[Pops]

Roc, I never said or implied CHK as a whole had problems, you said that. I assume you didn't read the original article and realize the topic was GW, why not just admit it?

But that argument is old hat now that you're on the right page. But as I think about it, CHK obviously does have reserve problems, they're just overestimating and selling them.

You've said exactly that several times, CHK cornered the market by buying huge tracts of land, produced gas on some, then proceeded to sell off the less good pieces for big money. But here is the difference in our POV, you say it's just oil boys being themselves, I say observers concluded all those leases sold for 10's of thousands per acre were actually worth something but it's turning out they really weren't. That is the story here this time the hype affects everyone because they hear the PR and believe we're Saudi America.

GW reserves were overestimated and subsequently written down by 25%: $1.2 billion to $800M; and the SEC did zilch.
A half billion ain't peanuts yet nary a peep from the SEC. The simple fact is CHK overestimated, they were wrong and no action was taken so obviously overestimating reserves is now par.

In the case of granite wash CHK sold to investors and subsequently marked down the reserves. Shell bought some land as well and now the Moneybeat guys assessment is, they bought: "shale assets in the wrong place..." what does that mean? a place with no oil? LOL

I don't know if the "assets in the wrong place" came from CHK or not but it doesn't matter, I don't care about CHK or Shell or which investor gets caught holding the bag. Again, I care about counteracting the hype such as the PR fluff in the OP of this thread.

What is more central here is the production boom in the sweet spots has been financed by selling off the "wrong place" assets. Which in itself is no big deal either but since the SEC now allows reserves to be booked based on operating profit rather than life-cycle profit it's like a big ponzi pyramid with folks in the US thinking we have it made and the Kochs just itching to export our newfound windfall while everyone is in the throes of Saudi America euphoria.

But here is what's happening in the real world:

North American oil and gas deals, including shale assets, plunged 52 percent to $26 billion in the first six months from $54 billion in the year-ago period, according to data compiled by Bloomberg. During the drilling frenzy of 2009 through 2012, energy companies spent more than $461 billion buying North American oil and gas properties, the data show.
...
Firms depending on asset sales to help finance drilling may not have enough money to pay for higher oil and gas production, said Eric Nuttall, who oversees C$70 million ($68 million) at Sprott Asset Management LP in Toronto. That could slow output growth, especially as companies try to avoid taking on more debt.

Bloomberg

Now look at gas price:


And more from Bloomberg:

Shell, based in The Hague, paid $6.7 billion for North American energy assets in seven transactions since 2009, according to data compiled by Bloomberg.

Did Shell think gas prices were going back up to $14 when they bought all those leases?

[SteveO]

Lets see….you are saying the reason for 1989 and 2008 crashes were the same?
I certainly don’t remember it that way.

The basic cause of both of these crashes was fraud. In the S&L crash, fraudulent appraisals were used to initiate bad loans. In the the 2008 crash, loans were also created using fraudulent data. In 1989 it was property values, in 2008 it was buyer's incomes. The big difference was the "financial instruments" increased the fraud logarithmically.

But you're not stupid, you know all this.

So you can’t point to individuals, you can’t point to actual wrong doings but somehow there are hundreds of guilty executives out there who in your estimation should be in jail?

There were roughly 900 convictions in the S&L crisis. I personally knew none of the people involved, but they were found guilty in a court of law. Are you implying that because I could not produce evidence against them the crimes weren't committed?

That's like saying that since I couldn't personally name every person who shot another person in the US last year that the crimes didn't exist.

It's been documented that GS created investments, at the request of certain privileged clients so they could bet against them, investments that were doomed to fail, and GS knew it (remember the "Sh!@ty investment" emails read in congressional community?). They then marketed these to investors as AAA rated. GS knew they were going to fail, but they got the ratings agencies to rate them high enough for municipal investors. If that's not fraud, I'm not sure what is.

[ROCKMAN]

Sliding back a bit to the subject of the thread it seems the rail roads and east coast refiners have been presently surprised by the Bakken:

Oct 2 (Reuters) - Philadelphia Energy Solutions' 350,000 barrel-per-day Pennsylvania refinery is now processing a fifth of all oil produced in North Dakota's prolific Bakken shale oil formation and the plant could take more from there or other sources.

