Shale Legs

[Douglas Buckland + 6,308]

Recent threads and posts have discussed bailing out the shale oil industry during the present price war, or alternatively putting tariffs on foreign oil, which is still essentially a bailout.

Before any serious discussion occurs concerning rescuing the US shale oil industry, I think that there is a vital piece of the puzzle that everyone is avoiding:

How long are the legs on the shale oil industry? Will it be around, viable, and producing enough oil to keep America ‘energy independent’ for the next 20, 30 or 50 years or is it a ‘flash in the pan’?

We are all aware of the dramatic production decline curves, the constant drilling and fracking required and the lack of profit required for this industry to get where it is today. Is it rational that this effort can be continued for decades AND that the present level of production can be maintained or added to?

Forget the valid question of whether the sweet spots  have already been drilled, what is the overall, cumulative volume of oil recoverable from known shale oil reservoirs? Proven reserves, not reserves we think are there or oil we believe we can extract due to new or emerging technologies. How much can we lay our hands on with the equipment, processes and technologies present an available today?

Unless we know the answer to these questions, how do you know what the industry is worth, what is your bailout limit and if the industry is worth basing our future foreign policy on?

This is not ‘shale hating’, these are questions that need to be asked, and more importantly, answered.

 

Edited March 30, 2020 by Douglas Buckland
Typo

[BenFranklin'sSpectacles + 762]

23 hours ago, Douglas Buckland said:

Recent threads and posts have discussed bailing out the shale oil industry during the present price war, or alternatively putting tariffs on foreign oil, which is still essentially a bailout.

Before any serious discussion occurs concerning rescuing the US shale oil industry, I think that there is a vital piece of the puzzle that everyone is avoiding:

How long are the legs on the shale oil industry? Will it be around, viable, and producing enough oil to keep America ‘energy independent’ for the next 20, 30 or 50 years or is it a ‘flash in the pan’?

We are all aware of the dramatic production decline curves, the constant drilling and fracking required and the lack of profit required for this industry to get where it is today. Is it rational that this effort can be continued for decades AND that the present level of production can be maintained or added to?

Forget the valid question of whether the sweet spots  have already been drilled, what is the overall, cumulative volume of oil recoverable from known shale oil reservoirs? Proven reserves, not reserves we think are there or oil we believe we can extract due to new or emerging technologies. How much can we lay our hands on with the equipment, processes and technologies present an available today?

Unless we know the answer to these questions, how do you know what the industry is worth, what is your bailout limit and if the industry is worth basing our future foreign policy on?

This is not ‘shale hating’, these are questions that need to be asked, and more importantly, answered.

Good question, but I would modify it: will shale last longer than peak oil demand?  I.e. will it last long enough for the world to begin transitioning away from oil?

I would argue "yes".  In <10 years, global oil demand will peak.  I think <5 years is possible, but that's less likely.  Shale will last at least until the global peak, and they will decline together gracefully. 

More importantly, oil demand has already peaked in the developed, Western nations that matter to the US.  That's before the effort to replace oil begins in earnest; the next 10 years will see that decline accelerate.  We might want to produce the shale oil while it's still needed. 

Thus, even if shale peaks in 10 years, it will still serve its most valuable function: putting a ceiling on oil prices until oil is too small a fraction of Western economies to matter.

Edited March 31, 2020 by BenFranklin'sSpectacles
Fixed a typo.

[El Nikko + 2,145]

If we're bailing companies out then it must be all of them equally.

The shale industries explosive growth is OVER, even they realise what they have done. They drilled the best and most accessible rock and barely made any money out of it and you can't drill it again. It should just become a part of the US oil industry from now on hopefully and try to repair it's reputation as well. That light oil would have been quite valuable years ago from what I understand which is my Libyan oil was sought after...just what I heard though. The bigger companies need to be more responsible and the industry better regulated.

 

[El Nikko + 2,145]

How about paying them to keep their oil in the ground rather than a straight forward bailout, I think Ward said this yesterday and it makes more sense to me. That way they can pay their debt down without adding oil into the market.

