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Permian Oil Reserves Are Grossly Exaggerated

Geology

We are entering a new age of American energy dominance according to Energy Secretary Rick Perry. President Trump reflected that view in comments he made last week that “…we’ve got underneath us more oil than anybody, and nobody knew it until five years ago.”

Trump was referring to tight oil production and today, that means the Permian basin.

Global energy dominance by the United States is somewhere between aspirational and absurd.

So far in 2017, the U.S. has imported more than 9 million barrels of crude oil per day, and net imports have averaged more than 7.3 million barrels per day. How exactly can the world’s biggest importer of oil become the supplier upon which other countries depend?

The recently released BP Statistical Review Of World Energy 2017 places the United States 10th in the global ranking of oil reserve holders between Libya and Nigeria (Figure 1). That’s not bad but it hardly puts the U.S. in the same league as energy-dominant countries like Venezuela, Saudi Arabia, Canada, Iran, Iraq and Russia that have on average 4 times more proved reserves than the U.S.

(Click to enlarge)

Figure 1. The U.S. is the 10th Largest Oil Reserve Holder in the World. Source: BP and Labyrinth Consulting Services, Inc.

Perhaps the President and Secretary Perry have been reading John Mauldin’s recent work of magical realism Shale Oil: Another Layer of US Power. It features a chart which shows that the U.S. is the largest oil reserve holder in the world (Figure 2)

(Click to enlarge)

Figure 2. John Mauldin’s Recoverable Oil Reserves chart. Source: Mauldin Economics and Rystad Energy.

The chart is so wrong that it defies explanation.

Its Rystad Energy source data reveals that Mauldin has misrepresented recoverable resources—all oil regardless of commercial value–as reserves—a specific volume that is commercial at today’s oil prices.

It also seems that Mauldin didn’t show Rystad’s data correctly. Saudi Arabia—and not the U.S.—is the largest holder of recoverable resources according to Rystad (Figure 3).

(Click to enlarge)

Figure 3. Rystad Energy Global Oil Recoverable Resource Estimate. The chart shows Rystad’s 2PCX category: proved reserves plus contingent resources plus risked prospective resources in undiscovered fields. Source: Rystad Energy and Labyrinth Consulting Services, Inc.

Related: Ecuador Abandons The OPEC Deal: Who’s Next?

Rystad’s P1 proved and P2 proved-plus-probable reserve estimates put the U.S. behind Saudi Arabia, Russia and Iran.

There are many other errors in Mauldin’s transcription of Rystad’s data that can be seen by comparing his chart as my Figure 2 with Rystad’s data in my Figure 3. That’s what happens when energy amateurs masquerade as energy experts.

Assessing the Growth Potential of the Permian Basin

So much for U.S. energy dominance today but what about the growth potential of the Permian basin?

Pioneer Natural Resources CEO Scott Sheffield claims that output may exceed 160 billion barrels of oil. Even credible sources like Wood Mackenzie believe that Permian Wolfcamp growth alone will add 3 million barrels per day by 2024.

The EIA, however, estimated that 2015 Permian tight oil reserves were only 782 million barrels (Table 1). That seems low and is considerably less than the 5 billion and 4.3 billion barrels attributed to the Bakken and Eagle Ford plays, respectively.

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Table 1. EIA 2015 Tight Oil Reserves. Source: EIA U.S. Crude Oil and Natural Gas Proved Reserves, 2014 https://www.eia.gov/naturalgas/crudeoilreserves/

I estimate that there are approximately 3.7 billion barrels of proved Permian tight oil reserves using 2016 10-K SEC filings for leading operators in the plays (Table 2).

(Click to enlarge)

Table 2. Estimated 2016 Permian Basin Tight Oil Play Reserves. Source: Company 10-K Filings, Drilling Info and Labyrinth Consulting Services, Inc.

All the companies in Table 2 differentiated Permian reserves from other company reserves. Those companies accounted for 47% of all tight oil production in 2016. I used that as a scaling factor to estimate the contribution of companies such as Anadarko, Apache, EOG and OXY that did not separate Permian from other company reserves in their 10-K filings.

