The break-even price for Permian basin tight oil plays is about $61 per barrel (Table 1). That puts Permian plays among the lowest cost significant supply sources in the world. Although that is good news for U.S. tight oil plays, there is a dark side to the story.
Just because tight oil is low-cost compared to other expensive sources of oil doesn’t mean that it is cheap. Nor is it commercial at current oil prices.
The disturbing truth is that the real cost of oil production has doubled since the 1990s. That is very bad news for the global economy. Those who believe that technology is always the answer need to think about that.
Through that lens, Permian basin tight oil plays are the best of a bad, expensive lot.
Table 1. Weighted average break-even price for top operators in Permian basin tight oil plays. Source: Drilling Info, company documents and Labyrinth Consulting Services, Inc.
Not Shale Plays and Not New
The tight oil plays in the Permian basin are not shale plays. Spraberry and Bone Spring reservoirs are mostly sandstones and Wolfcamp reservoirs are mostly limestones.
Nor are they new plays. All have produced oil and gas for decades from vertically drilled wells. Reservoirs are commonly laterally discontinuous and, therefore, had poor well performance. Horizontal drilling and hydraulic fracturing have largely addressed those issues at drilling and completion costs of $6-7 million per well.
Permian Basin Overview
The Permian basin is among the most mature producing areas in the world. It has produced more than 31.5 billion barrels of oil and 112 trillion cubic feet of gas since 1921. Current production is approximately 1.9 million barrels of oil (mmbo) and 6.6 billion cubic feet of gas (bcfg) per day.
The Permian basin is located in west Texas and southeastern New Mexico (Figure 1). It is sub-divided into the Midland basin on the east and the Delaware basin on the west, separated by the Central Basin platform.
Figure 1. Permian basin location and tight oil play map. Source: Dutton (2004), Drilling Info and Labyrinth Consulting Services, Inc.
The first commercial discovery in the Permian basin was made in 1921 at the Westbrook Field (Figure 1). It was followed in 1926 with the 2 billion barrel (bbo) Yates Field (San Andres & Grayburg reservoirs), the 2.1 bbo Wasson Field (Glorieta and Leonard reservoirs) in 1936, and the 1.5 bbo Slaughter Field (Abo and Clear Fork reservoirs) also in 1936. Reservoirs were chiefly high-quality limestones although the Wasson and Slaughter fields also produced from mixed sandstones and limestones that are equivalent to reservoirs in today’s Bone Springs tight oil play.
The Spraberry Field (1949) was the first discovery whose primary reservoir was among the present tight oil plays (Figure 2). Its ultimate production before horizontal drilling was estimated at 932 mmbo. The field had low recovery efficiency of 8-10 percent and was only marginally commercial prior to the recent phase of tight oil drilling.
Tight Oil Plays
I evaluated the three main tight oil plays. The Trend Area-Spraberry play is located mostly in the Midland basin while the Wolfcamp and Bone Spring plays are located mainly in the Delaware basin (Figures 1 and 2).
Figure 2. Permian basin stratigraphic column showing principal tight oil plays. Source: Dutton (2004), Drilling Info and Labyrinth Consulting Services, Inc.
The Wolfcamp play has produced the most oil and gas—205 million barrels of oil equivalent (mmBOE)*—and has the largest number of producing wells, followed by the Trend Area-Spraberry and Bone Spring plays (Table 2). All of the plays produce considerable associated gas and only the Trend Area-Spraberry is technically an oil play. The Wolfcamp and Bone Spring are classified as gas-condensate plays based on liquid yield.
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Table 2. Permian horizontal tight oil play cumulative production, number of producing wells, liquid yield and oil classification. BO=barrels of oil; MCF=thousands of cubic feet of gas; BOE=barrels of oil equivalent using a 15:1 conversion from mcf to BOE; BPM=barrels of liquid per million cubic feet of gas. Source: Drilling Info and Labyrinth Consulting Services, Inc.
The Bone Spring play is the most commercially attractive of the tight oil plays with an estimated $49 per barrel of oil equivalent (BOE) break-even price for the top 5 operators. The Spraberry play has a break-even price of $55 per BOE for the top 5 operators but considerably higher well density and, therefore, lower long-term potential. Results from the Wolfcamp play are mixed with an average break-even price of $75 per BOE for the top 5 operators but $61 per BOE excluding one operator with poorer well performance.
Trend Area-Spraberry Play
I evaluated the 5 key operators in the Trend Area-Spraberry play with the greatest cumulative production and number of producing wells: Pioneer (PXD), Laredo (LPI), Diamondback (FANG), Apache (APA) and Energen (EGN) (Table 3).
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Table 3. Trend Area-Spraberry play key operators’ cumulative production, liquid yield and number of producing wells. Source: Drilling Info and Labyrinth Consulting Services, Inc.
I did standard rate vs. time decline-curve analysis for those operators. The matches with production history were generally good as shown in the examples in Figure 3.
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Figure 3. Trend Area-Spraberry play examples of decline-curve analysis. Source: Drilling Info and Labyrinth Consulting Services, Inc.
