[wildbourgman]

I agree Rockman, if someone is trying to dispell Peak Oil with natural gas production charts that doesn't make for a good debate on it's own.

Now, if you want to talk economic theory as in the substitution effect then he should has said so. I think we will see and have seen a substitution effect. You can throw coal, wood, solar and wind into that debate too.

I would counter that if you have Peak oil you'll effect natural gas demand and pricing, because it can be a substitute and then you hasten peak natural gas, so you effect the consumer in a bad way regardless.

[ROCKMAN]

Wildman - I just pointed out that substitution effect in another post. I don't watch coal very closely. But while US consumption may have dropped a bit (even while we were hitting new export records) I was surprised when I looked it up: global coal consumption has increased over 50% in just the last 10 years. It seems obvious to me that this is in direct response to the PO dynamic of tighter oil supplies and higher prices. And that doesn't bode well for hopes of decreasing GHG production. Energy derived form coal is expanding many times faster then that from the alts. While every bit of energy from the alts helps they are being offset many times by coal. This is not a foot race the environment seems to have any chance of winning.

[ROCKMAN]

Just got a funny email from a cohort heavy into the Eagle Ford Shale. Apparently making a buck may be getting more difficult. As a result they are trying new tech angles to improve matters. The hot acronym buzzing in those parts now: HEPOS: Highly Engineered Piece of Sh*t.

[ROCKMAN]

Just a guess but I suspect it will take 5+ years before they know the potential is as big as they hope. Or maybe we'll see a string of HEPOS's.

Russia's Shell JV Starts Oil Fracking in Siberia

Reuters - Salym Petroleum Development (SPD), a Russian joint venture between Shell and Gazprom Neft, said on Monday it had started oil fracking in Siberia, a technology seen as key to Russia maintaining its level of oil production. The company said it had begun horizontal drilling in a "tight" oil formation. Horizontal drilling and hydraulic fracturing - known as fracking - is aimed at unlocking giant potential oil reserves from non-porous "tight" rock. SPD said in a statement it has started drilling the first horizontal appraisal well in Bazhenov formation in Upper Salym, in West Siberia, as part of a pilot project which envisages the construction of five horizontal appraisal wells in 2014-1015.

Moscow has introduced tax breaks that include a sliding scale of breaks on its revenue-based mineral extraction tax and targeted ones on the development of Bazhenov and other shale deposits that are part of drilling ventures with international majors such as ExxonMobil and Statoil. Russian producers have already reported to the government 500 million tonnes, or 3.5 billion barrels, of recoverable crude oil reserves in Bazhenov. Russia's third-largest oil producer Surgutneftegas is considered to be a leader in Bazhenof formation fracking. "We hope that the pilot project will allow us and our shareholders to make a decision about moving to a large-scale development of Bazhenov formation in the Salym fields," Oleg Karpushin, SPD Chief Executive Officer, said in a statement. Russia, which produces 10.6 million barrels of oil per day, aims to sustain crude production at no less than 10 million bpd, with oil and gas production generating over a half of the state budget revenues.

[ROCKMAN]

This is a somewhat blunt metric to judge activity in the US oil patch but does indicate the possible slow up some have predicted. Note: “Total upstream merger activity during 2013 was down 49 percent… The 2013 figure was the lowest total value for global upstream transactions since 2008."

Upstream oil-and-gas deals worth at least $8.8 billion were made in the Eagle Ford in 2013, the oil and gas research firm PLS Inc. said. That put the Eagle Ford at the top of the list of deals in U.S. regions, most of which saw declines in merger and acquisition activity, PLS said. The largest single energy transaction in 2013 was the $6 billion purchase of GeoSouthern Energy Corp.’s assets by Devon Energy, PLS said. That deal accounted for most of the total money in transactions in South Texas in 2013, sending Eagle Ford to the top.

{Devon is trying to recover from their huge failed bet in the shale gas play in east Texas. They barely survived thanks to liquidating many of their more valuable assets}

Total upstream merger activity during 2013 was down 49 percent from 2012 at $137.7 billion, compared with 2012 activity of $270.8 billion. The 2013 figure was the lowest total value for global upstream transactions since 2008, PLS noted. Upstream activity centers on the exploration and production of oil and gas, while midstream deals with the transportation and refining of oil and gas. Some analysts expect upstream spending to decline again in 2014, while midstream spending is expected to increase.

[Subjectivist]

This is a somewhat blunt metric to judge activity in the US oil patch but does indicate the possible slow up some have predicted. Note: “Total upstream merger activity during 2013 was down 49 percent… The 2013 figure was the lowest total value for global upstream transactions since 2008."