The estimate is grounded on a reliable base of 1.7 billion barrels from company filings. The assumption that unknown company reserves will follow 2016 production ratios is reasonable but uncertain.

I imagine that an estimate of only 3.7 billion barrels may surprise many who buy into the vision of American energy dominance. Others may accept the estimate but argue that Permian plays have significant growth potential that the Bakken and Eagle Ford do not.

Concho and Pioneer included tables in their 2016 10-Ks that projected future production from proven undeveloped (PUD) reserves. That data indicates that the two leading producers in the Permian tight oil plays anticipate PUD production to peak in 2019 (Figure 4).

(Click to enlarge)

Figure 4. Concho & Pioneer Proved Undeveloped Future Production Expected to Peak in 2019. Source: Company 10-K Filings and Labyrinth Consulting Services, Inc.

Concho’s and Pioneer’s combined peak 2019 PUD production volumes are approximately 25% of their combined 2016 daily production from the Permian basin. That means that the addition of future PUD production may only offset legacy production decline rates.

Anticipated PUD volumes are already included as proved reserves so however we view this data, it does not affect the implied reserves for the Permian basin. 10-K reserve and PUD production forecasts are based on 2016 SEC oil and gas prices. Higher prices would mean higher reserves and PUD production although few now anticipate substantial price changes over the period covered by Concho’s and Pioneer’s estimates.

Tank Theory

Permian tight oil reserves implied by this study are less than accepted estimates for the Bakken and Eagle Ford plays. Permian production, however, has already reached peak Eagle Ford levels and is still increasing (Figure 5).

(Click to enlarge)

Figure 5. Permian Tight Oil Production Has Reached The Eagle Ford Peak & Is Still Increasing. Source: Drilling Info and Labyrinth Consulting Services, Inc.
To many, this implies that Permian production will continue to increase and will eventually eclipse output from the older tight oil plays. That may be true but, without additional reserves from new plays or deeper layers, it may only reflect rate acceleration followed by steep decline once peak production is reached. Concho’s and Pioneer’s future production forecast suggests that peak production may occur sooner than later.
This study represents one scenario that may provide context for the claims and expectations about future production potential for the Permian basin.  Aside from weak growth in the offshore Gulf of Mexico, or some return to growth in the Bakken and Eagle Ford plays, it is the only current basis for the crude oil portion of emerging American energy dominance.

For the U.S. to move into the top tier of oil producing countries, reserves must at least double from accepted estimates by BP, EIA and other credible organizations (Figure 6).

(Click to enlarge)
Figure 6. The U.S. Must Double Reserves To Become an Oil-Dominant Producer Even Doubling or Tripling Permian Reserves Not Nearly Enough. Source: BP, EIA and Labyrinth Consulting Services, Inc.
In some upside scenario in which Permian reserves of 3.7 billion barrels somehow double or triple, that still will not be nearly enough for the U.S. to become energy dominant in oil.
Engineers commonly think of reserves as a tank—you can drain the tank with the best technology at very high rates, and perhaps make some money along the way, but ultimate production is limited by the size of the tank.
I have presented an estimate of tank size using as a basis data from the companies that know most about the plays. If it is even close to correct, American energy dominance should be recognized as just another expression of alternative facts


18 Comments on "Permian Oil Reserves Are Grossly Exaggerated"

  1. Kenz300 on Thu, 20th Jul 2017 10:53 am 

    For investments to be profitable they need to be forward looking.

    Fossil fuels are the past. Wind and solar are the future.

  2. Bob on Thu, 20th Jul 2017 12:01 pm 

    Nothing like gross fantasy of the stupid stuff. Meanwhile, even Rick Perry seems to like wind these days. Funny how the world turns (or not). Hopefully Washington will continue in complete paralysis until the next election and beyond. That way the local groups and states can make some progress against the forces of darkness.

  3. rockman on Fri, 21st Jul 2017 12:09 am 

    And once again the obsession with the amount of reserves…recoverable or otherwise. This story would have been better placed on the PR website instead of the PO website. Given the ability of small US independent operators to squeeze ever bbl of oil out of a reservoir we might see more oil recovered from the US going forward then any other country. But it will take many decades with our wells averaging 15 bopd…or less.