Much of the gas production in the Permian basin is irregular because of periodic flaring so matching gas production history was sometimes difficult. Oil reporting in Texas is by lease rather than by well so there are periodic upward excursions of oil production as new wells on the same lease come on line. For these reasons, I feel that the decline-curve analysis results are probably optimistic.
The average Trend Area-Spraberry well EUR (estimated ultimate recovery) for the 5 operators is approximately 265,000 BOE using an economic value-based conversion of natural gas-to-barrels of oil equivalent of 15-to-1 (Table 4). The break-even oil price for that average EUR is approximately $55 per BOE. Laredo has the best average well performance with a break-even oil price of about $43 per BOE and Apache has the poorest well performance and highest break-even price of almost $92 per BOE.
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Table 4. EUR (estimated ultimate production) from decline-curve analysis and break-even oil prices for key operators in the Trend Area-Spraberry play. Source: Drilling Info and Labyrinth Consulting Services, Inc.
Economic assumptions are shown in Table 5.
Table 5. Economic assumptions for Permian basin plays. Source: Company documents and Labyrinth Consulting Services, Inc.
Wolfcamp Play
The top 5 producers in the Wolfcamp play are Cimarex (XEC), Anadarko (APC), EOG, Devon (DVN) and EP (EPE) (Table 6).
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Table 6. Wolfcamp play key operators’ cumulative production, liquid yield and number of producing wells. Source: Drilling Info and Labyrinth Consulting Services, Inc.
Examples of decline-curve analysis for this play are shown in Figure 4.
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Figure 4. Wolfcamp play examples of decline-curve analysis. Source: Drilling Info and Labyrinth Consulting Services, Inc.
The average Wolfcamp well EUR for the 5 operators is approximately 228,000 BOE (Table 7). The break-even oil price for that average EUR is approximately $75 per BOE. That is because of poor well performance by Devon and EP whose break-even oil prices are more than $100 per BOE.
By eliminating EP from the calculations, the average EUR for the play is approximately 303,000 BOE and the associated break-even price is about $61 per BOE.
Anadarko has the best average well performance with a break-even oil price of about $45 per BOE and EP has the poorest well performance and highest break-even price of almost $177 per BOE.
Table 7. EUR (estimated ultimate production) from decline-curve analysis and break-even oil prices for key operators in the Wolfcamp play. Source: Drilling Info and Labyrinth Consulting Services, Inc.
Economic assumptions are shown above in Table 4.
Bone Spring Play
The top 5 producers in the Bone Spring play are Cabot (COG), Devon (DVN), Cimarex (XEC), Energen (EGN) and Mewbourne (Table 8).
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Table 8. Bone Spring play key operators’ cumulative production, liquid yield and number of producing wells. Source: Drilling Info and Labyrinth Consulting Services, Inc.
Examples of decline-curve analysis for this play are shown in Figure 5.
Figure 5. Bone Spring play examples of decline-curve analysis. Source: Drilling Info and Labyrinth Consulting Services, Inc.
The average Bone Spring well EUR for the 5 operators is approximately 294,000 BOE (Table 9). The break-even oil price for that average EUR is approximately $49 per BOE.
Cimarex has the best average well performance with a break-even oil price of about $42 per BOE and Mewbourne has the poorest well performance and highest break-even price of almost $78 per BOE.
Table 9. EUR (estimated ultimate production) from decline-curve analysis and break-even oil prices for key operators in the Bone Spring play. Source: Drilling Info and Labyrinth Consulting Services, Inc.
Economic assumptions are shown above in Table 4.
Commercial Play Areas
I made EUR maps for the 3 Permian basin tight oil plays using all wells with 12 months of production. I then used the average play EUR to determine commercial cutoffs for $45 and $60 per BOE oil prices using the economic assumptions in Table 4.
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Figure 6. Trend Area-Spraberry commercial area maps at $45 and $60 per barrel of oil equivalent prices. Source: Drilling Info and Labyrinth Consulting Services, Inc.
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Figure 7. Wolfcamp commercial area maps at $45 and $60 per barrel of oil equivalent prices. Source: Drilling Info and Labyrinth Consulting Services, Inc.
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Figure 8. Bone Spring commercial area maps at $45 and $60 per barrel of oil equivalent prices. Source: Drilling Info and Labyrinth Consulting Services, Inc.
Using the calculated EUR-cutoffs for the two oil-price cases, 26 percent of Permian tight oil place well break even at $45 per BOE, and 40 percent break even at $60 per BOE price (Table 10).
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Table 10. Number and percent of commercial wells for the Trend Area-Spraberry, Wolfcamp and Bone Spring tight oil plays at $45 and $60 per BOE oil prices. Source: Drilling Info and Labyrinth Consulting Services, Inc.
Current well density was calculated by measuring the mapped area of the $60 commercial area and dividing by the number of producing wells within those polygons. The Wolfcamp has the lowest well density of 1,269 acres per well and, therefore, the most development potential (Table 11). The Bone Spring also has considerable infill potential with 725 acres per well.
Table 11. Current well density for the $60 commercial areas of the Trend Area-Spraberry, Wolfcamp and Bone Spring plays. Source: Drilling Info and Labyrinth Consulting Services, Inc.
