• Community Blog Entries

    ‘Authorities,’ media don’t understand petroleum economics The United States and its southwest tight and shale oil has changed from dependence on world oil to domination by Dr. Daniel Fine
    The full article is here-> https://www.mrt.com/opinion/article/Authorities-media-don-t-understand-13535768.php Published 1:31 pm CST, Tuesday, January 15, 2019 Midland Reporter Telegram "News of the size of oil reserves in the Delaware Basin (New Mexico’s share of the Permian) while OPEC was deciding how many barrels it will cut from the world market to lift prices caused epic confusion — and revelations of how little “authorities” and the media understand petroleum economics. The New Mexico media, which relies mainly on interviews with petroleum industry spokespersons, got it wrong. Recommended Video         Government numbers came out as 46 billion barrels (Permian total) with 26 in New Mexico. This means nothing but oil in good rock along with technical recovery as an estimate. Some excited “authorities,” who should know better, exclaimed that there was more. However, the estimate is based on the application of technical means to recover the oil. The reserves of real oil depend on ultimate economic recovery. This means technical based on geology, plus economics. A high price will recover the billions of barrels while a low price will not.     In short, the numbers reflect the rocks without 
    economics. The Delaware reserves plus the Texas Permian are now there to expand supply over 12 million barrels a day (b/d) in the United States. This writer has warned that world oil demand is sluggish and imprecise with only references to legacy guesswork that the developing world plus China demand will support prices long term or forever. Yet, world oil consumption has increased only 5 percent in the last 10 years. OPEC, with Saudi Arabia as its leader, has expired as the world administrator of the price of crude oil. At its December meeting in Austria, Qatar quit after nearly 70 years and announced concentration in LNG production and world export as the existing market leader.   OPEC emerged with a serious factional split between OPEC original and OPEC with Russia. There would have been no agreement without Russia and its old Russian Federation members as producers. Moscow is the new world oil price-setter indirectly while OPEC Original becomes a collaborator in cartel for now. Simply put, Saudi Arabia no longer is the “residual supplier” alone. The production roll-back of 1.2 barrels per day by both “OPEC” is not enough for “balance” supply and demand for world crude oil.  It is being tested daily by commodity traders. In a briefing to New Mexico independent and small producers before the meeting in Austria, this writer warned that 1.7 million b/d was needed for balancing stabilization. Without that size of a production and export reduction, the average price of WTI oil in 2019 will average $50 per barrel."

