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The Eagle Ford Shale

Discussions of conventional and alternative energy production technologies.

Eagle Ford Shale Update

Unread postby ROCKMAN » Wed 03 Apr 2013, 11:11:29

Eagle Ford Shale Stats: There is a good bit of data from the Texas Rail Road Commission but one has to be aware of some limitations. Most important: Texas does not require production reporting by the well but by the lease. A lease may have more than one well contributing to its value. Another limitation is that the easily accessed initial production date is for the first well producing on a lease. Thus if one well starts in January the stats shows production starting in January with the total production for the year of all wells on that lease regardless of when they began producing. This can skew the average significantly if a number of wells go on production late in the year.

Lots of debates on how to evaluate the productivity of the EFS. Initial test rates from PR releases aren’t very valuable. I can test an oil well in Texas at 200 bopd and 800 bopd and am free to publicly release either rate, both of them or no info at all. I can put at a press release stating a well tested 800 bopd and I can start producing that well at 400 bopd if I chose to and not reissue a press release stating so. Typically for all reservoirs one seldom puts a well on production at the max rate tested.

Given the nature of fracture production one can't map the in place reserves as one can with a conventional trap. Some will offer the curve fitting approach to estimate ultimate recovery but that is a very inaccurate method and very subject to prejudice. But there is one stat that does offer some indication of ultimate recover. Given the common high decline rate of fractured reservoir a large percentage of the recovery is made in the first several years. Thus the earliest useful stat IMHO is the cumulative production during the first 12 months of a well’s production history.

I’ve just done that analysis for leases that started producing from the EFS in September 2010 when the drilling boom started. Obviously the stat stop with wells drilled after March 2012 since they wouldn’t have a full 12 month production history. Given the numerous variables the numbers show a rather consistent outcome: on average over that 18 month period the first 12 month cum was around 110,000 to 120,000 bo. That’s gross production not reduced for royalty. There were a couple of anomalous months that may be due to reporting problems. A quick back of the envelop economics: 120,000 bo X 0.75 (typical royalty is 25%) X .94 (Texas severance tax). That leaves the operator with around 85,000 bbls of net oil. At today’s prices (use $90/bbl) that’s around $7.6 million gross income. From that one needs to subtract lease operating expenses (LOE): rough guess $15,000/mth including transport costs. So the first year net of around $7.4 million. And of course this doesn’t include revenue from selling associated NG and NGL’s.

From there the economic evaluation gets tricky. In addition to the costs to drill and frac many 100’s of $million have been spent of leases. But the most difficult portion of the calculus is that the early wells were not drilled the same as they are today. The laterals were shorter and had much fewer frac stages. No way to meaningfully quantify the change without doing many months of research. But I’ve seen reports that some of the recent fracs utilizing more than 20 stages have been costing more than the cost to drill the well.

But I think one might infer a rough insight into where the play is today. Operators have been drilling longer laterals with much more expensive fracs and the initial 12 month production stat hasn’t shown a significant increase. One could interpret that to mean the remaining leases don’t have the potential to recover more oil despite a greater effort. This is the natural course in ever play ever developed; the more productive areas are developed first. Though still producing a profit this implies that the margin is decreasing. That doesn’t necessarily mean the beginning of the end for the EFS play. The public companies have the same pressure on them from Wall Street to continue to add reserves y-o-y. But it does increase their capex requirements to do so. Chesapeake, one of the most active shale players, has liquidated over $25 billion in assets over the last several years to fund their drilling efforts. Additionally they’ve reduced their ownership in large parcels of their shale plays thus reducing their capex requirements.

