[dashster]

The explanation of Kopits graph is right on the slide, he is pointing to "conventional" oil, not tar sands mining or LTO fracking or natural gas liquids condensing. Conventional oil is the stuff the industry is built around with the other stuff overlooked or passed over or flared as waste - until now when all of a sudden it has been Discovered! LOL

Notice that on Matt's chart the volume is 73mmb/d, he is only counting conventional crude oil except for the US LTO, which he calls out.

Yeah, I forgot that the second graph is counting tar sands, and Kopits is "excluding Canada". That could account for much, if not most of the difference.

[ralfy]

Kopits calls those calculated numbers “carrying capacity.” I've taken to calling the relative carrying capacity the "oil-price index". Every region/nation has a particular use for oil.
--In the US burbs we drive all the time, to work, family, fun, funerals and use many gallons daily. A spike in oil prices would hurt us.
--In contrast in India, rural people rarely drive/commute but are dependent on a tiny drop of oil to pump groundwater for tiny farms. A spike in oil prices would hurt them.
--In NYC people have little need for oil. A spike in oil prices would not amount to much

It goes on like that. Different societies can afford different prices. Right now the North America can afford the price of ultra-deep, fracted, and tar sands. Venezula can not. Places like Egypt with heavy oil demand and little money, are sinking into chaos. This will happen everywhere eventually.

If you drive once a week for groceries you don't care what the price of gas is. If you commuted daily from the distant desert suburbs of the "Inland Empire" to LA, then you were crushed by the 2005 oil spike, and hence the Great Recession.

I think higher oil prices also translate to higher prices of various goods and affects other expenditures. Some details are given in these articles:

http://www.dailyfinance.com/2011/02/23/ ... ic-growth/

http://www.nytimes.com/2012/03/04/your- ... fects.html

http://www.marketwatch.com/story/high-o ... 2012-03-05

If many jobs are dependent on sales of goods and services that are, given higher oil prices, not essential, then income levels may also be affected.

Also, it's likely that the majority of the world's population faces circumstances similar to that of India.

[StarvingLion]

"Also, it's likely that the majority of the world's population faces circumstances similar to that of India."

The foundational principle of Capital is dispossession. Therefore, peak oil, real or not, is irrelevant. So is any discussion of energy tech. From the perspective of Capital, most of the worlds population is redundant and thus disposable.

All these stupid pathetic threads full of "societal needs" is just plain laughable. If you're not on the Capital side of the fence, then you are too stupid to exist.

[dashster]

"Also, it's likely that the majority of the world's population faces circumstances similar to that of India."

The foundational principle of Capital is dispossession. Therefore, peak oil, real or not, is irrelevant. So is any discussion of energy tech. From the perspective of Capital, most of the worlds population is redundant and thus disposable.

All these stupid pathetic threads full of "societal needs" is just plain laughable. If you're not on the Capital side of the fence, then you are too stupid to exist.

What is your definition of Capital as you are using it?

[ralfy]

The foundational principle of Capital is dispossession. Therefore, peak oil, real or not, is irrelevant. So is any discussion of energy tech. From the perspective of Capital, most of the worlds population is redundant and thus disposable.

All these stupid pathetic threads full of "societal needs" is just plain laughable. If you're not on the Capital side of the fence, then you are too stupid to exist.

On the other hand, we are also seeing increasing consumption of oil for the rest of the world, as seen in the first chart of this article:

http://ourfiniteworld.com/2013/04/11/pe ... e-problem/

as well as increasing sales of cars, appliances, etc., for developing countries, likely driven by the presence of a growing global middle class:

"The rise of the global middle class"

http://www.bbc.co.uk/news/business-22956470

[JV153]

"Also, it's likely that the majority of the world's population faces circumstances similar to that of India."

The foundational principle of Capital is dispossession. Therefore, peak oil, real or not, is irrelevant. So is any discussion of energy tech. From the perspective of Capital, most of the worlds population is redundant and thus disposable.