The Trend Area-Spraberry has additional development potential but a comparatively lower current well density of 281 acres per well because there are more than 6,000 vertical producing wells within the $60 commercial area defined by horizontal well EUR. These vertical wells have produced 203 MMBOE to date, approximately equal to the 206 MMBOE for all horizontal wells both inside and outside of the commercial area.
Operators routinely stress the large number of potential infill locations in their investor presentations and press releases based on very close well spacing of, for example, 40 acres per well. Although well density is important for determining play life, I doubt that well spacing of much less than 100 acres per well is economically attractive because of potential interference between wells that are drilled horizontally and hydraulically fractured.
Investors should understand that more wells is not better. Superior economics result from drilling the fewest number of wells necessary to optimize production.
Operators also stress the potential for additional potential reservoirs within the same play reservoir. That is undoubtedly true but those are not yet discovered and are, therefore, resources and not reserves of any category based on the SPE Petroleum Resources Management System. If they are so attractive, why haven’t they been drilled and produced already?
Love In The Time of Cholera
Tight oil and shale gas plays emerged at a time of worry and angst about impending resource scarcity and the decline of America as a world energy power. For some, these plays renewed faith in the ingenuity and technology that made America great. Now, there are even widespread delusions about becoming energy-independent and using new-found resources for global political and economic advantage.
Tight oil was a story of bittersweet success because the plays were commercial only at very high oil prices. When prices dropped in 2014, many expected that these plays would collapse. Instead, producers have taken advantage of the lowest oil-field service prices in decades and the plays have emerged as low-cost leaders among important suppliers of the world’s crude oil.
Low oil-field service costs won’t last and neither will the low break-even prices shown in this post. Still, tight oil plays and two of the Permian basin plays in particular, will break-even at lower prices than almost all OPEC producers once fiscal costs are included (Figure 9). The cost to balance a fiscal budget is the equivalent of corporate overhead for a country whose principal source of income is oil.
But just because tight oil is low cost compared to other expensive sources of oil, it doesn’t mean that it is cheap. Nor is it commercial at current oil prices.
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Figure 9. Projected 2016 Break-Even Oil Prices for OPEC & Unconventional Plays. OPEC prices are IMF estimates that include revenue to balance fiscal budgets. Source: IMF, Rystad Energy, Suncor, Cenovus, COS & Labyrinth Consulting Services, Inc.
Since 2009, oil has never been more expensive. The average price in real May 2016 dollars is $83 per barrel, the highest in history (Figure 10). This average includes the year of low oil prices in 2009 after The Financial Crisis and the two years since the mid-2014 oil-price collapse.
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Figure 10. Oil Prices in May 2016 Dollars, 1950-2016. Source: EIA, Federal Reserve Bank of St. Louis & Labyrinth Consulting Services, Inc.
Even during the period of the oil shocks from 1974 to 1986, real oil prices were far lower, averaging $68 per barrel. Today’s price of $48 per barrel remains higher than the average real price of $45 since 1950.
Those who believe that Peak Oil is a failed observation do not understand that it was never about running out of oil. Peak Oil was always about running out of cheap oil. That is an indisputable fact.
The Bone Spring and Trend Area-Spraberry plays of the Permian basin are cheaper than any major world source of oil except Kuwait. They are the best of a bad lot.
Gabriel García Márquez’s masterpiece Love In The Time of Cólera is a story of forbidden love. Cholera is, of course, a disease that comes from infected water supplies and can result in prostration from the loss of fluids (Cólera more commonly means anger or rage in Spanish).
Like a disease, the high cost of energy and debt, its corollary, have drained the life from our global economy over the last several decades. The economic benefits anticipated from lower oil prices after the price collapse did not materialize because prices never stayed low enough for long enough.
The period of high oil prices from 1974 to 1986 created great economic distress for most of the world including the United States. Those who want to make America great again recall the economic prosperity of 1987 to 1999 (Reagan-Bush-Clinton years) when real oil prices averaged only $33 per barrel.
The economic problems that lead up to the 2008 Financial Collapse included high oil prices from 2000 through 2008. The massive new debt that was incurred to remedy that crisis as well as even higher oil prices have thwarted a recovery.
Since the 2014 price collapse, monthly oil prices were less than $33 per barrel for only two months in January and February of this year.
Many talk hopefully about renewed drilling now that oil prices are near $50 per barrel. I doubt that prices will stay at $50 but will, instead, follow the 2015-2016 pattern of cyclicity. Prices should trend higher but I don’t expect a major shift to new drilling or a return to the peak production rates of 2014 and early 2015. The industry is wounded and will not heal for many years if ever.
Tight oil may have bought us a few years of abundance but the resulting over-supply, debt and prolonged period of prices below the cost of production have exacted a terrible cost. Under-investment, a damaged service sector, weak oil company balance sheets and a decimated work force practically ensure cripplingly higher prices a few years in the future.
The calamity of our time of cholera is that we cannot escape ever-higher costs of oil production.
*I use a 15 cubic feet per barrel equivalent conversion based on the price of natural gas and crude oil. The conversion based on energy content is approximately 6:1 and is used by most producers to calculate BOE EUR. The EUR reported by producers are, therefore, higher than those shown in this study especially for plays and wells with high gas-oil ratios.
