which they have sold properties that could be considered to be in the best fairway was the Haynesville which is very dry gas and deep. By selling properties (or doing a leveraged farmout of those properties) that were in the poorer yielding part of the trend they have been able to access capital such that they can continue a large drilling program aimed at increasing their liquids production, which they have successfully done year on year (on a boe basis their production has more than doubled from the 200,000boed it was in 2005). They are not selling properties to stay afloat as you infer but rather to be able to increase their production and hence grow that company. As I’ve mentioned before given the debt carrying costs they have they are able to pay down debt and still show a healthy profit after taxes from cashflow. The income from property sales is used to offset capital requirements. At some point they will either sell the company or they will turn it into some form of trust model, either of which would be a significant equity event for the original shareholders
User avatar
rockdoc123
Expert
Expert
 
Posts: 5057
Joined: Mon 16 May 2005, 02:00:00

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby pstarr » Fri 23 Aug 2013, 14:55:45

So your point RD is that CHK knew all along that the shale-bidness was a fast bubble, and they intended to keep the good stuff for themselves? You mean they planned to hire the media, pols, and internet trolls to promote the rest, and sell off the junk to clueless investor-types (mom and pop) before the market collapsed? Wow! That is some savvy sh#t 8O
There's nothing deeper than love. In fairy tales, the princesses kiss the frogs, and the frogs become princes. In real life,the princesses kiss princes, and the princes turn into frogs

“Bitterness is like cancer. It eats upon the host. But anger is like fire. It burns it all clean.”
― Maya Angelou
pstarr
NeoMaster
NeoMaster
 
Posts: 25021
Joined: Mon 27 Sep 2004, 02:00:00
Location: Behind the Redwood Curtain

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby rockdoc123 » Fri 23 Aug 2013, 17:50:06

So your point RD is that CHK knew all along that the shale-bidness was a fast bubble, and they intended to keep the good stuff for themselves? You mean they planned to hire the media, pols, and internet trolls to promote the rest, and sell off the junk to clueless investor-types (mom and pop) before the market collapsed? Wow! That is some savvy sh#t

Perhaps you might want to inform yourself a bit. I assume you can read so I suggest you look at their 10K and management submissions to the SEC. The information is all there and it doesn't require hype or anything else. CHK is churning out several billion a year in EBITDA. Where do you think that money is coming from if it isn't from sales of oil and gas? Of course you could find that out from the annual report which actually speaks to sales, capital, income from asset sales etc. And I actually don't remember CHK ever hyping the assets they had to sell or available for farmin. In this business those deals are usually done over the phone CEO to CEO or between the Business Development folks of respective companies.
Then I suggest you look at some of the companies that have picked up the leveraged farmouts and sales. They aren't doing as well as CHK but few are losing their shirts. Many of these companies are also looking at the gas assets as a long term investment believing that eventually natural gas prices will rise to the $6/Mcf range that would make their investments look stellar. The point is that in this business what doesn't make sense for a company of the size of CHK to hang onto, especially when they need capital to fund their programs, may seem brilliant to a smaller company that has its aspirations at a much lower level or simply wants to concentrate it's efforts in one play.
User avatar
rockdoc123
Expert
Expert
 
Posts: 5057
Joined: Mon 16 May 2005, 02:00:00

Re: The Shale Oil Boom by Leonardo Maugeri

Unread postby dcoyne78 » Fri 23 Aug 2013, 18:01:02

ROCKMAN wrote:DC - Didn't see a PM from you. Might been me. I haven't been able to send a PM for a while.


I sent another, if I don't hear from you I'll just give out my email address on the forum. Or you could share data using google docs.

Thanks.

DCoyne78
dcoyne78
Tar Sands
Tar Sands
 
Posts: 154
Joined: Thu 30 May 2013, 18:45:15

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby ROCKMAN » Sat 24 Aug 2013, 11:31:12

DC - Got it. But will be Monday. Too slow at the house.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 9891
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby ROCKMAN » Sat 24 Aug 2013, 22:13:53

The Texas boom is booming louder. For the first 6 months of 2013 oil production is 16% higher than first 1/2 2012. Combined with higher oil prices the value of Texas production is 35% higher for the same periods.

FYI: that represents $300 million in those 6 months in production taxes for the state and counties. And PA did collect one penny in production taxes for the same period. Go figure.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 9891
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby dcoyne78 » Sun 25 Aug 2013, 12:44:40

Hi Rockman,

It is indeed booming, and I believe the TRRC data somewhat underestimates the boom.