Just a year after the company bought the plant, rescuing it from the threat of a shutdown due to the high cost of imported crude, the refinery is sucking up 190,000 bpd of North Dakota Bakken crude. About 160,000 bpd of that crude was arriving direct to the refinery on two unit trains a day while the other 30,000 bpd was coming by rail then barge, he said at an event in Philadelphia marking the opening of a rail offloading point at the refinery. PES had previously said it expected to rail in 140,000 bpd of Bakken crude to the refinery. "We're actually bringing in 190,000 barrels per day of Bakken crude because we're bringing in some by a different route which ... comes partially by train and partially by barge," Rinaldi told reporters.

"We've pre-invested in this railroad track so that we have the stage to bring in a third train that would bring us to 240,000 barrels per day," he said. As he spoke at the site, a train of 120 cars, 1.5 miles (2.4 km) long and carrying 80,000 barrels of Bakken crude slowly rolled in. The train was operated by CSX Corp and the crude came from the oil fields of Statoil, he said, calling the Norwegian oil company a "regular supplier."

Rinaldi stressed the investment into the rail project was to allow the refinery flexibility to move a variety of lower-cost domestic crude including oil from Texas's Permian Basin and the Utica shale field in Ohio, depending on the economics. "We think this is a better way to bring crude oil by long distances because this is all about flexibility for crude," he said.

"So, right now crude from the Bakken and North Dakota is a very good thing but, you know what, times change, and if the better crude starts moving down to the Utica, we can take it by rail. If it's in the Permian Basin, we can take it by rail. So we're connected everywhere and we don't get locked in." However, when asked whether a diminishing spread between U.S. and Brent crude oil futures could make the Bakken crude less attractive, Rinaldi said while the spread was an important indicator, "it really doesn't drive" the economics of Bakken. He said with production of 850,000 bpd, "that crude has got to get to the market and the only really meaningful way it will get to the market is by rail ... We will be by far the largest consumer of Bakken crude oil. I think those economics will stay because they're necessary to clear that area."

To paraphrase the "Field of Dreams": produce and they will come and get it.

[copious.abundance]

Addition of 35,534 bpd in August to reach ... *drum roll* .... 911,496 barrels/day!

https://www.dmr.nd.gov/oilgas/stats/his ... dstats.pdf

[copious.abundance]

Posted July 4. Oops!

Notice how production growth has stalled, not surprising given the precipitous decline in new drilling. I think the tight shale bubble is quivering, shaking, and doing a slow-mo sighhhhhhhh.........

[Pops]

The drilling rig count decreased only slightly from Jul to Aug, but the number of well completions fell sharply from 251 to 130. The result still was a 4% increase in oil production because the number of completions was about 1.5 times the threshold needed to maintain production. Completion crews kept pace with drilling rigs as the average number of days to drill a well from spud to total depth remaining steady at about 22, but the average number of days from total depth to initial production rose from 79 to 105.

https://docs.google.com/viewer?url=http ... -10-15.pdf

Interesting, I thought it was The Weather Stupid. the number of new wells hasn't been this low in a year and a half

[copious.abundance]

I decided copious.abundance sounded better.

I'm glad you like it.

[Graeme]

Oil Companies Are Sued Over Natural Gas Flaring in North Dakota

In the sharpest challenge yet to the surge in flaring of natural gas in the Bakken shale oil field, North Dakota mineral owners this week filed 10 class-action lawsuits seeking millions of dollars in lost royalties from some of the nation’s largest oil companies.

Roughly 1,500 fires burn above western North Dakota because of the deliberate burning of natural gas by companies rushing to drill for oil without having sufficient pipelines to transport their production. With cheap gas bubbling to the top with expensive oil, the companies do not have an economic incentive to build the necessary gas pipelines, so they flare the excess gas instead.

Flaring is environmentally less harmful than releasing raw natural gas into the atmosphere, but the flared gas still spews climate-warming carbon dioxide into the atmosphere. The quantities of gas burned are so large that the fires rising above wheat and sunflower fields look like a small city in NASA photographs taken from satellites.

Flared gas has nearly tripled in the last two years in North Dakota, with almost 30 percent of the output in the state burned at wells, producing emissions equivalent to more than two medium-size coal-fired power plants.