    But none of that is relevant with respect to the total rate of production…which is the basis of the PO dynamic.

  4. rockman on Fri, 21st Jul 2017 12:38 am 

    Speaking of which I should have included some production stats. From 2010, thanks to high oil prices, thru 2016 the PB oil production doubled to 1.54 million bopd. Truly impressive but adding almost 800k bopd falls rather short of the 6+ million bopd increase by OPEC + Russia over the same period. Perhaps the new PB shale plays will increase production in the next few years. But just like all fracture production those new wells with suffer the same high initial decline rates. Thus to maintain any increase with require constantly drill more wells.

  5. Cloggie on Fri, 21st Jul 2017 2:37 am 

    I’m glad Trump is president, because it avoids war with Russia, but his energy policies suck big time.

    Anybody who in 2017 worries about fossil fuel depletion should get his head checked (yes I mean you, Richard H.)

    http://www.dailymail.co.uk/news/article-2593032/Coal-fuel-UK-centuries-Vast-deposits-totalling-23trillion-tonnes-North-Sea.html

    Under the North Sea alone there are up to 23 trillion tons of coal stored. Compare that to the 0.135 trillion ton of oil cumulatively consumed in world history so far.

    https://deepresource.wordpress.com/2015/04/07/fracking-is-for-amateurs/

    The UK government to its credit refused permission to get this sludge exploited with underground coal gasification methods:

    https://deepresource.wordpress.com/2017/01/02/uk-government-rejects-ucg/

    …and is going full speed ahead with huge offshore wind parks, as they should. But the fossil backup potential remains in place of course.

  6. Apneaman on Fri, 21st Jul 2017 8:44 am 

    clog how come you keep posting the same daily mail coal gasification article from March 2014?

    Is that from the Joe Gobbles school of propaganda where if you repeat it enough times people will come to believe it?

    Apparently it’s only worked on you.

    Have they broken ground on any projects since that article first appeared way back in 2014?

    Keep telling yourself old decrepit senile dutch shit stain.

  7. Cloggie on Fri, 21st Jul 2017 8:51 am 

    clog how come you keep posting the same daily mail coal gasification article from March 2014?

    TalmudTurk, I keep posting that article every time some uninformed individual appears claiming that we are about to run out of fossil fuel. I can keep posting that article for as long as these 23 trillion ton of coal remain under the North Sea, hopefully for ever.

    Have they broken ground on any projects since that article first appeared way back in 2014?

    As I wrote a few lines above, the UK government has rejected requests from the fossil fuel world to begin to exploit these gigantic coal reserves and give preference to renewable energy, as they should.

    https://deepresource.wordpress.com/2017/01/02/uk-government-rejects-ucg/

    Understood, stinking kike?

  8. Plantagenet on Fri, 21st Jul 2017 11:10 am 

    @Cloggie

    Yes there is lots of coal.

    No, we don’t want to burn it all.

    Do I really have to explain why?

    Cheers!

  9. Apneaman on Fri, 21st Jul 2017 12:38 pm 

    Climate impacts of super-giant oilfields go up with age, Stanford scientists say

    Neglecting the changing energy requirements of aging oilfields can lead to an underestimate of their true climate impacts.

    “Even oilfields aren’t immune to the ravages of time: A new study finds that as some of the world’s largest oilfields age, the energy required to keep them operating can rise dramatically even as the amount of petroleum they produce drops.”

    ““This bottom-up type of analysis hasn’t been done before because it’s difficult,” Masnadi said. “For this study, we needed over 50 different pieces of data for each oilfield for each year. When you’re trying to analyze an oilfield across decades, that’s a lot of data.”

    “Diminishing returns

    In the end, the pair ended up with data going back decades for 25 globally important super-giant oilfields. Applying OPGEE to this group, the scientists found that for many of the super-giant oilfields, oil production declined with time as the wells were depleted, but the energy expended to capture the remaining oil went up.”