    bluewill

    bluewill

    US - update through September 2018
    This interactive presentation contains the latest oil & gas production data from 97,332 horizontal wells in 10 US states, through September 2018. Cumulative oil and gas production from these wells reached 9.7 Gbo and 106 Tcf. West Virginia is deselected in most dashboards, as it has a greater reporting lag. September production data for New Mexico is rather incomplete, with over 100 thousand bo/d still missing. Visit ShaleProfile blog to explore the full interactive dashboards   After all revisions are in, oil production from these horizontal wells should come in well above 6 million bo/d for September. The ~8,000 wells that started in the first 9 months of 2018 will then already have contributed ~3 million bo/d in September. Never before in the history of US shale was so much new production capacity added in 9 months. As the total decline of older wells (<2018) was over 2 million bo/d (as shown by the top of the light blue area) in this period, the actual growth rate was a little below 1 million bo/d. If you switch to natural gas (using the ‘Product’ selection), you’ll see that gas production from the same wells never really experienced a drop, and grew by ~15 Bcf/d in the past 2 years to 55 Bcf/d (excluding WV) in September.   Initial well productivity grew steadily over the past 10 years (‘Well quality’ tab), but the rate of improvements appears to have slowed down recently.   You’ll find the status of the more than 100,000 horizontal wells that have been drilled in the ‘Well status’ tab. Only 1% of these wells have been plugged and abandoned so far.   The final dashboard gives an overview of the largest operators. EOG is well in the lead, with around 0.5 million bo/d of operated production capacity. Its September production numbers for New Mexico are highly incomplete, so the final drop should be ignored. The ‘Advanced Insights’ presentation is displayed below: This “Ultimate recovery” overview shows the relationship between production rates and cumulative production over time. The oil basins are preselected, and the wells are grouped by the year in which production started. The 4,300 wells that started production in 2011 (represented by the red curve) peaked at a rate of 273 bo/d, and they have now declined to 22 bo/d, recovering almost 150 thousand barrels of oil in the meantime (all average numbers). The 5,300 wells that started 5 years later (2016 – light brown curve), peaked at 517 bo/d, and they already recovered the same amount of oil within 22 months, on average. They are on a trajectory to do roughly another 100 thousand barrels of oil, before having declined to a similar production rate of ~20 bo/d. More granular and recent data will be visible after grouping these wells by the quarter or month in which they started production.   Next month we will be at the NAPE summit in Houston. Come visit our booth if you have the chance! Before the NAPE we plan to start offering the Basic version of our ShaleProfile Analytics service. For just a very small annual fee ($624 = $52/month) you can already enjoy all the benefits that this service offers beyond the free blog here, such as maps with the exact location of these wells, full-screen dashboards, and with always access to the latest data.   Early next week we will have a new post on North Dakota, which just released November production data. Production data is subject to revisions. For these presentations, I used data gathered from the sources listed below. FracFocus.org Colorado Oil & Gas Conservation Commission Louisiana Department of Natural Resources. Similar as in Texas, lease/unit production is allocated over wells in order to estimate their individual production histories. Montana Board of Oil and Gas New Mexico Oil Conservation Commission North Dakota Department of Natural Resources Ohio Department of Natural Resources Pennsylvania Department of Environmental Protection Texas Railroad Commission. Individual well production is estimated through the allocation of lease production data over the wells in a lease, and from pending lease production data. West Virginia Department of Environmental Protection West Virginia Geological & Economical Survey Wyoming Oil & Gas Conservation Commission   Visit our blog to read the full post and use the interactive dashboards to gain more insight http://bit.ly/2HgzW2F   Follow us on Social Media: Twitter: @ShaleProfile
    Linkedin: ShaleProfile
    Facebook: ShaleProfile

    shaleprofile

    shaleprofile

    Capital Markets... Dive in Now?
    The recent market volatility has left investors and capital seekers seeking he same consensus: where does it end and what's the upside?  The age old question continues to perplex both parties.  I'm taking the position from both sides.. first as a former exploration company President who had sought capital from the banks, from P/E firms, mezzanine debt and from the public markets and secondly as a capital provider.  We currently manage substantial amounts of capital that are looking to deploy into the energy sector, so being on both sides in a past and current life, I speak from experience. Oil and gas companies that seek us out for capital come in a number of flavors and sizes.  Typically, they are smaller entities, or juniors.  This is our financing niche.  Their needs are the usual: drill PUDs, re-work, acquire non-cores, get a leg up on OPEX and generally seek growth in fractious times.  In nearly every case, the banks are exhausted as much as the juniors are.  These companies are far too small for the P/E firms to get involved and the old 'Third for a quarter' deal won't cut it.  What to do? As a capital provider, we seek to obviously entreat the best companies we can to provide this dearly needed money.  Some have said that the smaller deals that come in to any facility seeking capital are the deals no one else will touch.  We disagree.  The old saying, "Oil and gas doesn't care who owns it,' serves a point.  Economies of scale are persistent relative to size.  Nearly all the companies we review are sitting on oil, and what better place to produce from than an existing field?  Have the production and a good development plan?  Are these good oil people with a solid history of exploration and exploitation?  We take these into account, among other things as we review and allocate due diligence resources to determine if the underpinnings are there and there's sufficient existing PDPs to support the capital raise over a term. A word about the raise.. it's non-recourse, not a loan, off balance sheet, no equity take out and there's no back-in after payout. Oil companies seek a better, more efficient way to utilize and pay back capital and there is a better way than the old tried and perhaps not so true way... In these times, we feel a floor has been reached and tested market wise.  Wise firms can access wise money now, versus looking for it when the recent 30% drop has been recovered and capital costs and service costs will likely erode portions of this gain. Companies can't afford to hand wring now... it's time to set up for the future and plan capex budgets now.         
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