Mike Shellman

https://www.oilystuffblog.com/single-post/2020/09/21/Cartoon-Of-the-Week

Good morning Texas time, Douglas. I am privileged to have worked with Enno to develop his amazing analytical tools and oilprice.com is fortunate he is willing to share his blog posts. The data he presents is straight from regulatory agencies in which oil and gas production reports are filed; there is no bias whatsoever in his data, though a lot of shale oil cheerleaders often try and paint it as such because reality never jives up with the bullshit and they struggle with acceptance of that. With the ability to add and subtract it can often, almost always, be very damning to investor presentations once one uses actual realized production data. We, rather Enno, need to differentiate between horizontal rig count and vertical rig count for obvious reasons so the term horizontal rig is simply nomenclature. For those wanting to track rig efficiencies, or well productivity per rig (?) or what the rig count might mean for future LTO predictions we don't want vertical rigs drilling vertical wells skewing the data. You and I both know there is no such thing as a "horizontal rig." Having said that, there is definitely a new generation of rigs designed specifically for drilling unconventional shale, complete with specific top drive specifications, lay down machines, pump yards, how they handle solids and the ability to walk from one lousy well to the next lousy well, etc. Take care, mate.

Thank you, Mr. Ward. I wish you well also. Every shale oil operator in America will someday very soon become a stripper well operator, even Exxon. Particularly Exxon. 80% of Eagle Ford shale oil wells now make <40 BOPD and are at their economic limits, being shut in. They may never see 15 BOPD stripper definitions before they are abandoned. If one wishes to know if a well, field, play or trend works economically, ask a stripper well operator. Every dollar counts particularly when it's your dollar and we're all very good at efficiency and truthful economics. I would need to understand the nature of the reservoir, is it clastic, or carbonate, what is its' permeability, it's porosity, what its drive mechanism is, is there still an effective oil column in the well or is that oil disbursed in, for instance, connate water, is there cement integrity behind pipe, GOR, etc. Most of the time conventional clastic sandstone wells will be fine after periods of shut in. They may need egging along at first, and some extended period of dewatering before OWR comes back, but they'll be fine. If you have some, keep them. They will very much be worth having some day very soon. There is a good answer to your question elsewhere here. Stay safe out there.

@Dennis Coyne you asked me for an opinion and I gave you one. Don't now chide me for it because you don't agree with it and stop putting damn words in my mouth. I have never referred to myself as an "expert" on anything. Now, once again, I am forced to endure more dung heap from the Wolfcamp Ferrari owner, the recipient of millions in free royalty money and all the unlimited oil knowledge that goes with that. I suddenly feel like I need to be wire brushed, head to toe. If you children of shale believe in it so much, put your money where your mouth is: don't go buy a few shares in Pioneer, or FANG...that's for girls. Get you some working interest in a $10MM well and wait 4 years to get your money back, if ever. Pay an AFE, pay cost overruns, draw down on your personal checking account to facilitate a side track, pay your share of fishing a $250K ESP...loose some sleep over it; get an ulcer. You'll change your mind about all the stupid, self serving dribble you read on the internet, trust me. Shale oil is a financial disaster funded by socialized capital, now asking for socialized bailouts. All royalty owners believe in because its free money to them. If it was a healthy sector of my industry it could withstand whatever OPEC, or Russia, or a little bug that looks like a dog toy, threw at it. It can't. That's exactly why its now whining for help, for a bailout, for negative interest rates, more sanctions, tariffs, the right to flare at will. Its desperate. In the way you have all observed it in the past, its a goner. Cimerex, by the way, has $2B of long term debt and a debt to equity ratio of 0.73, which is horrible. It once traded at $146 a share and is now down to $22. While shareholder equity was being destroyed indeed its leader was making lots of bucks: https://www1.salary.com/Thomas-E-Jorden-Salary-Bonus-Stock-Options-for-CIMAREX-ENERGY-CO.html His parachute is very Whitting like.

Thank you, sir. And you and yours I hope.

To stay out of the shale oil business does not make me smart, trust me. All your predictions and models will likely come true, Dennis...when the US shale oil industry is nationalized and the Federal government owns it, and funds it.

