[AdamB]

The International Energy Agency (IEA) has predicted US oil output next year will see the steepest fall since 1992 thanks to low oil prices.

US oil production has increased to a record high in recent years as high prices made investment worthwhile.

Prices halved over the past year as demand fell in line with slower economic growth.

Meanwhile, Opec producers, particularly Saudi Arabia, have maintained high levels of production.
....
The IEA said the resulting lower oil prices would boost demand to a five-year high this year, a trend that the IEA said would help Opec countries.

Opec controls more than a third of the world's oil output. It typically cuts production when prices fall to attempt to push prices higher.

Its recent strategy has been to keep the taps turned on fully in an attempt to curb US output, which is uneconomical at lower prices.

The IEA said: "Oil's price collapse is closing down high-cost production from Eagle Ford in Texas to Russia and the North Sea, which may result in the loss next year of half a million barrels a day, the biggest decline in 24 years."

Non-Opec supply contracted by one million barrels a day in 1992 from the previous year after the Soviet Union broke apart.

The IEA expects US oil production to drop by 0.4 million barrels a day in 2016. It grew by 1.7 million barrels a day in 2014.

http://www.bbc.com/news/business-34219144

There is a lot of noise in all the data, but will this year be seen as the year of peak production?

The more I see some of this dated material from the IEA, and see how poorly their back of the envelope assumptions work out, and then recall that they fell for peak oil all the way back in 2006, only to be kicked in the teeth by reality later, the more I wonder if they aren't severely handicapped by their projection methods. There appears to be no structural modeling component, i.e. such as the EIA uses. So they just guess, get it wrong, guess some more, and it makes me wonder if Fatih brings too much old experience with him, and zero recognition of what the US has done, and how that will continue to affect the world.

[AdamB]

Good, that could offset the decline from conventional sources, or will it?

What the US has done over the past decade has offset the GLOBAL decline. The next interesting question being can it do the same to the rest of the world when it begins to chew through the 400+ billion barrels of available resource that have been quantified by the EIA global studies?

[coffeeguyzz]

Tanada

Excellent synopsis.
Couple of add ons ...
Newest wrinkle in completions (frac'ing) is implementation of micro proppants, ie., ceramics with size of 200 to 400 mesh.
According to CEO of Core Labs, this could double the amount of reservoir volume that is effectively propped open.
An additional consequence would be a flattening of the decline curve as these numerous, microscopic pathways very slowly allow liquids to work their way into the wellbore.
Gas re-injection is being successfully implemented by both EOG and Granite Oil to effect EOR.
Water injection operations by Crescent Point and, soon, by EOG, are expected to reintroduce formation pressure in an economic framework.

Biggest near term happening with 'unconventional' development is the spread to more conventional, reservoir-type targets in the Powder River Basin, the Clinton Sandstone, and the Codell in eastern Colorado.
These types of techniques are increasingly becoming within reach of smaller operators in "fringier" areas.
The success or failures in these efforts will have big consequences for future hydrocarbon production.

[ROCKMAN]

Coffee - Good post...Mucho thanks. Since I haven't been doing much frac'ng I don't try to keep up with the tweaking. I'll mention it to my engineer for when we get back to drilling our 17,000' Smackover play in Mississippi. Still waiting for owner's approval to get back to drilling on the 3d we shot. Amazing what can image in the Smackover now compared to 40 years ago when it was essentially invisible in many areas.

And that's what I keep trying to emphasize to the newbies. Frac'ng, horizontal drilling, 3d seismic: none of it is "new technology". But thanks to higher oil/NG prices so many new applications are made it allowed experiments to refine many aspects of those techs.

For instance when I first began drilling horizontal wells offshore 23 years ago geosteering was as much art as science. Now, with rotary steerable systems it's feast to take it for granted. And then I think back to 1976 when we got excited because we built an hole angle to 60° and missed the target by ONLY 1,200'. LOL. So you newbies get the joke: today, if everything works just right, I can hit a 40' target 3,000' away from the rig with a 90° hole.

And little of this improvements would have developed had not higher commodity prices provided the monetary incentive. Very little new tech development allowing us to recover more oil/NG resources will come along unless the necessary pricing motivation also develops.