[Douglas Buckland + 6,308]

1 hour ago, BenFranklin'sSpectacles said:

Good question, but I would modify it: will shale last longer than peak oil demand?  I.e. will it last long enough for the world to begin transitioning away from oil?

I would argue "yes".  In <10 years, global oil demand will peak.  I <5 years is possible, but that's less likely.  Shale will last at least until the global peak, and they will decline together gracefully. 

More importantly, oil demand has already peaked in the developed, Western nations that matter to the US.  That's before the effort to replace oil begins in earnest; the next 10 years will see that decline accelerate.  We might want to produce the shale oil while it's still needed. 

Thus, even if shale peaks in 10 years, it will still serve its most valuable function: putting a ceiling on oil prices until oil is too small a fraction of Western economies to matter.

Would you be willing to bet the farm on your peak oil demand assumptions?

[Douglas Buckland + 6,308]

28 minutes ago, El Nikko said:

How about paying them to keep their oil in the ground rather than a straight forward bailout, I think Ward said this yesterday and it makes more sense to me. That way they can pay their debt down without adding oil into the market.

How about let’s not bail out anybody! If the industries are no needed in the present economic environment -why save them?

Is this simply so the US can say we are the biggest producer? Why not use other peoples cheap oil?

[Douglas Buckland + 6,308]

This is just to get the ball rolling...I expect backlash.

[El Nikko + 2,145]

5 minutes ago, Douglas Buckland said:

How about let’s not bail out anybody! If the industries are no needed in the present economic environment -why save them?

Is this simply so the US can say we are the biggest producer? Why not use other peoples cheap oil?

Well in normal times I would agree but it kinda looks like the entire economy has gone bankrupt from where I'm sitting.

Trump is looking to help smaller business's but the corporations are on their own and if they need help like Boeing then it sounds like the state will take a chunk of their business in return and probably make a profit knowing him.

I'm not defending shale..honestly it would be really nice to drill something that is a bit more interesting for a change because from a geological perspective it's boring as sh*t.

However these are strategic reserves, like coal, steel, minerals etc and in a time of war they're important to keep alive (not specifically shale).

[Gerry Maddoux + 3,627]

5 minutes ago, Douglas Buckland said:

How about let’s not bail out anybody! If the industries are no needed in the present economic environment -why save them?

Is this simply so the US can say we are the biggest producer? Why not use other peoples cheap oil?

Agree. We've gone well past the point where any kind of intervention would work . . . or not. Now, there's not a lot to do except let this play out. There has been incredible demand destruction by the Covid 19 virus. Best to pull in our tools and watch this. The oil isn't going anywhere. Maybe it will be needed. Maybe it won't. 

I think what we are doing is the second most stupid thing I've ever watched in my life: subjugating our energy independence to a government that neither likes us nor would help us. I think what has been done during the last few years--punching another hole just because we can--is clearly the single most stupid thing I've ever watched.  

[El Nikko + 2,145]

Just now, Gerry Maddoux said:

Agree. We've gone well past the point where any kind of intervention would work . . . or not. Now, there's not a lot to do except let this play out. There has been incredible demand destruction by the Covid 19 virus. Best to pull in our tools and watch this. The oil isn't going anywhere. Maybe it will be needed. Maybe it won't. 

I think what we are doing is the second most stupid thing I've ever watched in my life: subjugating our energy independence to a government that neither likes us nor would help us. I think what has been done during the last few years--punching another hole just because we can--is clearly the single most stupid thing I've ever watched.  

Right, anyone still drilling or fraccing right now should be lobotomised.

The rig count has plummeted but it needs to be down to about 200 and that's got to apply to everyone not just shale. The sooner we get through the excess the sooner everyone can get back to business

[Douglas Buckland + 6,308]

“However these are strategic reserves, like coal, steel, minerals etc and in a time of war they're important to keep alive (not specifically shale).”

Oil, generally speaking, like steel, coal, etc... is a strategic resource. That is true, but is shale oil, specifically, a ‘strategic resource’ worth saving at this time?

Would the money be better spent performing exploration activities, onshore and off, for economic conventional oil we could ramp up and produce later? Isn’t it far more valuable to assist the third party service companies, without which nobody can drill and produce?