I am not allowed the luxury of what if's, Dennis; I am required to deal with reality 24/7. "If" your scenario were to come true and all debt was wiped clean, say from the Midland Basin, and the price was guaranteed $70, my advice to my client would be to stay out of the shale oil business. Get out, stay out and never come back. No oil price can ever be guaranteed; it's a world oil market, not an American market. Even at $70 my client would still be dependent on credit and that does not work...if you've been paying attention, that should be clear. I'd ask him why in the hell he thinks he can borrow more capital going forward. Productivity is waning already in the Midland Basin and as producers move off onto flanks, economics will get worse. As that basin declines, GOR goes up, gas is the metric to use, not oil; can your gas, Mr. Client, compete with APP Basin gas? No. Then there is water for frac use and water for disposal. It's a desert, sir and all that tremblin' is problematic. There is also American politics to deal with in the future, and liberal dumb asses that can't think past next week. There are a dozen other reasons I would say to my client to bury his money in the back yard with the dog bones. For Americans who can't stand the thought of not having shale oil in their lives, best prepare for nationalization. That's the ONLY way it works going forward. Good luck with that.

"They've" been battling economics alrighty; they've destroyed hundreds of billions of dollars of capital, sucked all the life out of shareholder equity and will NEVER be able to pay their approximately $300 billion of long term debt back. 85% of America's shale oil companies now have impaired reserve assets worth significantly less than what they owe, making them basically insolvent. Who, exactly, is "still standing?" Continental? Even mighty EOG can only borrow more capital thru junk bonds at this point. You must have just gotten back from a vacation to Jupiter, Coffee. The price of oil in North Dakota is south of zero. The US shale oil phenomena is a study in socialized capital gone completely haywire. Believing in its continued sustainability ignores reality. Reality as in where is the money going to come from to fund it? More socialized capital from the Federal government?

Dennis, at the end of 2018 the US had somewhere between 38-43G BO of proven, producing oil reserves (PDP). Those PDP reserves grew some in 2019 but are being decimated by 2020 pricing. I truly believe in a price range of $30-40 WTI, about all we can expect for quite a while, I fear, our true PDP reserves provide America with a reserve to production ratio of less than 5, as in 5 years. That should be alarming to all Americans. Its not. It's not alarming because of the false narrative of shale oil abundance and the inability to discern from proven producing, probable and "technically recoverable, as yet discovered, requiring much higher oil price" reserve categories. Numerous people contribute to this narrative, including our own government and data sell companies like Rystad and Enverus. Some of it is malicious, I believe. In all cases it is misleading and confusing to the public and the politicians they elect to engage in energy policies. Your quote for instance. You fail to classify where those 78G barrels of LTO will come from and how, in God's name, they will be paid for...where the capital will come from to drill hundreds of thousands of more unprofitable shale oil wells to reach that 78G level. Respectfully, you are adding to the confusion. Your estimate for LTO remaining reserves is 4 times what I believe our total proven producing reserves currently are in all of America's producing basins, conventional and unconventional. The US oil industry is being destroyed at the moment; I am unclear if you fully grasp that and where, if ever, the capital is going to come from for it to recover. Hope for higher oil prices is not a plan. But when people see 78 billion barrels or 178 billion, or hear "limitless natural resources" and other crap from Washington DC, they think hell, we can isolate ourselves from the rest of the world, become energy independent (regardless of costs), place tariffs on other county's imports to the US, that we can ignore resource waste like flaring, the economic waste of of selling oil below extraction costs, and export all we want, at a financial loss, because we have so much of the stuff. This is a grave mistake. I think, for instance, if Americans understood how precarious our oil future truly is they would forget the free enterprise crap (and trust me, after 50 years of producing oil and gas, it IS crap) and they would be very much in favor of proration and/or increasing well spacing in Texas, and Oklahoma and North Dakota and everywhere else. And they would demand that exports be stopped immediately. Thanks, as always, for your support.