    ““The more oil that is extracted, the more difficult it becomes to extract the oil that remains, so companies have to resort to increasingly energy-intensive recovery methods, such as water, steam or gas flooding,” Masnadi said.

    Making matters worse, oil recovered through such methods has to undergo more intense surface processing to filter out the excess water and gas. In the latter case, this can result in an excess of carbon dioxide and methane gas that is typically eliminated through burning – a process called “flaring” – or venting into the atmosphere.”

    http://news.stanford.edu/press-releases/2017/07/17/climate-impacts-super-giant-oilfields-go-age/

    The study is pay-walled except for a paragraph and 5 graphs.

    https://www.nature.com/nclimate/journal/vaop/ncurrent/full/nclimate3347.html

  10. Apneaman on Fri, 21st Jul 2017 12:43 pm 

    clog why did you call me a “stinking kike”?

    I’m not one of your overlords who rules your life.

    clog, I can always tell when your Depends Undergarment is full – you get a little testy.

    Go ahead and change it – freshen up – we’ll be here when you get back old timer.

  11. Anonymous on Fri, 21st Jul 2017 1:07 pm 

    Definitional kvetches about reserves versus resources are so uninteresting.

    Bottom line is US LTO had MASSIVE UPSIDE. Of global significance. And the peakers totally missed it! And they missed Saudis pumping fine. Missed GOM growing. Missed Iraq growing. Missed the rapid post sanction recovery of Iran. Just basically hosed everything. And then shut The Oil Drum. And ran off like little cowards.

  12. bobinget on Fri, 21st Jul 2017 1:57 pm 

    July 21, 2017 11:44 AM EDT
    ROSNEFT OIL CO PJSC-0.45
    AT CLOSING, JULY 21ST
    317.40 RUB
    “We may be about to see the first sovereign producer to unequivocally fail.”The oil producer in question is Venezuela, and that assessment comes courtesy of Helima Croft, who is global head of commodity strategy at RBC Capital Markets and formerly worked with both the Council on Foreign Relations and the CIA.In a global oil market mired in excess inventory and low expectations, Venezuela is the most tangible of wildcards. Its tragic and volatile mix of a failing, oil-dependent economy, political gridlock and simmering unrest is well known at this point.But things are building to a head, partly due to the relentless logic of the bond market and partly due to the more proprietary logic of U.S. foreign policy.Venezuelan bonds, which haven’t looked rock-solid for a few years, crashed this week as embattled President Nicola Maduro renewed calls to rewrite the country’s constitution, which would effectively disenfranchise the millions of Venezuelans who oppose him and entrench his regime. The U.S. has warned it may impose much tougher sanctions if Maduro goes ahead with his plan.
    Crisis Prices
    Venezuelan bonds have crashed to distressed levels, with five-year debt yielding 36 percent

    Source: Bloomberg
    Whether Maduro will, and what those sanctions might be, are the big unknowns here. But there’s an awful confluence of factors that could quite easily push this toward a debacle by the end of the year.Venezuela’s economy is in free-fall: By the end of this year, it will have shrunk by 32 percent compared to where it was at the end of 2013, according to International Monetary Fund forecasts. Also by the end of this year, the government is on the hook to pay back more than $5 billion in debt — including bonds owed by the state-owned oil champion, Petróleos de Venezuela, S.A., or PdVSA — plus billions more in interest. As of this week, Venezuela’s international reserves stood at less than $10 billion.ESTIMATED DECLINE IN VENEZUELA’S ECONOMY, 2014-201732%Meanwhile, mismanagement, a lack of investment and re-nationalization of foreign oil companies’ interests have caused Venezuela’s oil production to slump from around 3.3 million barrels a day a decade ago to about 2 million now. Even allowing for the fact that domestic consumption has dwindled along with GDP, Venezuela’s surplus of oil available for earning export dollars has shrunk considerably.Compounding this is the fact that the country must devote a lot of its output to paying off loans from China and Russia, further reducing the actual amount it can use to generate cash. Francisco Monaldi, a fellow in Latin American energy policy at Rice University’s Baker Institute for Public Policy, estimates that could be as little as 800,000 barrels a day.
    Emptying The Tank
    Venezuela’s surplus of oil available for export is at its lowest level since 1989 — and even that overstates the true amount significantly