The value of flared gas in the state is roughly $100 million a month, leading property owners who lease their lands to the oil companies to believe they are losing money even though they are earning increasing royalties from the fast expansion of oil production in North Dakota. Oil output has risen by 100,000 barrels a day since May alone.

“The lawsuits seek to force operators to comply with state law and pay royalties to mineral owners on the value of flared gas,” according to a statement released on Wednesday by one of five law firms that filed the suits, “and by so doing create a compelling economic incentive for producers to reduce and eliminate the wasteful practice of flaring.”

Companies being sued include Continental Resources, XTO Energy, SM Energy and Marathon Oil.

nytimes

[Plantagenet]

the number of new wells hasn't been this low in a year and a half

The RIgZone had an article about this. I linked to it in the "Fracking" thread yesterday.

The Rig Count and the number of new wells is down because the horizontal portions of wells drilled into the Bakken is getting longer and longer. Where they used to do 4 frack jobs or so to complete the horizontal well in the producing zone, they now do as many as 30 frack jobs on a single wll to complete the very long horizontal portions of the producing wells.

This means they can get more production even through they use fewer rigs and drill fewer wells.

The proof is in the numbers....production in the Bakken is still going up. Its risen 200,000 bbls/day from a year ago, and is on track to go over one million bbls/day next year.

[Tanada]

I would almost swear that the oil industry gins up these environmental issues, just to distract from the failure of the inflated tight-oil claims. It seems my friends would rather believe in a rosy future assured by cleaning up nasty oil companies, then the truth: even a sweet-smelling fract job is still a failed fract job. LOL. It won't save them, the industry, or our economy.

You know Pete, you could probably talk me around to thinking the same thing without too much trouble, and in general I automatically dismiss most theories like this out of hand as implausible.

The thing is you would have to be Wikileaks to get proof even if it did exist, or just make up proof if you can't find it. That is why I usually don't give them the second thought. It is unproven and almost certainly unprovable, but in this case I find it highly plausible.

[Pops]

Thanks for the rigzone article plant. They say the wells are much longer so they need fewer rigs. That's cool but additions are still down from last year, if there are more rigs available I wonder why not use them? Have they made enough money? LOL




Still an increase, just not last year. But they did increase oil/well/day to 99

[John_A]

I would almost swear that the oil industry gins up these environmental issues, just to distract from the failure of the inflated tight-oil claims.

The oil industry has created the largest producing oil fields in the Western Hemisphere from tight oil....only here would that be considered a failure...and obviously...it isn't. As far as distraction.....yes....approaching a million barrels a day is certainly a distraction from what "experts" claimed, right? Did TOD ever claim the Bakken would a million barrels a day, or did they miss that in the rush to "distract" from production declines of oil in the US not happening as expected as of late?

[dcoyne78]

JohnA,

There is no doubt that the success in the Bakken and Eagle Ford surprised some people.

The thing that might be of concern is that this success, though nice, is likely to be short lived. This is true even if prices follow the EIA reference scenario and drilling and fracking costs per well fall to $7 million in real dollars (adjusted for inflation)for the types of wells currently being drilled in the Bakken. If well additions ramp up to 3000 wells per year (or 250 wells per month) over the next 5 months and EUR per new well begins to decrease in June 2014 and reaches its maximum monthly rate of EUR decrease (of 2.5 %/month) 3 years later (June 2017), the peak will be around 1.5 MMb/d in 2017. Breakeven will be reached by 2018 and new wells will no longer be profitable unless new wells are added more slowly to slow the rate of EUR decrease. This scenario results in about 9 BBO over the 1953 to 2073 period, if economics are not considered (that is TRR=9 BBO). This scenario follows the NDIC scenarios that predict a total of 45 to 50 thousand producing wells. When economic considerations are included: real oil prices following EIA AEO 2013 reference scenario, well costs falling to $7 million per well by Jan 2016, transports costs of $12/barrel, royalties and taxes at 20 % of wellhead revenue (refinery gate price minus transport costs), OPEX of $4/b. other costs at $3/barrel, and annual discount rate at 12.5 %, the ERR (economically recoverable resources) are 7.7 BBO from 1953 to 2073 assuming prices stop rising in 2040 at the end of the EIA reference scenario. Total producing wells reach a maximum of 26000 in June 2041.


Dennis Coyne

[John_A]

JohnA,

There is no doubt that the success in the Bakken and Eagle Ford surprised some people.