Upstream oil-and-gas deals worth at least $8.8 billion were made in the Eagle Ford in 2013, the oil and gas research firm PLS Inc. said. That put the Eagle Ford at the top of the list of deals in U.S. regions, most of which saw declines in merger and acquisition activity, PLS said. The largest single energy transaction in 2013 was the $6 billion purchase of GeoSouthern Energy Corp.’s assets by Devon Energy, PLS said. That deal accounted for most of the total money in transactions in South Texas in 2013, sending Eagle Ford to the top.

{Devon is trying to recover from their huge failed bet in the shale gas play in east Texas. They barely survived thanks to liquidating many of their more valuable assets}

Total upstream merger activity during 2013 was down 49 percent from 2012 at $137.7 billion, compared with 2012 activity of $270.8 billion. The 2013 figure was the lowest total value for global upstream transactions since 2008, PLS noted. Upstream activity centers on the exploration and production of oil and gas, while midstream deals with the transportation and refining of oil and gas. Some analysts expect upstream spending to decline again in 2014, while midstream spending is expected to increase.

How would you put this in relation to the Kopits paper Pops reported about investment in the oil field being in steep decline?

[TheAntiDoomer]

[rockdoc123]

Total upstream merger activity during 2013 was down 49 percent…

actual merger "activity" which is a measure of number and size of actual transactions that occurred is more a measure of the overall health of the market than the health of the O&G industry.

There is currently no shortage of companies that would like to sell some of their assets (some companies would like to sell their company). There are a number of reasons for this but much of it has to do with access to capital. Even though the US stock market has seen a good year this doesn't translate into a good year for oil and gas....for one reason or another oil and gas has fallen out of favor with investors in general. If you have a company and can't get equity in the market nor have the ability to take on debt your only solutions are to take on partners (farmouts) or sell assets.

There is also currently no shortage of companies that would like to buy more assets (mostly anecdotal based on conversations with a couple of brokers and company CEOs). The underlying problem seems to have been the the sellers think there assets are worth more than the market values them and the buyers think they should get the assets for less than the market values them.

There also has been very little equity influx into oil and gas companies and mergers generally do not happen without some form of recapitalization which requires equity.

I was reading lately that companies are looking for inventive ways to get past this as many are sitting in a position where they do not have enough capital to complete work programs. One way is a price is agreed on for a sale that is lower than what the seller might like but attractive to the buyer....if certain production, discovery etc hurdles are made in the future then there is an additional bonus paid to the seller.

Everyone in the industry has been waiting for consolidation to occur...there are two many companies chasing too few good opportunities. Sooner or later it will happen, my guess is more will happen this year as companies are really starting to feel the pain.

[ROCKMAN]

sub - It's one of those truisms that's actually true: at any time during the petroleum age there are X number of potential drill sites that are viable. The first control point is economics...if it ain't profitable it won't get drilled...at least not very much. And then there's the tech control point...if you can't drill it you can't produce it. And finally the geologic limit...if there ain't any left to drill there ain't any left to drill.

So there can be multiple periods even in new trends when capex expands or contracts. We just saw that in the shale gas trend: when prices collapsed in '08 the rig count in those plays fell 75%. If the rig count fell that low obviously the investment level also fell significantly. But there are still many viable locations remaining in the Haynesville Shale…at $12/mcf. So here’s the $64,000 question: if oil patch investments are heading south…then why? First, it wouldn’t be for lack of capex: if there were a large number of viable wells to drill the money would be leant. Dog knows I’ve seen $billions in loans made that didn’t make very good sense. So is this perceived drop due to declining economic value of the remaining prospects? Are we lacking the tech needed to make what’s left viable? Or are there just fewer prospects left to drill regardless of the tech available and the price of oil? The Austin Chalk was the hottest oil play on the planet in the 90’s. And today we have significantly improved tech as well as oil prices that are 3X higher then when the AC was booming. So why aren’t we hearing about a big AC boom greater than the EFS? Easy: if it ain’t there it ain’t there. There’s still some AC wells being drilled but for the most part the trend has been tapped out…it ain’t there. It boomed when oil was $30/bbl. So why not now at $95/bbl? Because the prospect ain’t there no more. When 90% of the lease in the play have been drilled, produced and abandoned you’re not going to go out and double the number of wells drilled it regardless of the price of oil/NG. When the tank is empty it’s empty.

[ROCKMAN]

So true doc. I keep wondering when/if someone is going to make the controlling shareholders of Chesapeake an offer they can't refuse. Might not ever happen or the offer may be on the table as I type.

[JV153]

ROCKMAN said:

I was surprised when I looked it up: global coal consumption has increased over 50% in just the last 10 years. It seems obvious to me that this is in direct response to the PO dynamic of tighter oil supplies and higher prices.

The increased coal use is almost all from increased coal production in China, which is used in China to manufacture steel (6x US production) and hydraulic cement (20 x US production) The increased oil consumption of China is what enables this to occur.

