[Plantagenet]

It seems that we just found another winner, Mr. Skrebowski
http://www.zdnet.com/article/the-cost-o ... il-supply/

Mr. Skrebowski is full of Skrebowski.

His claim that Oil production would peak in 2014 has been proven wrong….it was higher in 2015. And it looks like like global oil production will be higher still in 2016.

Cheers!

[Observerbrb]

I was just reading the discussion above between SumYunGai and ennui2, and I just want to add one thing:

Low oil prices are good for the economy if Oil production costs are low.

Low oil prices are not good for the economy if more than 50% of the world's Oil production is sold below its production cost. If Oil turns into a losing proposition, no one will want to produce it - and we still need lots of oil.

Source: Financial Times


PS: Plantagenet, the volumetric analysis is irrelevant. If I use 11 barrels of oil to put 10 barrels of oil in the market, I'm fooling myself. However, it will look great in the Oil production statistics.

[Plantagenet]

Plantagenet, the volumetric analysis is irrelevant.

Actually, no.

Peak Oil is based purely on volumetric analysis. Peak Oil will occur when the maximum in VOLUMETRIC oil production is reached.

Peak Oil was not attained in 2014 as you are suggesting.

Cheers!

[ennui2]

"If Oil turns into a losing proposition, no one will want to produce it - and we still need lots of oil."

If no one produces it, prices will go up until they do.

Hence, the cure for cheap oil is cheap oil.

[rockdoc123]

Low oil prices are not good for the economy if more than 50% of the world's Oil production is sold below its production cost. If Oil turns into a losing proposition, no one will want to produce it - and we still need lots of oil.

The chart you show is breakeven costs all in which includes the drilling of new wells. As an example I know for a fact that the cost to produce a bbl of oil in Saudi Arabia is not $20 it is around $4/bbl which is the operating cost. The same can be said for US shale which shows here as $75. The Rystad Energy study which is backed up by several others indicates full in breakeven is largely below $50 now with a number of shale basins seeing $30 - $40/bbl. The lifting cost of operating cost for those shales is somewhere between $6 and $14/bbl dependant on where they are located, quality of crude and the method of egress. So no, existing oil production is not being sold below its production cost, not by a long shot. And if prices stay low for much longer they have to rise in order for additional drilling to take place. And they will just like they have in the past.

[SumYunGai]

Low oil prices are not good for the economy if more than 50% of the world's Oil production is sold below its production cost. If Oil turns into a losing proposition, no one will want to produce it - and we still need lots of oil.

The chart you show is breakeven costs all in which includes the drilling of new wells. As an example I know for a fact that the cost to produce a bbl of oil in Saudi Arabia is not $20 it is around $4/bbl which is the operating cost. The same can be said for US shale which shows here as $75. The Rystad Energy study which is backed up by several others indicates full in breakeven is largely below $50 now with a number of shale basins seeing $30 - $40/bbl. The lifting cost of operating cost for those shales is somewhere between $6 and $14/bbl dependant on where they are located, quality of crude and the method of egress. So no, existing oil production is not being sold below its production cost, not by a long shot.

Not by a long shot, huh? WTIC is $43.60/barrel right now. That's pretty low. Are you saying the current oil price is sufficient to support tight oil production? It sure seems like it isn't. If it is, why all the oil patch bankruptcies, then?

Here, according to Haynes & Boone’s Oil Patch Bankruptcy Monitor, are the 15 biggest bankruptcies (so far).

Pacific Exploration & Production – $5.3 billion in debt

Samson Resources – $4.3 billion

Ultra Petroleum – $3.9 billion

Sabine Oil & Gas – $2.9 billion

Energy XXI – $2.8 billion

Quicksilver Resources – $2.1 billion

Midstates Petroleum – $2 billion

Venoco – $1.3 billion

Swift Energy – $1.2 billion

Energy & Exploration Partners – $1.2 billion

Magnum Hunter Resources – $1.1 billion

Milagro Oil & Gas – $1 billion

New Gulf Resources – $600 million

Goodrich GR +% Petroleum – $500 million

ERG Resources – $400 million

[rockdoc123]

Not by a long shot, huh? WTIC is $43.60/barrel right now. That's pretty low. Are you saying the current oil price is sufficient to support tight oil production? It sure seems like it isn't. If it is, why all the oil patch bankruptcies, then?

how many times to I have to post the same information? This was discussed previously. This is full scale breakeven cost and the actual lease operating costs are much, much lower. And please note that rig numbers in the US have increased as of late which correlates with the price sitting in the mid to high 40's as of late.