As long as oil prices stay up and the pubcos have no other survival options the shales will be drilled IMHO. But these stats for EFS indicate an increased vulnerability from lower oil prices. Perhaps not much lower than we have today. But like every other play in history it will die eventually when there are few viable leases left to drill. This was seen not 20 years ago in the Austin Chalk play which was as aggressively drilled and frac'd as any of the current plays. And we hear of little activity in the AC today: the vast majority of viable wells have been drilled, frac'd, produced and abandoned.
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Re: Eagle Ford Shale Update

Unread postby seahorse3 » Wed 03 Apr 2013, 11:18:53

Rockman I appreciate your taking the time to begin posting here again. It's hard for the average person like me to get honest information, or at least someone qualified who will take an honest look. There are no crystal balls, we all know that, but honesty and time are hard to come by. I saw on an earlier post you have a 12 year old, well, so do I. I have three teenagers and am simply trying to understand the truth of the situation so that I can make the best choices as a parent in guiding them and understanding the world we live in. Now, I have to say on the one hand I believe all problems are solvable, I just have strong doubts that collectively (politically) we can act in concert to solve them without crisis.
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Re: Eagle Ford Shale Update

Unread postby ROCKMAN » Wed 03 Apr 2013, 12:24:28

seahorse - Lots of different reasons for folks to be focused on our energy situation. At 62 yo I don't have to worry much about the longer terms aspects as far as my well being goes. But those of us with kids, especially old farts like me, can't help but contemplate their future. And my girl, having been adopted in China as a baby, and having no living kin for most of her adult life will face that future without the typical support group. So yep...PO is never far from mind. That and trying to figure out where to poke the next dang hole in the ground. LOL.
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Re: Eagle Ford Shale Update

Unread postby seahorse3 » Wed 03 Apr 2013, 13:02:59

There are a lot of kids depending on your next hole in the ground, including mine, so I wish you good luck!

I'm 48 and worry not for me but, like you, for my kids. I have a tendency to get pessimistic, but when I'm around younger people, their smiles, laughter, and ingenuity give me great hope for them. So, on our watch I just don't want us as a society to do anything too stupid and at least give them a chance. Education is and always has been key. I dont necessarily mean formalized education either. But, again, thanks for your time and energy here. I and many other parents much appreciate it.
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Re: Eagle Ford Shale Update

Unread postby Pops » Wed 03 Apr 2013, 14:23:23

Thanks for the post ROCK. Here is a key point I think,

As long as oil prices stay up and the pubcos have no other survival options the shales will be drilled IMHO.


What else are they gonna do, switch to manufacturing PV? :lol:
(BP & Shell feinted in that direction but quit)

You point out elsewhere that lots of manipulation is done to affect stock prices. rocdoc and I have badgered that argument around with me saying I would be astounded to find that the type of jiggering you mentioned to press releases and SEC reports isn't widespread.

That is why I am so skeptical of the fracing miracle. If PO is upon us, what better way to invent a golden parachute than paying for leases with drafts, then drilling and flipping only the leases that tested good, stiffing everyone else. sorta like selling an orchard when there is only one tree with only one low hanging apple.

Mclendon (founder of CHK) was originally a "Landman" what more perfect bow on the package could there be? It reminds me a lot of the RE bubble and CDS explosion, there is just so much any regulatory agency can do when there is a tidal wave of shady deals like the land rush around fracing , especially the shenanigans people have accused CHK of doing routinely.

Anyway, we'll see if it's a ponzi soon enough. 3-4 years?

http://landmaninsider.com/chesapeake-wi ... mcclendon/
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Re: Eagle Ford Shale Update

Unread postby ROCKMAN » Wed 03 Apr 2013, 14:57:06

I don’t think there’s a lot of outright cheating and lying by the bigger pubcos. But there’s a lot of wiggle room allowed by the SEC if you closely follow their regs. But add that skill to the general low level of understanding many folks possess and then toss in a good measure of greed by all parties involved and it can get ugly. I still easily recall during the 70’s boom folks mailing off checks to a PO box to invest in a well and wondering why they never got any money back and weren’t able to contact the company. And I have been involved with some full fledge crooks. Once consulting in an office for a very small pubco when I noticed how quiet the office was. All the offices were empty. The receptionist said the attorney called and told the officers to not be surprised if a marshal showed up with a warrant. They all cleared out. No marshal showed up. I got out of that mess before the stink rubbed off on me.