Consider the following charts:

Image

Image

data can be found at

https://sites.google.com/site/dc78image/files-1

in an Excel file named "texas oil.xlsx", click downarrow at far right of the file name to download, the files are listed alphabetically.

Note that the second chart compares RRC data downloaded in Feb 2013 to more recent data from Aug 2013 and then does the same for data from the EIA.

Based on EIA data (and assuming June RRC data is low by 25 %), the first 1/2 of 2013 is 31 % higher than first half of 2012, almost double your estimate. We will see how the TRRC data changes over time, as the EFS slows down the EIA may end up overestimating, so my guess could be too high, but the TRRC data is usually pretty far off for the most recent 12 months and historically the EIA data has been a much better estimate for statewide C+C output in TX.

DC
Last edited by dcoyne78 on Sun 25 Aug 2013, 13:19:34, edited 1 time in total.
dcoyne78
Tar Sands
Tar Sands
 
Posts: 154
Joined: Thu 30 May 2013, 18:45:15

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby ROCKMAN » Sun 25 Aug 2013, 13:03:01

DC - Could be off that much. Didn't mention it but my quick and dirty source was rigzone...not known as the best source. I figured those numbers were low but I thought that was enough bragging. The problem with rrc numbers is late reports by operators and the rrc staff hasn't increased much despite the drilling boom.

BTW: I meant to say PA HASN'T collected one penny of severance tax. Still a shocking miscarriage of the public trust IMHO. Thanks to Texas severance tax my tuition at grad school at Texas A&M was less than $500 per semester.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 9891
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby dcoyne78 » Sun 25 Aug 2013, 20:31:08

I agree on the PA lack of taxes, I don't understand why northern states don't just adopt TX oil and gas policies, no need to reinvent the wheel. I guess PA has been doing oil and gas for a while (1859 I believe), but a lot of Americans think tax is a four letter word ;).

Go ahead and brag, the EFS has been on fire going from 1.4 % of TX output in May 2010 to 36 % of TX C+C output in May 2013 (based on TRRC data), while TX total C+C output increased from 1.2 MMB/d to 2.2 MMB/d over the same period (EIA data). In fact the EFS output has increased by 900 kb/d over the 3 year period from May 2010 to May 2013(combination of EIA data and % of total output from TRRC), so that most (90 %) of the TX miracle has been the EFS.

My guess is that the EFS will slow down soon and think a peak will be reached in 2016 at about 1.2 MMb/d, if oil prices follow the EIA reference scenario and wells are added at about a 2100 well/year rate up to 2015 and avg well productivity (EUR) begins to decrease around mid 2014 at a rate of 12.4 % per year. As EUR decreases, profitability also decreases and the rate that wells are added decreases starting in 2016 and falling to 1800 wells per year by 2017. It is also assumed that 5 year NPV with an 8.75 % discount rate must remain above breakeven, if not wells are added more slowly which slows the decrease in EUR so that drilling remains profitable. Break even calculations are based on: 20 % royalty and taxes, $7/ barrel OPEX and financial costs, transport costs of $3/barrel, and real well costs (drill +frack) falling to $7 million by 2016, from $8 million today.

Image

BTW I realize that you think these scenarios are silly, though I think they are useful as long as the assumptions are laid out clearly. In reality the assumptions always prove to be incorrect, but with input from people like you we can create a set of scenarios with "reasonable" assumptions that may bracket future possibilities. The scenario presented is fairly realistic and would represent a middle scenario in my mind(though I would love some input as to how realistic these assumptions are). It is only a prediction of the future if all of the assumptions are correct, which is highly unlikely.

DC
dcoyne78
Tar Sands
Tar Sands
 
Posts: 154
Joined: Thu 30 May 2013, 18:45:15

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby ROCKMAN » Sun 25 Aug 2013, 20:51:02

DC - Not silly at all. Models are OK. But they are also like masturbating: nothing wrong with it as long as you don't start thinking it's the real thing. LOL.

I don't make fun of anyone's prediction until I see if they are correct or not. If correct I admit I thought they were right the whole time. If wrong then I'll blast them. That's the only way to not look foolish in the prediction game IMHO.
User avatar
ROCKMAN
Expert
Expert
 
Posts: 9891
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby John_A » Sun 25 Aug 2013, 21:40:13

dcoyne78 wrote:I agree on the PA lack of taxes, I don't understand why northern states don't just adopt TX oil and gas policies, no need to reinvent the wheel. I guess PA has been doing oil and gas for a while (1859 I believe), but a lot of Americans think tax is a four letter word ;).