As both Rockman and I have pointed out when there are times of low prices consolidation happens. It takes cash reserves to make it through downturns in price and small companies who were overleveraged end up being the ones that declare chapter 11. As pointed out those reserves do not disappear they are purchased by someone else who has the cash to wait for better times or to improve production or cashflow. If you are a small company with say 2000 bopd production your cashflow before tax and royalties is $33 MM/year. Take away an average operating cost and you are down to $28 MM and then take away royalties and you are likely sitting around $24 MM. G&A at its lowest level would bring that down to $22 MM before tax. If that company had outstanding debt in the order of $220 MM (which is a bit high but really ~3 times free cashflow when oil was at $100 which it was when the company took on the debt) then given typical good mezzanine rates they would be cashflow negative after debt servicing. More importantly they would have failed bank ceiling tests numerous times as the price dropped. As Rockman points out there are companies that are doing OK and will use this opportunity to buy distressed assets. An example is CHK who has reduced their debt to $10.8 GB and are currently producing ~660 boepd. What that means is their free cashflow at current prices equals their total debt (this is a good spot to be in) and their servicing cost which based on the rates they would have got because of their size is likely less than 10% of their current free cashflow even at these low prices. There are others out there like them and it is those companies that will be the consolidators, just like they were the last few times this happened.

[ROCKMAN]

"If Oil turns into a losing proposition, no one will want to produce it - and we still need lots of oil." I wish folks would learn to use the terminology correctly so I wouldn't have to interrupt the conversation flow. Oil wells PRODUCE. And thus the term PRODUCTION. Thus "losing production" means losing EXISTING WELLS. Not drilling new wells does not represent "losing production". The term is not GENERATING new prospects to drill.

Which takes me to the point I brought up earlier in the thread. I posted about the Anadarko acquisition of $2 BILLION of offshore reserves. More details:

"Anadarko Petroleum Corp. agreed to buy Gulf of Mexico assets from Freeport-McMoRan Inc. for $2 billion and said revenue from offshore wells will help accelerate onshore development.

The deal doubles Anadarko’s existing stake in oil wells in the deepwater Lucius development to approximately 49 percent, adding the equivalent of about 80,000 net barrels of crude a day, the producer said Monday in a statement. Some investors may question Anadarko’s increasing exposure in the Deepwater Gulf at the expense of onshore assets, Pearce Hammond, an analyst at Piper Jaffray, said in a research note.

The purchase is another sign that U.S. drillers that have survived two years of upheaval in oil prices are returning to deal-making. EOG Resources Inc. last week announced a $2.5 billion purchase to expand in the Delaware, one of the hottest areas for acquisitions. The next day, Apache Corp. said it had quietly amassed 350,000 acres in the region where it had found “massive” new quantities of oil and gas.

The Gulf acquisition “is a catalyst for the company’s oil-growth objectives, with quality assets being acquired at an attractive price to create significant value,” Anadarko Chief Executive Officer Al Walker said in the statement.

The offshore assets will generate $3 billion of additional free cash flow over the next five years that will help boost production in West Texas’ Delaware Basin and the DJ Basin centered in Colorado, Anadarko said."

The Rockman made a bad assumption: that most here understand the ENTIRE dynamic in the oil patch these days. Yes, lots of companies filing bankruptcy. And lots liquidating assets to avoid filling bankruptcy. And other companies that although they are still viable have seen revenue decrease significantly.

Now the good news: it's boom time for a number of companies. Companies that are acquiring proved producing oil reserves at a very low price...probably around $15/bbl. Company X might have spent $60+/bbl to develop their shale reserves. Perhaps borrowing much of the capex. But that is not relevant when it comes to selling assets today. First, it should be obvious that no one is paying $45/bbl for X million bbls of Eagle Ford or Bakken oil reserves. Not when it's selling for $45/bbl. And not $35/bbl. I can just offer a generalization (since $/bbl isn't actually a metric used in production acquisitions) but $15 to $20 per bbl is realistic.

So think about: if companies were actually spending $60+/bbl to develop shale wells and those same bbls are being acquired for $18/bbl then these PROVED RESERVE ADDITIONS are being bought for 30% or less then what they cost 3 years ago TO DRILL. And what if new shale wells could develop production for $30/bbl why would you drill unproven reserves for that price when you could buy PROVED PRODUCING reserves for about half that price?

Bottom line: lots of companies failing; lots of lenders losing big time; lots of companies struggling with reduced revenue.