By Art Berman for Oilprice.com
makati1 on Fri, 24th Jun 2016 10:21 am
Let it rise and then the collapse will be permanent.
PracticalMaina on Fri, 24th Jun 2016 10:42 am
If we do see much higher prices, hopefully it would incentivize the government and people enough to do this.
http://qz.com/714381/siemens-says-it-can-power-unlimited-range-electric-trucks-using-a-150-year-old-technology/
I do not think they can raise prices beyond a certain point, we are a service economy, and when gas hits 4 bucks and takes away vacations and motoring times, the service industry quickly contracts removing more demand and economic activity. Now we are starting to get real alternatives. The new plug in Prius gets about 10% of its juice from a built in solar panel, and the battery has progressed a lot as well, incremental improvements.
http://electrek.co/2016/06/20/toyota-prius-plug-prime-solar-panel/
PracticalMaina on Fri, 24th Jun 2016 10:48 am
2017 and not gonna be available in the states right off the bat, figures…
rockman on Fri, 24th Jun 2016 10:49 am
Amazing: all on their own they figured out how oil the oil patch economics have functioned for more then 100 years. LOL Of course oil prices will spike up again. We all knew that in 1986 after that price bust. What we couldn’t predict: it was going to take almost 25 years. But the oil patch knew it would happen eventually.
shortonoil on Fri, 24th Jun 2016 12:13 pm
When the economy runs out of money prices don’t rise, they go down. As we have been saying for the last two years the world is now in a deflationary spiral which can not be reversed. Simply put, It is a matter of the energy that is available to power the economy, not the volume of oil. The oil has to be burnt to supply the energy. A slowing economy means less oil gets burned, and that means less economy, and that means that the end user has less money to buy oil. The price goes down.
The economy has been running on a debt binge for the last few years. The petroleum industry has piled up over $2.5 trillion of it. Now they can’t pay it back. With the bottle running dry – it’s hangover time!
http://www.thehillsgroup.org/
Davy on Fri, 24th Jun 2016 12:37 pm
We know the economy is tanking especially now that the EU is coming undone. This Brexit will have lasting impacts to economic activity further hurting demand that will further damage the oil demand. Even if TPTB come up with a fix for this treaty shattering vote it will have damaged momentum and put the economy further from healthy growth. We are in cascading deflation. Trade wars are simmering near the surface. Where in that equation do you see high sustained oil prices? We may see an oil price shock but it won’t last
Jim on Fri, 24th Jun 2016 1:12 pm
If memory serves, Art Berman wrote an article not too long ago predicting lower oil prices.
rockman on Fri, 24th Jun 2016 1:52 pm
BTW $30/ bbl is a crippling high price for 100’s of million of folks on the planet. It’s not always about US. LOL.
marmico on Fri, 24th Jun 2016 2:50 pm
If memory serves, Art Berman wrote an article not too long ago predicting lower oil prices. Artie ASPO bobs and weaves with the best of them.
Anyway, he is a bull shitter when he says this:
Those who believe that Peak Oil is a failed observation do not understand that it was never about running out of oil. Peak Oil was always about running out of cheap oil. That is an indisputable fact.
Peak oil is about maximum extraction followed by terminal decline.
dave thompson on Fri, 24th Jun 2016 2:58 pm
Short says,”It is a matter of the energy that is available to power the economy, not the volume of oil.” Then marmico says,”Peak oil is about maximum extraction followed by terminal decline.” I say you are both right, welcome to peak oil.
penury on Fri, 24th Jun 2016 3:31 pm
High oil prices,the world industry goes into decline, Low oil prices, oil extraction industry goes into decline. And of course the predicament is that each year sees a decrease in the price which is affordable to the consumers, and an increase in the price needed to cover lifting costs. Welcome to the future.
yoshua on Fri, 24th Jun 2016 3:58 pm
We bitch and fight over Peak Oil and Depletion.
Pyromaniacs going cold turkey is what it’s all about!
Speculawyer on Fri, 24th Jun 2016 4:09 pm
Funny to see this on a day when oil prices drop by 5%
Stabilizer on Fri, 24th Jun 2016 4:29 pm
Well written article, great supporting facts. I don’t know about the conclusions. Concluding the oil patch “may never recover” is ridiculous. In fact, the oil patch never succeeds, never fails, it just operates with what it has in a constantly changing game. That’s what makes it a fun place to work. Any time you go to a rig and the hands aren’t complaining, better leave fast, they are aliens masquerading as rig hands to take over the planet.
shortonoil on Fri, 24th Jun 2016 5:15 pm
“Funny to see this on a day when oil prices drop by 5%”
For the 57 year history of the series, 2015 had the second greatest spread between price and, production cost. 1998 was the worse. In 1999 that price differential recovered substantially. That has not happened in 2016 to date. If the spread does not improve this year we can be statistically certain with a 99% level of confidence that the 56 year relationship between price, and production cost has broken. That is, that the petroleum industry will never again be able to recover its cost of extraction by selling crude. That would occur 13 years before the Etp Model projects when petroleum production will reach its “dead state”. We have calculated that the cost to the economy to maintain production until the “dead state” is reached will be $39 trillion.