    Source: BP Statistical Review of World Energy
    So even without the threat of U.S. sanctions, Venezuela has looked like a candidate for economic collapse and sovereign default anyway. In that situation, Maduro may even welcome the chance to blame a default on pressure from the Yanquis (though he would be gambling on continued military support).From the U.S. perspective, this is an issue fraught with risk and not a little emotional baggage. One set of sanctions reportedly under consideration would involve banning imports of Venezuelan crude to the U.S., currently around 600,000-700,000 barrels a day.Further isolation of Venezuela, or a sovereign default, could easily push the country further toward the embrace of Moscow. Rosneft Oil Co. PJSC, Russia’s national oil company, loaned money to PdVSA last year collateralized with a 49.9 percent stake in Citgo Petroleum Corp., the U.S. refining and marketing business owned by the Venezuelan oil company. Rosneft is now said to be negotiating swapping that collateral for stakes in Venezuelan reserves and a fuel-supply agreement instead, according to a report from Reuters on Thursday.Swapping valuable downstream assets on U.S. soil for reserves under Venezuelan soil wouldn’t look terribly rational from a purely economic point of view. So if this were to happen, the rationales could range from an expectation on Rosneft’s part that U.S. sanctions against Russia, and national security considerations, might stymie any chance of actually taking possession of a Citgo stake to a desire to further cement Russian influence in Venezuela on the ground.For the U.S., having Moscow set up camp in Caracas would appear to run counter to that whole Monroe Doctrine thing. Moreover, blocking Venezuela’s relatively heavy oil would squeeze the margins of U.S. refiners set up to process it and likely lead to higher gasoline prices — never a good look for any U.S. president.Bloomberg News has reported the Trump administration may be leaning toward sanctioning individuals in the Venezuelan government instead of the nuclear option of an outright oil-import ban.But Venezuela has a tangled history with the U.S., and both Maduro and his predecessor, Hugo Chavez, have made a point of trying to antagonize their superpower neighbor and make it look weak. The latter, especially, tends not to sit too well with the current occupant of the White House.RBC’s Croft sees some parallels between Venezuela and Iran, another U.S. adversary that rarely misses an opportunity to tweak Washington. Already, there are questions over how long the nuclear agreement with that country, established by President Barack Obama, will last under the current administration.The difference, of course, is that Venezuela isn’t built to withstand the sort of broad sanctions America used relatively successfully against Iran. Caracas needs a far higher oil price to pay for imports than Tehran does, according to a recent analysis from the Council on Foreign relations:
    Breakeven Bad
    Venezuela’s falling oil production exacerbates the damage wrought on its economy by low prices, while Iran is more resilient

    Source: Council on Foreign Relations, BP
    Note: External breakeven oil prices are the levels required for these countries to cover their import bill.
    Ostensibly, the U.S. has good reasons not to apply massive pressure to an already weakened and volatile Venezuela. Equally, President Donald Trump has indicated a willingness both to tap the Strategic Petroleum Reserve and a desire to demonstrate America’s freedom of operation in all things energy related.Above all, from Qatar to NATO to U.S.-Russia relations, there are now huge question marks over how far America’s commitment to the current international order extends. An oil market seemingly inoculated to geopolitics risks missing the warning signs showing up everywhere, from the palace intrigues of Saudi Arabia to the fractious streets of Venezuela.For three years, oil watchers have been waiting for a chaotic wave of bankruptcies in places like Texas and South Dakota to jolt the market. They’ve been looking in the wrong place.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.To contact the author of this story:
    Liam Denning in New York at ldenning1@bloomberg.netTo contact the editor responsible for this story:
    Mark Gongloff at mgongloff1@bloomberg.net

  13. bobinget on Fri, 21st Jul 2017 2:09 pm 

    In this observers notebook, August 2017 may mark the end of Venezuelan exports to anyone in the world with exception of China and Russia.

  14. bobinget on Fri, 21st Jul 2017 3:19 pm 

    Musings from an ‘old doodle bugger’.