All these stupid pathetic threads full of "societal needs" is just plain laughable. If you're not on the Capital side of the fence, then you are too stupid to exist.

What is your definition of Capital as you are using it?

Probably something along the lines of Luke 19:26, or in a more modern and convoluted way referred to as accumulation of capital, a foundation of the capitalist system .

[Subjectivist]

For I say to you, that to everyone who has will be given; and from him who does not have, even what he has will be taken away from him.

Of course the passage is not about taking away from the poor, it is about taking away from those who do not do their duty properly. The faithless servant not only feared to risk the masters anger, he feared the responsibility of good stewardship of his very small duties. Both of the other servants in the parable embraced the task of caring for the assets they were in charge of. The servant who had been given the greatest responsibility also made the best return on that responsibility, therefore he was rewarded with even more trust and greater duties.

[Oilguy]

This New Year, an old trend may become a new trend as conventional drilling in North America is once again in the spotlight at a time when oil prices continue their slump and the unconventional becomes increasingly uneconomical.

Advanced horizontal drilling and hydraulic fracking for extraction is much more expensive than conventional drilling. While these high-cost methods are the technology that ushered in the North American shale boom, in times of oil price troubles, plenty are moving back to the basics. Unexplored conventional plays are set for a mini-boom of their own.

The surge in high-tech exploration and production has been led by small to mid-sized independent companies who could foot the bill for expensive drilling and extraction as long as oil prices were high and the risk-to-reward ratio favorable. This was a great plan when oil prices were over $100 a barrel.

Most independent drillers hit a break-even point around $80-$85 per barrel for shale drilling.

Beyond this, shale wells deplete much faster and during peak production, they are “highly leveraged to the prevailing energy price”. So when you sink millions into a shale well for quick reward when oil is at $100 a barrel and it suddenly plummets to $60 per barrel—you’re out a lot of cash and it is no longer feasible to produce.

One way for investors to hedge their bets is to look away from the shale cash cows and towards underexplored conventional plays that don’t require expensive horizontal drilling or fracking for extraction.

Going vertical is the safer bet, and there are two key areas that stand out: The all-time favorite Permian Basin in West Texas, and the prolific and still underexplored Saskatchewan province in Canada.

In the US, nearly 95% of new oil production between 2011 and 2013 was from seven key regions where horizontal drilling and fracking rule the day, led by North Dakota’s Bakken, South Texas’ Eagle Ford, and the Permian Basin in West Texas and New Mexico.

But what you may not know is that the Permian Basin isn’t all horizontal. In fact, just before the oil price slump, it was just getting to the point where horizontal drilling was starting to outpace vertical drilling.

The decline rates for these key regions speak volumes. The Eagle Ford region has an approximately 62% decline rate, the Bakken region 54%, and the Permian—where vertical plays a key role—has only a 33% decline rate.

In September, Encana Corp. (NYSE:ECA) agreed to acquire Athlon Energy’s (NASDAQ:ATHL) Permian basin assets for $7.1 billion. While horizontal wells are the longer-term plan, current production is almost entirely from vertical wells and Athlon had 1,121 vertical wells versus 17 producing horizontal wells on its acreage.

At the other end of North America, all eyes are on Canada’s Saskatchewan province, where Suncor Energy (SU) and Cenovus Energy (CVE)—two of the biggest oil sands producers in Canada—maintain significant profit margins despite all.

More narrowly, market attention is latching on to the Williston Basin, which is already producing 1 million barrels of light crude oil per day and is on track to double this with new wells coming online. Yet there remains a great deal of exploration to do here, and this basin is expected to come up with another major sweet spot.

Within this prospective sweet spot lies the Little Swan, whose name belies its potential to be the next major discovery with an extremely attractive risk-to-reward ratio. This is, after all, the single-largest oil permit in Saskatchewan.