This is well substantiated by the cost of crude as a percentage of the cost of gasoline. That has fallen from a historical 71% to its present 49%. The industry is now recovering its extraction losses through proportionally higher finished product prices. That will only worsen with time.
http://www.thehillsgroup.org/
Ken Green on Fri, 24th Jun 2016 6:47 pm
Ever drive a steam car? There is plenty of coal. Technologies will inevitably advance. Tesla is doing well already. Everyone knows the price of crude needs to rise, that it will; just don’t expect it to rise too quickly as there are in fact laws of economics which can’t be ignored as the Saudis have now understood. It looks to me from this presentation that the US industry can stand 45- 60 for a while and still come back strong. Isn’t that right? And we may actually be at the point of a global debt restructuring, even a Jubilee.
shortonoil on Fri, 24th Jun 2016 7:35 pm
“just don’t expect it to rise too quickly as there are in fact laws of economics which can’t be ignored “
The price of crude will never exceed its boundaries:
http://www.thehillsgroup.org/depletion2_022.htm
We pasted the energy half way point in 2012. Economics will not work the same way on the on the back side of the curve as it did on the front. Take those equations, and put in a negative interest rate, and see what happens. The oil situation is not a volumetric problem, it is an energy problem. Oil is used because it powers the vast majority of the world’s transportation fleet, not because it fills up barrels. If filling up barrels was the objective we would be using water!
Truth Has A Liberal Bias on Fri, 24th Jun 2016 8:31 pm
Fuck are you morons ever retarded. So what’s your specific prediction short? What’s the price of oil gonna be next Friday according to your model?
Boat on Fri, 24th Jun 2016 9:48 pm
“Rystad Energy is forecasting horizontal oil completion activity in the U.S. onshore will outpace drilling operations by 30% in the second half of 2016, resulting in a sharp contraction in the drilled but uncompleted (DUC) inventory by 800 wells.
“These additional completions will support total U.S. oil output by providing an additional 300,000-350,000 b/d to the exit 2016 rate,” Rystad researchers said. That would be “more than sufficient to balance the base production decline.” An inventory of 4,000 DUC oil wells may hold close to 2 billion bbl of reserves.
“Research shows that operators are now starting to complete wells that have previously been put on hold deliberately,” Senior Analyst Artem Abramov said. “This comes as more than 90% of the accumulated oil DUC inventory can be commercially completed” at a West Texas Intermediate (WTI) oil price of $50/bbl.”
So a few hundred of the wells that were drilled but never fracked are now gonna be fracked. This report is just about one company. geopressure among others claimed these 4,000 wells or so didn’t exist. It was a conspierosy by msm. Lol
Boat on Fri, 24th Jun 2016 9:54 pm
Tiny Rhode Island Thumbs Nose At Wind Power Nay-Sayers With New 38.5% Plan
https://cleantechnica.com/2016/06/24/tiny-rhode-island-thumbs-nose-at-wind-power-nay-sayers-with-new-38-5-plan/
Apneaman on Fri, 24th Jun 2016 9:58 pm
The specific prediction is that you will continue to suffer from the Dunning-Kruger effect until death.
ghung on Fri, 24th Jun 2016 10:30 pm
Wikipedia: “The Dunning–Kruger effect is a cognitive bias in which relatively unskilled persons suffer illusory superiority, mistakenly assessing their ability to be much higher than it really is. Dunning and Kruger attributed this bias to a metacognitive inability of the unskilled to recognize their own ineptitude and evaluate their own ability accurately. “Their research also suggests corollaries: highly skilled individuals may underestimate their relative competence and may erroneously assume that tasks which are easy for them are also easy for others. “
That second part is my problem, according to my wife. I just can’t figure out why so many folks can’t understand the difference between AC and DC electricity and stuff like that. The difference between water pressure and water flow? Specific gravity of battery electrolytes? Why tailgating the car in front of you while texting increases your chances of having an accident? Ommmm!
“…a metacognitive inability of the skilled to grok their contemporaries’ ineptitude and evaluate others’ inability accurately….
dave thompson on Sat, 25th Jun 2016 4:17 am
What we are witnessing now is it. That’s all folks…… Welcome to peak oil. Oh yea fuck you dunfuckcruppershit.
David W. Morris on Sat, 25th Jun 2016 5:28 am
In ten years or less oil will be obsolete. Prices will crash. We are at the end of the oil age. Unfortunately, the end of the railroad age in the 1920s led to economic pain. Most likely the end of the fossil fuel age will also end in economic pain as bankers fail to adjust to the new age and companies over leverage.
Mike Patrick on Sat, 25th Jun 2016 5:55 am
Author is confusing cost with price. They frequently have nothing to do with each other. If enough countries subsidize oil production, low prices could continue for decades. (Take a look at the steel industry for comparison)
shortonoil on Sat, 25th Jun 2016 8:32 am
“If enough countries subsidize oil production, low prices could continue for decades. (Take a look at the steel industry for comparison) “
Simple analogies sound good at face value, but if you look into them a little deeper they often fail. In the case of the steel industry the losses were fairly constant over long periods of time. In the case of petroleum the losses are growing exponentially. By 2030, the point where the petroleum production system will have reached its “dead state”, the losses will have gone to infinity.!
