The Permian Mystery

[Marina Schwarz + 1,576]

What's the deal with the Permian? Is it overrated and soon to die or will it continue to drive U.S. oil production growth? I know the majority opinion is optimistic but there are those who disagree.

[Tom Kirkman + 8,860]

Debt.

Debt is the deal with the Permian.

If you find yourself in the bottom of a hole, might be a good idea to stop digging the hole deeper.

[Mike Shellman + 548]

https://www.oilystuffblog.com/single-post/2018/06/11/Permanently-Out-To-Lunch

Its not a mystery to me. Its a train wreck. America's last refuge for long term, stable domestic oil production, to fend off foreign imports a while longer, is being grossly mismanaged.

 

[TraderTate + 186]

Yet, it seems like the Permian is the target of someone's big boiler room PR campaign: 

https://www.cnbc.com/2018/06/13/permian-will-soon-pump-enough-oil-to-be-opecs-2nd-biggest-producer.html

https://www.dallasnews.com/business/energy/2018/06/13/permian-basin-could-double-oil-production-2023-trail-saudi-arabia

[Tom Kirkman + 8,860]

44 minutes ago, Mike Shellman said:

https://www.oilystuffblog.com/single-post/2018/06/11/Permanently-Out-To-Lunch

Its not a mystery to me. Its a train wreck.

"...realized pay for the CEOs at 10 large E&P companies has added up to $2.1 billion over the past decade – coinciding with annualized total shareholder return of negative 0.1 percent."

https://www.msn.com/en-us/news/money/shale-ceos-lack-incentive-to-find-your-holy-grail/ar-AAyAaSY

[Dennis Coyne + 82]

2 hours ago, Mike Shellman said:

https://www.oilystuffblog.com/single-post/2018/06/11/Permanently-Out-To-Lunch

Its not a mystery to me. Its a train wreck. America's last refuge for long term, stable domestic oil production, to fend off foreign imports a while longer, is being grossly mismanaged.

 

Thanks Mike.

Last time you mentioned Permian well cost at POB you mentioned $9.5 million.  When I use a LOE similar to Rune Likvern's for the Bakken, which is bo times $2.3/b+$15000  and then add 32% of gross wellhead revenue to the LOE and then deduct this subtotal from gross revenue (well head price times monthly output), the 36 month payout for a $10 million dollar well requires $76.40 at the well head.  With a $15/b transport cost ( by truck) this would require over $90/b at the refinery gate.  The 36 month payout is equivalent to a real annual discount rate of roughly 17% when we adjust for inflation (nominal annual discount rate of 19.5%, if 2.5% annual inflation rate is assumed) .


A 60 month payout would require a well head price of $65.70/b, equivalent to a real annual discount rate of 8.5%.  If we again assume $15/b transport cost due to pipeline constraints, that's over $80/b at the refinery gate.  For the big players that have pipeline contracts, transport costs may be about $4/b (or much less than $15/b) so those guys may be making money if refinery gate prices are above $69/b.

LLS and Brent are both close to $75/b, but I don't know what they pay at the refinery.

This analysis is based on the average 2016 Permian well using data from shaleprofile.com.  A hyperbolic was fit to 2016 well data and exponential decline at an annual rate of 10%/year was assumed after the decline rate decreases to an annual rate of 10%.  EUR is 372 kb over 217 months, well is at 11.7 bo/d at the end of life.  I assume due to natural gas pipeline constraints that net revenue from associated natural gas sales are zero.

Rune Likvern's Bakken analysis is at the link below see figure 11 near the end of the post at Rune's blog FRACTIONAL FLOW.

https://fractionalflow.com/2017/10/08/a-little-on-the-profitability-of-the-bakkennd/

[Boat + 1,323]

3 hours ago, Tom Kirkman said:

Debt.

Debt is the deal with the Permian.

If you find yourself in the bottom of a hole, might be a good idea to stop digging the hole deeper.

2200 billionaires are worth over 9 trillion. With oil being our fuel for transportation who cares if money is made or lost short term. I do like the idea of net imports dropping to 2.7 mbpd in the US.

Canada net exports 3 mbpd to the US making N America net energy independent. I like that also.

[warrenbush + 1]

I plan to use the service to further understand the prices I receive on royalty in Ward County, Texas

 

 

[Dennis Coyne + 82]

Permian Basin tight oil scenarios for two oil price scenarios, an EIA AEO 2018 Brent reference price scenario and a "high oil price scenario" for Brent real oil prices in 2017$.  At present the Brent oil price is closer to the high oil price scenario ($71/b in 2017$ for June 2018 compared to $75/b for Brent as I write this) vs AEO 2018 reference Brent oil price at $65/b in 2017$ for June 2018.  Noticed my legend was mistyped, the prices for both oil price scenarios should be in units of 2017$/b and the price referenced is the Brent oil price which has become the de facto World oil price.

Edited June 14, 2018 by Dennis Coyne

[AugustVanTage + 2]

On 6/14/2018 at 7:40 AM, Tom Kirkman said:

Debt.

Debt is the deal with the Permian.

If you find yourself in the bottom of a hole, might be a good idea to stop digging the hole deeper.

750 miles away from the port

[DanilKa + 443]

Perception is the reality, especially when it comes to behavioral economics. Right now perception is Permian is driving shale oil revolution and future is bright. https://www.houstonchronicle.com/business/energy/article/Permian-will-outpace-all-OPEC-nations-except-12995744.php#photo-15725151

Although this sentiment is beginning to change under weight of reality. Change the view to "quarter of first flow" and you'll see what the main problem with sustaining production is https://shaleprofile.com/index.php/2018/06/04/permian-update-through-february-2018/. It's a pure geometry - hard to build a rectangle (sustained production) out of triangles (declining vintages; rate ~50%/year) if all you could do is to stack it on its heads...

US cannot win the battle between Sheiks and "Frackers". Sheik and mat...

This is not to say shale oil production cannot affect oil price - it sure does, in a big way. But the more it climbs, the harder it will be for all of us to absorb decline. So hone your sand control and acidizing skills - crude demand still increasing by >1,000,000 bopd/year and we'll have to deliver. Trade wars, 3D printing and vertical gardening may reduce demand for transportation (largest consumer of crude w/o viable replacement) but this happens slow; something strong and powerful would be required to change ever-increasing consumption.