Recently acquired in part by a small, fiery independent company called Bayhorse Silver Inc. (TSX Ventue:BHS), Little Swan, in the prolific Williston Basin is a 253,000-acre oil and gas prospect that is an extension of oil bearing formations of North Dakota and Montana, according to geological reports that indicate high potential for a new discovery.

What makes this area particularly attractive to prospective investors who are shell-shocked by the oil price slump is that drilling will be cheap. Bayhorse estimates that a 1,200ft-well would cost only $500,000 because there is no need for horizontal drilling or fracking.

Overall, Canada--the world’s fifth-largest oil producer and a country with more proven crude oil reserves than anywhere outside of Saudi Arabia and Venezuela—is shaping up to become a better bet for anyone who recognizes that the frackers are now a gamble, and even more of a gamble than expensive oil sands, which take a lot of upfront investment but don’t decline like shale.

Source: http://oilprice.com/Energy/Crude-Oil/Ba ... -2015.html

By. James Stafford of <a href="http://oilprice.com/" target="_hplink">Oilprice.com</a>

[ROCKMAN]

"Going vertical is the safer bet, and there are two key areas that stand out: The all-time favorite Permian Basin in West Texas," I think someone should take a closer look a well spot map of the Permian Basin. It's one of the most heavily drilled basins on the face of the earth. Even 30 years ago 16,000'+ wells were common. And yes: lots of vertical wells drilled in the PB in recent years...and almost all were infield locations within proven productive areas. And for a couple of simple reasons: cheap drilling costs AND high priced oil. And guess what: drilling is on the verge of getting even cheaper as more rigs get stacked thanks to the collapse in oil prices. One might want to peer back at the stats for vertical well completions in the PB the last time oil was selling for $50/bbl. That might be a good indication of what the future will bring if prices continue at current levels for an extended period of time.

Just think about it for a minute: so many companies were paying many $BILLIONS to drill and frac very expensive unconventional reservoirs with high decline rates instead of going after all those abundant cheaper convention wells available...wells with lower decline rates?

[rockdoc123]

The main reason that the unconventionals have attracted so much attention is that you drop exploration risk down to a very low level. Basically every well into the shales works to some extent and if you drill enough the average works out very well. Yes you need to try to hit the sweet spots but the target area is much larger than current conventional target areas.

You speak to Saskatchewan without talking about what the target is. Are we talking the typical sand plays in the Mannville in which case these are not a slam dunk finding them on seismic given they are thin and discontinous. There are lots of dry holes related to these plays. Exploration risk is pretty high in this area even if you are just talking about new pool wildcats. So lets, for arguments sake say a vertical well into the Sparky or Colony sand mbrs costs $1 MM to drill and complete and a Bakken well drilled not too far away costs $4 MM to drill and complete. In order for the two to compare the exploration risk associated with the conventional sand play has to be less than 4 times as risky as the Bakken well. My guess is the difference between the two on a risked basis isn't much.

[shallow sand]

I am sure there are conventional locations that can make sense onshore lower 48 at current oil price, but I bet they are limited in number. I agree w Rockdoc123 that the "shale plays" appear less likely to have dry holes. However, scale is a big factor. CLR isn't interested in a $500,000 well with an EUR of 150,000 bbl oil even though it will be more profitable percentage wise, than its current location inventory, because there isn't a million acre block of those locations available.

[westexas]

I think that it might be more accurate to say that conventional drilling makes sense in 2015 for smaller companies. As implied by Rockman and Shallow Sand, the problem facing larger companies is that the larger the reserve base, the larger the volume of reserves that one has to replace ever year.

[shallow sand]

westtexas I do wonder, though, how much drilling makes sense anywhere lower 48 onshore this year, no matter what the situation. The oil price has fallen from around $100 the first half of 2014 to below $50 WTI, and spreads have not narrowed much, meaning Rocky Mountain and many Mid-Continent producers are getting from $25 to low 40s per bbl. Gas is even worse IMO.