This is another example of what can occur when attempting to apply an unbounded, unproven theory (economics) to a situation where very definite physical boundaries apply. It is not surprising that our human conceived notions of “maybe” how things should work conflict with the laws of physics. By elevating a human construct to the status of a demigod we have set ourselves up for a very ugly conclusion. Belief in our own omnipotence is merely a religion destined to produce major blowback!
BW Hill
http://www.thehillsgroup.org/
rockman on Sat, 25th Jun 2016 9:56 am
Stabilizer – Sounds like you have the same problem with some of those rediculous generalizations some folks toss out. Like “oil companies are going bankrupt” or “now Eagle Ford Shale wells aren’t economic to drill”. Reminds me of the mid 80’s when companies “couldn’t drill for NG” because prices we’re too low. True for SOME COMPANIES. But during that time the Rockman had one of the most financially successfull NG drilling programs in his 41 years. A company’s financial success has never depended on the price of oil/NG. In reality the Rockman has seen far more failed drilling programs during high price periods then during low stands. And that was during those times and not after the eventual price collapse.
I do understand why it’s very difficult for many “civilians” to accept that FACT since most get the energy “knowledge” frtom the MSM. LOL.
rockman on Sat, 25th Jun 2016 10:00 am
David – “In ten years or less oil will be obsolete.” I’m curious: exactly what form of energy do you see replacing oil “in tens yearsd or less”?
Boat on Sat, 25th Jun 2016 10:10 am
short,
FF have always been heavily subsidized. They have never been required to pay for environmental or health damage.
Outcast_Searcher on Sat, 25th Jun 2016 10:35 am
$100ish dollar oil wasn’t “crippling” for the four years prior to the recent big decline. Thus, anything likely as far as average oil prices for any meaningful period of time are VERY unlikely now, given the realities of oil fracking and its impact on supply at moderate to high oil prices.
Stop with all the exaggeration.
geopressure on Sat, 25th Jun 2016 11:22 am
ROCK MAN: “I do understand why it’s very difficult for many “civilians” to accept that FACT since most get the energy “knowledge” frtom the MSM. LOL.”
Well said…
shortonoil on Sat, 25th Jun 2016 11:45 am
“FF have always been heavily subsidized. They have never been required to pay for environmental or health damage. “
The end consumer eventually pays the entire bill one way, or the other. It is sad, but there is no Santa Clause!
Northwest Resident on Sat, 25th Jun 2016 12:12 pm
At the rate things are going, it won’t be long before $20 per barrel will be a “cripplingly high price”. $48 – $50 per barrel is already a cripplingly high price. It is only through increasingly astronomical injections of debt and financial skullduggery of all kinds that the global economy is managing to limp along as it is. We’re skating on very thin ice, with any number of looming realities poised to strike without warning.
Let’s face it. We used up earth’s vast store of natural resources, burning the majority of everything we could get our hands on in two hundred years, give or take a few.
In the end, everybody will have to pay for all the bills come due. But we won’t be paying with dollars or Euros or Yen or any other man-made currency. We’ll be paying with our lives, our health, or happiness, or sense of security, with literally everything we’ve got. Mother Nature is a bad-ass debt collector, and she’s coming to collect on debts long overdue.
shortonoil on Sat, 25th Jun 2016 12:24 pm
“Like “oil companies are going bankrupt” or “now Eagle Ford Shale wells aren’t economic to drill”
Venezuela, the nation with the largest petroleum resource on the planet has collapse. Nigeria, the nation with some to the best quality crude in the world is not far behind Venezuela. Central Canada is beginning to look like a parking lot. Saudi Arabia, the richest oil producing nation on the planet is borrowing money to pay its bills. Hundreds of US producers are expected to go bankrupt this year. EXXON’s profits dropped 50% last year; Chevron’s 90%. World producers’ revenue has fallen by $1.7 trillion from its 2013 highs; prices in 2016 are not any better than they were in 2015 at $48.67.
If it walks like a duck, talks like a duck, and looks like a duck – it is probably a duck.
The same can be said for an industry that is probably going broke.
Don Stewart on Sat, 25th Jun 2016 12:28 pm
I want to use a quote from Nick Lane’s concluding paragraphs to give some context to a discussion which occurs frequently on this blog and in other blogs. This is suggestive, as opposed to a proof. I believe we frequently confuse human cleverness in exploiting fossil fuels with the physical laws which govern the extraction, processing, and use of fossil fuels to do useful work. My suggestion is that Nick Lane’s distinction between clever genetics and the fundamentals of energy applies to us today as we try to read the tea-leaves relative to the future of fossil fuels. I’ll come back with my conclusion after the quotation.
‘I think we can reasonably conclude that complex life will be rare in the universe—there is no innate tendency in natural selection to give rise to humans or any other form of complex life. It is far more likely to get stuck at the bacterial level of complexity….for energetic reasons, the evolution of complex life requires an endosymbiosis between two prokaryotes, and that is a rare, random event, disturbingly close to a freak accident, made all the more difficult by the ensuing intimate conflict between cells….We’ve seen that many properties shared by eukaryotes, from the nucleus to sex, are predictable from first principles. We can go much further. The evolution of two sexes, the germ line-soma distinction, programmed cell death, mosaic mitochondria, and the trade-off between aerobic fitness and fertility, adaptability and disease, aging and death, all these traits emerge, predictably, from the starting point that is a cell within a cell.