As you know so well all stock plays are hyped to some degree. Many don’t understand that small oil pubcos can’t exist without a “market maker”: some trading house that pushes that company’s stock under a spotlight. Who is going to buy stock in a company they never heard of unless someone is advertising it? And that someone will be a stock broker. And company management doesn’t call the shots…the market maker does. Don’t follow their lead and they’ll stop recommending your stock to their clients. And the your stock becomes worthless. And there’s nothing illegal about this system because ever stock purchase is covered by a buyer beware clause. And if you pick the right company and time it right you’ll make a great return. I mentioned the other day that IMHO the most successful Eagle Ford Shale player was Petrohawk who sold the company for $12 billion after drilling just a few of the early wells. Again, all very legal. They are called land speculators. A very old and honorable profession. But they live by a simple business plan: roll into town with the first wagon of saloon girls and roll out before the first wagon of drill pipe shows up. LOL.

What's happening in the shales isn't so much a ponzi scheme IMHO but selling folks on a business plan that's very vulnerable to price volatility as well as not being very sustainable in the long run.
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Re: Eagle Ford Shale Update

Unread postby John_A » Wed 03 Apr 2013, 18:43:10

You have a good explanation for the industry drilling process which many interpret as ponzi, scam, must end tomorrow, etc etc there Rockman. It has always seemed strange that everyone on the forums or even the chosen talking heads proclaiming the horrors of modern oil production don't have any experience in the industry. And then a real oil industry person shows up and makes it clear that things really aren't as they have been portrayed.
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Re: Eagle Ford Shale Update

Unread postby ROCKMAN » Wed 03 Apr 2013, 19:38:00

Most of us know a lot about just a few things and a little bit about a lot of things. And then we often let personal feelings extrapolate those few facts too far. I have prejudices, you have prejudices, and all God’s children got prejudices. Just human nature. And often those not completely incorrect feelings have some basis in fact. Usually I don’t try to confront such feelings head on. Folks have a right to those feelings whether I agree with them or not. But I do try to offer other considerations and let them judge my credibility. I seldom see the benefit of prolonged arguments. And to be honest it’s not difficult for me to be so magnanimous. Comes from being right all the time. LOL.
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Re: Eagle Ford Shale Update

Unread postby sunweb » Wed 03 Apr 2013, 20:10:08

For the discussion of the welfare of children and future generations, there is the damned if you do and damned if you don't. High prices and the demand for status quo/business as usual keep the production and search on. This gives the young ones the potential opportunity for what my generation of westerner (70 years old) have enjoyed. At the same time there is a serious detriment to the environment they must live in.
There really is no easy or actually accessible answer.
We will do anything and everything to maintain our present personal level of energy use and the comfort it affords us. We will do anything and everything to the earth, to other people and even to ourselves to continue on this path. And if we don’t have the energy level we see others have, we will do anything and everything to the earth, to other people and even to ourselves to attain that level. The proof of this assertion is simple; we are doing it.
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Re: Eagle Ford Shale Update

Unread postby ROCKMAN » Thu 04 Apr 2013, 07:34:51

sunweb – What a buzz kill you are…you’re bringing us down. LOL. I wish I could say I didn’t share your pessimism on how societies will react as we go further down that PO path. There’s so much precedence in history but I won’t clutter the thread with that litany. As I mentioned elsewhere this old fart has a 12 yo daughter that will inherit this mess. I can’t change what will be but just hope I give her enough a good grounding to deal with it.

John – I remembered a good example of what I was trying to explain. Over 20 years ago an “oil company” moved onto my floor. It was a phone room soliciting private investors for an Austin Chalk drilling deal in Texas. The manager (honest truth: a former used car salesman) showed me the deal: an absolute fraud and would never get drilled. But the AC trend, a fractured reservoir being horizontally drilled and frac’d, was the hottest in the entire country at the time…as hot as any of the current shale plays.

I called the Texas attorney general office and informed them. They told me they had shut their Dallas boiler room down and assumed they were out of business. About a month later the Texas Rangers showed up and hauled the two managers away in cuffs. I’m sure many gullible folks never got their money back and for years told anyone that would listen about how the “oil companies” were a bunch of crooks. And many of the folks they told repeated the story. You can’t blame the folks who got cheated.

This wasn’t an “oil company” but that didn’t matter: some of the stink rubbed off on all of us. Just like the Ohio disposal company that was illegally dumping those nasty frac fluids into the sewer system. The companies that frac’d the wells didn’t do anything wrong but some of the stink will stick to them. It’s difficult to blame the public for blaming the entire industry and every company just because they don’t understand the details of such events. Which is why I don’t mind exposing some of the ugly aspects of what happens in the oil patch on sites like this because it also allows me to isolate such incidents and provide a more complete picture.