With many calling for WTI in 30s or even 20s, would seem only a company that is hedged and needs barrels would drill. But even then, would it not be easier to simply cash in the hedges and put the $$ in the bank? Drilling is still as risky venture, despite the claims by many MSM business types. What happens if you drill a dry hole, have a hole cave in, etc?

Think the only drilling going on is that which was already planned and being followed through upon, or shale drillers desperate to convince Wall Street they are ok here, which IMO they are not. Maybe there are other reasons, but I have not thought of them.

Where I am all the work over rigs are pretty much parked in the yard. Wells going off with failures in some cases are not even being pulled. We are a high LOE area, but I am pretty well convinced that most conventional North American production is high LOE, especially when maintenance capital and g & a are figured in. IMO, those costs have to be considered, because either they are paid or the whole operation shuts down.

Many conventional small producers with no debt are stressed at sub $40 well head prices. The idea is to conserve cash and hope for a rebound. Nothing else you can do. Those small producers with debt will need bank cooperation soon IMO. There will not be enough left over to make more than interest payments.

If we go into the $30s WTI for any length of time, there will be a considerable amount of shut in production. I think at $20s WTI most North American production grinds to a halt if it lasts more than a couple months.

I think rigs drilling vertical holes started to slow before horizontal, so I do not see a reason that they would pick up now.

[westexas]

Here is a historical case history, showing the annual production from the Speck, South Field, in West Central Texas. The EUR is 2.2 mb, from 9 wells. For a similar field found today, development costs, including developmental dry holes, would be about $3 million, a developmental cost of about $1.40 per barrel. At a wellhead price of $30, the field if found this year, would payout by the end of next year, assuming that the field was fully developed over the next 12 months or so, and assuming a NRI of 78%. Note that this does not count prospect costs and exploration costs, i.e., dry holes looking for the field.

I found a field about twice as big as Speck, South from the same pay zone in the same area, but unfortunately I missed out on the really big field complex that has an EUR of 15 mb, at a depth of about 2,000'.

[shallow sand]

westtexas. I am sure somewhere there are conventional wells in lower 48 that can pay out at $30 today. However, not many and need to be well capitalized to try right now. Agree those with plenty of cash and little to no debt can do it. An operator in our field last year hit big on the edge of a waterflood that was initiated in 1950. Drilled 4 producers and one injector. Very shallow. Estimate cost at $350,000. Was producing over 100 bbl per day for several months. It can happen. Don't know if he would have tried it now. Might have waited given current outlook.

[rockdoc123]

But once again the big question is what is the chance of success of discovery for a vertical conventional well in any given play given the overall maturity of almost all conventional plays in North America?

Calculating out time to payout is great but if you do not include all of your costs including seismic, dry holes etc. then it is very misleading. Shale plays require no new seismic in most cases. The chance of actually hitting the reservoir is usually 100%. The chance of getting a flow of hydrocarbons after a frac (just a flow no suggestion as to rate) is also well above 90% unless the well had technical problems. For any conventional play I have been involved in anywhere in the world you are very, very lucky to be getting a 50% chance of getting reservoir. If reservoir is intersected you are doing very well to anywhere near an 80% chance of finding hydrocarbons. So right off the bat, in comparison you are looking at a 90%+ chance of success for finding flowable hydrocarbons in a shale versus say a 40% chance of success for finding flowable hydrocarbons in a conventional reservoir. This number may seem a high risk to some out there not familiar with exploration but the very large studies conducted by IHS Energy and Woodmac over the years based on numerous decades of drilling by Intermediates and Majors worldwide demonstrated an average success rate somewhere between 10% and 20%. In exploration everyone remembers the successes and forgets the failures (or writes them off).

In the past commodity price fiascos (I remember the company I was with in the mid-eighties, one of the seven sisters let go of exactly half of the staff in their largest office and 25% worldwide) companies responded by doing no exploration whatsoever and focussing their money on development....simply because there was little to no risk entailed. At the higher commodity prices you can take on risk, at the lower ones you can't.