[TheAntiDoomer]

Damn Pete, I had no idea, I wonder how we had an industrial revoluation, and built an entire rail road system soley on the back of coal.....maybe we had help from aliens?

[JV153]

entire rail road system soley on the back of coal.....maybe we had help from aliens?

Yes, it was aliens.

http://en.wikipedia.org/wiki/History_of ... l_railroad

[ROCKMAN]

About time! To think the regulators didn't realize oil was so freaking volatile. They really need these tests to find out. Or maybe just show them a video of the Macondo blowout. LOL. I suppose they are just following the basic rule of politics these day: Even if you can't make a difference dealing with a problem that shouldn't stop them from providing the public the illusion that they are actually making a difference.

The Pipeline and Hazard Materials Safety Administration (PHMSA) took samples of Eagle Ford crude to determine its flammability as part of PHMSA and the Federal Railroad Administration’s (FRA) Operation Classification. PHMSA and FRA launched Operation Classification earlier this year to study how shippers and carriers are classifying crude oil and what actions they are taking to understand the characteristics of this material. The agencies took samples of Eagle Ford crude in Tomball, Hope and LaGrange, Texas, and a sample of crude oil from Calgary, Canada was taken in Port Arthur, Texas. “We are still focusing on the Bakken region without a decision on other areas like the Permian,” said Gordon “Joe” Delcambre Jr., spokesperson for PHMSA, in a statement to Rigzone. The final report on these samples is pending and due out soon. Operation Classification has primarily targeted shipments from the Bakken region. As part of this operation, PHMSA and FRA have been making unannounced crude oil inspections, data collection and sampling, as well as verifying compliance with federal safety regulations. Operation Classification is nearing the completion, Delcambre said.

[ROCKMAN]

And on the 7th day he arose again:

NEW YORK, Feb 3 (Reuters) - Former Chesapeake Energy Corp CEO Aubrey McClendon's American Energy Partners said on Monday that it had struck three deals in Ohio's Utica shale region, doubling its holdings there. The company said it would buy about 130,000 acres in the southern part of the Utica shale from Hess Corp, Exxon Mobil Corp and privately held Paloma Partners. It said the three deals would bring its total acreage in the region to about 260,000 acres. American Energy did not disclose how much it is paying for the acreage, but Hess said previously that it sold its 74,000 acres in the Utica for $924 million. McClendon co-founded Chesapeake, the No. 2 U.S. natural gas producer, in 1989. But he left his post of chief executive officer in April after clashes with the board over spending and a series of Reuters investigations that led to civil and criminal probes at the company. An internal investigation by Chesapeake's board last year cleared McClendon of intentional wrongdoing. He founded American Energy Partners last year and raised $1.7 billion to drill in the Utica. The company said last week that it had lined up an additional $500 million in equity commitments to fund an oil and gas business.

[ROCKMAN]

Interesting that a French company appears to be leading the way. Just as they are in that big LNG project on the Arctic Circle.

Reuters – French oil major Total has secured the rights to explore three hard-to-recover oil blocks in West Siberia, according to a statement on the website of the Russian region's governor. Total will join other majors, ExxonMobil, Statoil and Royal Dutch Shell, to develop Russian shale oil. The EIA puts the possible resources at 75 billion barrels, more than the 58 billion barrels held by the United States, current leader in shale oil production. Total had received the licenses for the Vostochno-Kovensky, Tashinsky and Lyaminsky-3 blocks in Khanty-Manssiisk district, Russia's main oil producing region. Total has also signed a memorandum to develop shale oil in Russia with Russia's No.2 oil producer Lukoil.

[ROCKMAN]

Looks like we’ll keep using water to frac for a good while yet. BTW: “…will continue to use more than 2 million gallons of water for each fracked well, equal to baths for some 40,000 people”. And CA will continue to use more water to keep their golf courses green every year then the water used to frac every shale well drilled that year. But, fortunately, CA has an abundance of water. LOL.

Reuters - Carbon dioxide likely will not replace water in fracking anytime soon because of technical challenges and limited infrastructure, says General Electric Co. The delay means energy companies will continue to use more than 2 million gallons of water for each fracked well, equal to baths for some 40,000 people, stressing water supplies in arid American states and likely delaying fracking's expansion to western China and other water-stressed regions. GE is studying how a chilled form of CO2 known as a "super-critical fluid" - neither a liquid nor a solid - could be used as the new industry standard for hydraulic fracturing. "Our ultimate vision is to have a fracking process that uses no water, but we're a ways off from that," Andrew Gorton, a GE mechanical engineer leading the project. CO2 fracking was used on a small scale in the 1990s by the company Canadian FracMaster before it filed for bankruptcy protection.

[Synapsid]

...super-critical fluid...

Neither a liquid nor a gas. Fixed.