[AdamB]

Tanada

Excellent synopsis.
Couple of add ons ...
Newest wrinkle in completions (frac'ing) is implementation of micro proppants, ie., ceramics with size of 200 to 400 mesh.
According to CEO of Core Labs, this could double the amount of reservoir volume that is effectively propped open.
An additional consequence would be a flattening of the decline curve as these numerous, microscopic pathways very slowly allow liquids to work their way into the wellbore.

The problem being that ceramics of any size are being replaced with what I would call "sand pills", completion companies changing water chemistry on the fly, in part to shorten wing length and deposit the "pill" exactly where they want it. Ceramic use in the Appalachian Basin having dropped considerably already, but it is understandable that the sales folks aren't happy about it.

Gas re-injection is being successfully implemented by both EOG and Granite Oil to effect EOR.

That isn't anything new though. Prudhoe has like the worlds largest gas processing facilities to maintain pressure and has been doing it for decades now. Now, get CO2 moving through those tight oil formations in the Bakken and Eagle Ford, with some decent sweep efficiencies between say paired multi-laterals? Now we're talkin'!

How about greenfield operations using that CO2 in the ROZ? Now we're DOUBLE talkin'!

The success or failures in these efforts will have big consequences for future hydrocarbon production.

But of course they will. American exceptionalism in the oil and gas industry isn't just STRONG, it is HERCULEAN.

[coffeeguyzz]

Re: Herculean ...

I don't know if folks, in general, can grasp what the heck has occurred in this 'shale revolution' and where it may be headed.

Couple of data points ...
The folks at North Dakota's EERC have found that ethane is the best medium for EOR in the Bakken due to high formation temperature (129 C). Oil mobility was near 100% in lab. Steve Hawthorne has great presentations viewable on the net.

Few days ago, the fuzzy heads at Los Alamos released a paper on re-frac'ing shale wells. They have high optimism that using energized fluids, especially supercritical CO2, can prove very effective.

Regarding energized fluids, some people feel the future in frac'ing - especially high clay content formations - may ultimately be best accomplished with some form of supercritical field gas, possibly along the lines of that VRGE-type waterless frac'ing that never got off the ground.
Hardware for it is already built and in the field (LNGo from Dresser Rand/Siemans).

The best is yet to come.

[AdamB]

For instance when I first began drilling horizontal wells offshore 23 years ago geosteering was as much art as science.

Oh horse crap. I was geosteering 27 years ago and it wasn't art. Let me guess, you threw chicken bones and frog gizzard on the rig floor did you, to decide what inclination and azimuth might be after connections? Didn't trust the single or multi-shots? Please.

Now, with rotary steerable systems it's feast to take it for granted.

You are welcome. Someone had to prototype things so that geologists could take them for granted.

And little of this improvements would have developed had not higher commodity prices provided the monetary incentive.

When geosteering became LWD, it was when oil was what, $20/bbl? I remember the non-rotateables, and before I left the rigs they were using rotateables. All during the days of $20/bbl. I imagine they are quite a bit better today, ran into the MWD and directional supervisor for Ensign in the Bakersfield airport when oil prices were headed down, and nowadays it seems they use EM transmissions from the tools, now THAT is a cool advancement that happened during higher prices.

Very little new tech development allowing us to recover more oil/NG resources will come along unless the necessary pricing motivation also develops.

Sure...like 3D seismic when oil was what, $10? MWD post single/multi shots was like a late 1970's development? That probably falls into the increased price category. Thermal EOR? Steam flooding in California is like an early 60's thing, so that is like $10 oil. ADRs? Those might fall into higher price category of development. Rotatable systems are more $20 oil during the 90's?

Yeah, I'm not buying price alone. Anyone who has ever done project economics knows that I'll pay more for a service if I can more than offset it by lower cumulative rig costs, and that isn't a price issue, but an optimization problem for any given price, and still drives innovation as well. Increased price helps of course, but I am also of the belief that the DROP in price does the same thing, it drives optimization side. Like those sand pills I mentioned earlier, the completion engineers REALLY didn't like the ceramic costs as abundance of NG drove down prices in the Appalachian Basin, and sand works just fine if you can get it exactly where you want. For those of us involved in the early stages of the Barnett development (early meaning pre-horizontal well rampup) they were experimenting with skipping sand altogether and just letting the in-situ stress alter the rock positioning by enough that it couldn't match back up, thereby allowing manmade fractures that didn't even need proppant!