Thank you, Mr. Bozeman. I appreciate that. You and Reuters made my week. Only people still able to monetize the shale oil phenomena and hiding behind the guise of "free enterprise" are opposed to proration in Texas and almost none of them have any thing actually vested in the long term health of the Texas oil and gas industry. Its incredible to me how a sector like shale oil, born and spoon fed on socialized capital, with no regulations to speak of, is opposed to proration, or putting shale development back on reasonable spacing between wells... yet whine like little girls for other forms of government handouts. I've never known a fraction of my industry to have received so much "help" over the years and still not been able to make any money. The idea it might now be paid by Trump not to drill wells makes me want to move to Paraguay. Proration is easy to implement, as you correctly point out; Texas operators already have to comply with well allowables and balancing sales to those allowables each month anyway. Gas in already prorated in the Panhandle; the TRRC knows how to do that and can get it up and rolling in a few months. Leasehold matters, hedge pledges, pipeline contracts, all that would easily and legally take a back set to proration. The prevention of waste and the conservation of resources is part of the Texas Constitution and outlined in the Texas Natural Resource Code. Its the law. Those laws have not been upheld the past 15 years and its time to reimplement them, in their entirety. If led to its own self serving, fiscal irresponsibility, the shale oil sector will drain Texas plum dry in the next 5 years...and still not make any money doing it. Thank you again, sir. And Tom, thank you.

It is THE universal language of the oil industry and beautiful. BTW, it's amazing sometimes how many hands don't understand GL, RF, RKB and why it's important. Thanks, James. I am SIFN.

There is no such thing as MVD. Its TD, TVD and/or TMD. In a horizontal well from the KB (kelly bushing) to the lateral toe, in feet, is TMD, total measured depth.

Thank you very much for your support. My apologies to the community once again for my posting, which always seems to draw the ire of a few.

I always expect your rude, condescending remarks to my comments and those remarks always make me want to go out in the yard and rinse off with a garden hose. If you believe overproducing at $19 is beneficial to "other" producers, you know less about the oil industry than even I imagined. I have no debt associated with my production whatsoever. Most of my "dripping faucets" are still profitable at $20. I am off 20% across the board voluntarily and involuntarily; if the TRRC were to require me to reduce my production further, I would gladly do so. I would do that because it is in the best thing for my family and the families of my employees, for the people of Texas, and the long term energy security of my country.

Mr. Smith, thank you; my day will be much better knowing I am not a moron. I was not able to see your comments to what I assume is this article of mine? https://www.oilystuffblog.com/single-post/2020/03/15/The-SPR-Fiasco Two weeks ago my math was spot on. The filling of the SPR was designed to help the US shale oil sector at what was then a price of $35 and a net back price of below $10 after all extraction costs are deducted from a gross barrel, including G&A and interest expense per incremental BO. That 77MM BO into the SPR would have been nothing more than pissing into a norther and getting it all over your pants leg. My total public and private debt estimates for US shale oil are good; the US shale oil sector has to pay $18 some odd billion a year to pay interest on that debt. I stand by my work. Now, of course, all of that is irrelevant as the deal is off the table and in all shale oil plays in America the net back oil price is now negative. For the oil industry the SPR thing is a nothing burger. Tariffs on the 600K BOPD of Saudi imports, or stopping KSA imports completely, is yet another government fake fix. It will not work and destroy 23% of our refinery capacity along the GC. It would be a tax on the consumer. The mighty US shale oil industry needs to go to the corner and take a time out. Its leveraged overproduction is destroying itself, and the rest of the American oil industry. From 2016-2020 OPEC and Russia reduced their production to keep the price of oil propped up worldwide; to return the favor the US put 4MM MORE BOPD on the market, all on credit, and took OPEC and Russia market share. Now we're getting paid back. America must slow shale oil production development commensurate with worldwide market conditions to ensure a higher price, stability and job security. Texas can do that, within its statutory resource laws, and we don't need permission from Washington or anywhere else. I have proposed the TRRC go back to Statewide Rule 37 and 1200 foot spacing between wells until the market is balanced again, and Texas helps the rest of the world to KEEP that market balanced. There is also recent news regarding proration efforts again before the TRRC, which I also support...as should all Texas concerned about their last remaining hydrocarbon resources being negligently wasted. Anger and hatred against OPEC and Russia is emotional and not rooted in reality. We, the US, Texas, need to join with the entire rest of the world to limit production...before there is nothing left of the oil and natural gas industry. Have a good day, sir!