Energy is far less forgiving than genes. Look around you. This wonderful world reflects the power of mutations and recombination, genetic change—the basis for natural selection….All those changes were permitted, selected, in the long course of evolution. Genes are almost infinitely permissive: anything that can happen will happen.
But that tree has mitochondria too, which work in much the same way as its chloroplasts, endlessly transferring electrons down its trillions upon trillions of respiratory chains, pumping protons across membranes as they always did. As you always did. These same shuttling electrons and protons have sustained you from the womb: you pump 10 to the 21st power protons per second, every second, without pause…the gift of living that goes back unbroken to the first stirrings of life in hydrothermal vents, 4 billion years ago. Tamper with this reaction at your peril….If life is nothing but an electron looking for a place to rest, death is nothing but that electron come to rest.
This energy flux is astonishing and unforgiving….Life is for the living. Living needs an unceasing flux of energy. It’s hardly surprising that energy flux puts major constraints on the path of evolution, defining what is possible. It’s not surprising that bacteria keep doing what bacteria do, unable to tinker in any serious way with the flame that keeps them growing…It’s not surprising that the one accident that did work out, that singular endosymbiosis between prokaryotes, did not tinker with the flame, but ignited it in many copies in each and every eukaryotic cell, finally giving rise to all complex life….How lucky that our minds, the most improbable biological machines in the universe, are now a conduit for this restless flow of energy, that we can think about why life is the way it is. May the proton-motive force be with you!’
I think we can conclude that humans have nothing on bacteria in terms of pure cleverness. Bacteria can manipulate genes in ways that we cannot. In some sense, we traded off genetic opportunity for the ability to build infrastructure (our complex bodies) with energy which is not available to bacteria. As we try to divine the future of fossil fuels, there is the temptation to think that some clever shuffling of the ‘genes’ can solve our problem. But the example of the bacteria which have not achieved a complex body in 4 billion years should serve as a cautionary tale. The Ellen Macarthur Foundation has concluded that transportation is one or two percent efficient, counted as the movement of a payload across the earth. The physicist Robert Ayres has arrived at a similarly gloomy estimate of efficiency for transportation. Ayres finds no strong increase in efficiency over recent decades.
Consequently, I take the predictions of the Etp model very seriously indeed. Given the very low efficiency of transportation, and the centrality of transportation in terms of our current civilization, and the difficulty of ‘reverse evolution’, even a modest reduction in the energetic value of a barrel of oil should be cause for alarm. If the Etp model is accurate, then we face a future which will be quite unlike our recent past. Shuffling ‘genes’ is not likely to solve the problems.
Don Stewart
Roger on Sat, 25th Jun 2016 1:02 pm
“An inventory of 4,000 DUC oil wells may hold close to 2 billion bbl of reserves.”
Based on historical averages (excluding gas; i.e., BO not BOE), 4000 DUCs will have less than half that amount. Likely about enough to supply the world demand for 8 days … Being produced over the next 20 plus years.
And, even if Rystad is correct, adding 300,000 bbl/d of production won’t stop the decline in the lower 48 production (currently dropping 100,000 to 200,000 bbl/d every month…and accelerating).
Peak oil occurred in 2015. Short of peace breaking out in Nigeria and Lybia…and, stability returning to Venezuela, all within the next few months, a price spike is unavoidable in 2017. Given over $1T in deferred oil investments worldwide, it won’t be a short spike either.
rockman on Sat, 25th Jun 2016 1:40 pm
“FF have always been heavily subsidized. They have never been required to pay for environmental or health damage.” Why is that sad? After all it’s the fossil fuel consumers that directly produce the vast majority of the environmental and health damage by their burning of FF’s. Why shouldn’t they pay the bulk of the tab?
As pointed out many times to some degree every one of our cohorts here is a member of the collective (FF consumers) that PERSONALLY produce the vast majority of GHG.
Apneaman on Sat, 25th Jun 2016 1:43 pm
The sheep shall be sheared as much as possible right up to slaughtering day. Keep playing and in the end they will get everything you have including your soul/spirit or whatever you want to call it. The corporate state will never stop, but they have some pills to sell you if it becomes unbearable – cause it’s your fault.
TransCanada Files NAFTA Suit Demanding More Than $15 Billion for Keystone XL Rejection
“On June 24, foreign oil company TransCanada filed a lawsuit against the U.S. under NAFTA, the North American Free Trade Agreement, arguing that the U.S. rejection of the Keystone XL pipeline violated NAFTA’s broad rights for foreign investors by thwarting the company’s “expectations.” As compensation, TransCanada is demanding more than $15 billion from U.S. taxpayers.”
http://ecowatch.com/2016/06/25/transcanada-nafta-keystone-xl-tpp/
Apneaman on Sat, 25th Jun 2016 1:53 pm
When You Dial 911 and Wall Street Answers
http://www.nytimes.com/2016/06/26/business/dealbook/when-you-dial-911-and-wall-street-answers.html
LUGER on Sat, 25th Jun 2016 1:57 pm
Just watch these electric stocks bomb later down the road. They are selling an idea and nothing else at this time. Just like Solar City was once upon a time at 84 bucks,,,,,look at it now….LOL
Boat on Sat, 25th Jun 2016 2:16 pm
rock,
“As pointed out many times to some degree every one of our cohorts here is a member of the collective (FF consumers) that PERSONALLY produce the vast majority of GHG”.