The Pennsylvania EPA runs the oil and gas enforcement in PA. And their rules are primarily designed to control anything subsurface within 2500' of an existing coal mine. Outside of that radius, even the oil and gas well plugging regulations are different.

I asked George Love this about a year back, trying to get a feel for why that was, and he had some interesting comments on the whys. From an outsiders perspective, Pennsylvanian oil and gas has been around longer than those younglings in Texas, but king coal was there first.
45ACP: For when you want to send the very best.
John_A
Light Sweet Crude
Light Sweet Crude
 
Posts: 1193
Joined: Sat 25 Jun 2011, 20:16:36

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby dcoyne78 » Mon 26 Aug 2013, 08:37:52

ROCKMAN wrote:DC - Not silly at all. Models are OK. But they are also like masturbating: nothing wrong with it as long as you don't start thinking it's the real thing. LOL.

I don't make fun of anyone's prediction until I see if they are correct or not. If correct I admit I thought they were right the whole time. If wrong then I'll blast them. That's the only way to not look foolish in the prediction game IMHO.


Rockman,

I frankly love the criticism that you and others offer, these charts are less predictions than scenarios, if x, y, and z change in the ways I have laid out, the chart may be close to reality.

I have noticed that when I ask for suggestions about how realistic the assumptions are you don't bite, but maybe you can help me with the following question:
"What annual discount rate do you use in your NPV calculations when evaluating a prospective project 10%, 15%, 25%?"

Also for wells like the EFS would you assume the wells last for 5, 10, or 20 years when doing an NPV exercise?

When the sweet spots have been drilled up fully, how quickly would you expect the EUR of new wells to fall at an annual rate, 10 %, 25%? If one assumes that well completion rate remains unchanged, so that if we were at 2100 wells per year and continued at that rate until we ran out of space in the play (economics are ignored) how fast would one expect the EUR of new wells to decrease?

My guess is 12.4 % does that seem low, high or about right?

DC
dcoyne78
Tar Sands
Tar Sands
 
Posts: 154
Joined: Thu 30 May 2013, 18:45:15

Re: "The Shale Oil Boom" paper by Leonardo Maugeri

Unread postby ROCKMAN » Mon 26 Aug 2013, 10:28:49

DC – Not criticism but teasing. Models are great but not as much for predictions IMHO but for identifying which are the most critical assumptions involved. That allows one to focus efforts on those while ignoring the others.

During the last 38 years the most common DR I’ve seen is 10% with 15% a close second. Other rates have been rare. The life of an EFS well isn’t important in the NPV calculation. The production curve converted to net cash flow is what’s used. The high initial rates give a boost to NPV. After production declines significantly even absolute cash flow isn’t very impressive. And after production declines 60% to 80% over the first few years the NPV calculation will begin to impact the value of those future reserves. So in a way whether one assumes a long tail (say 10+ years) to the production curve or not isn’t very relevant: after 8 years or so even a 10% DR will reduce the NPV of that future production so low it becomes inconsequential in the ROR calculation. This true even for wells that have a significant amount of production that far out. IOW a 10% to 15% DR is a real buzz kill when it comes to calculating NPV for long lived wells. Doing a production acquisition I don’t bother to argue about future production volume estimates beyond 8 years since they have almost no bearing on my calculation of the value of the acquisition.

I hesitate to forecast the change in EUR. The problem is that wells drilled in 2 years will be done differently than wells drilled 3 years ago. Besides having longer laterals and more frac stages some may be drilled on tighter spacings. Longer laterals are one way to offset the lower production potential of the less sweet spots. So some of these future wells might have EUR’s comparable to earlier sweeter wells. But it will come at a higher costs. Two wells might project to have the same EUR’s but one may cost 50% more to drill than the other so it diminishes it’s economic significance even while delivering the same amount of oil.

And for the love of Dog stop making projections down to the tenth of a percent. Remember what we geologists say 2 + 2 is equal: somewhere between 3 and 5. LOL
User avatar
ROCKMAN
Expert
Expert
 
Posts: 9891
Joined: Tue 27 May 2008, 02:00:00
Location: TEXAS

PreviousNext

Return to Peak oil studies, reports & models

Who is online

Users browsing this forum: tita and 5 guests