BTW what really p*ssed me off with that manager was that he knew I would easily recognize the fraud but assumed since I was oil patch I wouldn’t have a problem since we were all crooks. He was wrong. LOL.
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Re: Eagle Ford Shale Update

Unread postby Pops » Thu 04 Apr 2013, 13:15:27

ROCKMAN wrote:What's happening in the shales isn't so much a ponzi scheme IMHO but selling folks on a business plan that's very vulnerable to price volatility as well as not being very sustainable in the long run.

heh, very diplomatic. lol

The thing is, the current hype doesn't affect only the investor. If it did, as some of the other schemes you've mentioned, I wouldn't really care, that's the game. Actually if it was going to unfairly affect the price of oil, giving the schemers some extra profit at the expense of the consumer I wouldn't consider it a big deal, scams happen all the time. You seem to feel like the stink gets on you but as far as I'm concerned it's just business, whatever the market will bear and all that.

But the O&G lobby advertising blitz and a couple of well placed "press releases" such as the bought and paid for Maguleri fluff and the recent IEA forecast that prompted Diane Sawyer to gush on the nightly news that the US would soon be the "worlds largest exporter of oil", are certainly influencing the public's perception that we've entered the golden era of frac'ed oil. Ditto for the Golden Age of Frac'ed Gas.

That I think is a big problem because it negates to some extent the price signal that was starting to influence long term behavior. Relocating to reduce drive time and increasing preference for "walkable" neighborhoods, switching to renewables, perhaps better milage vehicles, etc were all increasing since 05 or so.

I think the O&G marketers have made a very big coup by making it believable that we will actually have a prolonged glut because of a whole new discovery of oil, when in fact we're paying more than we ever have before for oil we've never needed before.


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Re: Eagle Ford Shale Update

Unread postby ROCKMAN » Thu 04 Apr 2013, 13:56:17

Pop – I couldn’t agree more. There’s a tremendous disservice being done to the American people IMHO. I don’t even think it’s necessary to slap them upside the head with the level of pessimism I have. Just a little balance would go a long way. The entire matter is so complex when you combine the geology, engineering, economics, politics and environmental concerns there aren’t many Joe6packs that can put the puzzle together in a meaningful way. They need to be led to the reality by someone. Unfortunately I see very few people that have the public exposure who are trying to do that properly.

We can sit here and have our share supportive thoughts but that’s not affecting the dynamics out there. Everyone spins to some degree or another. Honest folks as well as blatant liars. The problem is that many can’t tell the difference especially when such spin supports their personal denials.

And actually in some of these I patch scams I’ve seen some folks would have been better off had it been a Ponzi: at least the early investors would have gotten some profit. Most oil/NG investment crap doesn’t make anyone money except the hustlers. And it doesn’t even have to be illegal…just need a combination of greed and ignorance. Back in the 70’s I watched over a drilling program for a pipeline company. They paid for 25% of all the costs the operator incurred including big upfront cash promotes. Three other partners paid the other 75%. The operator drilled 18 dry holes in a row. Never had a penny of their own money in the wells. Yes: not a single well every produced $1 of oil/NG. And the senior members of the operator’s company retired very wealthy. Everything was legal.

Obviously the operator was one heck of a promoter. And the p/l line had its own geologists and engineers. But the hype of the late 70’s just pushed them to do any deals they could get their hands on. And yes: in a few years the p/l company went belly up and was acquired by another p/l company. BTW: guess who was one of the managers of the p/l company at the time: Ken Lay. Yes…the Enron Ken Lay. Obviously he learned a thing or two about promoting when he was with that p/l company. Unfortunately for him he didn’t learn how to avoid the trial. LOL.
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Re: Eagle Ford Shale Update

Unread postby Pops » Thu 04 Apr 2013, 14:02:14

ROCKMAN wrote:And actually in some of these I patch scams I’ve seen some folks would have been better off had it been a Ponzi: at least the early investors would have gotten some profit.