Of course we all use fossil fuels. But a trucking company pollutes more than I do so they should pay a cost that’s reflective of how much pollution they make. When you don’t assign cost to products that create pollution it distorts the market.
rockman on Sat, 25th Jun 2016 2:27 pm
Roger – “An inventory of 4,000 DUC oil wells may hold close to 2 billion bbl of reserves.” Actually those DUC’s (regardless of many there are) don’t hold any reserves. Of course once some of them are completed some new reserves and production will be added.
But let’s look at the number using yuor ASSUMPTIONS. Of course we have to assume when they’ll be completed. For simplicity of the model let’s assume unrealistically they all get completed next month. Your 75 bopd average production (300,000 bopd/4,000 wells) is not reasonable. Let’s assume initial rates are 600 bopd with a 40% decline rate the first 12 months…240 bopd in month 12. Thus the first year avg of 420 bopd = 154,000 bbls the first year. But that’s gross. Less royalty and production taxes (about 31% of the gross). So 106,000 bo NET. And at $40/bbl that’s about $4.2 million in income. Fracs have gotten a lot cheaper…$3 to $5 million. So let’s be safe and say it will cost $6 million to frac each DUC.
What does that mean? The money spent to drill and case a well is “sunk cost” and has no bearing on the economic analysis of doing the frac job. So bottom line: the net revenue from frac’ng a DUC at $40/bbl would recover 100% of this investment in 1.5 year. And if you don’t know it a project that “pays out” in 18 months is considered a very nice return by the oil patch. Even a 2 year payout will ltoduce an acceptable ROR. So if my assumptions (which are much more optimistic/realistic then yours) frac’ng those DUC’s would be great investments even at $40/bbl. So the simple question: why the f*ck haven’t those DUC’s been completed. LOL.
Here’s the problem with folks hyping the DUC’s: most are armchair quarterbacks that don’t know sh*t about the DETAILS of the business. Sit back and watch some of them try to manipulate the numbers to explain why these DUC’s (how many there MIGHT be) have not been completed yet. Which should cast serious doubt on the estimates of how much potential is really out there ready to unleash themselves on the consumers.
There’s nothing easy then projecting optimistic results of a process then doing so before it begins. Especially when one doesn’t understand the details.
rockman on Sat, 25th Jun 2016 2:47 pm
Boat – ^BUZZER SOUND^ Sorry bud, wrong analogy. You and your fellow private fossil fuel consumers produce a hell of a lot more GHG then all the commercial trucking and oil patch companies COMBINED. And you know damn well a single commercial truck pays 50X+ more road use taxes then you do. And that includes the tankers that deliver gasoline to the stations where you consumers acquire your “death liquids” that produce morer CO2 then all the commercial trucks on the planet.
As they say: you can run away from the truth as hard as you want but you’ll never escape it. LOL.
ghung on Sat, 25th Jun 2016 4:05 pm
Right, Rock. Cars and light trucks produce 62% of transportation sector GHGs. Some of those are ‘commercial’ light vehicles, but I’m betting a big chunk is discretionary driving by private folks. It’s why I’ve reduced my driving to less than 3K miles per year, and our household combined driving is less than 10K miles/year. Saves a lot of money, that, and not just on fuel.
Of course, you gridweenies produce the most GHGs; 32% is electricity production. I don’t think that includes producing/moving fossil fuels to the plants. Betting a lot of you are spinning those air conditioners these days.
Boat on Sat, 25th Jun 2016 4:35 pm
rock,
Your attempting a twist around end around. I don’t argue any of your stats but your missing the point. Willfully I would expect. Not all btu’s are created. The biggest/worst polluting btu products should have the highest tax. They cause the most harm/cost. If these pollution taxes were paid at the pump one would tend to pay for the pollution you consumed.
GregT on Sat, 25th Jun 2016 6:17 pm
“But a trucking company pollutes more than I do so they should pay a cost that’s reflective of how much pollution they make.”
And they should pass that cost on to the consumer, where it rightfully belongs.
makati1 on Sat, 25th Jun 2016 6:34 pm
GregT, some, like Boat, never think beyond their preconceived ideas. TOTAL systems is not part of their world, only the store shelves. What comes before is a mystery to them, never thought about. The end consumer is responsible for ALL of the pollution caused by producing and delivering what they consume. ALL of it.
Reality is a bitch.
onlooker on Sat, 25th Jun 2016 6:44 pm
Yep, guys we made a bargain with the devil when we decided to create this huge vast world-wide Economy fueled by Fossil fuels with all their known side effects. We wanted to go on a economic rampage. All those who benefited are responsible. Me and everyone in the rich countries. At least some of us can own up to this and not blame procreating masses for following their biological needs. Whatever humans if any exist in the future will curse us humans of this time, with all their heart and soul. And we deserve it for not looking at the future generations and not allowing them some kind of decent worthwhile future.