And lots of companies adding PROVED PRODUCING OIL RESERVES at a price not seen in more then a decade. Anadarko just added $2 BILLION in PROVED PRODUCING that might have cost them $6 to $8 BILLION to drill up several years ago. And did it in ONE DAY compared to taking a couple of years of drilling. As I pointed out in a previous post: we are in the middle of the biggest fossil fuel wealth transfer we've seen in probably 30 years. So for SOME companies times have never been better.

As I've pointed out the "oil developed at $X per bbl" is a rather meaningless term. In 41 years I've never seen it used by a company. Not that it couldn't be done but it has no utility. But there's one very quick and easy metric that gives us a ballpark evaluation of acquisitions: $'s per barrel-day of production. It doesn't require believing any reserve number tossed out: if the wells are producing 1,000 bopd then they are making1,000 bopd. So Anadarko buying 80,000 bopd for $2 billion? They paid $25,000 per bbl-day. That number probably means nothing to anyone here beside Doc and the Rockman. But understand that a few years ago production was being purchased for $100,000 per bbl-day...and more. IOW just 3 or 4 years ago a company would have paid $8 billion for the field Anadarko just bought for only $2 billion. Depending on where a company sits in the food chain these are VERY GOOD TIMES in the oil patch.

[rockdoc123]

Regardless: this is about New Oil Reserves . . . of which there are essentially NONE.

Certainly not in significant amounts, and not since the (cough cough cough) discovery (actually a misnomer) of tight shale. As the tight-shale plays have been known for decades, are not a discovery per se, but rather a reworking of an old plays, really source rock

you really and truly are an idiot. On this very thread you challenged others to post any discoveries as you were claiming there were none. Large and Giant Conventional oil and gas discoveries in 2013 were around 16 BBOE (this does not include all discoveries but just the big ones). This is not an insignificant number in of itself and most certainly is not NONE (dictionary definition of none being: not any).

Here is a graph that shows the overall increase of Proven Reserves and given this is a balance (i.e. after production) then what it is saying is there is at the very least full replacement of Reserves in 2013 and 2014. Full replacement of production also does not fall into the NONE category



And lets once again instruct you on the definition of reserves and resources. Reserves are defined as what is economically recoverable based on an average price through said year. They are not discoveries but rather what portion of those discoveries at any given time are economically recoverable. Companies gradually move resources to reserves as the situation determines (lower costs, better price, more efficiencies, better technology). Price is a large determinant on Proven Reserves at any given time which is why you did not see a large increase in 2014 and 2015.

[StarvingLion]

You're all screwed without the massive reserves of Natural Gas Hydrates. The Oil INdustry is completely incompetent in mining those huge resources.

The Shitties full of worthless eaters are begging for the financial catastrophe that is called Nukular Energy to replace the Shale Gas Scam. They're so retarded they don't shit from shinola.

Without Natural Gas Hydrates the CURRENCY IS WORTHLESS. BATTERIES ARE WORTHLESS. EV's ARE WORTHLESS.

Thats it, thats the last hope.

[Outcast_Searcher]

I was just reading the discussion above between SumYunGai and ennui2, and I just want to add one thing:

Low oil prices are good for the economy if Oil production costs are low.

Low oil prices are not good for the economy if more than 50% of the world's Oil production is sold below its production cost. If Oil turns into a losing proposition, no one will want to produce it - and we still need lots of oil.

We don't need lots of oil in the short term, since there is lots in storage. That's why we have a glut and the price is low. And that's why in the US, we're producing less.

If we need more oil than is available, then market forces will come into play and guess what? The price will rise. This will encourage more production, just as it always has.

From 2010-2014 oil at roughly $90 a barrel on average didn't hurt the global economy -- it continued to grow just fine, slowly and steadily.

Despite the claims of the short term peak doom crowd on this site, even the $140ish price in 1980 didn't bite the global economy much. The 2008-2009 crash was primarily from the housing/loan default bust, not the price of oil.

And meanwhile, year by year, all the major economies are continuing to become less energy intensive per unit of GDP, which means high future oil prices will have correspondingly less economic impact at the same price.

Low oil prices are good for consumers generally. High oil prices are good for oil producers generally. The balancing forces of supply and demand will, over time, determine the price of oil, not some speculation about whether its price is good or bad for the economy. Just like it would for any other commodity.

[rockdoc123]

Come on rock, you're grasping here. BBO(E)quivlent, as in Barrels Of Oil Equivalent includes natural gas and hot air lol. At best it refers to reserve additions, a function of price. You guys have almost given up your desperate searchin for New Resources, converted into P95 reserves after DUE DILIGENCE. Not searching for hot air lol

And you were saying

Regardless: this is about New Oil Reserves . . . of which there are essentially NONE.

and now once you are schooled on definitions you somehow change that to new Resources. It is amazing how you seem to forget what it is you posted minutes ago. Not only that but you seem to not understand that much of that gas discovered is going into LNG which offsets oil consumption.