[shallow sand]

I agree. Few are able to take risk now. Also, why would any producer want the flush production coming when prices are at these levels. Much has been made about high decline of shale. Much conventional declines pretty fast too. We have a dolomite in our area that was working for some operators pretty well when prices were high. Lots of high IP, then falls rapidly for a couple years or so then levels off at 1-2 bbl day, but makes almost no water and pumping unit on produced gas. 2200'. At high price could payout well and then some with flush and then have a very dependable very low cost stripper well for next 25+ years. Of course that has a much lower likelihood of working now, and therefore has completely stopped.

[westexas]

It seems to me that the global oil industry is between a rock and a hard place. Excluding the US and Canada, global crude + condensate (C+C) production fell from 2005 to 2013, as annual Brent crude oil prices averaged $110 for 2011 to 2013 inclusive.

If the global industry was only able to show an aggregate increase in production because of tight/shale plays and tar sands plays in the US and Canada, and if those plays now have severe viability issues at current oil prices, and since non-US and non-Canada production fell even as oil prices doubled from $55 in 2005 to the $110 range for 2011 to 2013, how is the industry going to be able to even maintain current global production?

As noted above, I think that it might be more accurate to say that conventional drilling makes sense in 2015 for smaller (low overhead) companies, in some select niche plays.

[shallow sand]

westtexas The drop to this level definitely took me by surprise. I thought the price would go to $60-65, but definitely not below $50.

Like you, I cannot see how this price will continue unless global demand is falling significantly. It seems like most of the articles I read indicated $80 or more per barrel is needed for new oil projects of any significant size.

If global depletion rate is 9%, as I read recently in Mr. Kemp's Reuters story, the globe needs to replace about 7 million bopd in the event that demand is flat. That along with the fact that there are barrels today that are underwater on an operating basis, this drop to be seems way overdone. Then again, oil tends to over shoot both ways.

If anyone read the Wood Mac article about production underwater on an operating basis, I have a question. When they talk about OPEX, are they including maintenance capital, such as rod, pump and tubular repairs, etc.? I found it hard to believe that only 190,000 bbl per day is underwater world wide on an operating basis, unless the expenses in the study were limited to utilities, chemicals and direct labor.

[rockdoc123]

The large drop in prices seems to have taken everyone by surprise except the companies who are making money off of it. Am I the only one who wonders what Goldman Sachs short position in oil was prior to coming out with their statement about oil having to hit $40 and stay there for sometime? I think it is pretty obvious the price is not being driven by fundamentals at this point in time.....I doubt anyone can actually say what the price should be. As a consequence it will continue to drop until everyone says "enough is enough" and traders start to buy back oil positions.
I saw an interesting article this morning that was looking at several demand forecasts which have been adjusted as a consequence of lower oil price. They all suggest that the current surplus in supply will be bypassed by demand by early 2016 which means return to prices in the $80 range I think. So where is that oil going to come from? I believe there is a physical limit to what the US can produce from shales at any given time so I am not sure it can be the worlds savior if demand recovers. Although shales are unique from the perspective that the time frame from drill to production can be much, much shorter than a conventional play it is also predicted on the availability of services. If service companies rack rigs, coiled tubing units etc for any length of time there is an equal length of time that it will take them to get back up and running to full speed. As a consequence I don't think you can just turn the shales back on and expect them to be where they were in a few weeks time.
Interesting to read all of the articles from various pundits regarding oil prices and how they are set to stay low for a long time for various reasons. Everyone of the articles either ignores or discounts the concept of Peak Oil. They somehow think the shale resources are infinite and that converting them to reserves is as simple as turning on a switch. We all know this to be a very naive view of things but the problem is these are the guys who make the market move in various directions as they are seen to understand the issue, when in fact they are pretty clueless.