Those were the days. The beginning of the modern shale era, it was like being around when rockets were young and seeing all the new and cool stuff going on.

Makes me feel old nowadays just thinking about it. And then you, retiring rather than taking on that M&A position? Makes me feel even older. I can feel retirement creeping up on me nowadays BJ, I really can.

[rockdoc123]

Those were the days. The beginning of the modern shale era, it was like being around when rockets were young and seeing all the new and cool stuff going on.

there are a few of us like that.

But what I recognized was back in the sixties and seventies innovative change was quite slow, we got to the eighties and it sped up some but in reality a lot of the really important stuff that has changed the cost structure and lowered E&P risk happened post 2000. Yes there was great things that happened with 3D in the nineties and there were a number of good drilling achievements via new BHA's back then as well.
My experience is that we saw two different types of technology changes over the last couple of decades, there were those driven by low commodity prices and those driven by high commodity prices. When prices are relativley low the industry is looking for ways to do things cheaply, this resulted in a lot of the process innovation that has made unconventionals work (zipper fracs, pad multi-laterals etc). When prices aren relatively high the tech/service companies are looking for the "new thing" that will attract business their way by arguing that it makes their clients more competitive and that resulted in a bunch of new seismic acquisition and processing tech (eg. circular surveys, reverse time migration etc).
I always liked to remind the young folks coming in to the business that there was a time not all that long ago when geophysicists hand migrated structural stacked data...and then were astounded at how they could get better results by running boxes and boxes of punched cards through a mainframe that probably had less power than my desktop at home. And now I suspect you could run any of the seismic transforms from back in the nineties on a normal laptop faster than we ever could back then. Someone is always looking to improve things, faster, cheaper, better results...it is in our nature.
Arguing about what drove the changes is a tough bit of business and almost requires root cause analysis similar to what you would run after a serious HSE incident. Was it the new computing tech available that made everything else work...was it the need to drop costs....was it the need to drill horizontal wells in thin units or the necessity to drill responsibly in environmentally sensitive areas? Just too many potential drivers here. But when the industry was given a challenge they always stepped up. Case in point is ultra-deep water drilling or the MRC wells in Saudi.

[wildbourgman]

ROCKMAN wrote:
For instance when I first began drilling horizontal wells offshore 23 years ago geosteering was as much art as science.

Oh horse crap. I was geosteering 27 years ago and it wasn't art. Let me guess, you threw chicken bones and frog gizzard on the rig floor did you, to decide what inclination and azimuth might be after connections? Didn't trust the single or multi-shots? Please

Adam, I think that your looking for an argument where there shouldn't be one. 27 years ago good directional hands were Gods in the oilfield just because of what Rockman says whether that perception was entirely true or not I don't know, but having a good DD, a good Driller on the break and some good mud in the hole made a world of difference. Not every DD could pull it off, there was certainly some art or feel to the craft that can't be taught from a book some would call that an art. Now there were also some guys that always hit the bull's-eye simply because they decided to say they hit the bull's-eye! Now try to re-enter an old field where one of those guys worked and you might have some serious collision issues.

[Cog]

If we are due for a major decline in oil production,why is Saudi Arabia begging everyone to cut production? Seems like a self-solving problem.

[Revi]

Fracking and other techniques only work with higher oil prices. The oil price might not be going to be over $43 next year, and this year it didn't go over the $56 that was predicted by the Etp model. Does that pay for all the fancy stuff that is required to make oil that sells for under the price of WTI? Is it really working? Or is it just some kind of a boom created by easy credit and funny money pumped into the industry by the Fed in a desperate attempt to hold our financial system afloat? The reason the whole thing worked so well was that oil used to give over 100 to one EROEI. Now it's down to less that 20. We are making more of the stuff, but at some point it won't matter. Something will have to give, and no amount of financial shenanigans will cover it up. I think maybe we could just use less of the stuff, but that's not going to happen. We use as much oil just for driving around as China uses for everything, and they have 1.3 billion people. Who is more efficient? We borrow about a trillion a year extra just to hold the system up. How long can we do this?

[asg70]

Is it really working?

These are, of course, leading questions, are they not?