[Gerry Maddoux + 3,627]

8 minutes ago, Douglas Buckland said:

Would the money be better spent performing exploration activities, onshore and off, for economic conventional oil we could ramp up and produce later?

How long would that take?

What happens if we have a shooting war with someone in the interim?

Will we have oil for that?

[El Nikko + 2,145]

6 minutes ago, Douglas Buckland said:

“However these are strategic reserves, like coal, steel, minerals etc and in a time of war they're important to keep alive (not specifically shale).”

Oil, generally speaking, like steel, coal, etc... is a strategic resource. That is true, but is shale oil, specifically, a ‘strategic resource’ worth saving at this time?

Would the money be better spent performing exploration activities, onshore and off, for economic conventional oil we could ramp up and produce later? Isn’t it far more valuable to assist the third party service companies, without which nobody can drill and produce?

I have no real idea about the economics, until I got involved in this I was working on behalf of big oil companies and NOCs.

Maybe if the shale companies had been more responsible and grown in accordance with the market things would have been different but I guess we're still living with the over-hang of uneconomic production created in the shale boom years ago.

I wonder how much money we're talking about here?

[Douglas Buckland + 6,308]

27 minutes ago, Gerry Maddoux said:

How long would that take?

What happens if we have a shooting war with someone in the interim?

Will we have oil for that?

Historically, prior to shale oil, during the Iraq Wars and the war in Afghanistan we have.

[Geoff Guenther + 317]

6 hours ago, Douglas Buckland said:

“However these are strategic reserves, like coal, steel, minerals etc and in a time of war they're important to keep alive (not specifically shale).”

Oil, generally speaking, like steel, coal, etc... is a strategic resource. That is true, but is shale oil, specifically, a ‘strategic resource’ worth saving at this time?

Would the money be better spent performing exploration activities, onshore and off, for economic conventional oil we could ramp up and produce later? Isn’t it far more valuable to assist the third party service companies, without which nobody can drill and produce?

Unlike with the Lehman collapse, shale oil debt is a fairly relatively straightforward write-down. Yes, it may take a few companies and hedge funds with it, but Lehman had paper that it took a decade to understand and unwind (I'm not sure it's been unwound even today). Enron disappeared without causing too much of a shake in the gas market and shale oil could be similar.

If we mothball all the extra equipment that is currently left lying around we could probably use that for emergency standby for the next ten years until all the old field hands who know how it works go into retirement.

[BenFranklin'sSpectacles + 762]

7 hours ago, Douglas Buckland said:

Would you be willing to bet the farm on your peak oil demand assumptions?

I never bet everything on a single prediction.  That would be idiotic.

I would, however, bet money that oil demand will peak in <10 years. 

[Douglas Buckland + 6,308]

“If we mothball all the extra equipment that is currently left lying around we could probably use that for emergency standby for the next ten years until all the old field hands who know how it works go into retirement.”

And herein lies a problem. You stack (an oilfield term) or mothball all the extra equipment that is lying around so that it can be used in case of emergency for the next 10 years.

I suppose the guys and gals who actually know how to run the drilling rigs, frack spreads, cement/mudlogging/wireline units, etc... are supposed to sit around, unemployed, waiting on this emergency to arrive so that they can earn a paycheck and get on with their lives?

Ain’t gonna happen. They will immediately be looking for any work, in any industry, to pay their bills and put food on the table.

Furthermore, once bitten twice shy, it would take a herd of horses to drag them back into an unstable, unreliable industry or profession. Nobody will be studying petroleum engineering, geology or geophysics - why would they if there are no jobs available after graduation?

Since the 2014/2015 crash, many of the old, experienced hands have retired or left  the oilfield. Many of the guys/gals that were coming through the ranks, in all aspects of the drilling industry, will be leaving in droves now.

It doesn’t matter if you mothball brand new rigs and equipment, it will be damn near impossible for operators, drilling contractors or the service companies to crew up and prosecute a drilling campaign! Let alone crew up with experienced, knowledgeable hands.

If you do manage to crew up with inexperienced hands, be prepared to accept accidents, fatalities and blowouts. Drilling is not a children’s game.