LOL, good story and about Mr Lay.
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Re: Eagle Ford Shale Update

Unread postby sunweb » Thu 04 Apr 2013, 15:34:17

Rockman - I honor your honesty. Thank you so much. My partner and I are developing an off grid orchard/truck garden/greenhouse. This is for her children and grandchildren (have none myself). At least we can give them a chance.

Pop - I agree with all you say. Get out the pitch forks but not for the rear ends of the deserving, it would do no good. Get em out along with the hoe and a strong back.
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Re: Eagle Ford Shale Update

Unread postby sunweb » Thu 04 Apr 2013, 15:55:10

I meant to post where you can see our greenhouse/hothouse. A senior moment.
http://sunweber.blogspot.com/2012/10/ou ... house.html
http://sunweber.blogspot.com/2012/11/ho ... _2431.html
and
the farmhouse we reconditioned and our root cellar right now with last falls potatoes in great shape.
http://sunweber.blogspot.com/2010/10/su ... -2010.html
also
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Re: Eagle Ford Shale Update

Unread postby ROCKMAN » Fri 05 Apr 2013, 08:07:34

Pops – You seemed tickled by the Enron connection so one more side note about Mr. Lay and that pipeline company. He was the heir apparent chosen by the CEO of the company. It was considered a huge betrayal by many folks in the company for him to jump ship and go to Enron. I wasn’t in the inner circle at my tender age so I can only speculate: did he get an offer he couldn’t refuse or did he see where the p/l company was heading? The company had been a very successful NG transporter for decades delivering a fair portion of the needs of New England with Gulf Coast production. But when the crunch hit in the 70’s they needed a guaranteed source of NG so they created an exploration company. Being just a pup at the time it wasn’t obvious to me just how poorly prepared they were to make that leap. But looking back they were the classic drunk sailor on shore leave: they were going to get rolled…just a question of who was going to get to them first.

The Enron debacle was complex but I view it as just another example of a promoter using consumer greed to pitch the prospect of profits that only existed theoretically on paper. No different than those 18 prospects the p/l company drilled that were also presented as theoretical profits. Obviously it’s easy to find similar appearing situations today in the energy business be it shale reservoirs, solar panels or wind turbines. Some will turn out OK and others not so much. For me after 4 decades it’s like Yogi said: déjà vu all over again. For oil it feels like 1979 today. Just like it felt for NG back in early 2008. Certainly lots of statistics we can argue about with regards to our energy future. But I’ve reached a point in life where I give a lot of credence to my gut feelings because they’ve seldom wrong in the near past. And right now I don’t have a very good felling.
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Eagle Ford Shale Blow Out

Unread postby ROCKMAN » Thu 29 Aug 2013, 10:46:47

I suppose with the focus on Syria these days the MSM doesn’t have much interest in a blow out on an Eagle Ford Shale rig yesterday near San Antonio. Here’s the only link I could find. They specialize in a lot of frac’ng bad news.

http://www.texassharon.com/2013/08/29/b ... ord-shale/

"Apparently there was a blowout yesterday evening at an EOG site in the Eagle Ford Shale but no workers were hurt. Currently, the only source for this story is Drilling Ahead where they have some photos posted without attribution.

Disturbing: A nearby resident, who asked not to be identified, said her husband was in the front yard with their 4 year-old son at the time of the explosion and saw workers running. When he asked workers what happened the workers kept running so he too grabbed their son and ran, she said."
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Re: Eagle Ford Shale Blow Out

Unread postby John_A » Thu 29 Aug 2013, 10:55:30

Proving it happens quite often will never stop the critics from pretending it is only because of neglect, negligence, mismanagement or is somehow caused by BP safety policies.
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Re: Eagle Ford Shale Blow Out

Unread postby Plantagenet » Thu 29 Aug 2013, 12:09:28

Is the blow out an oil gusher or did they screw up during fravking and spray water and fravking chemicals everywhere?
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Re: Eagle Ford Shale Blow Out

Unread postby ROCKMAN » Thu 29 Aug 2013, 12:15:43

P - No details yet. So don't know if they were still in a drilling phase or completing/frac'ng the well. keep looking but no one else has reported on it yet.
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