Some? Find anyone in the peak oil community who EVER said that the growth of unconventional production would create the fastest oil production growth in the history of America. And to expand the concept, I'm not even sure the raging Cornies thought it would ever work that well. So this out cornied the cornies!

Total producing wells reach a maximum of 26000 in June 2041.
Dennis Coyne

There was a presentation given a year or so back, some USGS resource scientist folks (Hubbert's descendants as it were) at a conference somewhere, and they mentioned that one of the things that surprised other governments and organizations when they presented their results, was the number of wells that would be needed to do that development. It really is a drilling manufacturing model to get these resources out of the ground.

[copious.abundance]

And to expand the concept, I'm not even sure the raging Cornies thought it would ever work that well. So this out cornied the cornies!

This is correct. If you go back and read some of my old posts here and in the US oil production thread, you'll find I did not expect current production levels to be reached until, like, 2015 at the earliest. To be honest, a few years ago I wasn't sure about anything above 7 million bpd. And here we are, getting close to 8 million.

[John_A]

And to expand the concept, I'm not even sure the raging Cornies thought it would ever work that well. So this out cornied the cornies!

This is correct. If you go back and read some of my old posts here and in the US oil production thread, you'll find I did not expect current production levels to be reached until, like, 2015 at the earliest. To be honest, a few years ago I wasn't sure about anything above 7 million bpd. And here we are, getting close to 8 million.

So reality has turned out to be far more cornie than even the cornies expected. Richard Duncan...where are you when we need you!! A decent dose of pseudo science cliff, dive, decline or crash is needed! MAKE UP ANOTHER GORGE...PLEASE!!!!

[dcoyne78]

There is a possibility that the Bakken could reach 1.5 MMb/d, in 2017, Eagle Ford could get to 1.6 MMb/d in 2015, and Niobrara might get to 0.75 MMb/d in 2019. In all cases the downslope on the other side of these peaks will be pretty rapid and because it is unlikely that the peaks will all happen simultaneously you cannot realisticly just add them together. So we have 0.7 MMb/d from the Bakken, 0.6 MMb/d from the EF, and 0.5 MMb/d from the Niobrara, possibly an extra 0.3 MMb/d from the Permian(I don't think the Permian has a whole lot left, but I have been mistaken in the past.) If we do add these together (by assumimg the peak can be maintained for a few years) we get 2.1 MMb/d added to current production from tight oil. Now in the intervening 6 years until 2019 we may see 4 % annual decline in the 5 MMb/d of production that was online before the recent tight oil boom which adds up to about 1.1 MMb/d of reduced output from these older wells, so I would guess we might top out at no more than 8.6 MMb/d of crude plus condensate output (currently we are at 7.5 MMb/d). I realize there may be other shale plays out there, the question I have is whether the timing will work out such that the new plays can offset the decline in the early plays such as the Bakken and the Eagle Ford. Every play has its sweet spots and eventually these become fully drilled up, as oil companies move to the less productive areas the decline in overall output becomes quite rapid.

Dennis Coyne

[dcoyne78]

The EIA DPR (Drilling Productivity Report) suggests that the Permian may already be near its peak, Maugeri suggests the Niobrara may reach about 0.5 MMb/d which is only about 0.25 MMb/d above present levels. In the chart that follows I present some preliminary modeling on the Eagle Ford along with a Bakken scenario using fairly optimistic economic assumptions to get an ERR(economically recoverable resource) of about 13 Gb for the Bakken and Eagle Ford combined from 1953 to 2073. Peak is reached in 2016 at 3 MMb/d and decline is rapid falling below present output by 2019.



So we may see a gain of as much as 1.2 MMb/d by 2016, but 3 years later output from the EF and Bakken combined has fallen back to 1.6 MMb/d.

When all of the US is considered we will have the underlying decline of older wells (say about 5 MMb/d decining at 4 % per year) which amounts to 600 kb/d by 2016 and 1.1 MMb/d by 2019. So accounting for this, US output only increases by about 600 kb/d by 2016 and falls from there by 1.4 MMb/d due to the Bakken and EF decline and another 0.5 MMb/d from other US field decline to a level 1.3 MMb/d below current levels. Some of this might be offset by other shale plays, I think it unlikely that we will be above 7.5 MMb/d of C+C output beyond 2019.

DC