What part of "complete reserve replacement" do you not get? The formula would be Proven Reserve adds minus production. What that means is there is enough additions of oil reserves to offset global oil production. And given this was the case in 2014 when average price was well below $100 those additions were significant. And your suggestion of P95 and due diligence certainly demonstrates your ignorance on the topic for pretty much everyone with any knowledge.

The only hot air locale here is hovering over your computer.
To quote a famous (albeit fictional) Irish priest...Father Ted......"Fecking idjit".

[rockdoc123]

It was posted by the TheDude (may he rest in good times lol) Mon May 26, 2008 6:59 pm. And we are still stuck in this idiot Hall of Mirrors. God, are we ever f#cked

[/quote]

OK...this was back in 1996 right? And from then until 2012 proven reserves continued to increase did they not? Did we run out of oil in the interim? That was 20 years ago so we should have been in trouble by now should we not? But no....Proven reserves continue to be replaced. This is real data from the BP yearly analysis.

No one is arguing that it is becoming harder to find reserves and no one is arguing that Peak won't occur no one is arguing it isn't a finite resource. That being said making up imminent disaster scenarios in your mind that haven't happened and there is no data to support will happen in the immediate future should strike you as problematic. If it doesn't then the straight jacket might be a wee bit too tight.

[rockdoc123]

You know that BO(E)quivlent, as in Barrels Of Oil Equivalent, includes corn liquor.

Actually it doesn't, showing your ignorance about all that is oil and gas once more. What it includes is liquids and natural gas especially given the fact that we were talking about oil and gas discoveries made in 2013. Maybe on your world oil companies drill for "corn liquor" but not on mine (or for that matter anyone elses).

yet seem unable to respond to the decades-long near collapse of discoveries

Well lets see...I responded to your claim there had be NONE, and I responded to the claim that they were insignificant.

Your keep changing your arguments....effectively each post. If anyone is confusing anybody it is you.

And now it is "decades long near collapse in discoveries" ....OK Kashagan was discovered in 2000 less than a decade ago and it is 38 billion barrels, FMZ was discovered in Iran in 2003 and it is 31 billion barrels, Carioca-Sugar Loaf was discovered in Brazil in 2007 and it was 33 billion bbls. And given we were talking about reserves, which means "economically recoverable" Athabasca oil sands were added to reserves less than a decade ago and that is 170 billion bbls and the Orinoco was added about the same time at 170 billion barrels. It doesn't matter when we "knew" about their existence it matters when they became part of the potential reserves which the world could produce.

Are there less discoveries now than in the sixties....yes. That hasn't got in the way of global reserve replacement so far. The problem here is folks such as yourself get massively confused between Proven Reserves, Reserves and Resources. As a consequence you have never understood that "reserve growth" is mainly about moving categories, not discoveries.

But I'm sure you will change your argument once again, what's it been a half hour?

[ennui2]

The absurdity of trying to fearmonger about discoveries evaporating is that the end product of such a narrative should be a supply shortfall and prices rising. And yet this is being trotted out simultaneously with advocacy for ETP, suggesting that prices will stay low or go lower. It simply does not compute.

If we just erase the ETP nonsense then maybe we could have a consistent debate about peak-oil doom on the basis of classic supply/demand dynamics, but add ETP into the mix and the logic makes no sense at all.

I'm pretty sure at this point that if I were to clock out of this site and return back in a year or so that the site will have become all-ETP all-the-time. The ETP zealots here are equivalent to squatters. They've staked their claim and they will just keep shouting down their opponents until they are the last men standing in order to enjoy their circle-jerk echo-chamber.

It kind of reminds me of the vibe at Malthusia the brief time I was there. The people there had a virulent anti-civ mindset and it just was too hostile to be there if you didn't tow the party-line.

[AdamB]

You need high Oil prices to expand your Oil resource base, because this same resource is increasingly expensive to get.

You mean like between 1930 and 1970 when the real price was fairly stable and the same oil resource base expanded by orders of magnitude?

THINK PEOPLE, IT ISN'T THAT HARD.

No, because Oil was not becoming increasingly expensive to get (at least, not at the current rate). Today, it is.

Your censored graph stops early, and doesn't capture what happened when the shales launched and dashed peaker hopes all over the world.

By about 2012 the log jam was clearing.

Link to full report at the bottom.

https://www.eia.gov/analysis/studies/drilling/