They're also much too generic. What Rockman often says is that the devil's in the details. Not all fracking activities have the same break-even. Also, the break-even can change as more efficient techniques are developed.

Really, the ultimate fallback position of a pessimist is a vague statement that BAU is "unsustainable". And on its face, that is absolutely correct. When it comes down to actually predicting when the end is gonna come, that's when we have a stream of Chicken Little bad calls here.

[ROCKMAN]

Revi - So frac'ng only works at higher oil prices? Then how do you explain the rig count more then doubling? How do you explain a shortage of frac equipment in the Permian Basin? Is it because the shale players just can't wait to lose more money? LOL. There would be shale wells worth frac'ng at $20/bbl. But not as many as at the current price. And certainly not nearly as many at $90/bbl. Of course there would still be a lot of shale wells not worth drilling at $120/bbl. As 70 just pointed out above there is no one price that determines if shale wells (or any other well) are worth drilling. Anyone that post such nonsense is profoundly ignorant of the petroleum industry and their opinions should be avoided at all costs. LOL.

And for Dog's sake stop listening to those idiots posting that EROEI was once 100 or anything close to it. They probably took the energy needed to drill the discovery well and then used the field's total recovery to estimate those ridiculously high EROEI values. What they failed to do is to take into account the 50+ additional wells it took to recover that fields URR.

And while we're on the subject are you aware that the EROEI (whatever that number might be) of wells currently being drilled has increased significant from similarly drilled wells a few years ago? And the reason for the IMPROVEMENT is the lower oil price.

[AdamB]

Those were the days. The beginning of the modern shale era, it was like being around when rockets were young and seeing all the new and cool stuff going on.

there are a few of us like that.

Not as many as their once was.

But when the industry was given a challenge they always stepped up. Case in point is ultra-deep water drilling or the MRC wells in Saudi.

Hallelujah and praise the Lord. Adam's way of saying:

[AdamB]

Fracking and other techniques only work with higher oil prices.

So when they did the first commercial frack job at an oil price of $2.77/bbl, that was because of how HIGH oil prices were? And when they did the next 100,000 hydraulic completions, all with an absolute maximum price of $2.99/bbl, it was because those extra $0.22/bbl made all the difference in the world?

Come on Revi, isn't there a requirement at some point in time for folks to LEARN stuff before spouting off?

Something will have to give, and no amount of financial shenanigans will cover it up. I think maybe we could just use less of the stuff, but that's not going to happen. We use as much oil just for driving around as China uses for everything, and they have 1.3 billion people. Who is more efficient? We borrow about a trillion a year extra just to hold the system up. How long can we do this?

Well, considering the same complaints were being registered a decade ago, and peak oil was the result, as well as lower prices and yet more supply, I'm speculating that whatever happens, it won't be what any of us think.

[AdamB]

The oil & gas industry is using ever higher tech to "squeeze the sponge".

Has been since about 1901. You figure they'll forget how all of a sudden?

Oil is physical - you can see, feel, smell and burn it.

Money is just meaningless (!!) cyber digits these days. Who cares if debt is $$$ Billions, Trillions, Quadrillians, Brazillians, keep the oil & gas flowing boys !!

But you're correct Revi, one day the whole lot will go arse over tit. Hope I'm not around !!!

Gas

Yeah, we heard this one during the last faux peak oil scare. And all we Americans got out of it was..well...YOU know...

[Cog]

Revi wants doom because he is already living the doom dream.

[tita]

So now, we have some knowledge about the behaviour of LTO production. There was no sharp decline because the activity didn't stop... 60% of current US LTO production comes from new wells drilled in the last two years, after the big fall of prices and drilling activity. Each year, the average new well production rate is higher, but also the decline is sharper, so the total production from a well doesn't change much... It's just a faster recovery. Production becomes more sensitive to the drilling activity (less lag-time).

We now see a strong return of LTO activity, and february saw a turning point, production is clearly growing (not only in the Permian, but also in Eagle Ford and Bakken). What amaze me is how fast this is going. Producers don't have the money themselves for this, so this is due to heavy investment to pubcos. They now get refinanced, are able to service their old debt while contracting another one. Everything's fine, no?

Well, this only works when growth is there. Even at the lowest point of prices, activity maintained with investors lending money, because there was still money to invest. It seems that the profit is not part of the equation.