    Total U.S. rig count down 2.

    Directional +3

    Vertical -4

    Horizontal -1

    And looking at totals, more Directional wells are currently being drilled than Verticals. And I suspect that the additional three Directional wells will potentially be more significant that the loss of five Vertical and Horizontal wells. To paraphrase George Orwell: “All wells are equal, but some wells are more equal than others”.

    Heck, when I was young …. We drilled Vertical wells; those Cable-Tool rigs (thanks to gravity) drilled nice vertical holes (very slowly, but you got great cuttings and you knew exactly where they came from).

    Then along came Rotary Rigs; with that Hughes fellow getting rich making the drill bits …. We wanted to drill Vertical wells, but that darn bit always wanted climb up dip …. We ran directional surveys to locate the bottom hole location.And you needed a mud-logger to get the cuttings and tell (guess) where they came from.

    There were times when the Rotary Rig hole would meander – really meander, or even corkscrew …. The drilled depth (measured depth) might significantly exceed the actual true vertical depth.

    As an aside:The story that I was told was that the mechanics for drilling the first directional well was devised by a wildcatter in Texas. However, he did not get a patent; instead he got a prison cell. He secretly developed the technique in order to steal oil. He would pick up (dry) acreage next to production and whipstock a well from his leased acreage across the lease boundary in order to tap into the adjoining field.

    Year by year, more technology; bringing with it more challenges that beget more technology.

    And here we are today, placing that bit exactly where we want it. That is a story that Black Blade could tell us …. As it still boggles this old mind. I am still dealing with the shock that we no longer need to look for traps/reservoirs …. We just drill the darn source rocks.

    Glad I’m retired; they just don’t need my sorry old azz anymore.

    ODB

  15. RD on Fri, 21st Jul 2017 7:06 pm 

    Bob definitely different times..now you go 2 miles sideways and do 50 fracs to get 500mbo. Then you do it over and over and over…like a ford assembly line.

  16. rockman on Fri, 21st Jul 2017 10:58 pm 

    “I am still dealing with the shock that we no longer need to look for traps/reservoirs …. We just drill the darn source rocks.” Not really a question of no “need” to look for conventional traps…just a lack of viable targets. Which is why the pubcos jumped on the shales so hard and fast once oil prices increased: they had no choice if they wanted to meet the primary objective…adding booked proven reserves. Which is THE basis on how Wall Street values pubcos. Folks can piss and moan about the economics of such drilling but the pubcos were very successful in that goal:

    Prior to the boom this century the total value of the stocks (the market “cap”) of all the petroleum sector in 2003 was $2 TRILLION. It peaked in 2014 at $8.4 TRILLION. And while stock prices took a big hit when oil prices fell the current market cap is still $4.5 TRILLION…more then twice what it was 14 years ago.

    https://markets.ft.com/data/sectors/Oil-and-Gas

    Which isn’t surprising given the current oil price is still 25% higher then the inflation adjusted price in 2003.

    https://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp

    Folks can belittle the shale drilling efforts by the publicly traded oil companies all they want but the fact remains: at the current oil price those companies, as a whole, are worth more today then before the shale boom. And that shows those managements succeeded in their primary objective.

  17. shortonoil on Sat, 22nd Jul 2017 8:09 am 

    Interesting how the author writes a nice long article on reserves in the Permian and never mentions the price? It is sort of like writing a nice long article on horse shoes, and never mentioning horses. Reserves are a matter of the price. At $20 for the Permian they are probably somewhere in the vicinity of 50 barrels. But the problem with barrel counting is much like the hammer and nail problem. When your only tool is a hammer every problem looks like a nail!

    http://www.thehillsgroup.org/depletion2_022.htm

  18. boat on Sat, 22nd Jul 2017 8:55 am 

    “At $20 for the Permian they are probably somewhere in the vicinity of 50 barrels”

    short, your an idiot.

    Your promise of world collaspe is 1 yr & 5 months away. No sign of demand dropping any time soon. Miles driven continues to grow. Your hills group still selling doom to the faithful? lol

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